Myles Kitcher, director of Peel Environmental Ltd, discusses the changing face of energy from waste in a post-PFI world, following Defra’s decision to cut the funding
Published in the CIWM Journal April 2013
So, PFI (private finance initiative) is dead. That seems to be the result of February’s decision by Defra to withdraw £217m in PFI credits to three major energy from waste (EfW) projects across the north of England. The decision came as a shock to many in the industry, including me.
Given the advanced stage all three procurements had achieved, I can well understand the profound disappointment felt by many in the public and private sectors following the announcement.
But what does the decision mean for EfW in the UK? Does the UK need extra capacity? And what can the private sector do to ensure that we not only meet our target for landfill diversion but also our target for renewable energy generation?
The Answer? Nothing…
The answer to the first question is, “nothing really”. The need for both waste management capacity and renewable energy generation remains. With or without government subsidy the UK needs to deliver additional infrastructure. The growing export of waste overseas, whilst understandable, given the lack of alternatives, is a total waste of a resource – we are merely exporting the energy along with the potential investment.
“Being able to guarantee a secure heat demand inevitably brings development into the urban environment. This brings with it other challenges but, if truly sustainable infrastructure is to be provided, they need to be addressed”
To justify its decision Defra published a report entitled Forecasting 2020: Waste arisings and treatment capacity showing that both household waste and commercial and industrial waste levels have decreased faster than was projected by the department at the 2010 Spending Review. This, combined with some sophisticated modelling, showed that the UK was likely to achieve the 2020 Landfill Directive target. But all they are saying is that we are likely to achieve Directive targets – this is not the same as having a modern, fit-for-purpose waste management system that the UK can be proud of.
The decision to withdraw PFI credits has nothing to do with waste management or energy from waste – it is a fiscal decision driven by the need to reduce central Government expenditure in difficult economic times.
There is an important point to make here. The objective of Government policy and our industry should not be to deliver just enough infrastructure to ensure compliance with Directive targets and then sit back. We should continuously move forward to a point where innovative technologies mature, higher efficiencies are achieved and greater environmental benefits arise. Clearly, we should maintain the downward pressure on waste production, maximise recycling and then, when that’s all been done, maximise the amount of energy that we can recover from the remaining waste.
Increasingly, as public sector backed contracts are secured the remaining capacity requirement will need to be delivered by the private sector in “merchant” facilities. The lack of any long-term contract is a challenge, but the macroeconomics presents the perfect storm. The Landfill Tax coupled with rising energy costs presents waste derived energy with an important role in delivering lower cost, low carbon heat and electricity directly to industry and our local communities. Whilst it is not the complete answer to the UK energy gap, it can nevertheless have some significant local impact.
This opportunity is likely to see smaller scaled facilities coming forward, tailored to specific local opportunities. Increasing levels of efficiency will be demanded to compensate for the lack of economies of scale, driving innovation but also ensuring genuine combined heat and power plants. Being able to guarantee a secure heat demand inevitably brings development into the urban environment. This brings with it other challenges but, if truly sustainable infrastructure is to be provided, they need to be addressed.
Positive On Thermal Treatment
We at Peel Environmental remain convinced of the environmental and economic benefits of the thermal treatment of waste and that there remains a need for additional merchant capacity. Although we aren’t wedded to a particular technology, preferring instead to establish the optimum technical solution for a particular site, we strongly believe that EfW has a major role to play in helping to reduce the amount of waste sent to landfill and generating more energy from renewable sources – providing important opportunities to secure valuable embedded energy centres to safeguard existing industry and to stimulate inward investment.
“We need market competition to stimulate innovation and reduce costs and there is no evidence whatsoever that this can create any competition with activity further up the waste hierarchy”
An interesting development is the current debate about how much capacity we need to deliver and whether we are actually in danger of the oversupply of consented capacity. There are two answers to this…
Firstly, the market is more complex than some observers appear to accept. Differing technology solutions will be brought forward for distinct waste streams. Plus, for a variety of reasons, not every scheme consented will necessarily be built out.
Secondly, and more importantly, does it actually matter? We need market competition to stimulate innovation and reduce costs and there is no evidence whatsoever that this can create any competition with activity further up the waste hierarchy – the evidence from other countries just does not support this. It should therefore be seen as a positive factor that there is competition in the market for residual waste arisings, which in turn will deliver the optimum solutions. In a market of innovation we will inevitably see failures; this is a sign of a healthy industry – the “dotcom boom” saw many fall by the wayside before Google was even born.
Defra’s other major foray into the EfW debate during February was the publication of its Energy from Waste: A guide to the debate. It’s good to see some belated vocal support and recognition that “Generating energy from waste… provides a domestically-derived energy source and gives the UK greater fuel security, greater energy independence and protection from fossil fuel price fluctuations”. Whether this adds much at this stage of market evolution is debatable.
Job Done? Not Yet
At Peel Environmental we do not see the energy from waste market as “job done”. We actually see that there is a long way to go and will continue to promote EfW facilities that are able to provide heat and power to a wider industrial or commercial development. We believe that overall efficiency will maintain a competitive position, as well as delivering greater environmental benefits, and we work to deliver a genuine combined heat and power opportunity.
“The Defra decision with regard to PFI credits will no doubt have a dramatic impact on those affected, but it has no bearing on the need to provide new infrastructure, albeit impacting on the funding of it”
We have demonstrated the effectiveness of this approach most recently in Scotland, where the 24MW South Clyde Energy Centre was granted planning consent late last year. This exciting project is located in one of Glasgow’s District Heating Zones and presents a genuine opportunity to provide low carbon heat to a number of existing developments. This type of scheme, tailored for a specific opportunity and located to maximise efficiencies, is the way forward for EfW in the UK, we believe.
The Defra decision with regard to PFI credits will no doubt have a dramatic impact on those affected, but it has no bearing on the need to provide new infrastructure, albeit impacting on the funding of it. We are embarking on an interesting new phase for the industry where we will see more sophisticated solutions and the delivery of greater innovation. This brings great opportunities for the UK and industry, but there is a long way to go before we are anywhere near to being able to say “job done”.