Memorandum from the Energy from Waste
1.1 The Energy from Waste Association (EWA)
is a non-profit making Trade Association representing the key
developers and operators of energy from waste (EfW) plants in
the UK. The Association's membership includes major waste companies
active in creating and implementing sustainable waste management
solutions including recycling, composting, EfW and landfill. These
companies have many years of continuous operating experience and
have access to state-of-the-art technology complying with strict
2.1 EWA welcomes the opportunity to contribute
to this inquiry by the Environmental Audit Committee. The inquiry
comes at a critical point in the development of the Government's
policy on renewable energy. Over the last 10 years or so, the
Non Fossil Fuel Obligation (NFFO), the key instrument used to
encourage the development of renewable energy sources and technologies,
has had some success. Recently, the government has committed itself
to a very ambitious target of achieving 10 per cent renewable
energy generation by 2010. This is an important target that, if
it is met, will help achieve a range of key environmental objectives.
2.2 Achieving the target will require a
step-change in the rate at which new renewable generating capacity
is brought on stream. In recent years, an average of 100 MW of
capacity has been added annually. Achieving the target will require
at least 300 MW of new capacity every year.
2.3 The Government has recently proposed
a new mechanism to support the development of the industrythe
Renewables Obligation (RO). This is something for which EWA has
argued for a number of years. The basic structure of the proposed
Obligation is, we feel, the right one. However, we believe that
critical aspects of the proposal are fundamentally flawed. In
particular we were dismayed by the Government's proposal to exclude
EfW from the technologies to be supported under the Obligation.
2.4 The Government has argued that this
is justified because, under NFFO, EfW had converged with market
prices for conventionally generated energy. Additional support,
it was argued might simply result in disincentives to recycling.
2.5 Neither of these arguments is justified.
2.6 The Government's planning assumptions
for the proposed Obligation use 1998 electricity prices. Since
then, there have been fundamental changes in the electricity market,
largely driven by Government policy. These include abolition of
the Pool, a drive towards lower consumer prices and the recent
lifting of the gas moratorium. According to the Government, these
have resulted in a fall in prices of some 29 per cent since 1990;
the Government estimates that prices will fall by a further 10
per cent by 2010. There is, therefore, a significant gap between
conventional energy prices and the levels required by key renewable
technologies, including EfW, to be competitive.
2.7 The argument that encouraging EfW could
result in crowding out recycling is equally misplaced. If there
is an issue herewhich we dispute very stronglyit
should be addressed through sustainable waste management policy.
Trying to "bend" the proposed Obligation to meet waste
policy objectives is both intellectually bankrupt and impractical.
It will harm the UK's attempts to achieve it's renewable energy
objectives, while doing nothing to contribute to the critical
task of finding cost-effective ways of diverting waste from landfill,
in line with binding international obligations. Mechanisms to
deal with any possible concerns about impacts on recycling reside
within the existing regime of waste management policies - for
example limiting, within contracts, tonnages for EfW and development
of statutory recycling targets.
2.8 We undertook extensive analysis and
modelling to test the assumptions underpinning the Government's
proposals for the RO. The results formed the basis of a very strong
critique that was submitted in response to the recent Government
consultation. Our analysis demonstrates clearly that:
The projected profile of the Obligation
is very optimistic.
The arguments for excluding EfW from
the Obligation stem from a series of misapprehensions understandings
about real market conditions.
The proposed policy will result in
a substantial shortfall in capacity, compared to the Government's
2.9 We consider that, while well intentioned,
the Government's proposals are deeply flawed. We understand that
our concerns have been reflected by a wide range of organisations
responding to the Government's consultation exercise, including
the industries representing the other renewable technologies and
bodies like the Local Authorities Recycling Advisory Committee
(LARAC). It seems to us that the proposed Obligation is founded
on unreasonable assumptions and, at substantial public cost, will
not prove an effective means for stimulating development of new
renewable energy capacity.
2.10 Following the proposed course will
be counterproductive and will leave central elements of the Government's
energy policy in disarray. It will also render inoperable other
key policy commitments in terms of sustainable development, action
to combat global climate change and to move towards more sustainable
waste management. We call upon the Environmental Audit Committee
to acknowledge these grave concerns and to urge a change of stance
within the relevant Departments of State.
3. THE PLACE
3.1 "Waste Strategy 2000" supports
strongly the place of EfW as an important renewable energy technology.
