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Consultation on proposals for the levels of banded support under the Renewables Obligation for the period 2013-17 and the

Renewables Obligation Order 2012 Response from The REA’s Gasification and Pyrolysis Group

Introduction

The REA’s gasification and pyrolysis group consists of technology providers, project

developers, owners, operators, and others making energy from waste (EfW) incorporating

gasification and pyrolysis technologies. The group meets regularly to discuss common issues

and challenges, and to share best practice.

The UK is developing a leading edge in the deployment of Advanced Thermal Technologies

(ATT)1 for the recovery of energy from waste. The range of technologies available and the

opportunities for the outputs are significant and have the potential to bring new treatments,

products, jobs and industry to local communities. Emerging technology needs a stable

development market, incentives to be sufficiently reflective of the needs of the industry and

to have sufficient visibility to allow technologies and facilities to be constructed.

The REA’s Gasification and Pyrolysis group are submitting this separate response to the RO

banding consultation as the proposals are undermining confidence in the industry and

putting at risk a number of projects. This response addresses the issues of resource potential,

gate fees and power purchases, and development time frames that were misunderstood in

the Arup analysis. The response then responds to the specific questions relevant to

gasification and pyrolysis from the consultation.

Background

The Renewables Obligation (RO) was originally devised as a mechanism for supporting and

promoting the development of new capacity for the production of renewable electricity

from eligible feedstocks. As a mechanism it has been subjected to a number of iterations

and amendments each of which has had an impact on existing and future project

developments and market and investor confidence.

1 ATT is referred to by DECC as Advanced Conversion Technologies

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Over time Government has sought to introduce a number of other incentives and

mechanisms to promote the production of renewable heat, renewable gas to grid and

renewable transport fuel. In addition the Government has introduced a feed in tariff for

electricity for certain relatively small scale technologies.

In 2009 on the introduction of banding to the RO, the Government introduced definitions

for waste gasification/pyrolysis which rely on the calorific value (CV) of the syngas

produced by the process to determine the level of ROC support eligible for the technology.

This banding designation is administered by the sector regulator (Ofgem) and their

interpretation of the requirement for monitoring the CV is as a ‘real-time’ obligation requiring

on-line monitoring. The definitions of standard gasification / pyrolysis and advanced

gasification / pyrolysis are to be found in the Renewable Obligations Order 2009.

In principle the RO is designed to support the production of renewable electricity, the RHI the

production of renewable heat or renewable gas to grid and the RTFO to support the

production of renewable vehicle fuel. With all these primary incentives and mechanisms

Government needs to take care that the incentives are fully complementary, do not

adversely compete for feedstock or create unintended consequences directly as a result of

Government policy.

The current proposals in the RO banding review consultation document seek to promote the

production of heat or products which are not electrons and which could comply or be seen

better to comply with other incentives such as the RHI (subject to the increase in the scale of

projects envisaged this year) or the RTFO. Some in the industry are concerned that adding

complexity to the RO in type and style of incentive will confuse and ultimately lead to further

changes in either or all of the incentive schemes named. Others view the current proposals

as a forward-looking mechanism which will help in planning for a future where the type of

energy needs are uncertain and where therefore flexibility is key.

The proposed changes to the RO include the second fundamental change in eligibility

criteria, and level of support, for gasification and pyrolysis in less than 3 years since banding

was first introduced. These changes, occurring as they have in a period of almost

unprecedented financial uncertainty, will have the effect of stifling investment in the sector

as investors can have no confidence in the continuity of support that will enable their

investment to deliver the expected returns. Technology investments require incentive

stability and projects in the waste derived fuel sector usually require years for development

and thereafter 2 to 3 years for construction. The timetable for the currently proposed

changes would not even allow a project under construction (in the first half of its construction

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period) time to be commissioned and accredited under the rules existing at the time the

financial commitment was made. Changes of this nature and timing do not create an

environment in which investors and funders can support renewable energy developments

nor one in which developers can devote their time and resources to project development

rather than fighting for survival.

