Is Tamar’s withdrawal from developing new anaerobic digestion an isolated issue, or is it of more significance and a reflection of the market? Mike Read, head of waste at Grant Thornton UK LLP, looks further at this latest industry development
The recent announcement by Tamar Energy to refocus its investment strategy on the secondary market in existing Anaerobic Digestion (AD) assets, rather than developing new AD projects, poses questions about what has happened to the market to bring what was an ambitious but not unachievable plan to a halt. There are a number of factors at play which have already been cited such as the uncertainty in government policy towards renewable technologies, the level and nature of the future tariff support mechanisms both for electricity and heat, and also the availability of feedstock.
It is the latter that I want to focus on. In the Green Investment Bank commissioned report on capacity in the market the assessment was that AD capacity growth was running at a faster rate than effective collection systems for AD feedstock were being developed. I don’t think there has ever been any doubt that large amounts of food waste are created in the UK, the challenge has always been having appropriate access to it in the right volumes and over long enough periods to instigate investment in capacity.
In my view the catalyst to make this work is a market anchored by source segregated local authority food waste. There have been detractors around the residual waste PFI /PPP market in Britain and the municipal food waste programme in Wales, and certainly neither of those programmes was perfect. However, the one thing they did was bring together a delivery market in the form of developers, contractors, financiers and advisers to deliver infrastructure.
Unlocking Further AD Demand
The issue is slightly different with AD in that the analysis suggests infrastructure supply is outstripping demand but this is only for a fraction of potential food waste, and the issue is more about unlocking further demand. Therefore a focussed investment programme for English local authority food waste will provide the anchor which, through both availability of spare capacity in any infrastructure developed, and as buyer of time, will allow the non-municipal food waste collection market to find solutions to access more commercial food waste, which in time will happen.
So what are the catalysts and barriers to such a dedicated programme or just general expansion in what is a very fragmented and ad hoc English municipal approach to food waste? The obvious starting point is money. Local authorities generally don’t have any and setting up and operating food waste collection systems to feed AD facilities is expensive. Is achieving recycling targets enough? If there are no penalties for failure then it would be a hard sell to convince Local Authority Finance Directors to spend money on something that in the past has sometimes turned into a very expensive waste minimisation programme. The financial issues become more complex in two tier local authority systems where the rebalancing of funds between collection and disposal authorities also has to be addressed.
So is government likely to establish and oversee a co-ordinated programme around the infrastructure development side, recognising the good work that the likes of Wrap do on the collection side? The answer is probably not. They would argue that their support to AD development comes through the various tariff support mechanisms and they are looking to scale these back as Whitehall also looks to make further cuts. It could also be argued that a such a programme would face other challenges such as how any programme fitted in with the CfD auction regime for larger scale facilities producing electricity.
For the foreseeable future, therefore, the development of food waste infrastructure is likely to be largely dictated by the commercial strategy of individual developers and waste companies. In the case of Tamar they have voted with their feet (or wallets). It will be interesting to see how other players in the market react.