WRITTEN EVIDENCE
SUBMITTED BY
COVANTA ENERGY
(LOCO 078)
SUMMARY
¾ US-based
Covanta Energy Corporation (Covanta) is the world leader in developing
and operating Energy from Waste (EfW) power stations to generate
renewable and low carbon energy from residual waste.
¾ Typically,
projects of interest to Covanta will be scaled to meet the needs
of more than one waste disposal authority (WDA) or to cater for
joint municipal/merchant requirements. Consequently, they tend
to be of at least sub-regional or regional significance.
¾ Some
local public services play a significant part in meeting important
national policy objectives and, in some cases, the UK's international
obligations.
¾ Practical
and cost-effective treatment and disposal of residual waste often
is most efficiently carried out on a relatively large scale in
order to deliver the best economic and environmental outcomes.
It is especially true of recovery operations that are designed
to make beneficial use of residual wastes that otherwise would
go to landfill.
¾ Not
only are these operations important locally in terms of providing
a safe and secure means of dealing with residual waste arisings,
they have a vital part to play in meeting wider national policy
objectives and international obligations, including diversion
of waste from landfill and reduction of carbon emissions.
¾ In devolving
power down the hierarchy of government tiers, the government must
ensure that it does not allow freedoms at the local level to jeopardise
the attainment of national policy priorities and/or international
obligations.
¾ Where
services are devolved further, mechanisms must be put in place
to ensure that achieving value for money is a key priority.
¾ Pursuit
of the localist agenda must not allow reform of the planning regime
to make it more responsive to community concerns over-ride the
need for wider regional and even national interests to be accommodated.
INTRODUCTION
US-based Covanta Energy Corporation (Covanta) is
the world leader in developing and operating Energy from Waste
(EfW) power stations to generate renewable and low carbon energy
from residual waste.
The company operates 44 EfW plants internationally,
handling around 18 million tonnes of residual waste every year—equivalent
to around two thirds total UK municipal waste arisings. Most of
these plants have been built to meet the needs of local authorities,
enabling them to divert from landfill waste that cannot be recycled,
generating beneficial renewable electricity and, where practicable,
heat and reducing harmful carbon emissions.
Covanta has been active in the UK waste market since
2005, pursuing a combination of local authority and merchant development
opportunities. The company's current plans envisage inward investment
to the UK in excess of £2 billion to renew the UK's waste
management infrastructure and create significant renewable and
low carbon generating capacity.
Typically, projects of interest to Covanta will be
scaled to meet the needs of more than one waste disposal authority
(WDA) or to cater for joint municipal/merchant requirements. Consequently,
they tend to be of at least sub-regional or regional significance.
COMMENTS
Two of the issues that the Committee has identified
for consideration in this inquiry are of special interest to Covanta.
They are:
¾ The
extent to which decentralisation leads to more effective public
service delivery; and what the limits are, or should be of localism;
and
¾ The
impact of decentralisation on the achieving of savings in the
cost of local public services.
The ways in which these considerations affect the
waste management market are outlined below.
Some local public services play a significant part
in meeting important national policy objectives and, in some cases,
the UK's international obligations. Where this is the case it
may be more important for the attainment of the wider policy objectives
to be attained than for the pattern of service delivery to be
aligned with the preferences of the local community.
Waste management is a case in point. The collection
and disposal of household waste, rightly, is handled as a universal
service to all households. The current arrangement for the exercise
of these functions recognises that it is not always appropriate
for such services to be decentralised to the lowest tier of governance.
Specifically, waste collection services are devolved to the lowest
level of local government in any area, including, in shire areas,
to district councils. This makes sense because it is at that level
that sensible decisions can be made about key operational variables
such as the frequency of collection rounds, the degree and nature
of segregation of different waste materials etc. This allows these
services to reflect local circumstances (eg dense high-rise vs
leafy suburban) and priorities.
