The world’s insatiable appetite to consume has two primary consequences — increasing energy needs and mounting waste. This begs the question: Is waste-to-energy technology the answer? Given recent technological advancements, increasing recognition of the benefits of turning waste into energy is now occurring on a more global scale. The uptake of this technology in other countries, including Australia, has been rather unenthusiastic; however, a recent decision from China to stop importing recyclable material may prove to be the catalyst for Australia to embrace this technology.
The technology associated with this process is developing rapidly in terms of energy-generation efficiency and environmental impact, with a requirement for new waste-to-energy (WtE) plants in Organization for Economic Cooperation and Development countries to meet strict emission standards. Modern WtE plants can reduce the original waste by about 95 percent. They have the ability to utilize waste as a fuel source and convert it into heat, electricity, or a combination of heat and power (CHP). However, the efficiency rate is vastly different for generating heat and power. That is, waste is far more efficiently converted into heat than electricity.
As a pure generator of heat, WtE plants can reach up to a 90 percent efficiency rate, meaning only a small amount of heat energy is lost. As a generator of electricity, however, the efficiency outcome for WtE plants is materially less, with levels reaching only about 25 percent.
Efficiency levels from CHP plants lie in the middle, and these cogeneration plants are the most common WtE facilities. Waste converted into heat and power can achieve efficiency rates of up to 40 percent; however, this generally assumes that all the heat used to generate electricity is captured and used. One of the main challenges for CHP is balancing the optimal ratio between heat and power generation. As heat production increases, electricity output decreases. Furthermore, the energy-efficiency rate for WtE plants as a heat and power supplier is dependent on the nature and volume of available waste. When used as a fuel source, one of the most important considerations is the calorific value of the waste input. That is, the calorific value represents how much energy can be derived from such inputs.
Close to half of municipal waste generated on a global scale is organic material (plant and animal remains), with paper and plastic-based products representing about one-quarter. Unfortunately, organic waste is a relatively inefficient fuel source.
Given the high content of organic matter (with low calorific value), it is not surprising that in general, municipal solid waste as a fuel source is inferior to traditional fossil fuels. However, assessing WtE plants through the sole lens of a pure energy source is only half of the story. Waste is an undesirable outcome of growing global consumption and is a clear burden on society. Therefore, we need to consider whether, in addition to being an energy source, the burning of waste has a positive effect on the environment.
In 2012, the World Bank estimated that humans generate about 1.3 billion tons of solid waste annually. Furthermore, they predicted that as developing nations mature, consumption in these countries is likely to materially rise. This is set to drive waste to 2.2 billion tons per year by 2025. This equates to 1.5 kilograms of waste per urban resident per day, more than twice the 0.65 kilogram daily rate in 2000. Most residual waste is either burned or buried. Despite the tech advances in WtE plant efficiency and emission reduction, in most parts of the world, landfills remain the most economical, viable and accessible option of waste disposal. Landfill sites have adverse health and social effects on the residents near them, however, as well as wider negative environmental impacts.
GREENHOUSE GAS REDUCTION
Efforts to curb the human impact on global climate change have rapidly expanded the renewable energy sector, with increasing demand from both government and the private sectors. Renewable-energy technologies, such as solar, wind and nuclear power, seek to reduce the amount of greenhouse gas emissions in electricity production. These technologies produce close to zero emissions; however, they all do have their own idiosyncratic challenges, including disposal of radioactive waste and susceptibility to variable weather conditions.
The EPA reported that WtE is the only electricity-generating technology that actually possesses a negative greenhouse-gas emission status. That is, the incineration of waste to generate electricity reduces greenhouse gases that would otherwise be emitted if the waste was buried in landfills. The EPA estimated that savings of about one ton of greenhouse gas saved per ton of waste burned.
In European countries, landfills absorb only 26 percent of municipal waste. European countries with higher GDP per capita exhibit higher levels of recycling and WtE conversion. Conversely, countries with lower GDP per capita predominately rely on landfills. What are the barriers preventing more countries from adopting WtE technology?
