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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1100-i (see note below)

HOUSE OF COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENT, FOOD AND RURAL AFFAIRS COMMITTEE

WASTE STRATEGY FOR ENGLAND 2007

WEDNESDAY 15 OCTOBER 2008

MR PAUL LEINSTER and MS LIZ PARKES
MR STEVE LEE and MR ROBERT LISNEY
MR PHILLIP WARD

Evidence heard in Public Continue reading »

Forward Trends in Waste and Carbon Management-the Pitfalls and Opportunities Ahead for Local Authorities and Major Energy Users

Original – October 2006

Amended and updated – August 2008

Peter Jones

ecolateraljones@btinternet.com

I Synopsis

The UK waste sector is responding to government and EU legislative trends by preparing to shift around 30 million tonnes of organic waste from landfill toward new resource efficient treatment technologies. Due to cheap landfill, we are around 5 years behind the rest of Europe in this trend but successive increases in landfill tax are now making non-landfill technologies more bankable.

In the energy market, the UK faces increased forward uncertainty in terms of both the cost and availability of energy due to structural shifts attendant on the replacement of extant nuclear and coal fired capacity, as the 70s generation of 2,000 megawatt stations approaches the end of its working life. As a result, there are identified potential opportunities in the market place to co-locate energy from waste power plants adjacent to large single point consumers of electricity in the engineering, food, industrial gases, logistics, and other sectors.

This paper is designed as a briefing document to explain the possible ways forward against the underpinning objectives to utilise Green Energy power generation technology skills (we currently generate 110 megawatt continuous mainly from landfill gas) to deliver improved security of supply within an economically attractive commercial framework for such large power users utilising, as a feedstock, local geographically linked sources of organic waste carbon from municipal, industrial, and commercial sources. For simplicity, this broader objective is outlined below in 3 simple dimensions …

· Technological factors

· Economic factors

· Socio-political and contractual factors

Considering each of these in turn …

II Technological Factors

In the UK Waste market each of the majors differs in their approach to this opportunity. Biffa (for example) prefers a so-called ‘mix and match’ utilising a mixture of technologies of medium size (processing 50,000-100,000 tonnes per annum, per process) comprising a blend of energy, recycling, and composting options. In this it differs from the other two major players; Veolia (currently in the process of integrating Cleanaway to become the UK’s number one operator) and Sita (Suez)), who prefer to build, own, and operate very large scale, thermal processing incineration plants, often in excess of 400,000 tonnes per annum.

The key strengths are….

· Smaller scale operations are more flexible and subject to lower levels of risk.

· Appropriate technologies such as anaerobic digestion and gasification create lower levels of carbon dioxide emissions and reduce exposure to future CO₂ taxation under the European Union Emissions Trading Scheme (EU ETS).

· Emissions levels are lower for other gases and particulates per tonne of waste processed.

· Correspondingly, such technologies enjoy greater support from non-governmental organisations and the general public.

· Correspondingly, planning risk is potentially reduced.

Since January 2006, Biffa has been acquiring operational experience with anaerobic digestion as part of a supply contract to Leicester City Council, with a plant processing 100,000 tonnes of material annually. The company is about to commission a 40,000 tonne per annum gasifier/incineration process to be installed on the Isle of Wight to service a municipal contract. Construction commenced late 2006. This process is well established in northern Germany, Denmark, and Sweden. The broad principles are explained in Appendix II. The company is also investigating other potential suppliers for both these processes in an area where technological improvements are being achieved on an ongoing basis utilising sterilisation/gasification systems.

Section IV considers possible commercial arrangements but the presumption is that Biffa will accept responsibility for fuel feedstock sourcing, construction, ownership, and operation of the technology.

III Economic Factors

The opportunity comprises an all round reduction in risk of operation of such energy plants for all parties with income and earnings underpinned by the following factors:

(i) Gate fees for disposal of waste from municipal, commercial, and industrial sources. Waste operators have the logistics capacity and infrastructure to guarantee inputs from their industrial and commercial fleets which comprise around 3550 vehicles carrying over 35 million tonnes of waste annually. The companies also negotiate collection contracts to local municipalities and, waste disposal contracts for a variety of municipal Waste Disposal Authorities around the UK. The latter contracts are conditioned around the current life expectancy of adjacent landfill facilities. By 2011 (April), annualised increases in landfill tax will make new technologies more bankable against the gate fee structures for landfill with tax levels of £50 plus £25 (average) gate fees at 2006 prices..

(ii) Sales of steam and electricity to industrial and commercial users are possible as CHP (combined heat and power)..

(iii) Procurement of a one off tax credit available under government funding for green energy conversion programmes (see Appendix III circular from the Carbon Trust).

(iv) The granting of small generator status under EU rules which will permit the award of double ROCs (Renewable Obligation Certificates) to approved facilities.

