By Angus McCrone

Senior Editor

Bloomberg New Energy Finance

Jutting out into Dublin Bay is a peninsula where Ireland’s capital city puts some of its less lovely buildings. There is a water treatment works, a gas-fired generating plant and two faded red and white, 680-feet high chimneys from a former coal-fired power station – now, ironically, under a preservation order.

As of last year, there is another massive structure on the Poolbeg peninsula. Some say it resembles a conch shell. Others might think that, with its gleaming and sloping, mostly windowless walls, it looks more like a giant, 25,000 square-meter laser printer. Except for the two shiny steel chimneys at one end.

The Dublin waste-to-energy plant, commissioned in 2017, combusts 600,000 metric tons of municipal waste per year – everything from old cushions and nappies to bin bags and broken furniture, and equivalent to 35 percent of Ireland’s “residual” garbage. Developed and operated by U.S. company Covanta Holding, it cost 550 million euros ($638 million) to build, and will generate 60 megawatts of electricity plus, potentially, if the relevant contracts and infrastructure can be put in place, district heating for thousands of Dubliners.

Waste-to-energy can be seen, uncharitably, as the Ugly Duckling of clean energy, for two reasons. First, it is small compared to the giant birds of the sector – solar and wind – which are between them projected to grow tenfold and account for 48 percent of the world electricity by 2050, according to Bloomberg NEF’s New Energy Outlook 2018, published last week.

Second, no one thinks waste-to-energy is glamorous – it involves burning smelly, dirty refuse, and releasing CO2 and other gases. There is a debate about whether it even belongs in the clean energy, or green, category.

The Ugly Duckling of Hans Christian Andersen’s fairy tale grew into a beautiful swan. Waste-to-energy is unlikely to do that, but it does have the chance of attracting a new, multibillion-dollar wave of investment, in markets as diverse as the U.K., Southern and Eastern Europe, Africa and China.

Waste-to-energy is not a new sector. The Bloomberg NEF database shows 978 plants around the world using municipal or industrial waste as feedstock, and amounting to 13.7GW of commissioned capacity. Most (11.6GW) of those are incineration plants, with the rest made up of landfill gas installations, anaerobic digestion and other technologies. Some plants, in places like the U.S. and Germany, have been operating since the 1980s or 1990s. The gigawatt total does not do full justice to the sector, since some waste plants produce just as much, if not more, heat than electricity.

Incinerators represent significant dollars invested. Covanta’s Dublin plant involved capex of roughly $10 million per MW. The SPIC Wuhu Daqiao Economic Development Zone plant, commissioned last year, cost the Chinese yuan equivalent of $106 million for its 24MW. The Reppie project in Addis Ababa, Ethiopia, about to be commissioned, cost $110 million for an effective 25MW of power.

So just a gigawatt of new waste incineration plants around the world reaching financial close annually could make a $5-10 billion difference to global renewable energy capacity investment, which has been running at about $250 to $300 billion a year for the last four years, according to BNEF data. And, with landfills piling up in many countries, and recycling efforts patchy, a gigawatt a year might only be the start.

There are three big questions. How big could a waste-to-energy build-out be, around the world? Could it attract investors? And, most controversial, would it be good on balance for sustainability, or a damaging step in the wrong direction for the environment?

The opportunity

Let’s start with the U.K., arguably the developed economy that is likely to see the most activity in the short term. There is a fierce squeeze on the country’s landfill capacity, as a result of a tax that has been escalating every year, and the closure of many landfill sites. A report last October (Mind the Gap 2017-2030) by Suez Recycling and Recovery, part-owned by French utility Engie, estimated that the proportion of waste going to landfill would collapse from 19.9 percent in 2017 to 3.3 percent in 2030, and that by the middle of the 2020s there is likely to be a “gap” of some 4.6 million metric tons of waste with nowhere to go. That figure took into account likely population and GDP growth, and assumed that the U.K. continues to export some 3.5 million metric tons to the Nordics and the Netherlands, that recycling rates improve a bit and that some new waste incinerators are built. Even so, according to Stuart Hayward-Higham, technical director at Suez Recycling and Recovery UK, it “suggests the need for more than 500MW of new waste-to-energy capacity, and approximately 4 billion pounds of investment.”

Covanta, the company behind the Dublin project, and operator of 42 waste-to-energy plants, mostly in the U.S., is one of several developers eyeing this U.K. opportunity. It has teamed up with Macquarie-owned Green Investment Group to invest in six projects around the U.K., totaling 2 million metric tons of trash, some 200MW in generating capacity, at a potential cost of $2.4 billion. The aim is for four of the six to start construction within the next two years.

