Industry perspective, securing project funding for EfW

The Energy Bill is designed to secure £100bn worth of vital investment in the UK’s power generation infrastructure. This is urgently needed given the expected 6GW of existing capacity that is to come offline by 2015. The excess base load capacity over peak demand will by that time reduce to around 4%. This in and of itself will put significant upward pressure on power pricing. At the same time we must transition to a low carbon economy. But these objectives are, as the Government sets out, by no means mutually exclusive.

Attracting investment into renewable energy projects is key to providing energy security and the right energy mix into the future. However it is not always straightforward especially in these challenging economic conditions. The UK Green Investment Bank (GIB), which in October received EU state aid approval and was launched at the end of November, will have an important role to play in making and attracting investment into renewable energy projects. It has identified energy from waste as a key priority for the application of funds and this is not by accident.

The UK market for waste to energy is very attractive. There is a need to divert more than 30 million tonnes of residual waste from landfill whilst landfill costs continue to rise due to landfill tax which will hit £80 per tonne by 2014. There is significant upward pressure on power pricing for the reasons set out above and due to both the introduction of a carbon floor price from next year and rising fuel costs. Furthermore, following the recently concluded Renewable Obligation banding review, advanced gasification (producing a gas of a minimum quality) will continue to receive 2 ROCs per MWh generated from the biomass content. This gives rise to a very strong investment case for advanced gasification projects provided that they are structured in the right way.

Investors want to see strong investment rationale and projects that deliver robust and attractive returns with minimal risk. For the projects that we are developing at APP we take the approach that it is critical to secure a long term feedstock contract as well as offtake agreements, at least for a significant amount of the power during the senior debt term. In both cases, covenant strength of the relevant counterparty is a material factor. Furthermore, plant delivery must be undertaken by a substantial EPC contractor on a lump-sum turnkey basis. Risk minimisation does of course have a cost associated with it and as such it is critical to ensure that even after these steps are taken, the underlying project return is still sufficiently attractive to the investors being approached. Our Gasplasma® projects offer an excellent return and we are seeing significant appetite in the investment community having already secured a number of anchor investors.

With all of these favourable conditions, we are confident that the UK will lead the world in advanced energy from waste technologies. This will ultimately benefit the consumer in reducing energy and waste treatment costs and improving energy security from an abundant indigenous resource.

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