25 March 2019 by Steve Eminton

EfWs on target at Viridor but Glasgow losses loom

Pennon Group today reported good progress on its subsidiary Viridor’s suite of energy from waste plans under development but could face having to make further provisions for losses over its Glasgow facility.

In an update ahead of its results for the year ending 13 March 2019 which will be published at the end of May, Pennon – which also owns South West Water – said its “operational ramp up for Glasgow, Dunbar and Beddington Energy Recovery Facilities (ERFs) is progressing well and construction of Avonmouth is well advanced.”

Viridor’s energy from waste facility in Glasgow

It also said that its recycling division, which had been under pressure in recent years after a fall in the value of secondary commodities and restrictions on exports to China, is on track to meet expectations.

Energy from Waste

Pennon said that the three new Viridor ERFs at Glasgow, Beddington and Dunbar have “all progressed through commissioning to service commencement ahead of full operation. Optimisation is ongoing and operations will continue to ramp up over the next 18 months in line with the pattern experienced already in our existing portfolio.”

And, existing plants, have performed “in line with management expectations” and continued to perform “ahead of our base case scenario, underpinning the full year results forecast”.

One of its newest facilities is the Avonmouth ERF which “has progressed as expected this year with all major process equipment parts and steelwork for the building in place.”

Interserve

Pennon is facing the potential for losses over its “Glasgow Recycling Renewable Energy Centre” known as GRREC.

Twelve months ago the company reported that the project was £95 million over budget and consequently future income from its contract with Glasgow city council could be hit (see letsrecycle.com story).

The project has faced extra costs and disruption because of the demise of its project contractor, Interserve.

Today Pennon pointed out that its half-year results “recognised a gross receivable of £72 million due from Interserve Construction Limited. As the amounts recoverable from Interserve Construction Limited related to rectification and completion costs, under accounting standards (IFRIC12), the difference between the gross contractual receivable of £72 million and the expected recovery will be taken directly to the income statement.”

Assessing market risk, in the half year accounts a provision of £8 million was “recognised against the receivable”. And Pennon, said it continues to monitor Interserve’s financial condition and is now recognising a provision of £16 million.

But, with Interserve plc entering administration, Pennon is seeking further clarification regarding the financial position of Interserve Construction Limited the ongoing operating company with whom it contracted, and this may change the level of provision to be announced with the full year 2018/19 results on 30 May 2019.

Pennon pledged to continue “to pursue recovery of all amounts due from the operating subsidiary Interserve Construction Limited and will take all the necessary legal and procedural steps to achieve this.”

Recycling

On recycling, Pennon highlighted the stability of recyclate prices for Viridor and increasing customer quality requirements.

Pennon noted: “Viridor has continued with targeted investment in its recycling assets in order to improve output quality, including a focus on reliability centred maintenance and working with its customers to improve the quality of input materials.”

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Pennon Group PLC

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