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Reflections on investment for the secondary plastic market

The UK Green Investment Bank (GIB) is now one of the largest investors in UK waste infrastructure having directly committed £520m of equity and debt to 16 transactions since 2012. This includes the capitalisation of two equity fund managers to focus on smaller scale waste and recycling projects - those under £30m.

Our portfolio now covers a diverse range of technologies, including: anaerobic digestion; gasification; and conventional EfW to recover energy from residual waste alongside mechanical & biological treatment and materials recycling facilities for processing waste and extracting recyclables.

Given the long-term drive to increase recycling and generate value from waste, we are monitoring developments in the recycling sector for commercial investment opportunities. This is proving to be a challenge, with recent insolvencies in the sector adding another layer of scrutiny to the business cases put forward by project developers.

As a new investor to the plastics market, it is clear that there are four key fundamentals which need to be understood and accepted:

  1. It is diverse (and segmented) – both in terms of types and sources of waste plastic, and the markets for the recyclate product and by-products. Each plastic waste stream has its own supply chain and market, presenting unique risks/opportunities.
  2. It is global – both in terms of logistics and pricing. It is an industry where even small, family-owned recyclers needs to keep abreast of Chinese macroeconomics to forecast their finances for the next six-12 months.
  3. It is competitive – both at a macro scale, with the need to outcompete virgin markets, and at a micro scale, as the industry is rich with smaller and highly specialised companies seeking a competitive advantage.
  4. It is dynamic – Prices can be highly volatile on both feedstock inputs/product outputs and the industry supply chain is constantly evolving, as companies rapidly enter and exit the market (often through administration). Merchant project economics can be extremely challenging.

For many investors these fundamentals can be summarised simply as ‘risk’ - with some still bearing scars from the past and others having little experience of the sector.  At the recent British Plastics Federation event Recycling the Unrecyclable, one developer reported surviving a price shock on recyclate products from +£40/tonne (selling to the market) to -£40/tonne (paying for disposal) over a period of months. Investors are naturally cautious when considering these types of market risks, so project economics must be robust.

However the plastic recycling sector also has a wide range of highly attractive characteristics: innovation; differentiation; legislative drivers; access to a global marketplace; and a fundamental role in the sustainable management of UK waste.

The challenge for industry, investors and policymakers is therefore to build robust business models and financial structures that can manage the sector’s inherent risks and capitalise on these advantages, making each investment financially sustainable in the long term.

To meet this challenge, external investors will need to undertake detailed due diligence and developers of new infrastructure should be able to evidence the key elements that can make new infrastructure ‘financeable’.

Stewart McMahon, senior associate, waste and bio-energy, Green Investment Bank

GIB is engaging with project developers to identify green and profitable investments that are ready for commercial finance and will be hosting a workshop later this year, focused on recycling projects for all waste streams in the UK.

Developers will be able to present their recycling projects to the GIB Investment banking team and receive feedback – all from the perspective of an active investor. Further information on the event will be available shortly on our website and interest can be registered at:

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