An article from Building Magazine which describes the risks and options available for investment in Energy from Waste infrastructure. Includes concept cost model for a generic Incineration process

1. ECONOMICS
analysis / facts / forecast
“waste to energy entrepreneurs” teamed up, with a proposal for a efficient, large schemes with the planning will continue to be
investing in capacity to secure hi-tech, plasma arc gasification capacity to treat the waste for a contentious and high risk.
long-term management contracts. plant to produce aviation fuel. consortium of WDAs are difficult Due to high operating costs,
Grundon and Viridor, for example, Perhaps the most critical to get through planning. government incentives including
COST MODEL ENERGY FROM WASTE developed a speculative plant
near Heathrow that has enabled
them to secure long-term
stakeholder in UK energy from
waste policy is the general public,
which is antagonistic to some
While very large schemes in
excess of 50MW will fall within
the remit of the Infrastructure
landfill tax, Renewable Obligation
Certificates (ROCs) and feed-in
tariffs will play a critical role in
contracts with WDAs in the M4 waste management projects. Planning Commission, this underpinning the economics of
There are almost as many treatment solutions as sources of waste. Simon Rawlinson and corridor. BA and Solena have also Opposition is such that more applies to few schemes, so schemes.
Matthew Hicks of Davis Langdon weigh up the costs and the risks of options, including incineration
03 / POTENTIAL BENEFITS OF ENERGY FROM WASTE SCHEMES
01 / INTRODUCTION Energy from waste projects need to be considered I Waste bulk reduction. Incineration will typically 450-600kWh per tonne are possible through a
as part of the wider waste management hierarchy, reduce waste bulk by 60 to 70%, and some waste steam turbine generator
The UK produces over 300 million tonnes of due to landfill tax and higher gate prices, and are encourage reduction of waste at source and by but the UK produces more waste than can be products may also be recyclable as aggregates I Energy security. Waste-based energy will reduce
waste a year, 24% of which is derived from also looking for alternatives to landfill. Waste recycling. However, there are physical and effectively recycled and bulk reduction techniques I Stabilisation of landfill. The bulk of the residual UK dependence on imported energy sources
household or commercial sources. Historically, disposal authorities face fines of £150/tonne if economic limits to recycling, and few waste such as incineration are needed to reduce waste waste stream – bottom ash or vitrified waste – is I Long term cost reduction. Incineration will help to
most domestic waste has been directed to they miss their 2013 and 2020 landfill targets, a disposal authorities (WDAs) expect to be in a volumes. The main benefits of processes such as stable and does not emit methane mitigate rising costs related to high gate prices and
landfill, and on current disposal rates, the UK has policy which is driving waste-related investment position to recycle more than 65% of their solid incineration are: I Energy production. Conversion rates of rising landfill tax.
less than 10 years’ supply of landfill left. worth £9-11bn for the public sector alone waste stream. Unlike Europe, where incineration
Challenging EU targets for the reduction of between now and 2020. This is equivalent to is well established, energy from waste is
disposal of domestic waste to landfill have an extra 500 million tonnes of treatment unpopular in the UK. However, with much tighter Energy from waste as a means of treatment is
belatedly triggered a PFI market in waste capacity per year. regulation, improved technology and the growing preferable to the last resort of landfill
recycling and treatment. Commercial waste Government policy, articulated through the risk of a UK energy gap, waste’s potential as a
producers have also experienced rising costs “waste hierarchy” (see diagram below) is to resource is now being warmly embraced.
02 / THE UK WASTE INDUSTRY
The UK waste sector is However, there will continue to be evolving very quickly in an effort tasked with reducing their
surprisingly diverse. The waste a surplus, and energy from waste to increase efficiency, deal with a landfill related to biodegradable
stream is inevitably varied and as a means of treatment is wider range of waste streams and municipal waste, commercial
requires different treatment and preferable to the last resort of to increase safety. Defra, for waste users who want to reduce
disposal regimes. Within the landfill. example, has recently provided disposal costs, and energy users
municipal and commercial waste Materials recovery and support to the development of looking for diversified sources.
