Many waste companies are coming to terms with a new set of realities affecting the growth prospects of the UK’s industry.
Lower commodity prices have affected margins up to a point where some recycling activities, for example of certain plastic waste streams, are no longer viable to perform domestically.
Energy-from-waste (EfW) companies face significant uncertainties regarding Government backing for new projects, as reflected by the lack of clarity around the future support regime, or Contracts for Difference, for advanced treatment technologies and by the effective ending of some key subsidies that were fuelling new anaerobic digestion (AD) facilities.
This is difficult news to digest for an industry that has been encouraged to transform itself from a logistics business towards a treatment one. It has left many companies to wonder what avenues are left to grow their business, let alone make plans in an environment where goalposts are shifting.
This, of course, has a knock-on effect on other industry players, from investors to partners in supply chains, who also question what role is left for them to play. But challenging times often offer opportunities to consider alternative ways to move forward. A look across recent trends in the UK waste market suggests there are a number of viable growth options to consider.
Going downstream remains possible
Many companies have focused on downstream waste treatment operations that are less exposed to commodity pricing and UK subsidies. This ranges from producing higher quality fuels such as refuse-derived fuel (RDF) for European incinerators and solid recovered fuel for cement kilns, to exploring mechanical treatment technologies able to achieve superior recovery rates from black bag waste.
Others have focused on solutions to process new waste streams, including the treatment of straw for use in EfW facilities as an alternative to traditional organic feedstock.
Improving the basics: collection
There remains much room for innovation at the collection end of the market. Some waste collection companies have made significant leaps to improve their logistics, for example by investing in advanced IT systems which provide a more effective service to corporate waste producers.
Others became experts at separating waste streams at source, including manual sorting of certain difficult plastics that can in turn deliver better yields during the recycling process.
Some technology companies have developed bin sensor and compacting solutions which have been adopted by councils across busy streets to save on collection rounds and improve visual impact.
Further improvements in waste collection remain in reach. Much of the food waste in the hospitality sector remains trapped with other waste streams, yet there are significant win-win opportunities to offer savings to waste producers while making more food waste available to the AD industry, which has noted its concern around feedstock availability.
Growing in size remains a key lever to improve profits in many parts of the country where the waste sector is still very fragmented, especially for commercial and industrial waste. The urban business waste market has seen some firms rapidly growing their share by offering more efficient services and by making successful acquisitions of smaller players.
Getting to a critical scale is also necessary to unlock other growth options, including securing long-term supply contracts with EfW outlets that usually look for reliable counterparties able to consistently supply waste material north of 50,000 tonnes a year.
Waste companies cannot do it all alone
Even if the Government cannot commit to large expenditures to support the industry, it can still achieve quick wins, such as by better enforcement of existing regulation. This includes ensuring that strict standards around the recycling of electronics waste and the export of certain plastics streams are actually adhered to.
Investors also have a critical role to play considering that many growth plans require risk capital.
While some waste companies question letting a third party in and prefer instead to grow organically or sell their business altogether, it is possible for owners to secure capital without losing control of their business and yet benefit from accelerating their growth ambitions. Investors, especially those with expertise investing in the waste sector, can also be valuable strategic partners in driving a business forward.
While we are all waiting for better news from commodity prices and from Government announcements, many growth avenues can be achieved in the meantime.
Alon Laniado is investment director at Eternity Capital