The past eight years have seen an accelerating rate of change in the UK waste management sector. Following a Cabinet Office report in 2003, Defra established the Waste Implementation Programme (WIP) to spur investment to meet England’s EU landfill diversion targets. This led to the establishment of a Challenge Fund to provide grants to local authorities in support of ‘front-end’ waste recycling and collection activity whilst an investment gap analysis conducted by Defra’s Waste Infrastructure Delivery Programme (WIDP)2  in 2006 identified the need for an additional £10bn of investment in capital intensive ‘back end’ waste treatment infrastructure to enable England to meet its 2013 and 2020 landfill diversion targets.
The Energy White Paper 2007 made a significant breakthrough by providing official recognition that:
Generating energy from that portion of waste that cannot be prevented, reused or recycled has both energy and waste policy benefits. Energy generated either directly from waste or through the use of a refuse derived fuel has benefits for security of supply. In addition, the biodegradable fraction of waste is a renewable resource.3 
Spurred by £3bn of waste PFI credits and the waste hierarchy principles embodied in the Revised Waste Framework Directive, these combined actions have initiated a transformation of the industry from a logistics and landfill model, with some EfW, towards a process engineering model focussed on recyclate extraction, preparation of waste derived fuel and recovery of energy as electricity and heat. Out of a total constituency of some 47 PFI and PPP projects over 50 per cent had reached financial close by March 2011 with some 18 projects at advanced stages of procurement. This broadened range of commercially viable waste management solutions has instigated a market for solid, liquid and gaseous fuels with bioenergy content whilst delivering value for money through competition and choice. Some notable features of this unfolding waste market transformation are:
By December 2010, Defra’s Waste Infrastructure Delivery Programme had achieved financial close on sufficient ‘base load’ waste treatment capacity from the waste PFI and PPP programmes to meet the UK’s 2020 EU landfill diversion targets.
The introduction of a range of waste treatment technologies including MBT, AD, autoclave, EfW electricity-only, EfW with CHP, advanced conversion technologies (ACT); but
Recognition that ‘new’ technologies alone may not provide ‘the answer’ but new combinations of fully commercialized technologies can do so.
The need to treat a range of waste feedstocks apart from MSW, in particular C&I and C&D wastes, waste wood and farm wastes.
An expanded range of outputs including SRF, bio-derived liquids and gases, electricity and heat in addition to recyclates differentiated by quality.
Significant steps towards reflecting waste’s renewable energy potential within the Renewables Obligation (‘RO’) and Renewable Heat Incentive (‘RHI’) with further progress pending the finalization of current regulatory reviews.
The arrival of the ‘fuel producer/fuel user’ (MBT/SRF) model enabling waste management to structure itself as a resource creating industry.
The emergence of a fuel supply/logistics industry with associated processing capacity based around waste and non-waste biomass fuels.
New entrant contractors giving an expanded range of bidders for municipal waste contracts with greater financial, technical and human resource than available five years previously.
Utilization of Competitive Dialogue to ensure competitive tension throughout the procurement process.
The formation of bidding consortia comprising more than one company in order to combine expertise in energy recovery, waste management, CHP and carbon abatement.
A progressive shift towards balance sheet financing of bids as well as project finance
The gradual emergence of efficiency metrics for heat and electricity generation as well as waste treatment.
The convergence of the energy and waste sectors is now supported by a plethora of policy drivers but frequent changes to the energy market’s regulatory architecture mean there is now an urgent need to re-introduce some ‘fixed certainties’; and to reduce complexity which has become a constraint to business.
The foregoing gives a sense of where the now inextricably twinned waste management and renewable energy industries are heading, with the proviso that the business environment will remain uncertain until the current regulatory reform overhang is resolved. That overhang includes the RO 2013 banding review4 ; confirmation of the sustainability criteria for biomass; re-design of the carbon reduction commitment (CRC); implementation of Phase 1 of the renewable heat incentive (RHI)5  with Phase 2 to follow in 2012 and last but not least Electricity Market Reform (EMR).6  These developments augur well for a more holistic approach to the role of waste within the broader energy spectrum but the suspense will leave investors sitting on their hands until some fixed certainties are re-established.
