United Utilities Plc and Severn Trent Plc, Britain’s biggest publicly traded water companies, are increasingly feeding waste into tanks of bacteria whose methane emissions generate electricity.

Sewage-derived power supplies 22 percent of Severn Trent’s energy, almost double that of 2005. At United Utilities, it’s 14 percent. British utilities are shifting fecal matter to vats of bacteria that consume the waste, releasing biogas that’s burned to drive water treatment. The result is lower energy bills and surplus power sent to the grid that heat more U.K. tea kettles.

Water businesses in Britain aren’t the only ones finding value in waste. Companies in Europe and China are turning more to biogas to counter fossil-fuel costs and energy price volatility. Microsoft Corp., the largest software maker, uses effluents to help power a data center in Wyoming. Skiers in northern Arizona speed down slopes on artificial snow made entirely from treated wastewater.

“We live in a resource-constrained world, we’re going to have to squeeze more and more out of our waste,” said Christopher Gasson, the publisher of Global Water Intelligence in Oxford, England. Sewage sludge “smells like money to an increasing number of entrepreneurs.”

Some investors in Europe see an opportunity in such a market. Last year, Bayerische Motoren Werke AG heiress Susanne Klatten, Germany’s wealthiest woman, bought 20 percent of Paques BV, a Dutch biogas technology business.

There are about 2,250 facilities in Europe now using sewage sludge to produce biogas that can generate power, according to the European Biogas Association.

Germany and Switzerland have the highest concentration with 980 and 463. The U.K. and Sweden have at least 100 each.

Berlin Water

Berliner Wasserbetriebe, Germany’s biggest water provider that serves 3.7 million people in and around the capital, has turned sewage sludge into power and heat for at least two decades, said Stephan Natz, a spokesman.

Last year it produced 22 percent of the electricity the utility consumed, mainly from sewage sludge. The company produces power and heat from sewage sludge at all six of its wastewater-treatment plants, Natz said on Feb. 18.

While Gasson estimates more than two-thirds of wastewater utilities in northern Europe are investigating the technology compared with less than 10 percent in 2008, that’s not quite the case in the U.S.

American Water Works Co., the largest U.S. publicly traded water company, has no plants that produce energy from sewage. It’s being considered and is at a very preliminary stage of discussion, the company said by e-mail in response to questions.

‘Minority Taste’

Sewage sludge is broken down in a process called anaerobic digestion, which is also used to convert food waste into power.

Aqua America Inc., the second-biggest U.S. water utility by market value, said it has one anaerobic digestion facility that doesn’t produce electricity and they’re unlikely to build any such plant for power.

“The technology remained a minority taste until about five years ago,” according to Gasson of GWI, a U.K. market research firm. Rising gas prices in Europe forced wastewater utilities to focus on energy bills “at the same time renewable energy was attracting serious investment: Anaerobic digestion technology suddenly came back to life.”

The European Biogas Association and Gasson both say Europe is leading the way with the most established market while China is one of the fastest-growing areas.

Waste Streams

The proportion of wastewater collected and treated in China more than doubled from 2004 to 2010 from 33 percent to 74 percent. The nation will spend about $68 billion to 2015 collecting and treating wastewater, showing “significant” potential for energy from biogas, Gasson said.

By 2020, electricity produced from waste streams may be equivalent to meeting the energy demands of about 2.5 million British homes, or 10 percent of U.K. households, according to a Ernst & Young LLP report that cites the think-tank CentreForum.

Water companies already treat about 66 percent of Britain’s sewage sludge using this process.

Fluctuating energy prices and the rise in fuel costs are helping spur utilities’ investments.

The shift is a “mind-set change” as the industry starts to view the by-product of the wastewater process as something of value rather than an inconvenience that’s costly to dispose of, said Mark Turner, water sector leader at Ernst & Young.

Pennon Group Plc through its Viridor Ltd. unit is investing about 1 billion pounds to 2015 developing at least 300 megawatts of facilities that turn waste from homes and businesses into energy. That project pipeline will drive the company’s growth, Chairman Ken Harvey said in November.

Biogas Beetle

United Utilities, which has biogas plants at 23 of its sites, said this makes “good” business sense and it plans to invest more. Diverting waste from landfills saves regional provider Wessex Water Services Ltd. millions of pounds, it said.

Seeking to exploit rising landfill taxes, water businesses are expanding their expertise to generate power from food waste. Wessex Water built a food waste pre-treatment facility to help chains find an alternative way to dispose of scraps.

Wessex Water said clients including supermarkets also ask whether sewage-gas can be used to power their trucks. It showed the technology by operating a Volkswagen Beetle car on biogas.

Severn Trent, based in Coventry, treats excrement from about 4 million homes and businesses and turns it into electricity equivalent to power 50,000 U.K. households. Wessex Water said it produces sewage-derived electricity equivalent to power 12,000 homes.

‘Delivering Value’

Southern Water Plc processes human waste equal to 1,120 Olympic-size swimming pools, plans to start four new plants in 2013, and Anglian Water Group Ltd. last year generated energy equivalent to supplying 11,500 U.K. homes with power for a year.

“It’s about controlling our costs and ultimately delivering value to our customers and it’s about doing the right thing for the environment and the U.K. in terms of renewables and carbon reduction,” said Jonathan Davies, general manager for group business development at Severn Trent.

Severn Trent and Anglian Water have seen a cost-reduction from their facilities partly through government incentives that currently grant them two Renewable Obligation Certificates per megawatt-hour of electricity produced, equating to about 82.96 pounds ($128) a megawatt-hour at current ROC prices.

Southern Water Ltd. exports about 10 percent of its electricity and United Utilities last year fed 9 percent into the grid.

Biogas can be used as a fuel to generate electricity and power cars as well as for heating and cooking.

Which means that “technically you could wake up one morning and be cooking your breakfast with gas derived from human waste,” said Mohammed Saddiq, general manager of Geneco, Wessex Water’s clean-energy unit.

Copyright 2013 Bloomberg

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