streams, there are a large number mechanical and biological advanced thermal techniques There are 40 waste management
of players. Commercial treatment processes (MBT) sit (ATT) such as pyrolysis. PFIs in the UK, many of which
organisations are responsible for above energy from waste in the Parties involved in energy from involve elements of energy
contracting their own waste hierarchy and can produce fuels waste include WDAs who are generation, as well as a group of
disposal. In the public sector, that can be sold on to energy
there are a host of waste users. Solid recovered fuel is a
collection and waste disposal product of MBT processes and, in MINIMISE
authorities, as well as health some cases, can be burned
trusts and education authorities without treatment of flue gases.
who are responsible for their own Energy from waste itself is
waste management. This means an umbrella term describing
schemes may have to technologies used to extract the REUSE
accommodate a very varied chemical energy locked in waste
feedstock. Restrictive planning products. Energy from waste
concessions may also limit the techniques include thermal
sources of waste a particular processes such as incineration, as
scheme can treat – limiting well as a range of thermal or RECYCLE
economies of scale and long-term chemical gasification techniques
flexibility in the use of a facility. that produce gas and liquid fuels.
Based on the waste hierarchy The portfolio of energy from
(see diagram, right), much waste techniques also includes
RECOVER
investment has been targeted at aspects of pre-treatment required ENERGY
minimising the volume of waste for biological processes such as
requiring disposal. Projects anaerobic digestion, as well as
managed by the Waste Resource the treatment of flue gases and LANDFILL
Action Programme (Wrap) are other by-products of the
ALAMY
good examples of the holistic conversion process. Technologies
approach adopted in the UK. used are proprietary and are
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2. 56 / economics / cost model economics / cost model / 57
particularly those related to safe operation. of lower than expected throughput is increased Many of the risks relate to the effective operation
According to Wrap, total costs of disposal via unit costs. Lower waste conversion rates will of plant, which makes innovation particularly
04 / ENERGY FROM WASTE TECHNOLOGIES energy from waste range from £65 to £136/tonne. increase cost related to landfill tax liabilities. difficult to deliver – especially in smaller schemes
In terms of operating costs, the main areas of risk that have a limited range of treatment processes.
involve throughput, energy prices, the operating Additional cost and value drivers There are a number of high-profile projects where
Outside the UK a range of treatment for energy from waste. also reuse waste heat through oils can potentially be used as a and maintenance regime and the costs of disposal Most value drivers associated with energy from timescales and quality standards have not been
technologies have been in use for However, they differ in the way large-scale community CHP bio-fuel, although currently the of waste products. Replacement cost of plant also waste are related to scale of operation, which is met, and where testing and commissioning has
a long time, but very few have a the energy value of residual systems. Unfortunately, due to only use is for electricity has to be factored into the model. The implication difficult to optimise due to planning constraint. taken significantly longer than anticipated.
track record with the UK’s mix of waste is increased and in the the unpopularity of incineration, generation using a CHP.
waste. With pressure on to have quality of fuel produced. finding locations next to heat Unlike incineration, both
waste treatment plant in place to Production of solid recovered users is very difficult. gasification and pyrolysis 06 / ADDITIONAL COST AND VALUE DRIVERS
meet the 2013 landfill deadline, fuel via MBT or MHT gives The most common incineration require pre-processing of waste
momentum is with incineration. WDAs the option to sell on their technology is moving grate material. They also produce flue
However, looking forward to recyclate without committing to combustion. A potentially more gases that require treatment.
2020 targets and long-term PFI develop a dedicated energy from efficient combustion technique, Another emerging technology is VALUE RISK
deals, more advanced solutions waste scheme. fluidised bed combustion, requires plasma arc gasification. This
may be adopted. Incineration is the most pre-sorting and shredding of the involves passing waste into a Mitigation of long-term costs to the WDA Energy from waste projects Certainty of availability End users need assurance that the proposed plant
There are other sets of waste established waste technology in waste feedstock. Relatively few kiln at 4,000-7,000˚C. Gases eliminate risks of exposure to penalties from the Landfill Allowance Trading will deliver the expected waste throughput and waste bulk reduction within
treatment techniques, including the UK, treating over 4,000,000 of these plants are in operation. released are collected, and any Scheme relating to landfill disposal in excess of allowances. strict emissions levels and timescales.