Government Review of Waste Policy in England 20117  provided strong support for the ‘fuel producer/fuel user’ model and the use of energy recovery when using the ‘right fuel, [in the] right place and right time’8 . It recognized that EfW is a multiplicity of things, not one thing, and that its role within the waste hierarchy is much more nuanced than reflected in previous policy statements. It is now the task of other inter-locking regulatory reforms to optimize renewable energy potential from all waste and non-waste feedstocks; and to take measures that support the development of fuel supply chains for gaseous, liquid or solid fuels from renewable sources.
Market activity already reflects these changes as evidenced by investment in fuel preparation and supply infrastructure via MBT/SRF plants under the PFI and PPP programmes; investment by transport and logistics groups in biomass fuel supply businesses9 ; power generators seeking to access sources of renewable fuels under long term contracts10 ; and waste management companies looking to use waste for the production of bio-fuels.
The Enpure/TEG component in Viridor Laing’s solution for Greater Manchester is an example of how AD can be deployed as one part of an integrated waste management solution whilst the Welsh waste programme demonstrates how investment in AD can be secured on the back of long term local authority municipal waste contracts. Strenuous efforts are being made to deploy more AD in a ‘stand-alone’ on-farm context in England but the financing model is more complex in the absence of long term municipal feedstock supply contracts; and compounded by financially weak project sponsors, high due diligence costs for small projects and lack firm digestate disposal outlets.
Autoclave, like all intermediate treatment technologies, needs outlets for its sterilized fibre and is probably most appropriately deployed as part of a multi-technology solution sponsored by a corporate with the financial, human and technical resources to bid for a long-term waste supply contract – and the resulting SRF off take – as was attempted at Wakefield.
Integrity of fuel supply in terms of the financial covenant of the fuel supplier and the quality and reliability of fuel specification remains a pre-condition for the financing and construction of any fuel use facility, whether a conventional thermal combustion plant or a transformational technology turning solid feedstock into bio-liquids. It is the case that a local authority waste feedstock contract is likely to be stronger and more bankable than its pure biomass counterpart which suggests that bio-energy developers using off-balance sheet project finance may need to use an initial block of waste derived fuel attracting a gate fee in order to secure finance, commence operation and reduce debt to a level sufficient to allow access to shorter term or spot biomass supply contracts. This requires business models to be able to switch between gate fee based economics and ROC-based economics where the former supports debt repayment and the latter returns to equity investors.
Prospects for fuel supply from waste sources are more promising than might be generally recognized. A recent review of PFI and PPP waste management projects due to deliver treatment capacity by 2013 and 2020 showed that of those due to deliver by 2013, 50 per cent had elected MBT/SRF as their preferred option; and 40 per cent for those delivering capacity by 2020. There was concern for much of the last decade about disposal routes for SRF estimated to be up to 5m tonnes per annum by 2015. Interest has now turned to accessing bio-content from whatever source as the sheer scale of the UK’s renewable energy requirement has become clear; and the need to replace some 20GW of time-expired generating capacity by 2020 becomes ever more pressing.
The feedstock supply challenge remains considerable in terms of tonnage, composition and delivery logistics when you consider that a 100MW SRF/waste wood fired combustion plant may require up to 800,000 tonnes of material a year. As we shift away from coal and into other forms of continuous renewable energy generation, the enduring importance of the rail network for bulk fuel supply becomes apparent. Finding a rail head at both the source of fuel production and fuel use will prove challenging but is the key to a sustainable solution embodying the best energy efficiency and carbon footprint principles.
The quantity of biomass feedstocks needed to support the UK’s renewable energy ambition is likely to focus attention on feedstock supply from sources other than municipal waste, notably commercial and industrial (C&I) sources and the waste wood component from the construction and demolition (C&D) sector.