In ballpark terms, a 50,000 tonne capacity gasification plant will cost of the order of €60m. Such plants will be amortised over 20-30 years and energy supply contracts would ideally be developed on the basis of 5 year rolling contracts, subject to break clauses. Energy generated from such plants could be supplied into the Grid but it is more advantageous for them to operate as CHP (combined heat and power) plants – thereby improving their efficiency from around 28% to nearer 68%.

IV Socio-Political and Contractual Factors

The UK government places obligations on local government to move forward on the provision of ‘green’ policies. These comprise higher rates of recycling of municipal refuse, facilitating the introduction of renewable (non-fossil) carbon energy programmes, green consumption, and similar initiatives. Local authorities are also under targets to divert at least 50% of their biodegradable fraction from landfill by 2009/2010 – failure to achieve these targets will result in penalties via the operation of a Tradeable Permits regime whereby surpluses and deficits will be offset on an intra authority basis. Local authorities have the option to finance provision of such facilities via the Public Finance Initiative (PFI), Prudential borrowing, or encouragement of capacity via private sector investment on a freestanding basis.

Traditionally, incineration (direct combustion) technologies arouse much public opposition around fears associated with emissions from such plants. It is for this reason that technologies being trialled by Biffa (for example) are, in essence, enclosed systems with no emissions other than vented steam and water vapour and lower levels of CO₂ per processed tonne of waste fuel floc or biomass. Levels of ash from the process are also substantially reduced compared to mass burn incineration (from around 30% to 3% by mass), due to the use of front-end material separation at point of collection. The technology options are also preferred by Greenpeace and Friends of the Earth – as is confirmed in their literature.

Contractual arrangements are a ‘blank page’. It is suggested that if preliminary economic assessment stacks up, working groups from companies needing renewable heat and power and partner waste companies could enter into contractual arrangements. Open book accounting approaches achieve a clean separation of risks balanced between the liabilities and obligations of both parties. Logically the waste operator would build, own, and operate the plant and the energy user (of electricity, steam or gas) would agree minimum consumption profiles. Other key aspects of the contractual relationship would cover:

· Contract duration,

· Force majeure,

· Escalation formulae,

· Disclosures, and

· Top-ups/de-canting into the Grid, etc.

On a broader basis, Peter Jones chairs a DEFRA/DTI working group considering opportunities for the use of Distributed Energy and a report was produced in spring 2008. . With the publication of the Renewable Energy Consultation Government is now clearly taking a more robust approach in this area in relation to renewable energy, carbon sequestration, and the overall impact of the Strategy in terms of carbon and global warming potential. This augurs well for policy frameworks in this area.

Suitable sites need to be identified adjacent to major energy users’ premises that are capable of housing a waste/resources management facility, including an energy plant. Logically preference is for such sites to be constructed so as to permit other waste management activities such as material separation, recycling, bulking up and baling of recoverable materials for long distance dispatch. Ideally they should be located adjacent to railway lines, motorways and/or navigable inland waterways.

V Other Considerations for Forward Energy Security

Large, single point energy users (of electricity, steam or gas) face forward supply uncertainties against the backdrop of a UK energy strategy. Hopefully, these will be crystallised in the debate on the Energy Bill and consultation. These uncertainties focus around the following factors:

(i) Absolute capacity of electricity supply from centralised generation units,

(ii) Trends in Traded Pollution Permits for energy,

(iii) Supply chain ‘greening’ and customer pressure on blue chips (particularly major ‘brands’),

(iv) Carbon accounting and Corporate Social Responsibility (CSR) accounting systems,

(v) Pressures on centralised grid networks and costs of upgrade.

Dealing with each of these in turn:

(i) Absolute Capacity

For an analysis of UK electrical generation issues visit www.massbalance.org – electricity report.

(a) The capacity of the UK electrical supply is of the order of 70 gigawatts. Over the next 15 years the 15% represented by nuclear is scheduled to be withdrawn in stages. As of 2008, government has released no definite plans for replacement of this capacity (supply side capacity) other than indicate the private sector must underwrite all risks – including nuclear waste disposal).

(b) In the immediate future there is capacity criticality relating to the LNG (liquefied natural gas) terminal evaporative gasifiers at harbours handling North African and other imports (supply side capacity).

(c) Much internationally sourced LNG is traded on the spot market and can migrate to a variety of global and European ports on the basis of bid prices if severe cold weather front systems settle during winter. This could impact on gas CHP generators operating on interruptible tariffs at critical times (security).

(d) 38% of supply profile originates from coal. Import capacity is not a constraint, however many of these 2 and 3 gigawatt complexes require renewal and rebuild as ‘clean coal’/CO₂ capture systems over 2006-2020. This will be disruptive and have implications due to capacity constraints in the planning system (supply side capacity). Scheduled replacement of ‘dirty’ coal electrical capacity equates to 15% UK electrical supply by 2012.