Section 62 (8) of the Utilities Act 2000 defines waste as a renewable
energy source, counting towards Government targets. In evidence
to the Environment, Transport and the Regional Affairs Select
Committee on 28 November 2000, Patricia Hewitt MP, of the DTI,
confirmed that the Government's plans rely upon EfW to provide
a quarter of all renewable energy by 2010. Moreover, EfW is a
CO2 neutral process and has an important contribution
to make towards achieving the Kyoto greenhouse gas emission targets
by avoiding both CO2 emissions (substitution for fossil
fuel fired generation) and methane emissions (diversion of waste
3.2 The Government is right to include EfW
in its 10 per cent renewable energy targets for 2010, particularly
as EfW has a profound impact on three of the Government's five
renewable energy policy aims:
To assist the UK to meet national
and international targets for the reduction of emissions including
To help provide secure, diverse,
sustainable and competitive energy supplies.
To stimulate the development of new
technologies necessary to provide the basis for continuing growth
of the contribution from renewables into the longer term.
3.3 However, the exclusion of EfW from the
RO is both short sighted and unjustified. The Government should
be supporting all forms of combustion, provided that they meet
stringent emissions standards and incorporate recycling schemes.
3.4 Although the EfW industry has much to
offer with respect to the development of new thermal treatment
technologies such as pyrolysis and gasification, there is not
sufficient time nor resources to concentrate only on pilot plants
and new technologies. A high level of exploitation of available
technologies such as mass burn EfW will be necessary.
3.5 Time is running out with respect to
the reversal of climate change. The Government should welcome
the progress made to date by the UK renewables industry. In order
to accelerate the rate of progress and avoid losing momentum,
it is imperative that the Government provides maximum support
and encouragement for the continued contribution by and future
development of all proven and evolving renewable technologies.
4. ARE THE
4.1 EWA applauds the Government for setting
an ambitious target for future renewable energy production. However,
as the Government itself admits, success in meeting its ambitious
targets relies on EWA supports the inclusion Obligation of all
renewable energy sources that are capable of further exploitation.
In order to be properly formulated and achievable, the Government's
targets must be based upon sound assumptions about the extent
to which each technology can contribute. These in turn will depend
on accurate assumptions about the economics of each technology
and the ability to frame support mechanisms so that they encourage
optimum development in each sector.
4.2 We consider that the Government has
made fundamental errors in making its forecasts of the amount
of renewable energy capacity that can be brought on stream and
that it's framing of the proposed RO is fundamentally flawed.
4.3 The Government clearly believes that
it can benefit from the contribution of EfW without having to
provide any further support to the industry to secure that contribution.
It argues in section 2.4 of the RO consultation document "Energy
from waste. . . is already commercially viable, well established
and can compete with electricity from fossil fuels." This
is used to justify exclusion of EfW from the Obligation. This
suggests that the Government fundamentally misunderstands the
marketplace within which EfW operates.
4.4 EfW is unique among renewable energy
technologies in having to compete successfully in two separate
markets in order to be viable, namely the electricity market,
to guarantee electricity sales and the waste market, where tough
competitive tenders must be won in order to secure the fuel stock.
In order to succeed, therefore, EfW projects need to achieve a
delicate balance between the price they can achieve for electricity
sales and the price they charge at the gate for waste disposal.
Moreover, the Government seems to assume that most of the outstanding
NFFO contracts for EfW will become developed projects. We believe
that a significant proportion will fail because of planning constraints,
highly competitive landfill gate fees and the difficulties in
simultaneously winning tenders for waste contracts and supply
4.5 Data provided by the Government in the
RO consultation document indicate that a total of 13TWh are expected
to come from "non-eligible" sources of renewable energy,
which comprise EfW and large-scale hydro. At present, non-eligible
sources contribute 6TWh. It is generally accepted that large-scale
hydro has been fully exploited in the UK, and this technology
is not expected to show significant future increases in capacity.
The Government has therefore assumed that, without support under
the RO, EfW can contribute an additional 7TWh by 2010. This would
require 1,000 MW of additional EfW capacity, which translates
into an annual throughput of an additional 12.5mt MSW (well above
the levels forecast by the Government in "Waste Strategy
2000"), and the commissioning of 63 new plants each with
an average capacity of 200,000 tonnes.EWA has repeatedly stated
that it only realistically anticipates a further 366 MW of EfW
capacity by 2010this is likely to be halved outside the
4.6 We find the Government's assumptions
and projections relating to the profile of the RO unrealistic.