The publication in December 2010 of Defra’s Survey of Commercial and Industrial Waste Arisings tracked the evolution of C&I waste over the period 2002/3 to 200911  and was an important step in delineating this emerging market segment. The report noted that total C&I waste arisings fell by 29.3 per cent over the period to 48m tonnes but that recycling rates rose by 10 per cent and use of thermal treatments increased by 9 per cent over the same period – the latter being the single largest positive percentage change in waste management method apart from land recovery.
Increasing investment in C&I and C&D waste treatment infrastructure is a priority but is constrained by short term feedstock supply contracts and the financial profile of many SME operators which makes it difficult to raise finance for new investment, in particular from banks. The arrival of the UK Government’s Green Investment Bank is significant as two of the three initial priority sectors it will address are waste and non-domestic energy efficiency. These two sectors have the potential to stimulate the fuel chain building needed to achieve the UK’s 2020 renewable energy generation targets by supporting investment models for new C&I and C&D waste treatment infrastructure, thereby adding to the supply of waste derived fuels.
The arrival of the RHI should help to accelerate the use of SRF and waste derived bio-fuels as industrial energy users see this as a practical way of getting the ‘R’ into their heat use, reducing reliance on imported fossil fuels and exposure to fossil price volatility. This will encourage waste preparation technologies like MT and MBT to become more nuanced and reliable in the range and composition of waste fuel outputs. Initial beneficiaries are likely to be large volume heat users in the chemical, pulp and paper industries.
Whilst waste fuels are a flexible way of delivering biomass content in volume to multiple users, the RHI can also encourage heat use via fixed pipe from energy from waste plants, particularly where there are adjacent public sector entities with long term, stable heat loads. Prisons, MoD establishments, schools, hospitals and other public buildings have good heat profiles but linking up heat production and heat use across different parts of the public sector has not proved to be an easy task. It is against such good quality anchor heat loads that energy service companies (ESCOs) will deploy capital to build skeleton heat distribution networks onto which private sector commercial and residential users can connect over time.
There is a significant opportunity for ESCOs with experience of managing heat use portfolios in continental Europe to enter the nascent UK market. But, it requires a ‘utility-style’ business model predicated on long term, predictable returns – and one more suited to corporate rather than project finance in its early stages.
This direction of travel received an encouraging boost in 2011 when South Devon Waste Partnership awarded preferred bidder status to a solution that included long term heat supply to the adjacent Devonport naval dockyard. A similar scheme is in prospect in Staffordshire where an EfW plant is being built within striking distance of HMP Featherstone and it is to be hoped that such anchor contracts will spawn further heat use through the addition of incremental district heating schemes. District heating scheme outcomes need to be measured in decades rather than years as illustrated in Sheffield where the build out of the present scheme commenced in 1987 and is still on-going. But that is the nature of the ESCO business building opportunity – and is quite distinct from the business model of the merchant developer.
The attractiveness of the RHI and RO options for heat use hang in the balance until the RO 2013 Review and the RHI Large Biomass band remain are concluded. Developers are concerned that long lead time projects may achieve accreditation at a point in DECC’s funding cycle when the RHI pot is empty – a risk that does not affect the RO with its cost pass-through to consumers.
Not far behind the developments described above are the producers of bio-methane – especially from AD – keen to use existing gas transmission and distribution networks to bring renewable content to a wider range of commercial and residential heat users. The economics of this approach are likely to require greater ‘socialization’ of gas cleanup andgrid connection costs than currently envisaged; but the major advantage of this route – as with electricity to grid – is that it avoids a project’s exposure to the bankruptcy risk of a single energy user.
The arrival of new entrant contractors bringing different interests and skills into the market is contributing greatly to the transformation of the waste industry in the UK. These include energy companies seeking long-term sources of fuel with renewable content; PFI specialists wanting to redeploy expertise into a new growth sector; civil and building contractors with build-operate-transfer expertise; EfW operators looking for new markets; and CHP specialists. Very few of these were active in the UK waste management business in any meaningful way in the early 2000s.
