Same tired old arguments from CPI

I was at an APSRG event yesterday afternoon which looked at the potential role of bioenergy in the UK's future energy mix.

Most of the discussion centred around the sustainability or otherwise of using whole trees (as opposed to residues) as a potential biomass feedstock. There was however also some mention of the potential role of energy from waste.

A representative of the Confederation of Paper Industries (CPI) got up and had a familiar tired old rant against the waste sector. The CPI has in the past spoken up at Westminster events and moaned about the supposed poor quality of materials from co-mingled collections which their Members have to deal with. I have previously argued that the real problem here is actually that the CPI's Members are struggling with high domestic energy costs which makes them uncompetitive with overseas reprocessors (who are able to pay a higher price for UK material). It's a price issue and not a quality one.

Yesterday the CPI tried to lever the usual quality rant into an argument about an apparent unconstrained energy from waste boom which is supposedly going to cannibalise recycling efforts and steal potential feedstock from CPI Members. What a load of balls. Leaving aside the reality that the UK has very low levels of installed energy from waste capacity and is also struggling in the current financing environment to develop any more beyond the current round of facilities (underpinned by local authority contracts), it is nonsense to suggest that material collected for recycling could end up in energy from waste facilities.

Material collected for recycling will command a positive value in the market. Even at low price levels this will be an unassailable advantage when competing against energy from waste facilities which charge a gate fee to receive material. The relative economics mean that efw will not be able to steal potential feedstock from paper mills once it has been collected for recycling.

The UK paper industry's real competitors are not the waste industry but are based overseas and have a lower cost base meaning they are able to pay a higher price for material of equivalent quality than the CPI's Members. This is the message which needs to be heard by policy makers. The current arguments are an attempt to gain a hidden subsidy to prop up an uncompetitive industry.

How big is the efw sector?

Steve Lee has apparently claimed that the efw sector is worth £6bn now and will be worth an extraordinary £30bn in 10 years. Where on Earth does he get these figures from?

I think there is about 5m tonnes of material which goes to efw currently. It is preposterous to suggest that this is worth £6 billion under any definition. If that were so, then there would be £1,200 turnover/value/whatever per tonne of material processed. Nonsense.

Maybe he means the whole of the waste market is worth £6 billion. In which case I have no idea as to how he defines the sector. I reckon it's worth almost double that when you include the collection, sorting, treatment, energy recovery and disposal of municipal, commercial and industrial wastes.

He then claims that the market will grow fivefold in 10 years. That is pure fantasy and I don't think it helps anyone to bandy these kinds of figures around. I suspect that if absolutely everything went right for the development of new UK waste infrastructure we could add a maximum of about 1m tonnes of capacity per year. That is an extremely optimistic scenario which will probably never materialise. Even then we would be in a position of "only" doubling our total residual waste capacity during that timeframe.

I would love to know what assumptions Steve Lee has used to reach his predictions of 'meteoric' growth. I personally think that they must be ambitious to say the least.

Is anything else wrong with efw?

Further to my previous post, the anti-incineration brigade seem to have two further arguments against efw. Firstly that it is not very green and secondly that we are heading to a catastrophic level of overcapacity and so should reign in our efforts.

Taking these in turn, I think we find that NGOs reach their conclusion on efw's environmental credentials by comparing its carbon performance with that of combined cycle gas plants. These are very efficient at generating power and when you put a heterogeneous waste fuel through a steam cycle plant it inevitably converts energy at lower efficiencies. This, they claim, means that gas fired power is preferable to efw (and of course other forms of renewables are preferable to both).

This however fails to take account of wider waste management issues. Even at the very highest recycling rates, there will still be some amount of residual waste. This can either be buried or burned. There is not much else you can do with it. In very simple terms, the carbon performance of an economy with gas fired power generation and landfill residual waste disposal will be worse than an alternative scenario with energy recovered from waste dealing with both issues simultaneously. It is simply not possible to live in a world of gas fired (or wind) power generation + zero residual waste, which is what they appear to be asking for.

The other concern seems to be that we are going to end up in a situation similar to some Northern European countries, such as the Netherlands, with overcapacity at our energy from waste facilities. Presumably NGOs worry about this as there would be an incentive to feed the efw plant rather than recycle, but I have already addressed those concerns in my previous post. The fact that RDF is being imported into those other European markets, rather than using domestic recyclate to feed their plants, may also be de facto evidence that such a scenario is unlikely to occur in reality.

If instead they are simply worrying that building too many plants would be a waste of money, then perhaps they could have a point. We currently have around 9m tonnes of residual waste treatment capacity. I think there is around a further 25m tonnes of proposals, of which around 15m tonnes has planning permission in place. (My personal view is that we could need anything from 20m-30m tonnes in total, depending on future waste arisings and recycling levels). If all of this was to be built then we would undoubtedly end up with too much residual waste infrastructure.

But is this likely? I think the short answer is no. Many of these proposals are for facilities to be developed on a merchant basis. At the moment we are seeing that even projects with a long term local authority anchor contract are struggling to raise finance. For merchant facilities it will be even harder. I have said before that finance is likely to be the principal constraint on waste infrastructure development and have not yet seen anything to change my mind.

Contrary to currently popular perceptions, banks tend to be very risk averse. Even in an easier lending climate, I think it would still be unlikely that banks would be willing to lend to a marginal project which could tip us into overcapacity (and them into loss making territory on their capital). The difference with the continental market is that the infrastructure over there is (I believe) financed and built purely by the public sector, which is also risk averse but in the opposite direction. I.e. municipalities would rather build too much than too little and are willing to pay for this. Banks are not.