MBT and mechanical heat tonnes per year. In energy from Although well established, waste products are immobilised
treatment (MHT) that often form waste schemes, the heat from the moving grate technology has in a vitrified mass that can be Risk transfer through procurement Turnkey procurement via PFI or a Certainty of delivery Where the project delivers useable output such as a
part of a PFI. Both include a process is used in a steam significant complexities safely disposed of. Plasma arc treatment contract enables clients to secure large-scale investment and to syngas or solid recovered fuel, assurance of product quality is critical.
proportion of materials recovery turbine to generate electricity for associated with the optimisation gasification promises much, but outsource project delivery and operational risks.
from the general waste stream the National Grid. Some projects of combustion, reuse of energy with few “reference” plants to Project delivery Risks include integration and co-ordination of complex and
and could be used as a pre- such as Sheffield and Teesside and the need to meet extremely confirm performance, adoption Minimisation of social impacts including vehicle movements, where this can distinct technologies for pre-treatment, combustion, flue gas treatment and
stringent flue gas standards. in Europe will be gradual. be achieved using existing infrastructure such as rail. the grid connection. Site constraints to the plan or building height may limit
Flue gas cleaning can add Anaerobic digestion is a the proprietary technologies that can be used in a particular location.
between 30% and 60% to the biological process for the Economies of scale Energy from waste schemes are most cost effective
capital cost of the equipment. organic portion of municipal with a throughput in excess of 350,000 tonnes a year. For larger projects it Planning risks Planning challenges include health concerns, traffic
ATT processes use heat and solid waste. Advantages include is claimed that doubling the throughput of a scheme only results in a cost movement and the visual impact of a development that can include a 90m
pressure to extract gases and scalability and low running increase of 50%. Other benefits of scale include reduced land-take and high stack. Planning consents may involve restrictions on operations such as
oils from waste materials. costs. Implementation issues higher operational efficiencies. limits on where waste can be sourced from. Other risks include delays in the
Gasification uses a temperature include waste preprocessing, planning process for overhead power line connections.
of about 750˚C and releases and disposal of the non-organic Recovery of value from the waste stream including heat energy and
useable hydrogen and methane waste and the residual recyclates such as aggregate or solid waste fuel. Project delivery Guarantees that transfer risk related to the availability and
as well as carbon monoxide. “digestate”. Defra is promoting quality of feedstock and the availability and performance of the technology
Pyrolysis takes place at a lower development of anaerobic Quality of the business case, including good quality information, use of will also improve viability – so long as the warranties are enforceable.
temperature, 300-800˚C, under digestion capability in the UK well-established technologies and extensive scenario modelling.
pressure and in the absence of and more than 10 large-scale Co-ordination of programme delivery Projects that involve a number of
oxygen. The process is designed schemes are in development. The Accurate estimation of the quality and volume of the waste stream, so that technologically distinct but closely related components need effective
to extract a greater calorific long-term vision is that bio-fuels plant operates effectively. programme management.
value than gasification and will from anaerobic digestion and
produce a combination of gases, ATT will be used as part of the Diversification of waste management processes to include waste reduction Technology risk associated with complex processes Each new feature
oils and waxes. The gases and natural gas or liquid fuel supply. and recovery. Materials recovery and composting are cheaper and more incorporated to reduce emissions or increase energy recovery contributes to
environmentally desirable than combustion. Larger projects that enable a this risk.
range of techniques to be cost effectively included in the treatment mix
05 / COST AND VALUE DRIVERS should deliver optimum outcomes. Supply and demand risk Reference projects with an extended track record
of operation with a UK waste stream are important business case evidence
Diversification of sources of waste – dealing with commercial and municipal for both end-user clients and funders.
