With food waste accounting for approximately two-thirds of anaerobic digestion (AD) potential, WRAP’s annual gate fees report, published in July, is an important barometer for assessing one of the industry’s revenue streams. The information gathered is clearly also interesting to food waste producers looking at their options.
Despite the AD industry trebling in size during the past year, this growth came from a small base. As this limited capacity expands, there is an expectation that gate fees will fall.
The reality, reflected in the report and anecdotal industry evidence, is more complicated. There is huge regional variation and, while gate fees appear to be falling overall, the expectation of rapidly falling gate fees appears unrealistic given the rising cost of landfill tax and the quality of waste received by plants. The WRAP report should also be read with the caveat that the survey has a small sample size.
The 2012 report found that the median AD gate fee for household food waste was £41/tonne, with a range of £35-£60/tonne. Comparing this with figures from the 2011 report, which had the median at £43 and a range of £36-64/tonne, gate fees do not seem to have fallen significantly.
Gate fees for food waste in municipal biobags ranged from £20 -£40/tonne and for commercial waste feedstocks, which required depackaging, this figure was £40-65/tonne.
There is huge regional variation, and The expectation of rapidly falling gate fees appears unrealistic
The report found that “the median AD gate fee for separately collected food waste is slightly lower than the median in-vessel composting gate fee for food only and food mixed with garden waste or card”.
WRAP also note that AD gate fees are “likely to be higher” in London and the south-east “due to a combination of higher land values and high demand relative to supply”.
This is indicative of the regional variation in the organic waste treatment market because competition only really exists where plants are close together as the industry deals with heavy material that is difficult to transport. Caution must therefore be exercised in trying to extrapolate firm conclusions about such a disparate and diverse market.
There is concern from some in the industry that waste producers may take unrealistic views on the short-term future of AD gate fees, therefore potentially making it difficult for plant operators to get long-term feedstock contracts, which are vital for securing finance.
With landfill tax high and rising by £8/tonne each year until at least 2014, low and quickly falling gate fees are unlikely. Alongside the high cost of processing packaged and loose food waste in relation to higher landfill prices, AD plants do not generally receive a high enough quality of material to justify lower gate fees.
Recent proposed changes to incentive schemes may also have a significant impact on the AD market. The industry was shocked in July by the Government’s proposal to remove support under the Renewables Obligation to plants of more than 5MW, effectively ending support for AD projects under the scheme.
If this does go ahead, it risks upsetting the financial models of plants currently being planned, and also puts further pressure on the budget for the feed-in tariff scheme. The Anaerobic Digestion and Biogas Association and others are campaigning hard against this change, which will be subject to consultation from September.
Despite this uncertainty, interest in the AD sector is continuing to grow. The UK AD & Biogas 2012 Industry Awards had visitors from a wide range of sectors including farmers, food processing businesses and local authorities.
They came from organisations of all sizes, and ranged from those looking to find out the basics about AD to those with well-advanced projects. Figures collated by WRAP also show that a large number of plants are in planning or development.
That gate fees are not falling as rapidly as some have expected is good news for industry development - especially when AD gate fees are shown to be generally lower than some of the alternatives, and as landfill tax continues to escalate. But strong regional variation is likely to remain as the UK’s AD capacity grows.