One of the trickiest questions I’ve faced as editor of MRW was while a guest at a waste company’s annual management conference: “How would you describe us in a single word?” I did not want to be undiplomatic to my hosts, and it did not help when a rider was added: “And what about our main competitors?”
I think I just about winged it that day. One of those competitors I described was Viridor. I honestly cannot recall the word I dredged up but it would have been positive: Viridor, as befits one of the largest companies in the sector, plays a prominent part in efforts to drive a forward-thinking industry. So might my word have been ‘dynamic’?
The description fits chief executive Ian McAulay, who is about to clock three years at the helm of Viridor following senior roles at major water company United Utilities and, in the US, natural resources specialist MWH Global. Viridor is part of the Pennon Group, which includes South West Water, which headhunted the Scot to return to the UK to oversee delivery of its major programme of new energy-from-waste (EfW) plants.
“I do have in my CV big utility infrastructure capability and experience, so I think that was a recognition that we need to bolster our capability in delivering [major] programmes,” says McAulay. “To build out big assets effectively, and especially power station assets, you have to bring in the right experience.”
That has meant senior colleagues headhunted from German power firm RWE, Nestlé and BT have joined McAulay: “We are saying that we’re no longer the conventional ‘hump and dump’ landfill business as it was 20 years ago – which I think was unkind to landfill. But the sophistication of the sector is changing, and we have reflected that by some of the people who we’ve brought in, married to the exceptionally good people we have in the company as well. But you need to get that new experience to be able to deliver into new sectors.”
The balance sheet strength of the group has been very helpful to us in terms of our ability to enter the EfW sector
McAulay inherited a dozen or so major facilities strategically located in population centres and, by definition, close to greater volumes of municipal, commercial and industrial arisings, along with good road and rail connections. He has made sure rollout is being delivered effectively, including the visually striking Trident Park facility at Cardiff which serves five councils in the Prosiect Gwyrdd partnership.
Viridor is not alone among the major sector players to be making the transition from a landfill-led past. McAulay is in no doubt that Viridor has benefitted by being part of a larger group.
“The balance sheet strength of the group has been very helpful to us in terms of our ability to enter into the energy-from-waste (EfW) sector,” he says. “We understand our risk profiles, we are able to go into procurement, and can move quickly in our negotiations and discussions. You are also able to dip in and out of the sister companies to get their perspectives on how certain things might work.”
That scale has helped Viridor to grow through acquisition and McAulay feels that, across the industry, further consolidation is required as it matures. But it does not always mean takeovers. He believes that better regulation and more emphasis on fighting waste crime will drive marginal operations out of the sector – as will the difficult economic conditions.
We have to have more industry involvement in the bigger aggregated schemes, to make them more resilient and joined up
Viridor will go into the market at the “right opportunity”, he says, but“we’re very selective”. The company is also embracing the opportunities around energy storage by building, literally, on the industrial heritage of its landfill sites.
“They are reservoirs of gas, which has a long-term yield. They have grid connections, which are scarce. On one of our sites in Manchester, we’ve put a full-scale cryogenic energy storage plant. It’s an £8m, 5MW plant, so we are looking to scale that up and we’ve got designs to take that potentially up to 50MW.
“That plant becomes very efficient when we apply waste heat from landfill gas, so we’re now looking at whether we could move more into the energy generation and energy storage areas.”
Most large companies are keen to engage in ‘thought leadership’, helping to set an agenda by commissioning research or publishing reports on aspects of the industry and directions in which it could go. Viridor is no different, and its call for region-wide ‘resource networks’ is based on a concrete example: its public-private partnership with local authorities in the greater Manchester area.
It was also the thinking behind the new £700m 25-year Clyde Valley contract to handle residual waste from five Scottish councils.
In January, the company published a thoughtful and challenging paper saying that typical arrangements in the UK were no longer fit for purpose and what was needed was “a new and ambitious model that moves resource management beyond local authority boundaries, realising the economic potential for British business, manufacturers and public sector bodies”.
The paper argued that an ‘aggregated services’ model was vital to realise the benefits of a developing circular economy (CE). A focus on the availability of high-quality materials rather than council boundaries would have a huge impact.
McAulay says: “We have to have more industry involvement in the bigger aggregated schemes, to make them more resilient and joined up so there are plenty of assets. But how do we use them more efficiently?
“I genuinely believe there is no more money in local authorities. But we can still bring in investment from the private sector if we take what we currently have and design it more efficiently. That means education, collections, processing assets, recycling sales and reuse. If we put that together in a more holistic fashion, we could achieve more from what we currently spend.”
Let’s not do that British thing of ‘it’s all wrong, it’s all bad’. It’s actually pretty good
I suggested that the more collective arrangements in Scotland and Wales were already heading in this direction.
“There are loads of positive examples where people have had a vision and said we need to do this at a bigger scale. They’ve gone cross-boundary.
“I’m really keen to stress that this does not preclude local authorities or SMEs because, in the joined-up entity, you have the ability to involve supply chains and frameworks. And one of the benefits from that is you can pass quality requirements, training development and help smaller entities to be part of the bigger equation.”
So this is a call to arms for more Manchesters or more Clyde Valleys. Unfortunately, in terms of public perception and planning applications, such networks have incinerators at their centre.
Within the waste industry, there is a debate about whether greater use of recovery is the correct part of the hierarchy to aim for as we switch from landfill. In the wider community, there is a widespread belief that EfW plants are bad for the environment. But for all possible hurdles it throws up, McAulay admires the planning system.
