November 2016

Eunomia Finds Investors May be Attracted to ACTs

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Investors looking at residual waste treatment facilities may not be put off advanced conversion technologies (ACTs) by their checkered track record according to Eunomia’s latest special report Investment in Advanced Conversion Technologies – Has the time finally arrived?

The report published today (30th November 2016), includes analysis of the prospects for ACTs, such as gasification and pyrolysis as treatments for residual waste, finding several reasons to think that despite recent stories highlighting problems with ACT projects, investors may still be attracted.

Key factors bolstering the business case for ACTs are their eligibility for the Contracts for Difference (CfDs) renewable energy support scheme. Incinerators can get support if they meet the criteria for good quality combined heat and power (GQCHP), which few UK facilities are planned to do. Three ACT facilities have already secured CfD funding, though only one has so far commenced construction, and the Department for Business, Energy and Industrial Strategy (BEIS) has recently confirmed that ACT projects are eligible for support at the forthcoming April 2017 auction.

Residual waste is not an ideal feedstock for ACTs, but has the attraction of enabling relatively high gate fees to be charged for the waste the plant receives. The UK has 12 waste-fuelled ACT facilities either in operation or being constructed. Together, they represent around 1.8 million tpa of treatment capacity, equivalent to around 200 MWe of electrical output. In addition, 5.5 million tpa of ACT capacity has planning consent, which if developed would deliver upwards of 600 MWe of additional power. The key question is whether, in the event that some of the facilities currently being built prove successful in practice, a fresh wave of investor interest may bring these consented sites through the project pipeline.

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Another important question for investors is whether a proposed facility will be able to secure sufficient feedstock to keep it in operation for the period over which debt is repaid, which might be 10 to 15 years. Eunomia has raised concerns about a possible shortfall of residual waste in the UK in future, but potential ACT investors may take a more bullish view.

An ACT facility with CfD support may be able to function profitably at a lower gate fee than competing facilities, whether in the UK or overseas. However, Brexit could also increase the amount of residual waste in the UK. Assuming it leaves the EU, the UK could choose not to commit to higher future recycling targets resulting from the EU Circular Economy Package. The export of RDF, which has grown considerably in recent years, may also become less attractive: the weakened pound has raised the sterling equivalent gate fees at continental incinerators.

Mike Brown, Managing Director of Eunomia, explained:

“Despite current uncertainties, investors need to make a quick decision about whether to get involved in the ACT market. ACTs will be competitive in the April 2017 CfD auction, which could make for a good business case for development. In future rounds, support for ACTs may be refocused on higher value applications of syngas, such as industrial heat, transport fuel or the manufacture of chemicals.”

Eunomia will be commenting further on the implications of Brexit for the residual waste market in the 11th issue of its residual waste infrastructure review, which will be published in December 2016.

 

Image: Operational and Under Construction ACT Facilities in the UK, ©Eunomia Research & Consulting