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Energy-from-waste set to attract investment

Energy-from-waste will make an important contribution to the UKs renewable energy programme and is expected to generate substantial investment in the next five years, according to new research.

The UK is obliged to meet targets set out by theEuropean Union Renewable Energy Directive enacted in December 2008. Under the directive one third of EU electricity must come from renewables by 2020.

Speaking to MRW financial advisory firm Catalyst Corporate Finance partner Mark Wilson said that the firms analysis shows that there are 35 EfW projects in the pipeline which will cost £4.7 billion to build. Wilson said that if the financial crisis had not hit, the pipeline of EfW projects would have been substantially greater.

He explained: There is a pent up demand building for EfW installations especially in the local authority municipal solid waste market. This will require additional investment up to 2020. We have not yet estimated how many plants we think this will result in detail. Last year, however, we estimated that the investment required to achieve the landfill diversion targets of 2020 would in total be over £11 billion. The likelihood is that this will be a good deal more, especially as projects are delayed.

Research by Catalyst shows that EfW projects will provide 1.7GW of EfW capacity by 2015, the equivalent of 1.5 per cent of the UKs current grid connected generating capacity.
Wilson also said that EfW merger and acquisition activity will also increase in the next five years due to consolidation and the desire for new investors to enter the EfW market. It states that over the last three years there have been around 40 acquisitions or private equity investments made in EfW firms in the UK with a value in excess of £300 million. For example, the private equity investor Matrix Group, funded the management buyout of Monsal, the anaerobic digestion technology specialist, to support its transition from waste water to the solid waste industry.

Wilson said: It is widely recognised that the EfW sector has some real advantages for investors over other renewable energy sectors, such as wind. Unlike wind, whose generating efficiency can often fall below 35 per cent, EfW is not an intermittent source; there is an ample supply of feedstock to ensure constant generation. For example, the existing EfW plants dispose of six million tonnes of municipal and commercial waste each year. While we expect that wind will dominate renewable investment, estimated by Catalyst at £85bn over the next 10 years, we believe that more and more investors will be attracted to EfW.

Catalyst also anticipates that funding for EfW project will remain challenging for the rest of 2009, especially on long-term private finance initiative projects. But this will gradually become easier from 2010 onwards.

Image: Catalyst Corporate Finance partner Mark Wilson

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