The outlook in other developed economies is mixed. In Germany, both waste-to-energy and recycling are already well developed, with the proportion of trash going to landfill at just 4 percent. However, EEW-Energy From Waste, operator of several big incinerators in that country, sees the prospect in the 2020s of a build-out in Spain, France, Italy and Eastern Europe.

In Serbia, the city of Belgrade last September chose a consortium of Suez and Itochu to develop an 80MW waste-to-energy project, making possible the closure of one of Europe’s largest landfills. Suez points to European Union targets stipulating that about 65 percent of municipal waste should be recycled by the 2030s, with a maximum of 10 percent going to landfill, leaving some 25 percent for “energy recovery”, including incineration. That leaves countries such as Poland that have a high dependence on landfill facing pressure to encourage the two alternatives.

But the European outlook may turn out to be little more than a rounding error compared to what could happen in emerging economies. China has an official target to raise its cumulative installations of waste-to-energy plants from 4.7GW in 2015 to 7.5GW by 2020, and EEW, which is owned by Chinese company Beijing Enterprises Holdings, sees the potential for much bigger numbers than that.

Bernard Kemper, EEW’s chairman, told BNEF: “There are about 250 waste-to-energy plants in Europe, and China has about the same number now. However, the demand [in China] is for about another 800-1,000 plants in the next few years. Legislation passed by the Chinese government has laid down the percentage of municipal household waste that should be incinerated. Some of the plants, in China’s big cities, will have to be very large, taking 750,000 to 1.5 million metric tons a year.”

Hitachi Zosen Inova, the Switzerland-based supplier of waste-to-energy plants, said: “The U.K. is currently the most active region for our business, but the Middle East and Australasia are starting to move and demand is increasing, with Asia not too far behind. As these regions develop and mature their waste management strategies and policies they have the potential to dominate our activity.”

In the Middle East, ACWA Power, the project developer that has won a string of tenders for mega-sized solar and wind projects from the Gulf to Morocco, has its sights on waste-to-energy also. Paddy Padmanathan, its president and chief executive officer, told BNEF: “This is a completely open, untapped market. There is no place to dump waste anymore. The first big-scale plant is being built, in Dubai, and a string of tenders are in the works. In Saudi alone, it could be a $20 billion opportunity.”

The Warsan project in Dubai, at 171MW and the U.A.E. dirham equivalent of $680 million, could be the world’s largest in terms of the amount of waste incinerated per year. Plant and construction contractors were named early this year (Hitachi Zosen Inova and Besix Group), and financing news is awaited.

Finally, Africa: here, the need for a more effective approach to dealing with waste is obvious to anyone that has driven past the sprawling landfills of major conurbations. Cambridge Industries, the developer behind the Reppie Addis Ababa plant, mentioned above, said it hopes similar projects can be built in 5-10 more African cities in the next five years.

Samuel Alemayehu, its East Africa managing director, said: “We believe that waste-to-energy should grow throughout Africa because existing forms of waste disposal are broken. Sites are often filled up beyond capacity. Nairobi and Kampala are two of the cities looking at new waste disposal sites. Big landfills are a 20-30 year commitment.” He added that if cities look at waste-to-energy at the same time as making investment decisions for new landfills, then the latter can be smaller, and the capex saved on that can go towards paying for the waste-to-energy facilities.

How to pay

It is one thing to say that waste incinerators might reduce pressure on landfill in various countries. It is another to find a secure revenue stream for them, so that they can attract investment.

On electricity grounds alone, waste-to-energy plants would struggle to be built. The calorific value of municipal waste tends to be much lower than coal, or even biomass, so the capex costs for the turbines and building are high compared to projected megawatt-hours. And there is also the operating costs, of bringing waste to the site, and environmental compliance expenses of ensuring that emissions meet safety rules.

So something else is needed to make them feasible. This can be one or more of three pots of money. The first is taxes on landfill use, forcing waste collectors to offer ‘gate fees’ to waste-to-energy plants that take their trash. The second is government subsidies for the electricity price, and the third is government grants towards the capex. Policy targets for the treatment of garbage in the country or locality are important to underpin these measures. In cold countries, selling heat may be an additional source of revenue, although often a subsidiary one in financial terms.