“It encourages challenge and it means that you have to build high-quality assets,” he says. “By the same token, it also introduces a potential for negativity. But once the plants become part of the community, and people see that they operate to a high standard, I think attitudes change. If you look at Cardiff, now that it’s operational and delivering reliably, the public’s attitude changes over time. It has always been that way.
“All credit to our planning team – we have not failed a single application – but it takes roughly seven years to go from inception to commission and that’s a very long time.”
The efforts of Viridor and other big companies will be essential in helping to drive up recycling rates because the plateauing of the overall UK rate in the past two years has been depressing. McAulay is more upbeat.
“I think the UK and Europe have done really well in terms of recycling. We have moved from very low rates to the 40 or 50 [per cents] in some parts in a relatively short period of time, so that’s the starting point for me. Let’s not do that British thing of ‘it’s all wrong, it’s all bad’. It’s actually pretty good, so all credit to everybody who’s been involved.”
Energy recovery is a transitional technology but it has a part to play
He believes there is a need for fresh investment as the technology moves on – along with appropriate targets.
“Absolutes are the enemy of progress. If someone said to me the target was 50% and you hit 49.2%, is that a failure? Not in my book. If my kids come out of their exams and they scored 95, as my younger daughter did recently, should I tell them that wasn’t good enough and it should have been 100? I think not. We’ve got to put aspirational targets in place to drive towards.”
McAulay is adamant that any target is arbitrary unless there is consistency of measurement, as suggested in the European Commission’s CE proposals, and he argues that we have to incentivise smart, resourceful design.
“Then we have to look at the general public and what their role is,” he adds. “On the municipal side of things, we’ve got to look at how we standardise more, simplify more, and allow the general public to play their part without putting an overly ominous burden on them.
“Let’s design infrastructure at the right scale to process efficiently. Let’s make sure we know why we’re collecting things and where it’s going to go.
“Energy recovery to me will still be around in 20 years’ time: it’s a transitional technology but it has a part to play. Let’s get the balance right. In the UK we are doing that in many places.”
A more immediate concern has been the consistently low value of secondary materials. This has cast a cloud over municipal collections at a time when council budgets are suffering. Some recent contracts, such as Viridor with Kent or new ones for Biffa, specifically share the risks.
The Environmental Services Association, of which Viridor is a prominent member, has proposed to ministers that ownership of recyclates be transferred from local authorities to the wider supply chain under an extended producer responsibility regime.
We’re trying to create a culture of being a learning organisation
McAulay says: “Local authorities have a very important part to play in an aggregated model. It’s about opportunity sharing as well, so it’s not just risk.
“So some contracts [now have] a risk and reward share in terms of commodityprices. So we’re going in, looking at design of facilities, sharing in the cost of construction and looking at how we do collections better. If commodity prices tick up, then there will be an income stream for the authority. I think that’s the way forward.”
Looking to the future is core to McAulay’s beliefs when it comes to skills and life learning. He is proud that the company currently has 35 apprentices, both at general and higher levels, while a further 90 are in construction apprenticeships through contractors.
The company has sponsored its own foundation degree course at Edgehill University in Lancashire, and is proud that employees who did not have a chance to go to university when younger are gaining recognition for their skills.
“The nicest story I could tell you is about one of our chaps, Simon, whograduated in the first cohort, and I was there at the ceremony. He was really pleased but he said, ‘I’m really sorry, I have to go early, but I’ve got a good reason’. I said, ‘what’s that?’ and he said, ‘it’s my son’s graduation today.’ What a fabulous story.
“We’re trying to create a culture of being a learning organisation. Often, we have been at health and safety events and what we say to people is ‘do more than go home safe each day: go home knowing a bit more about what you do so that, when you come back tomorrow, you can do it a little bit better’.”
We’re in a fascinating time for this sector, and I think the majority of people want to do it better
Such a company culture is a passion for McAulay, who says it was one of the main attractions when he was invited to head Viridor. Even so, he has reservations about the apprentice levy of 0.5% on pay bills of larger companies from next April (more on the apprenticeship levy, page 48).
“I guess the thing that people want you to say is, ‘oh, it’s a terrible thing’. But Britain has to invest in its future in terms of learning and development. We did let that slide – we’ve got to get back the skillsets. Apprenticeships are hugely important to this country and we’re quite happy to invest in that.”
Overall, McAulay would also like to invest more across the business but says he is being held back by the uncertain market conditions. He is also hoping for greater clarity on how the CE will be interpreted, now even more hazy after the referendum.
“I’m hopeful that, in the next year to two years, we will start to see more investment coming and recycling really start to go back up again, which is good for everyone.”
And what for McAulay himself? He is enjoying a job that can take him one day into Number 10 and another into the office to deal with some “pretty mundane day-to-day activities like collections not having been made”.
“I still get up every morning and want to go to work,” he says. “We’re in a fascinating time for this sector, and I think the majority of people want to do it better. That’s a good place to be, and I can look my girls in the face and say I do a job that’s worthwhile. That’s a really good thing.”
Back to my one word that defines the company. Answers on a postcard, anyone?
CV: Ian McAulay
- 1988: Graduated from the University of Strathclyde with a degree in civil engineering
- 2001: Completed Business for Executives course at Harvard Business School
- April 2007 - June 2010: Managing director of capital programmes at United Utilities
- October 2010 - September 2013: Chief strategy officer and executive vice-president at MWH September
- 2013: Joined Viridor as chief executive and also executive director of Pennon Group