(e) Global demand for next generation ‘clean coal’ power plants is exploding in China and India. Manufacturing, build, and commissioning capacity for such plants may become severely constrained globally creating delays in the UK. There could also be upward cost pressures on new build as a result (supply capacity and prices).

(f) Failure to convert to low CO₂ options could result in higher than expected exposure to European Union Emissions Trading Scheme certificates (EU ETS)/Kyoto targets (economics and prices).

(g) UK domestic energy demand profiles are becoming more volatile due to:

- population growth,

- increased levels of electrical equipment in homes,

- increased energy intensity of domestic appliances,

- expanding demand for domestic air conditioning systems (flattening the traditional summer trough, when maintenance is scheduled),

- internal migration of an ageing population to rural areas,

- exporting of energy intensive manufacturing activities often from regions adjacent to centralised electrical generation plants.

In consequence, the centralised distribution grid is expected to undergo refocus and change (capacity).

(h) Locally sourced waste based CHP systems eliminate distribution gird network losses variously assessed at 10%-15%.

(i) Major energy users are often under supply chain pressure from their (retail) customers to demonstrate low or reduced carbon intensity as part of more holistic ‘footprint’ or life cycle analysis assessments being undertaken for CSR reporting purposes by high profile ‘brands’ – particularly in retail.

(j) Low carbon intensity is often becoming a surrogate for improved cost efficiency as fossil carbon prices show indications of long term real costs increases with coal at £100 per tonne and oil at $100 per barrel.

(ii) Trends in Traded Pollution Targets

Currently comprising Renewable Obligation Certificates (ROCs) and Producer Responsibility Notes (PRNs), the future trend on prices is functional to the achievement of target compliance. In renewable energy the expectation is that the UK will find difficulty achieving 10% energy production by 2010 and the implied target of 20% by 2020, thus the expectation is for firming of ROC prices. This is underpinned by government agreement to 16% of all energy from renewables by 2020.

In packaging, PRN prices are conditional on meeting higher targets by increased yields from municipal waste. Currently (2006) that is occurring but at a cost to the quality of the recyclate. Much depends on DEFRA enforcement of standards and data tracking but the auguries are not good. As a result, it could be more attractive to route carbon based (organics) packaging down the energy rather than the recovery route if poor enforcement results in an excess of PRN releases which will then depress PRN prices.

Reform implicit in Phases II and III of the European Emissions Trading System (EU ETS) places greater pressure for transparency on centralised electrical producers.

(iii) Supply Chain Greening

It is expected that monopsonistic retailers in food and non-food will demand ever greater transparency in establishing their ‘carbon footprint’ from suppliers. Thus supply chains will be under growing pressure to demonstrate reducing (fossil) carbon impacts and expanding (renewable) carbon usage in the form of offsets.

If the price/value of renewable carbon offsets/traded permits continue to harden in response to global factors, reinforced by government policy drivers, it is expected that these valuations will become more transparent in the value chain.

(iv) Corporate Social Responsibility (CSR)

CSR forms a driver from the financial and stockholder markets. As the cost of fossil carbon hardens in real terms, or the value of renewable carbon offsets similarly rises in real terms over the coming decade, these bodies will demand increasing transparency on the balance sheet/profit and loss implications in terms of future liabilities.

(v) Pressures on Centalised Grid Networks

Ofgem faces significant cost pass throughs to consumers for £5bn of investment in extra pipe and wires and capacity. Some of that cost can be deferred or obviated by selective market led investment in distributed energy, large users, in areas of supply stress where single large users account for as much as 40% of local grid load.

VI Conclusion

The c40 million tonnes of renewable carbon in the UK commercial, industrial, and domestic waste stream has – thus far – not been considered significant in relation to the 68 gigawatt supply capacity of the UK electricity network. This conclusion could be misleading, however, because the distributed nature of that renewable carbon means that its application in distributed, high consumption, single point locations as combined heat and power (CHP) via innovative CO₂ efficient gasification and thermal technologies could result in four significant benefits:

(a) A substantial increase in its coal equivalent thermal value via refinement as a fuel floc from mechanical treatment.

(b) A further increase due to achieving 75% systems efficiency via CHP and elimination of distribution losses compared to 28% for coal fired plants.

(c) The avoidance of incremental investment at far higher levels in the centralised grid to meet expanding demand in response to demographic and domestic energy intensity shifts (for instance in Cornwall and the South West) by elimination of large, single point industrial users (consuming over 10 megawatts). These benefits apply to the gas as well as the electricity network.

(d) The opportunity to run factories 24/7 rather than be dependent on interruptible tariffs which oblige shut downs in the peak creates opportunities for improvements in return on capital employed.

In short – investment in distributed waste fuelled energy systems offers better value for money and improved security of supply – for users, for government, for waste planners.

Peter T Jones

August 2008