GIB publishes market report on anaerobic digestion

The document, issued yesterday (June 10), was prepared in partnership with Buckinghamshire-based SLR Consulting. It will be used to inform the GIB as it considers providing up to 50 million of debt financing or loans – to AD projects. It is also intended to be a useful resource for the AD sector and investment community more generally.

The Green Investment Bank was officially launched in November 2012 and is tasked with investing 3 billion in environmental projects and lever in investment from the private sector. Energy-from-waste, including anaerobic digestion, is one of its priority areas.

At present, the Bank is already making equity investments in AD whereby it effectively takes a stake in AD projects – through two waste fund managers, Foresight and Greensphere. AD projects which have receivedinvestment todate include a TEG plant in Dagenham and a plant on Teesside.

However, the AD industry has expressed concern that securing funding in the form of senior debt finance or loans – is a particular barrier to projects getting off the ground, which is why the GIB is investigating how it can help.

Focus

The report focuses on AD plants treating source segregated food waste, residual waste (as part of a mechanical biological treatment process) and agricultural waste.

It explains that the AD industry is growing fast with many plants still in the pipeline. There was 106MWe of capacity installed on under construction in the 2011/12 financial year, more than double than in 2009/10, with an additional 148MWe of capacity with planning permission or seeking permission. If it was assumed that all these facilities were built, the GIB estimates that ad additional investment of 650 million would be required.

However, the report says the industry is immature and fragmented, with no one developer accounting for more than 8% of installed capacity, and that there is a marked variation in the operational performance of facilities depending on feedstock. Notably, plants which treat residual waste have a much poorer performance rating (19%) that those treating food (67%) or agricultural wastes (69%).

Success factors

Factors which it concludes are critical to project success include: feedstock selectivity; deep understanding of and access to markets for digestate; dedicated operating personal; and, a culture of seeking to make a series of small changes to actively improve operational performance.

Commenting on the report, Adrian Judge, managing director for waste and bioenergy at the GIB, said: AD is rightly at the heart of the Governments waste policies, and GIBs waste investment strategy. It provides a green and efficient way of managing waste, whilst providing both energy and fertiliser. For organic waste, AD is a cost-effective and sustainable waste management option.

Although the UK market is still young and there are challenges for projects in delivering a consistent revenue stream, well operated AD facilities have the potential to achieve attractive commercial rates of return to both equity and debt providers.

Findings

The report lists its key findings as:

• Growing opportunity: There was 106MWe of capacity installed or in construction by FY 2012, more than double that of FY 2010. An additional 148MWe of specific capacity has been identified as potentially available to be developed;
• Fragmented and young market:The top five operators account for less than 28% of the market, which compares to 71% in the offshore wind sector. The majority of AD facilities in the UK have been in operation for less than three years. This presents a funding challenge for the sector, as it lacks an established and informed investor community.
• Wide ranging performance factors: There is a marked divergence in operational performance between different facilities;
• Critical factors to project success: The main barriers to growth in the sector are a) Feedstock selectivity; b) Deep understanding of, and access to local markets for digestate; c) Dedicated operating personnel; d) Active process management;

• Finance: The identified development pipeline requires capital investment of approximately 650 million. Although the AD market has indicated that it is in need of debt funding, equity may be more appropriate in many cases due to the youth of the market.