The Green Investment Bank (GIB) has backed the potential of anaerobic digestion (AD) schemes but warned there are significant challenges in paying for them.
A GIB report, the first of its kind, considers the issues facing the market as well as opportunities and barriers for investment. The bank says it is “actively investigating” directly participating in up to £50m of debt financing for AD projects as well as other schemes being developed by its fund managers, Foresight and Greensphere.
Although the Government has indicated that AD could deliver between 3 and 5 TWh of electricity by 2020, the sector remains unhappy about its ability to access funding, in particular senior debt finance.
Adrian Judge, managing director for waste and bioenergy at GIB, said: “AD is rightly at the heart of the Government’s waste policies, and GIB’s waste investment strategy. For organic waste, AD is a cost-effective and sustainable waste management option.
“Although the UK market is still young and there are challenges for projects in delivering a consistent revenue stream, well operated AD facilities have the potential to achieve attractive commercial rates of return to both equity and debt providers.”
The key findings of the report are:
- 106MWe of capacity was installed or in construction by the end of 2012, more than double that of 2010. An additional 148MWe of specific capacity has been identified as potentially available
- The top five operators account for less than 28% of the market, which compares to 71% in the offshore wind sector. The sector lacks an established and informed investor community
- There is a marked divergence in operational performance between different facilities
- The main barriers to growth in the sector are a) feedstock selectivity; b) deep understanding of, and access to local markets for digestate; c) dedicated operating personnel; d) active process management
- The identified development pipeline requires capital investment of approximately £650m. Although the AD market has indicated that it is in need of debt funding, equity may be more appropriate in many cases due to the youth of the market.