Other significant features are the growing use of consortia to provide the waste management, energy, technology, financing and carbon abatement skills needed to win contracts in an increasingly energy-linked environment; and the need for a single entity to ‘front’ these increasingly complex arrangements. There is also a growing list of equipment suppliers and sub-suppliers (most of them located overseas) too long to enumerate here – and, of course, a fluctuating field of financiers notable for those joining and leaving the sector.
The complex nature of waste management contracts means that large-scale PFI waste procurements are handled under competitive dialogue procedures.
Recent discussion in UK political circles around the role of PFI has been an unfortunate distraction. Critics use the PFI acronym to confuse three different inter-linked elements, namely (a) project finance as a method of financing waste infrastructure (b) the role of long-term contracts and (c) the transfer of resource from central Government to local authorities to support local government projects.
Long-term contracts from good quality counterparties are a well tried and tested means of financing capital intensive infrastructure. They provide the ‘fixed certainty’ against which commercial banks advance finance. Critics of PFI tend to overlook the fact that you can have (a) and (b) without PFI credit transfers implicit in (c) – as illustrated by the many successful public private partnerships (PPPs) in the waste and transportation sectors.
The principal concern with PFI credits was that departments did not have to prioritize this funding against other areas of spending; and that it incentivized authorities to structure projects to ensure they were eligible for additional central government funding. This has now been changed and from April 2011, new local authority PFI projects will need to pay the grant funding from their own Resource Budgets; and to compare calls on these budgets on a like-for-like basis.
A significant recent development is the arrival of corporate project sponsors favouring balance sheet financing solutions over project finance in response to tighter credit conditions, higher pricing and banks’ increasing appetite for shorter term construction finance in response to constrained access to cost effective funding and new capital adequacy requirements. As a result, the number of banks offering long maturities has scaled back from the high water mark in 2007 when project financiers active in the waste sector numbered around 20.
For all the concerns expressed about long term contracts and the PFI model, the fact remains that the PFI and PPP project pipelines supported by Defra’s Waste Infrastructure Delivery Programme are on track to deliver by 2020 waste treatment capacity sufficient to meet England’s 2020 EU municipal waste diversion target. It was confidence in this outcome that led Defra to withdraw PFI credits from several authorities in UK’s Spending Review 2010 – a statement of the market transformation that has taken place in the waste sector in little more than half a decade – and testament to the success of the WIDP model.
Both WIDP and its predecessor the Waste Implementation Programme were organizational structures designed to deal with an urgent policy implementation issue. The speed of response was impressive as it took little more than a couple of months to assemble a multi-disciplinary group with experience in consultancy, banking, industry, waste technology, renewable energy incentives, local government and third sector activity.
WIDP’s pipeline of projects is in many ways the praxis of waste policy – the translation of policy intent into projects on the ground. One important caveat is that policy and practice are never perfectly aligned because long project lead times inevitably straddle changing policy cycles. In consequence, outcomes are incremental not final – but if you wait for perfection, nothing happens!
Access to a live project pipeline is a helpful and immediate way of informing policy. Longer continuity in post in complex policy areas like energy and waste is desirable in view of long development cycles needed to implement energy incentive frameworks. It is a model that could be strengthened further with more cross-fertilization between private and public sectors from inward and outward secondments to/from a relevant industry sector, particularly at middle management level.
Both my secondment experiences in Government involved working closely with the private sector. WIDP provided the opportunity to see Government acting proactively to implement a specific aspect of policy and doing so in an area notorious for the sensitivities that can arise between central and local government. WIDP is an atypical model within the UK Civil Service but there is no doubt that the programme’s Janus-like ability to look outwards to the markets and inwardly across government departments has been a significant contributor to the speed of transformation across the waste sector in the UK.