EWB Insight: February 2016

This month: Europe's waste and bioenergy sector has experienced unprecedented investment from China. Could UK waste businesses such as Biffa be next on the Asian giant's shopping list?

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Sino the times

The Chinese New Year began in February and several China-based businesses celebrated by buying up or investing in European waste and bioenergy operations.

The trend for Chinese buyouts is already established, but the first quarter of 2016 has set new benchmarks. More than €5bn of investment was announced for just four waste and bioenergy deals.

One of the biggest was the Swedish investment fund EQT Infrastructure II’s sale of its energy-from-waste facilities portfolio to a China-based business for €1.4bn.

Beijing Enterprises, which bought EEW Energy from Waste owner or operator of about 20 mainly German-based EfW plants, spent in one swoop the entire amount all Chinese businesses invested in all sectors in Germany in 2014.

Commenting on the deals industry expert Adrian Judge, director of Tolvik Consulting said that the value of the investments included not just the potential assets and cash flows, but also the extent to which the associated knowledge could be replicated in China or other markets.

He explained: "A deal such as EEW indicates a drive to gain more operational knowledge. This is something which could then be of value when replicated in China, the rest of Asia and in Africa, where Chinese operations have a large footprint."

Judge added this approach can give Chinese business additional clout in negotiations and potentially allows them to make higher offers then European rivals, based on the longer term gain offered by the technology bought into. 

There is no sign of Chinese investment in European firms slowing down. According to research by Baker & McKenzie and the Rhodium Group investment has been growing rapidly since 2008, and Chinese business appetite, primarily in the agriculture/food and energy sectors, shows no sign of slowing down in 2016.

With the UK also the number one investment destination for Chinese businesses, again according to Baker & McKenzie and the Rhodium group, a move for a business with energy-from-waste capacity would seem inevitable.

One of the most obvious candidates for a buyout would be the UK’s Biffa. The business controls the largest amount of waste by volume in the UK and is currently investing heavily in anaerobic digestion and EfW infrastructure.

Having come through a difficult spell in 2012 when its main creditors Angelo Gordon, Avenue Capital Group, Babson Capital Europe and Sankaty Advisors agreed to exchange debts for ownership and invest in expansion.

Back in 2014, the company’s chief executive Ian Wakelin told ENDS: "Our strategy remains to both invest in new facilities and look at potential acquisitions, as consolidation is the way forward for the waste market."

When asked about the possibility of Chinese investment a spokeswoman for Biffa, which recently overhauled its website biffa.co.uk, said: "No final decisions have been taken."

She added that the company had undergone a "significant transformation" since 2012 and its shareholders and board now believe "it is an appropriate time to review strategic options for the business including a possible sale or IPO".

It is not just the waste market where Chinese investors have been active. In Finland, bioenergy investor Sunshine Kaidi New Energy Group has revealed plans to invest €1b in a biorefinery in Finland.

The move, revealed on 10 February, could see the construction of a second generation wood-processing facility, which would be the first of its kind in the world. A final decision is due later this year.

The plant would be able to produce 200,000 tonnes of biofuels per year, 75% of which biodiesel and 25% biopetrol. The company said the Finnish government’s support for biofuels made the case for the investment.

Towards the end of January Chinese investors also confirmed plans to fund two biomass plants in Wales, with further facilities potentially to be rolled out in other locations. 

Investment group SinoFortone plans two 299MW plants in Holyhead and Port Talbot that would process biomass to produce food, starting with king prawns and vegetables.

The company will invest €2.7bn in the two facilities and in its statement says the model used in Wales could eventually be "rolled out globally".

The Holyhead facility is planned to be operational in 2017, while the Port Talbot plant is expected to start up in three years time.

Policy Update

The European Commission said in February it would argue for a strong role for energy-from-waste plants in dealing with non-recyclable waste, in a policy paper due to be published later this year.

The paper will name EfW as "the best option for the management of combustible non-recyclable waste", in a move intended to tackle member states’ differing interpretations of EfW’s role under the waste hierarchy.

The paper will also assess the potential for shipping combustible non-recyclable waste from member states, such as those in southern Europe, with high landfill rates and low EfW capacity to member states with EfW overcapacity.

Bioenergy industry associations have called for the Renewable Energy Directive (RED) to support them after 2020, particularly given the low oil price. Biomass association AEBIOM emphasised the need to phase out fossil fuel subsidies and put a price on carbon emissions outside the emissions trading system sectors.

Ethanol lobby ePure warned oil prices were likely to remain low into the 2020s which would mean take-up of renewable fuels would "remain static or even decline". It called for a binding decarbonisation target for transport fuels. Waste-based biofuel sector association EWABA called for binding and increasing targets for use of advanced biofuels after 2020. Biofuels with the highest emissions savings should be most strongly promoted, it argued.