However, waste disposal is reserved to higher-tier
authorities (counties and unitaries). Indeed, in some areas where
the unitary authorities themselves are quite small (London and
the former metropolitan county areas) it is common for then to
be ground into statutory or voluntary Joint Waste Disposal Authorities.
This recognises that practical and cost-effective treatment and
disposal of residual waste often is most efficiently carried out
on a relatively large scale in order to deliver the best economic
and environmental outcomes. It is especially true of recovery
operations that are designed to make beneficial use of residual
wastes that otherwise would go to landfill. Generally, these operations
take the form of energy recovery.
Not only are these operations important locally in
terms of providing a safe and secure means of dealing with residual
waste arisings, they have a vital part to play in meeting wider
national policy objectives and international obligations.
For example, under the EU Landfill Directive, the
UK is obliged by 2020 to reduce the proportion of biodegradable
municipal waste sent to landfill to just 35% of the amount landfilled
in 1995. Under the Directive, the country faces a potential fine
of some £500, 000 per day if it fails to meet this obligation.
In addition, using residual waste to generate renewable
and low-carbon electricity and heat can achieve savings in CO2
emissions of as much as 700 kg for each tonne of waste burned
when compared with the emissions of fossil fuel generating stations.
As a result, efficient energy from waste (EfW) projects are recognised
within EU and government policy as having an important contribution
to make to meeting renewable energy targets and in making the
transition to a low-carbon economy. For example, such projects
can attract support under the Renewables Obligation and will be
supported by the Renewable Heat Incentive when it is introduced
next year.
Pursued without care, the localist agenda could jeopardise
the development of such facilities in future. For example, if
the provision of waste services were to be devolved further or
if, under the developing Big Society concept, local service provision
was broken up in favour of community based initiatives taking
over from the local authority (as is advocated by some) local
waste markets would be in danger of becoming so fragmented that
the most efficient solutions become impossible to deliver. (The
more fragmented the local service provisions comes the more complicated
would become the contractual arrangements necessary for the delivery
of a large-scale facility.
This is important because, as well as having important
environmental benefit (for example greater energy efficiency resulting
in greater carbon savings) large scale facilities can deliver
very substantial scale economies. These scale economies translate
into potentially massive public spending savings for local authorities.
For example, financial modelling that we have undertaken
in relation to current local authority residual waste treatment
contracts that we are bidding indicates that a local authority
contracting to take one third of the annual capacity of a 600,000
tonne/year plant could save around £10 million a year on
gate fees compared with contracting to a dedicated 200,000 tonne
plant. Given that a typical residual waste contract will have
a life of 25 to 30 years, potential lifetime savings could be
of the order of £300 million.
A further consideration of real importance with regard
to waste management is that in order to meet the EU landfill diversion
targets, the UK will require massive investment in new treatment
capacity over the next few years. Given the state of the public
finances, the vast majority of this investment will have to come
from the private sector. It is essential, therefore, that the
pattern of service provision remains attractive to private sector
investors, and this does mean, in effect, that the market must
remain open to the development of relatively large-scale solutions.
There are three critical considerations that come
out of this:
¾ First,
in devolving power down the hierarchy of government tiers, the
government must ensure that it does not allow freedoms at the
local level to jeopardise the attainment of national policy priorities
and/or international obligations;
¾ Second,
where services are devolved further, mechanisms must be put in
place to ensure that achieving value for money is a key priority,
and, where this can best be achieved through collaboration to
jointly procure services and solution, there must be a presumption
that this will be done. There must be a very strong onus upon
any local authority wishing to pursue micro-level solutions to
demonstrate that there are over-riding economic and environmental
benefits in doing so; and
¾ Third,
the essential link between meeting targets and having an effective
planning regime in place must be recognised. Pursuit of the localist
agenda must not allow reform of the planning regime to make it
more responsive to community concerns over-ride the need for wider
regional and even national interests to be accommodated.
October 2010
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