Energy from waste projects are typically procured End user requirements Project sponsors such as energy and by-products such as aggregates. The waste streams together improves economies of scale and certainty of
on a build-own-operate basis, with operational and WDAs have been in competition for scarce waste waste gate price, currently about £60 to waste supply. Viability risk related to the long-term value of incentives such as landfill tax
commercial risks being taken by a waste management expertise and private finance. In £90/tonne, has increased substantially with the and ROCs.
consortium. The economics of energy from waste practice, larger WDAs are in a stronger position to support of landfill tax and typically contributes Continuing incentivisation of waste reduction and recovery strategies.
schemes are subject to many sources of risk and determine preferred solutions than smaller 70% of income. Certainty with regards to the Supply risk associated with the volume, quality and consistency of the waste
uncertainty, so although a scheme will usually be authorities who have in some cases struggled to continuation of the landfill tax accelerator is an stream.
set up with a guaranteed feedstock source, overall attract operator interest. Other areas where important consideration for operators and investors.
viability will be subject to a wide range of pricing, end-user requirements might affect the project Depending on the technologies adopted, there Demand risk related to markets for recyclates such as solid recovered fuel
deliverability and performance risks. Combined with design include the consistency of the waste may be additional income streams related to In summary, the risk exposure on energy to waste projects is relatively as well as waste heat, and the prices that can be obtained for these
the requirement to secure very large values of feedstock they can provide. Projects serving a exported heat energy as well as income from high – particularly for emerging technologies. Turnkey contracts are an products.
private finance, this level of risk exposure tends to consortium of WDAs will need to be designed to incentives such as ROCs. important mechanism to enable these complex interrelated risks to be
favour the use of well established technologies and deal with a less consistent waste stream, with a Costs Energy from waste schemes need packaged in such a way as the main objective of optimising the use of Political risk for end users of commitment to energy from waste if incentive
solution providers. consequent impact on efficiency. substantial investment in pre-treatment and grid waste as a resource is met. This concentration of risk will inevitably result to recycle is reduced.
The main variables affecting energy from waste Income The main sources of income are the gate connection infrastructure, as well as land and main in a risk premium which can be mitigated to an extent by giving suppliers
viability are as follows: price for the waste stream and the sale price of generator plant. Operating costs are also substantial, freedom over the application of technologies.
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3. economics / cost model / 59
08 / COST MODEL
The cost model provides outline costs of the Details of the scope of external works are
building facilities associated with a 600,000 included as these are a critical element of the
tonne a year combustion plant based on a operation of the facility.
three-line moving grate technology. The Site preparation costs, client-side professional
analysis also provides indicative costs of the fees and VAT are excluded.
combustion system and the grid connection.
A / COST BREAKDOWN
£ £/m2 GIFA % £ £/m2 GIFA %
Temporary works 1,650,000 64.71 2.00 Protection installations, lightning protection and earthing and bonding, complete,
Allowance for temporary works, item @ £1,650,000 item @ £480,000
Protection installations, fire detection, alarm and supression systems 25,500m3 @
Building shell 34,811,600 1,365.16 46.42 £80
Piling, pilecaps and ground beams, generally 11,000m2 @ £460 Lift and conveyor installations, very heavy duty goods and passenger lifts serving
Extra for base to air-cooled condenser 2,150m2 @ £150 seven levels, item @ £2,750,000
Extra for stack base, item @ £330,000 Special installations, crane and hoist installation, including crane rails, item @
Floor slabs, typically 500 thick insitu concrete, below ground drainage 11,000m2 @ £300,000
£185 Special installations, building mangement and energy management systems, item @
Feedstock and bottom ash storage bunkers complete, retaining walls, internal walls, £910,000
floor slabs, etc. (rate based on footprint area) 1,485m2 @ £3,650
Insitu concrete frame and upper floor construction to tipping hall, including full Ancillary building works 2,640,500 103.55 3.52
height shear wall structures (rate based on footprint area) 2,835m2 @ £1,280 HGV access ramp complete, including substructure, structure, road surface and
Insitu concrete frame and upper floor construction to boiler, turbine and flue gas safety barriers, item @ £2,150,000
treatment hall, including full height shear wall structures (rate based on footprint Allowance for gatehouses and weighbridges, item @ £375,000
area) 4,500m2 @ £270 Allowance for fuel and chemical storage – foundations, interceptors, etc., item @