The Dutch government was asked to clarify its support for co-firing of biomass after the country’s parliament backed a motion to remove subsides for the sector. On 2 February, the Dutch parliament voted to block the "stimulation of sustainable energy production" subsidy scheme, known as SDE+, for the co-firing of biomass with coal.

Energy trade association Energie-Nederland criticised the move and asked economic minister Henk Kamp to clarify the situation.

The Irish government’s plan to implement a pay-by-weight system for all household waste collection from 1 July will promote incineration, according to the country’s Green Party. The government announced the plan on 1 February. It says the system will force waste collection firms to introduce charges that promote greater waste segregation.

However, the Green Party said this would "undermine goodwill" towards recycling and promote energy recovery. In response, the government said households already pay for their recyclable waste collection indirectly. Domestic waste collection in Ireland is almost fully privatised.

The UK government’s support limit on its feed-in tariff (FIT) for anaerobic digestion was reached in just 15 minutes, according to new figures from energy regulator Ofgem. Overall, biogas projects almost tripled their 5.8MW limit, delivering 14.9MW peak capacity according to deployment statistics released on 12 February.

Anaerobic Digestion and Bioresources Association (ADBA) chief executive Charlotte Morton said the figures showed just how much more green energy could deliver "if we weren’t being held back".

The UK government’s contracts for difference (CfD) renewable support scheme should be overhauled to reflect the benefits of different technologies, according to a report commissioned by power station Drax. The report, released on 16 February, was prepared by Nera Economic Consulting and Imperial College London. It criticised the government’s focus on offshore wind, which is expected to be the main beneficiary of three CfD auctions planned over the next four years.

The German Biogas Association called for new provisions for biogas in the county's Renewable Energy Act (EEG), including a target for continued net growth in plant numbers.  The sector is becoming increasingly concerned as a time approaches when the oldest existing plants will start to fall out of the current subsidy regime.

According to the association more than 8,900 biogas plants in Germany produce nearly 33,000 TWh of electricity and have a collective turnover of €9.2bn. But the number of new biogas plants per year has fallen from almost 1,500 in 2011 to only 202 last year.

The European aviation sector is unlikely to meet a 2020 goal of producing two million tonnes of biofuel for civil aviation use, according to the first European Aviation Environmental Report.

The report from the European Environment Agency, European Air Safety Agency and Eurocontrol found that despite commercial flights trialling biofuels, "production of sustainable alternative fuels is projected to be very limited in the next few years".

A new Welsh environment law has put the future of energy recovery in doubt by giving ministers more power to ban materials sent to energy-from-waste facilities.

The Environment Bill (Wales), which is expected to become law in the spring, was unanimously approved by Welsh Assembly members in February.

One important clause allows Welsh ministers to "make provision for and in connection with prohibiting or otherwise regulating the incineration in Wales of specified kinds of waste". The government does not specify further on which materials.

The French government sweetened the market for bioenergy plant investors and owners by introducing more subsidies. The energy ministry revealed plans to support small and medium-sized wood-fired biomass plants and biogas facilities over a three-year period.

The government will cap overall support to 50MW for biomass-fired facilities per year and 10MW per year for biogas plants.

Market Update

Panda agreed to send waste to the Poolbeg energy-from-waste plant once it is operational in 2017. A long-term waste contract was signed with the facility’s developer Covanta. No financial details or contracted waste volumes were disclosed.

The move came days after Panda announced, on 9 February, that it had bought rival Greenstar. The deal brings consolidation to part of the Irish waste market and adds a significant amount of waste for Panda to process.

Ireland-based renewables developer Solar 21 acquired the assets of a 22MWe biomass project in East Yorkshire. The company said it had taken over development of GB Bio’s Tansterne power station in Holderness (pictured below), which began construction in October. It is expected to be operational in 2017.

The electricity-producing facility is the first of five projects being developed by the company in the UK. Overall, the plants are expected to cost about £389m (€500m) to develop and should have a completion value of well over £778m (€1bn).

Drax Group and Infinis Energy lost a High Court challenge against the government for giving only 24 days’ notice before withdrawing a subsidy regime. The pair lodged judicial review proceedings against DECC’s withdrawal of levy exemption certificates (LECs) under the climate change levy (CCL) in last year’s Summer Budget.

German legal firm White & Case was appointed administrator of stricken wood pellet and woodchip supplier German Pellets on 10 February. The Germany-based company, which also supplies biomass-fired boiler systems, released a statement saying it had begun the provisional insolvency process, having already cancelled a creditors’ meeting on 9 February.

Göteborg Energi’s 2015 financial results were hit by impairment costs mainly caused by biogas production. In a financial report released on 12 February, the company revealed impairments costs were equivalent to about €105m, or more than SEK 1bn, for 2015. Overall, the company revealed it made a loss in 2015 of about €69m (SEK 645m), down hugely on 2014’s profit of about €30m (SEK 290m).