ECONOMICS OF WASTE TO ENERGY
WtE has been a hot topic of debate in recent times, with both the public and private sectors expressing immense interest in this space after realizing the benefits and longer-term need for WtE. However, WtE plants are significant investments, as they are costly to build and operate. When considering such investments, investors, be it the public or private sector, need to undertake thorough analysis and feasibility studies of the proposed projects. Some of the key factors to consider include: waste supply and composition, geography, financing and operating expenses, construction risk, regulatory risk, and operational risk.
One of the hurdles faced by WtE is the high capital cost. Compared with other energy sources, it is one of the most capital-intensive methods of power generation. In the absence of government subsidies and incentives, the capital cost is a major barrier. Furthermore, compared with other energy-generation processes, WtE is often more complex, and requires a higher level of technology and expertise for its construction. The construction cost of a WtE plant typically includes items such as waste storage facilities, boilers, energy conversion, gas cleanup systems, generators and turbines, cooling systems, and emission treatment systems.
Waste composition: This is highly dependent on the demographics of the economy. High-income nations generally produce a higher level of waste per capita due to their higher consumption patterns. The waste in these countries is also comprised of a higher proportion of plastics and paper, which are more favorable for recycling and energy conversion.
Conversely, low-income countries on average have a much higher composition of organic material, which is not ideal for energy conversion. Furthermore, these countries typically do not have proper waste collection and transportation infrastructure, which further reduces efficiency when converting WtE.
WtE facilities are long-term investments, and the demographics of the economy can change during the life of the plant. Accordingly, it is prudent for investors to consider whether the current WtE plant can be modified to suit the potentially changing composition of waste over time. This potentially changing waste composition over time makes it difficult to assess whether the current technology applied will continue to be appropriate in years to come.
Waste supply: The long-term supply of available waste is another key factor that must be considered before investing in WtE infrastructure projects. Generally, for WtE plants to be effective and achieve the necessary economies of scale, a certain level of waste must be available to be processed at all times. Investors in this space need to consider the long-term prospect of obtaining waste material and backup plans (e.g. importing waste from neighboring regions) should the volume of local waste decline.
Geography: Location of the WtE plant is another important consideration. The identification of a suitable site is often challenging due to a number of factors. To minimize the cost of transport, the location of the plant should ideally be situated close to primary sources of municipal waste. Good infrastructure and transportation should also be available and accessible to the plant.
Depending on the consumer of the energy product, the WtE site ideally should be close to a suitable electricity grid, distribution network, etc.
Certainty of revenue: The two main revenue components of a WtE facility are waste gate fees and revenue generated from the sale of heat and power.
Operating and financing expenses: Initial capital costs for WtE plants are very intensive, but ongoing expenses are typically low. Well-
operated plants can generate a healthy profit margin (often seen in core infrastructure assets), given limited ongoing operating expenses that include the cost of transportation, compliance, labor, energy and maintenance.
Given the long-term fixed contracts associated with these facilities, it will come as no surprise that many of these assets are geared to enhance equity returns. Leverage is a double-edged sword, however; while it can enhance returns, it can also quickly destroy value created by the asset.
FIT FOR INVESTORS?
The WtE sector is still in its infancy in some countries where regulations and policies are still immature. This is particularly unfavorable for long-term investors, as immature policies are subject to change, which may not be in the best interests of the sector. The impact of regulation and governance in the sector cannot be overstated and varies widely between nations.
With low correlation to listed markets, low risk and cash-yielding nature, at present there is no shortage of global capital available to invest in well-structured and reasonably priced infrastructure opportunities. Given the positive investment attributes, including long-term contractual cash flows that can be exhibited by WtE infrastructure, the sector is likely to become a mainstream infrastructure asset class. As such, if structured appropriately, these types of investments should be able to tap into the significant amount of capital available for investment in infrastructure.
This article was excerpted from a Whitehelm Capital report. The complete report can be read at this link: https://bit.ly/2NqkId2