Structural steelwork to building including long span curved trusses to roofs and £115,500
framing to process plant, stairs and access platforms (rate based on gross internal
floor area) 25,500m2 @ £400 External works 5,540,000 217.25 7.39
Cladding and roofing. Flat-panel cladding panels, feature glazing, aluminium louvres, Site preparation, generally, item @ £310,000
raised seam roofing on structural deck and secondary steelwork curved to profile, Roads and hardstandings, including traffic control systems, item @ £1,110,000
roof lights, rainwater disposal, architectural cladding to stack (rate based on gross Security fencing and gates, item @ £230,000
internal floor area) 25,500m2 @ £220 Drainage installations, complete, item @ £840,000
Allowance for blockwork partitions and cladding lining, item @ £645,000 External services, incoming HV supply, site water infrastructure, item @
Allowance for doors and windows, item @ £345,000 £3,050,000
The Lakeside energy from waste plant at Colnbrook, Berkshire, is one of the few to have been Preliminaries and contingencies 16,734,900 656.27 22.31
approved by planners Finishing and fit-out works 1,830,000 71.76 2.44 Contractor's management, site establishment and site supervision. Allow 17% @
Allowance for surface finishes, item @ £1,300,000 £9,836,700
Allowance for partitions, finishes and fittings to offices, workshops, staff facilities Contractors EPC design fees for building only. Allow 6% @ £3,500,000
and laboratories, item @ £530,000 Design reserve. Allow 5% @ £3,398,200
07 / PROCUREMENT
Building services installation 11,793,000 462.47 15.72 Total construction cost – building only 75,000,000 2,941.17 100.00
Delivery of energy from waste projects is an different solutions to be considered as part of the purpose vehicle. SPV projects are typically Plumbing and sanitary installation, complete, item @ £130,000
extended process, typically taking seven to 10 bidding process. Unfortunately this increases the delivered to the service operator via an Mechanical services installation. Heating and ventilation including closed cycle Turnkey technology contracts 230,000,000 9,019.61
years. In the current market, there are many WDAs costs of all parties. Recently, smaller authorities engineering, procurement and construction (EPC) ventilation system with negative pressurisation and odour abatement to tipping hall Indicative cost of 600,000 tpa incineration and energy from waste installation, with
seeking to secure relatively scarce technological have had difficulties in attracting compliant bids. contract. The operator’s risk can be minimised by and waste hoppers. Heating and air conditioning systems to offices and workshops. planned net electricity output of 65MWe, item @ £220,000,000
and project delivery resources, and as a result, the Private finance is more costly in the waste sector wrapping all aspects of the capital works – Dedicated extract systems. Hot and cold water installations. 25,500m2 @ £150 Indicative cost of National Grid connection, item @ £10,000,000
packaging of the project will be critical in attracting than some other PFI streams because of the range pre-treatment, main plant and grid connection Electrical installations, substation, including associated building works, item @
interest from bidders and from PFI financiers. of risks involved. The costs of large “back-end” infrastructure – into a single EPC deal. However, £440,000 Total construction cost – building only 30,000,000 14,902 11,960.78
Some major issues in procurement deal with projects, such as incinerators, are such that since these arrangements add significantly to costs Electrical installations, HV installation, lighting and emergency lighting, small power
attracting the most appropriate bidders in the first the loan syndication market collapsed in 2007, related to fees, management resource and risk and power supply to building services installations 25,500m2 @ £36
place, obtaining finance and devising the most cost funding has been more difficult to arrange through premium. An “unwrapped” approach, where the
effective project delivery mechanism in order to “clubs” of lending institutions. The Manchester SPV takes a more direct role in managing risk, may
integrate the major elements of technology. waste PFI, worth over £1bn, received far higher increase returns and reduce overall cost to the
Supplier selection in the public sector presently public sector funding through the European public sector, but could be more difficult to finance.
involves a costly and complex competitive dialogue Investment Bank and the Treasury infrastructure The final, critical aspect of procurement of waste
process. The advantage to both the promoter and finance unit, than had originally been anticipated. treatment projects is testing and commissioning, Acknowledgements
the provider is that the competitive dialogue Another key issue concerns the management of which in the UK requires extended evidence of We would like to thank Jon Dedman, Steve Waltho and Peter Browne
process enables a range of technologically construction delivery risk within the special effective operation before full certification. of Davis Langdon’s energy team for their contribution to this article.
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