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Procrastination is harming AD sector

Duncan McLaren

The UK’s anaerobic digestion (AD) industry has grown significantly in the past couple of years, with capacity doubling from around 300MW of elec­tricity to 600MW in 2015.

Incentive schemes such as the Feed-in Tariff, Renewable Obligation Certifi­cates and the Renewable Heat Incentive have fuelled this growth. But because they have attracted so much invest­ment, the Government has decided there is now overcapacity in the market and the subsidies have been reduced or removed entirely.

Speaking on the subject, my col­league Fergus Healy, Olleco’s food waste and AD director, said: “It would seem that capacity has outstripped demand. So the clear choice is to increase demand and keep capacity increasing on a shallower gradient or take steps to cool growth in capacity in the market.”

Choosing to stimulate demand would appear to be the logical solution, but the Government has taken the less progres­sive option. The seismic changes to our industry have taken many by surprise. There are scores, maybe hundreds, of planning applications in motion which may now be choked off after these subsidy announcements.

The decision to leave the EU has merely heightened anxiety and uncer­tainty within the industry. Pre-Brexit, it seemed to be resigned to a future focused clearly on gas-to-grid projects and away from combined heat and power. So what now, post-Brexit?

All we can do is wait to see whether a UK out of the EU will still be held to key macro drivers such as the 15% renewable energy target, 50% recycling rate, the circular economy package and regulations concerning commingled collec­tions under the TEEP regime. All this has a bearing on how the AD industry changes and adapts to these new cir­cumstances.

As Healy commented: “In any event, it is clear to say that the provision of AD feedstock remains a fundamental concern.”

Taking a progressive lead, the Scot­tish Government and Northern Ireland Assembly have taken steps to increase feedstock. Businesses and households have to remove their food waste from general waste and have it collected sep­arately. It is then recycled through AD and not sent to landfill or incinerated, as is so often the case in England.

In spring this year, Olleco sponsored a Renewable Energy Association study into the economic drivers behind separate collections. The reason for the report was to dispel the myth that it is always more expensive to recycle food waste compared with putting it into landfill as general waste.

There are scores, maybe hundreds, of planning applications in motion which may now be choked off after government announcements on reducing or removing subsidies

In addition, the report went on to make the case for councils and the com­mercial & industrial sectors to treat waste food as a resource, making sure it is always treated properly through AD facilities and not wasted elsewhere.

The industry is experiencing huge changes and that is making life very difficult for many operators in the sec­tor. As the UK has overcapacity and undersupply, the consequence is a declining market, with gate fees and collection lift prices in freefall. Average gate fees have dropped from around £45 per tonne in 2012 to around half that today. For a 40,000 tonnes a year AD facility treating 25,000 tonnes of waste food, this wipes more than £500,000 straight from the earnings before interest, taxes, depreciation and amortisation line.

An unintended consequence of this is that operators which built large-scale plants around 2010-13 have ‘grandfather rights’ to very attractive subsidy levels. This means they are more able to discount their gate fees to secure the fuel they need for their facilities, leaving them well placed against newer players in the sector.

So the industry needs some clear and consistent guidance from the Govern­ment and some leadership on feedstock supply. It makes little sense to procras­tinate on this matter when investors, shareholders and operators which have devoted time and money desperately need to know what the future has in store.

There are also millions of tonnes of food still being wasted. The waste hier­archy needs to be properly applied to move this wasted resource out of land-fill and into a space where it can be treated properly– saving money, saving jobs and saving our fragile environ­ment.

 

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