Viridor’s energy recovery facility (ERF), which is under construction in Glasgow, is £95 million over budget and consequently future income from its contract with Glasgow city council could be hit.
The figures and contract warning came today from Viridor’s parent company the Pennon Group, which put the Glasgow difficulties down to changing contractor after the original firm Interserve left in 2016.
On the recycling front across the business, Viridor says it anticipates lower than expected earnings before interest, tax, depreciation and amortisation (EBITDA). However, the company said it is not expected to have a material impact on Pennon’s overall financial performance.
The details came as part of a trading statement from Pennon ahead of final year figures in May.
In August 2016, Interserve pulled out of the energy recovery market due to what it described as “unique challenges” in the field (see letsrecycle.com story). This came three months after Interserve had said it set would aside £70 million to address the ‘deterioration’ of its contract to build Viridor’s Glasgow gasification plant, caused by technical issues with the plant which led to continued delays.
However, the Pennon Group statement explained that as a result of the £95 million increase to its original £150 million budget target, Viridor is contractually entitled to recover incremental costs from Interserve, under “certain circumstances”.
The statement said: “Discussions with Interserve are ongoing with regard to the contractual settlement. Dependent upon the conclusion of those discussions, margins over the life of the project to 2043 could potentially be lower than originally expected, although we do not believe there is any immediate impact on earnings.”
In recycling, Viridor said that it is focused on mitigating the impacts of China’s changes in recyclate import regulations. Viridor said it was doing so through developing new markets, continued contract optimisation and innovation.
“As such, Viridor anticipates lower H2 EBITDA from recycling although this is not expected to have a material impact on Pennon’s overall financial performance.”
The statement also gave further updates to other energy recovery facilities.
Final commissioning is underway at the 275,000 tonnes per year Beddington energy recovery facility, while commissioning is also underway at the Dunbar facility in Scotland. The Energy recovery site in Avonmouth, Bristol, is currently under construction.
Pennon said that it continues to expect UK residual waste market dynamics to be favourable with demand for Energy Recovery Facilities exceeding capacity into the long term.
The statement said: “We continue to assess opportunities for future value-enhancing growth in energy recovery. At Viridor, our portfolio of operational ERFs continues to perform well, above base case expectations, with an anticipated availability in excess of 90% for the year.”
Across the group, which includes South West Water, the Pennnon Group says it has achieved “robust underlying financial performance” and is on track to meet management expectations.
South West Water achieved a sector-leading customer experience score (SIM), “continuing sector-leading Return on Regulated Equity”, the company said.