The UK’s EfW market continues to present exciting investment opportunities, driven by a favourable landfill tax and subsidy regime and by the emergence of technologies treating more complex streams, such as refuse-derived fuel.
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To be attractive for investors, successful advanced thermal technology projects need to strike the balance between interdependent factors such as technology choice, plant size, feedstock strategy, engineering, procurement and construction (EPC) arrangements and wider economic factors.
Key factors include:
Technologies: Investors must recognise that advanced thermal technologies are rarely ‘fully proven’, and should look at evidence which can demonstrate that the plant can work at sufficient throughput availability. This includes judging performance evidence from outside the UK and/or with slightly different waste streams.
Flexibility: Advanced technologies must be sufficiently flexible in anticipation of certain trends, such as change in feedstock composition.
EPC providers: Successful advanced technologies develop partnerships with EPC providers, which are usually required to wrap the performance of a technology as part of their contract and who must have time to familiarise themselves with the technology.
Feedstock and optimal plant size: Getting reassurance on feedstock goes beyond securing some long-term contracts. It includes choosing a strategic location with a good supply of local feedstock and an optimal plant size, which balances the benefit of scale economies against the need to secure sufficient feedstock and to obtain the necessary permits. Mid-size plants are often optimal in this respect.
Diversification: Projects must seek to diversify the revenue base beyond the traditional ones – for example to partly secure private offtake agreement – which is particularly important considering the general trend is towards declining gate fees.
Skillsets: Successful projects require a variety of development, technical, commercial and financial expertise to deal with issues such as permits, technical questions during the construction and operations phase and the suite of contractual agreements. Effective project sponsors are good at identifying which skillset they have in-house and which expertise must be complemented.
Investors such as Eternity Capital, who are sector-focused, can bring specific expertise, for example in contract negotiation, and therefore usually prefer working closely with the sponsors in shaping successful projects.
Alon Laniado is investment director at Eternity Capital