EWA has carried out a full analysis of the likely contribution
from all renewables each year up to 2010, which in summary shows
Full details of our analysis are given in the attached copy
of our submission to the DTI in response to the preliminary consultation
on the Renewables Obligation.
4.7 There is no prospect of the 2003 target being met
and little prospect of the 2010 target being met. The 2003 target
would require more than a doubling of all existing renewables
other than large-scale hydro. Projects to make this possible clearly
are not currently under development and project lead-times mean
that the industry cannot make it happen within the time available.
We foresee generation levels some 5TWh below those predicted by
the Government. The 2010 estimate would improve if EfW were included
in the RO and if some mechanism were found to facilitate the full
deployment of biomass potential. Under the current provisions,
we expect the generation of not more than 29.5TWh by 2010
4.8 We are also concerned about the apparent inconsistencies
in the Government's approach. We have already alluded to the discrepancy
between the amounts of waste going to energy recovery predicted
by the DTI and DETR. We caution the Government to look also to
the Renewables Obligation (Scotland) (ROS). Scottish Ministers
have proposed that the target for the ROS will be to rise by only
5 per cent for the period 2003 to 2010, as Scotland already exceeds
the 10 per cent target due to a large hydro contribution. This
seems to leave a great hole in the DTI's figures, where a much
larger contribution from Scotland is expected. We strongly advise
the Government to encourage the Scottish Ministers to adopt a
higher target for the ROS to increase the likelihood of the UK
meeting its national targets. If Scotland is indeed to contribute
so little, the inclusion of EfW in the RO will be all the more
crucial to maximise capacity.
5. LEVELS OF
5.1 Currently, 200 MW of `green' electricity is being
generated from the combustion of 2.5 million tonnes MSW per annum
at 11 EfW plants in England and Wales. Under NFFO 3, EfW, landfill
gas and onshore wind reached near convergence with the price of
conventionally generated electricity. However, since the last
NFFO round in 1998, the energy market has undergone some fundamental
changes, which have resulted in a substantial fall in the price
of conventionally generated electricity, to the extent that they
are now approximately 20 per cent lower than they were in 1998.
No NFFO 5 EfW projects have been commissioned so the viability
of EfW under current conditions remains unproven.
5.2 However, assuming a 3 per cent annual growth rate
in line with the predictions of Waste Strategy 2000, the amount
of waste that will require combustion in EfW plants annually in
order to meet the landfill diversion targets of the Landfill Directive
will increase significantly. Over the next 10 years, we predict
that some 15 new plants should be commissioned. The industry is
poised to embark on a realistic, manageable and environmentally
responsible programme for dealing with the country's escalating
waste problem while at the same time, generating vitally important
renewable energy. Inclusion in the RO is vital to the success
of this programme.
5.3 Overall, if the Government's target is to be met,
a very substantial increase in the rate of development of new
renewable energy capacity will be required. Currently, about 100
MW of new capacity is being added each year. To meet the target
would require this to be tripled to 300 MW a year. However, as
noted above, there is no evidence of a significant uplift in the
number of projects being developed in any technology at present.
Therefore, we do not expect to see a significant change over the
next couple of years, meaning that a substantially higher rate
of development will be required towards the end of the Government's
target period to 2010. EfW is well placed to contribute to this,
but only if it is properly supported under the Obligation.
6. EXPECTATIONS OF
6.1 The Government estimates that the RO will represent
an extra cost to the consumer of 20p per week on 1998 electricity
prices by 2010. This is reasonable but only if renewables are
stimulated. The Government states that as renewables become cheaper,
this cost to the consumer will also reduce also. However, the
Government has guaranteed never to lower the buy out price. Therefore,
the cost to the consumer is likely to remain constant as long
as there is a shortage of renewables.
6.2 The Secretary of State for Trade and Industry has
suggested that affordability is a key issue.This equates to how
many MWh can be generated for the cost of the RO. The Government
must bear in mind that as the cost of the RO is likely to be unaffected
by its success at delivering renewable energy, a badly designed
scheme could give very poor value for money.
6.3 Generators are unlikely to receive 100 per cent of
the buy out price for long-term bankable power contracts and will,
in fact, receive closer to 50 per cent of the value. For reasons
linked to the regulatory regime, it is likely that a significant
part of the premium retained by the supplier will be recycled
back to customers in the form of lower overall tariffs.
6.4 In these circumstances, and bearing in mind the fundamental
flaws in the architecture of the Obligation which will inhibit
the development of new capacity, we do not think that the Government's
proposals will deliver the necessary levels of new capacity at
a price that represents value for money.
