Select Committee on Environmental Audit Memoranda


Memorandum from the Energy from Waste Association


  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 environmental standards.


  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 industry—the 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 here—which we dispute very strongly—it 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 targets.

  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.


  3.1  "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 from landfill).

  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 greenhouse gases.

    —  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.


  4.1  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 contracts.

  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 2010—this is likely to be halved outside the Obligation.

  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 the following:


  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.


  5.1  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.


  6.1  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.


  7.1  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 by year.


  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 an increase.

  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.


  9.1  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 energy projects.

  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.


  10.1  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 energy—prospects for the 21st century" pointed out: "there has been a trend for some planning consent 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 areas.

  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.

January 2001

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 9 May 2001