How to de-risk a waste-to-energy-project and make it investible
Waste to energy production has grown massively in the wake of public and regulatory pressure to reduce waste and greenhouse gas emissions in the developed world.
Now, however, there is regulatory uncertainty and some serious doubts about the future financial viability of incineration – until now the most popular waste to energy technology.
Given the high capital expenditure and long amortization period associated with constructing a waste to energy plant, project investors could be forgiven for being concerned about how to ensure they can continue to achieve a sustainable rate of return.
In this article, we explore the issues and suggest ways project investors could look at making their waste to energy investments less risky and more cost effective.
What is a waste to energy plant?
Most people reading this are likely to be well informed already. But here’s a brief refresher for readers looking to fill any possible knowledge gaps.
Waste to energy technology is any technology which takes waste and converts it into energy in the form of heat or gas.
In this article I will consider the most popular such technology – incineration – and our own specialisation, which is advanced gasification.
Incineration works by burning waste, converting it into heat, flue gas and fly ash. The heat can be captured and used to generate power. The flue gas and fly ash contain toxins and greenhouse gases, and must be cleaned via a filtering process before they are released into the atmosphere.
Advanced gasification uses a thermochemical treatment to convert waste into a gas called synthesis gas (syngas). It does not burn the waste, and so does not pollute. It also emits far lower levels of greenhouse gases – which I’ll discuss in more detail below.
Why has the technology grown so much in the last 20 years?
The initial spur for growth in much of the developed world came from policies to reduce the
volumes of waste sent to landfill.
In the European Union, for example, member states disposed of an average of 64% of their municipal waste in landfill sites in 1995. The EU sought to reduce this, and passed laws in 1999 with that specific goal in mind. By 2016, the proportion of waste sent to landfill had plummeted to 24%, falling to 23% by 2018.
Hand in hand with this, global policymakers sought to reduce the world’s dependence on fossil fuels to generate energy, thereby cutting greenhouse gas emissions. Waste to energy technology grew in response to the need to reduce landfill while still disposing of waste and also seeking an alternative to traditional energy production.
Given that incineration technology had already been around for over 100 years at that point, investors, local authorities and policymakers turned to it as a reliable, dependable option.
As a result, the number of incineration plants mushroomed.
According to this paper from Springer Link, in 2016 “the number of WtE facilities for MSW [Municipal Solid Waste] reached 1618 plants worldwide, including 512 plants in Europe, 822 plants in Japan, 88 in the United States and 166 in China.”
Investment in global waste to energy facilities (not just for MSW, but for commercial and industrial waste too) are projected to reach 43 billion US dollars in 2024 from 28.4 billion US dollars in 2017.
Why did gasification not take off in the same way?
At the time incineration started to become popular, around 20 years ago, gasification was seen as unproven and unreliable. Today, this is no longer true. Yoel Aleman Mendez is EQTEC’s Chief Technology Officer and he has 20 years’ experience of developing gasification technology.
As this research note from Arden Equity Research puts it:
“He has been at the forefront of advanced gasification design, build, commercial operations, IP development and patenting. He has three technology patents in power generation via fluidized
bed gasification.
For example, EQTEC has recorded over 125,000 cumulative – and independently audited – engine operating hours at its 6MWe reference plant in Movialsa, Spain.
At the same time, we’ve been working with the universities of Lorraine, France, and
Extremadura, Spain, who have conducted extensive research and development in facilities
based on our advanced gasification technology. As a result, we have tested nearly 60 different
kinds of feedstock using advanced gasification, including:
- Olive stones
- Nut Shells
- Straw
- Grape bagasse
- Wood chips
- Sawdust
- Pine cones
- Forestry clippings
- Lignite
- Sludge
- Rubber
- Demolition rubble
- Plastics
- Municipal solid waste – also known as refuse-derived waste
And more, all of which are proven to work effectively with our gasification process.
EQTEC also has a significant and growing project pipeline at varying stages of development. This pipeline shows both the range of possible applications for advanced gasification as a waste to energy technology, and the rising awareness of, and demand for, the technology in the market.
The costs of building a waste to energy plant
So, with this in mind, it’s now worth turning to a brief discussion of the costs of different waste to energy plants.