7. THE IMPACT
NETA, ON THE
7.1 The Government accepts that overall electricity prices
have fallen in real terms by some 29 per cent since 1990. The
introduction of NETA is also expected to benefit the consumer,
resulting in a reduction of at least 10 per cent in wholesale
electricity prices by 2010. Hence, although the EfW industry was
able to achieve substantial "convergence" with the help
of NFFO, its future ability to compete under NETA, without support
under the RO, will depend entirely on the gate fees that can be
achieved for waste.
7.2 The EfW industry needs RO support to ensure bankability
in the negotiation of long-term contracts. Almost all renewables,
other than large-scale hydro, have been developed by the independent
sector. Projects with a capital cost greater than £10M are
almost invariably funded by project finance, which involves the
bulk of funding (up to 80 per cent) being provided in the form
of long-term bank debt. Satisfying the requirements of the project
finance banks is essential if renewable capacity is to be expanded
rapidly. Both NETA and the RO are more suited to large companies
and on balance sheet financing. It is difficult for a single project
to manage effectively the balancing and settlement risks under
NETA, which will always be minimised in a multiple project portfolio.
The RO partly solves the NETA problem because it provides sufficient
income to offload the NETA risk onto the supplier. Unfortunately,
the cost of doing this is up to 50 per cent of the ROC premium.
The reduction of income is such that biomass and offshore wind
are not viable under the proposed RO mechanism unless they are
financed on balance sheet, which removes the need for long-term
power contracts and allows the full ROC value to be realised year
8. THE LEVEL
8.1 EWA believes that the growth of the renewables industry
is currently not sustainable in terms of R&D funding and recently,
research programmes have seen a reduction in funding rather than
8.2 Capital grants should not be restricted to any particular
technology and should be used to stimulate R&D across all
sectors of the renewables industry. The grants that have been
proposed are insufficient to bring on the new capacity required
for achieving the Government's targets and should not be used
for that purpose.
8.3 It should also be noted that for biomass projects,
the capital element of overall costs is small compared to fuel
and other operating costs. Capital grants would not form an efficient
basis for stimulating biomass technology.
8.4 In order for emerging technologies within the industry
to progress, considerable resources will need to be invested in
R&D projects in the next 10 years.
9. THE LEVEL
9.1 The Government has guaranteed never to lower the
buy out price or to remove support from projects or technologies
that have been included in the Obligation. This is welcome since
it will provide the level of certainty that the financial markets
will look for when considering investment proposals for new renewable
9.2 However, as it is currently framed, the Obligation
does not make adequate provision for the encouragement of new
technologies that may become viable over the target period. One
way that the Government might consider as a means of providing
support to emerging technologies would be to enable the creation
of new "bands" within the Obligation at higher prices.
10. THE INTERACTION
10.1 The primary barrier to the development of renewable
energy projects is the existing planning regime. Obtaining planning
permission for new projects has proved to be, and remains, an
extremely slow and arduous process. The process is both uncertain
and costly, which is a major disincentive to investment. Planning
is slowing down the deployment of both EfW and onshore wind. As
a result, the gestation period of new renewable energy projects
is long. Typically, a five-seven year development and planning
cycle is required. For EfW, a 10 year cycle is not uncommon. The
Government acknowledges in the RO consultation document: "Renewable
energy projects can take up to six years from inception through
to completion". Some projects, of course, take much longer
and "New and renewable energyprospects for the 21st
century" pointed out: "there has been a trend for some
planning consent applications...to become more controversial and
in some parts of the UK a higher failure rate is becoming evident."
10.2 The massive increases in renewable energy capacity
required to meet the Government's targets will not happen without
fundamental changes to the planning system. At present there is
no effective linkage between national, regional and local priorities.
All too often, very localised (NIMBY) objections can seriously
delay or even prevent good quality projects. If the Government
is serious about meeting its targets, it will have to take a lead
by providing a more prescriptive planning framework.
11.1 EWA strongly supports the Government in its desire
to increase massively renewable energy generation in the UK and
the Government is right in setting tough targets to achieve this.
Although the RO provides a potentially elegant mechanism, our
detailed analysis shows that it is fundamentally flawed in vital
11.2 We conclude, therefore, that the proposal to exclude
EfW from the RO is perverse and unreasonable, given the Government's
stated aims. The Government should revise its proposals and include
EfW in the RO alongside all the other renewable energy technologies.
Only through a policy of inclusion will the industry be in a position
to work with the Government towards meeting the targets.