In the case of the U.K., there is significant income for developers in the form of gate fees at anywhere between 50 and 140 pounds per metric ton of rubbish, depending on where you are in the country. These, not the value of electricity sales, make up the majority of revenues. The 60MW, 400 million-pound Rookery project in southern England, likely to be the first to be constructed by the partnership of Covanta and Green Investment Group, has a multi-year agreement with Veolia for the supply of waste.

In developing economies, landfill gate fees are less likely to be the economic booster for new incinerators. Instead, grants to help with the capex cost, perhaps combined with concessionary finance from development institutions, could be more important.

In general, commercial banks seem content to lend to waste-to-energy projects as long as the long-term, fixed-price supply contracts are in place with credible counterparties. Without that security, waste incinerators would be exposed to feedstock price volatility or, as happens now between some European countries, the need to source foreign refuse for importation in order to maintain output levels.

Green or brown?

Not everyone liked the Ugly Duckling in Andersen’s fairy tale. And not everyone likes waste incinerators. Greenpeace said of a project in the Philippines in 2016: “Incinerators go against the principle of sustainability. Their toxic emissions can never be controlled once released to the environment, therefore lethal to humans and damaging to the ecology.”

Local objections are common, and typically involve distrust about the material being burnt and the nature of the resulting emissions. By definition, projects have to be within easy trucking distance of the source of the garbage, and that means not far from local factories, business and population.

Even if those concerns can be soothed by investment in scrubbers and filters, and reassuring data about the gases released, there is still the issue that waste-to-energy involves putting carbon dioxide into the atmosphere, just as does coal-fired power.

In its defense, the alternative of landfill leaves garbage to decay, releasing methane, which is a much more potent greenhouse gas than CO2. Green Investment Group told BNEF: “All the waste-to-energy projects we have invested in have shown a net reduction in greenhouse gas emissions, but that is a side-benefit to the main advantages, which are the protection of the natural environment and the efficient use of natural resources.” There is also a recycling element to incinerators, in that metals can be recovered from the ash with magnets.

The most sophisticated criticism is that the existence of waste-to-energy projects may make it easier for governments to avoid major efforts to encourage recycling, because it offers them a non-landfill option for garbage.

Tom Koltis, executive director for corporate development at Covanta, said: “It’s often a criticism we hear, but the reality is the exact opposite. The best answer is to have an overall waste framework in place, a waste hierarchy. Energy from waste works best in a mature, regulated waste market. These plants complement, and do not replace or compete with, recycling: the five EU countries with the highest recycling rates all use it extensively to process waste left over after recycling.”

Most agree that the best way to deal with waste is not to produce it at all. This means minimizing packaging, and businesses and consumers buying only what they will use. The second-best is recycling, and here there is an imperative for new models that give the public a financial incentive to sort waste themselves, and do it properly. The third-best is waste-to-energy. Last, there is landfill or even worse, unregulated dumping.

As to whether waste-to-energy is green or brown, the exact shade would appear to depend physically on the fuel mix at the plant concerned (for instance the proportion of wood and other biodegradables), and philosophically on the extent of recycling activity going on in the locality. If recycling is low or there is no major drive to increase it, then building incinerators may make it easier for governments to dodge taking action. But it is hard to envisage a world in the next few decades in which all waste is recycled or turned to usable gas – in which case incinerators surely have a role to play.

The other farm birds in Hans Christian Andersen’s original “pecked and pushed around” and “chased and buffeted” the Ugly Duckling. But it wasn’t them flying high at the end of the story.

Postscript: The Plastic Dilemma

In July 2017, China announced a ban on the import of certain grades of plastic waste – throwing many other countries into a quandary about what to do with the material. One of these was the U.K., which has shipped more than 2.7 million metric tons of plastic waste to China in the years since 2012.

Whether waste-to-energy is a suitable way of dealing with the plastic mountain is open to argument. Some say that the high calorific value of plastic, perhaps processed with paper into pellets – as Simec Atlantis Energy is planning to use at its 220MW Uskmouth project in Wales – makes for high electricity output.

Others in the industry say that incineration plants depend mostly on gate fees related to volume of waste, and that highly calorific fuel means that the maximum steam output of installations is hit with a smaller volume. Therefore revenues suffer.

A more fundamental objection is that, in greenhouse gas terms, it might be better to put plastics in landfill if they cannot be recycled. Unlike organics and wood, they do not decay quickly and could be left until better technology options are available.

The best option, of course, is to use much less plastic.

(Correction made to clarify that Suez Recycling and Recovery is part-owned by Engie SA, not part of Engie SA.)

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