Obviously, the exact costs will vary according to location, application, economies of scale, and more. Our discussion of costs is therefore not exhaustive, but merely illustrative.
Usually a business plan for a gasification or incineration plant is calculated with a 20-year lifespan, so depreciation is calculated over 20 years.
Waste to Energy International offers a formula investors can use to estimate the cost of a waste to energy project. According to this calculation, the organization suggests a plant with the capacity to process 40,000 tonnes of waste per year costs $41 million. It adds that a medium- sized capacity plant of 250,000 tonnes per year “should cost $169 million”.
This is not an exact science, and costs will vary. However, they are significant.
When it comes to advanced gasification, economies of scale also apply. But the major difference here is that incinerators are only economically viable on a larger scale. Advanced gasification plants, on the other hand, can be built with production capacities of anywhere from 1 MWe and up – peaking at 25 MWe in our case.
In other words, due to the inability to construct incineration plants at a smaller scale, the capex required is always huge – and much larger than that required for the majority of advanced gasification plants.
At the same time, EQTEC’s advanced gasification technology is modular, and so simple to scale up should a larger production capacity become economically viable.
How to de-risk your waste to energy investment
With such large sums of money involved, “future-proofing” any such investment has become an increasingly hot topic. So what’s the right approach?
From our perspective, when the developed world began to move away from landfill and towards waste to energy production, incineration was the only viable alternative. When gasification was tested, investors lost money and there was no proof of commercial scale viability. The technology risk associated with gasification was too high, so investors stuck with incineration.
Today, however, the risk is flipping the other way. The previously unproven technology of gasification has evolved and developed over the last 20 years into advanced gasification, which is both proven and economically viable, offering an average unlevered internal rate of return of 12 – 14% (according to Arden Research).
In short, incineration is becoming too risky for a long-term 20-year capex investment, because:
1. There is regulatory uncertainty around the future of incineration
In December 2019, the European Commission agreed to “exclude incineration from its list of activities that advance climate change mitigation… stating that minimising incineration and avoiding disposal of waste will contribute to the circular economy”.
This decision follows a prior agreement to phase out subsidies to incinerator plants in the EU. The reason is that incineration produces relatively high volumes of greenhouse gases, including CO2. As well as the fact that flue gas and fly ash also contain a variety of toxic compounds.
These trends suggest that the economic viability of future incineration plant investments must be in doubt.
2. The costs of cleaning flue gas and fly ash are high, and could rise
According to this paper, cleaning and filtering flue gas and fly ash represents around 30% of annual maintenance costs for an incineration plant. Should environmental standards become more stringent still, these costs will increase.
At the same time, advanced gasification offers a more future-proof investment, because:
- It is cleaner and more efficient than incineration
Advanced gasification emits 25-30% fewer greenhouse gases per MW produced than incineration. It also produces no toxins or other pollutants.
- It promotes recycling and the circular economy
In order for advanced gasification to work at optimum efficiency, the waste feedstock must be separated to make it more homogenous. This promotes recycling.
- It is proven to work at commercial scale for biomass feedstocks
As mentioned above, EQTEC’s plant in Spain has clocked up 125,000 independently audited operating hours and has operated without issues for 11 years, with a potential operational capacity of over 90%.
- It is also proven to work for a wide range of applications
As mentioned already, our extensive R&D has proven that our advanced gasification technology can process over 50 different kinds of feedstock into energy. It can also produce a wide variety of energy-rich outputs cost effectively, including:
- Synthetic natural gas
- Biogas for use in transportation
- Biochar for use as a fertilizer and other applications
Plus a lot more. For example, one output of advanced gasification that’s very exciting right now is…
- It can be used to produce green (and blue) hydrogen
Green (and blue) hydrogen is set to receive huge encouragement from policymakers over the coming years as a way to promote decarbonisation in the global economy.
Advanced gasification of biomass waste produces a synthesis gas which contains up to 42% hydrogen, which can then be separated and processed for use as a source of clean energy. For more information on this, read our article: How biomass gasification can help boost global green hydrogen production.
Weighing up the risks
Waste to energy production still has a large role to play in our economy. And whilst incineration waste to energy plants are becoming more risky, advanced gasification plants are becoming more secure investments.
By David Palumbo, CEO, EQTEC plc