It emerged that Syngas Products is seeking investment to help it build ten new modular pyrolysis and gasification units over the next few years. It hopes to market the product to energy-intensive industries, said finance director Shaun Gomm, speaking at the Cleantech Innovate conference in London on 11 February.

The firm plans to start a 4,000-hour trial of its small modular pyrolysis and gasification system in the UK from April. The high-efficiency 3MWth system is able to take a wide range of waste and biomass and is hooked up to spark ignition engines at its development site at Canford, Dorset.

Utility company Oulu Energia announced it wants to make its electricity and heat generation completely carbon neutral within 34 years. In a statement chief executive, Juhani Järvelä, said the use of wood and other biofuels, alongside other renewable sources, such as solar, would be the company’s future.

Facilities Update

TIRU announced plans to operate its 56,000t/yr EfW plant near Grimsby for a further five years. The company, which took full ownership of the Integrated Waste Management Facility (IWMF) plant in 2014, had originally planned to run it until 2024. However, it will now continue to operate until 2029. 

Renewable developer Alpha Real Trust (ART) revealed it has signed a €3.1m (£2.45m) 40-year lease for a six-hectare site to build a 6MWe biomass-fired cogeneration plant. 

The site in Acharn, Scotland, will be home to a combined heat and power (CHP) project supported by the Renewable Heat Incentive (RHI) and Renewable Obligation (RO), ART said.

Biofuelwatch published a report doubting Egnedol’s ability to operate a planned 49.9MWe power station that would gasify around 400,000 tonnes of wood a year. The NGO said similar attempts to build gasifiers in the UK had failed.

No gasification plant of this type and scale existed in the world, Biofuelwatch co-director and author Almuth Ernsting told ENDS, while Egnedol had "no proven track record", she added. Egnedol could not be reached for comment.

Twence signed its first feedstock contract to supply its under-development manure processing biogas plant in plant in Zenderen, in the Netherlands.

Vattenfall is tendering for delivery of a fuel processing system for wood pellets with a capacity of about 60 tonnes per hour and a storage capacity of around 4000m3.  The system is part of a boiler conversion from peat to wood pellets in Uppsala, Sweden. The closing date for tender applications is 29 March.

E.ON’s Blackburn Meadows (pictured below) biomass plant was revealed in February. It was built with a dark profiled steel and brick design to reflect the industrial heritage of Sheffield. An orange polycarbonate enclosure houses boilers and at night throws illumination across a landscape planted to improve local biodiversity. Green roofs define the plant’s visitor centre.

The £120m complex, which first started producing energy two years ago, has a capacity of 30MWe. BDP finished the architectural cladded features recently.

Metsä Group revealed it has signed a contract with EcoEnergy to build what it claims is a world first biogas facility processing sludge from pulp production.

Trekantområdets Varmetransmissionsselskab (TVIS) is looking to increase the reach of biomass heat from a plant currently being converted from coal. The company revealed that it was "studying the possibility" of expanding its supply area by connecting to seven district heating companies. TVIS took the decision after investing in the conversion of the Skærbækværket power station, which is due to reopen in 2018.

The municipality of Massen-Niederlausitz in southern Brandenburg harvested three hectares of short-rotation poplar trees specially grown for its heating plant. Over three days the wood was harvested, chipped and dried to supply about 1,500 to 1,800m3 of feedstock to the municipality’s 0.5MW heating plant.

FCC Environment’s Greatmoor EfW took its first waste delivery and is now sending electricity to the grid. The plant near Calvert in the UK will annually treat 300,000 tonnes of residual waste and generate 22MWe and is part of FCC’s 30-year residual waste treatment contract with Buckinghamshire County Council.

A joint venture of Copenhagen Infrastructure Partners, PensionDanmark and Burmeister & Wain Scandinavian Contractor (BWSC) completed the 40MWe Brigg Renewable Energy Plant  three months early in late January.

The biomass-fired facility in Lincolnshire will burn 240,000 tonnes of straw per year using a water-cooled vibrating grate furnace. Construction began in August 2013 and took less than 27 months.

Local authority Cheshire West and Chester Council in February gave the green light for the 120,000 tonne per year REnescience facility (pictured below)being developed by DONG in the UK.

The Danish company’s facility will process unsorted municipal solid waste (MSW) and some food waste. It will be a larger version of DONG’s pilot REnescience plant which it built in 2009, and updated in 2012, in Copenhagen.

Plans for an EfW plant in Corby, Northamptonshire, were called in for consideration by the government. Clean Power Properties is currently seeking to drop the use of pyrolysis and remove a biogas element from its planned facility, replacing it with gasification to process waste.

Planning documents for Northamptonshire County Council confirm any decision on the facility has been put on hold while the secretary of state for communities and local government looks at the scheme. No date has been set for a ruling. 

 

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