Uncertainties and residual waste forecasts

The latest version of Eunomia’s RWIR highlights the growing uncertainties one faces in trying to forecast the residual waste treatment requirements for the UK.

The amount of treatment capacity required for residual waste of course depends on the amount, and type, that needs treating. The long-term nature of investments in residual waste infrastructure makes them particularly reliant on confidence regarding the future shape of the market. Developers and investors who are making decisions now are effectively taking a view on future requirements within the market.

The continuing investment in such facilities demonstrates that developers and investors are willing to take the risk that they are confronted with. So what exactly are they betting on?

Whilst the UK’s decision to leave the EU has led to uncertainty over future residual waste arisings in the UK, and impacts on the export of RDF, where there is more certainty is around the levels of current and committed treatment capacity. There is 14.8 million tonnes per annum of operational treatment capacity. In addition to that we have 6.3 million tonnes per annum under construction and already committed (having reached financial close).

Eunomia’s analysis indicates that even a hard Brexit is unlikely to place any legal barrier to RDF exports. Europe’s appetite for RDF exported from the UK might increase over coming years, as EU Member States seek to increase their recycling rate, while some continue to increase their treatment capacity. We know that European facilities are capable of competing strongly on price with domestic infrastructure, and whilst a weakened pound has increased the cost of exporting, any widening of the supply demand imbalance on the continent could wipe out any recent increases in sterling denominated prices.

Scenario

Even where we consider a scenario where there is no further reduction in residual waste arisings from current levels, given the current levels of operational and committed capacity, and assuming that RDF exports remain at current levels, there would only be 1.2 million tonnes per annum not already accounted for in treatment capacity. Remember, this capacity gap does not include consented facilities. Once these are factored in, any capacity gap vanishes.

Investors seem either to be banking on ‘the worst case scenario’ in terms of resource aspirations, in which there is little or no reduction in residual waste arisings, and no increase in RDF exports, or they believe the facilities they are investing in and developing can compete effectively on price in the treatment market. This is a big gamble to make. There is a need for caution amongst investors around the market becoming more favourable as a result of Brexit. Investors are currently gambling on a policy vacuum from Government. This gamble will only be odds-on if that vacuum persists. If the policy direction starts heading up the hierarchy, then some investors might regret the bets they placed.