Industry has significant concerns with a number of aspects of the ARUP report which has

been relied upon by Government in determining their strategy for the banding review.

Industry considers that the report has errors and/or has failed to understand the information

provided to it (such as financial and technical data) to such an extent that the conclusions

drawn on the support required from the RO to promote the ATT technologies are lacking or

are inadequate.

Arup Report

DECC have indicated that the base foundation of the RO banding review is the ARUP report

entitled ‘Review of the generation costs and deployment potential of renewable electricity

technologies in the UK, Study report’.

General

It is common in the waste sector to consider waste arising from Municipal sources and

Commercial and Industrial sources differently. The composition and commercial drivers of

these two arisings are generally materially different and give rise to different quantities and

qualities of recycled product and Post Recycling Residual Waste (prRW). Matters such as

general industrial and consumer activity, styles of production of consumable materials

together with activities for minimisation and reuse will change the compositions and volumes

of waste arising and then the volume and composition of prRW.

Both the waste and renewable energy sectors support minimisation, reuse and recycling and

recognise that waste currently going to landfill should be subject to the waste hierarchy prior

to any prRW being used for energy recovery. However industry recognises the potential for

prRW to contribute to UK base load energy supply and for between 50% and 68%2 of that

electrical output to be classified as generated from renewable sources.

2 http://archive.defra.gov.uk/environment /waste/localauth/funding/pfi/documents/pfi-supporting-analysis-

waste101206.pdf and Environment Agency 2007 analysis of the biodegradable content of mixed C&I waste landfilled in Wales.

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Industry contends that the changes to the RO as currently proposed will significantly impair

the development and/or speed of development of new renewable energy facilities, thereby

failing to utilise a domestic resource that can provide secure and reliable base load

electricity with significant renewable credentials for the foreseeable future.

Resource Potential of Waste as a Renewable Energy feedstock

Summary

Industry considers that the ARUP review significantly underestimates the volume of potential

waste feedstock that could be used in renewable energy generation plants in the UK. This

underestimate is around 66-69% of the potential in 2020 and between 40% and 65% in 2030.

Further, industry considers that the ARUP split of technology types underestimates the

potential contribution of ATT to the energy production mix with ARUP estimating a

contribution to installed capacity of 10% and industry working on projects, which with a

pessimistic success rate of 50%, could still deliver up to 40% of the expected installed

capacity. These two flaws in the report devalue the contribution that this domestic resource

and these technologies can make to UK electricity supplies, secure base load electricity with

significant (50-68% expected) biogenic fraction, jobs and industrial activity.

Furthermore this generation capacity could be located nearer points of energy use rather

than in remote locations and therefore nearer the source of feedstock. This local solution

connected to the distribution network adds less strain to the national transmission network

significantly reducing transmission losses and encouraging local support.

Working between 50% and 68%3 of the feedstock being biogenic in origin suggests that EFW

and ATT could contribute in excess of 800MW of renewable base load (equivalent to

potentially 3 times as much installed wind power capacity) generating capacity. The

average size of ATT in planning and being built is smaller than those for the more traditional

combustion technologies, thus any delay or reduction in roll out will impair the technologies

that are more likely to deliver the smaller community scale schemes.

The changes currently proposed to the RO regime downgrade the ROC banding for ATT,

threaten significantly to reduce the domestic use of this resource and thereby promote

export to EU and other countries whilst impacting on UK energy security and on

3 Defra (2010). The analysis assumed a biodegradable content of 68% for all municipal waste.

http://archive.defra.gov.uk/environment/waste/localauth/funding/pfi/documents/pfi-supporting-analysis-waste101206.pdf).

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infrastructure delivery with corresponding loss of skills, expertise and jobs undermining

economic recovery.

Resource Potential of Waste as a Renewable Energy feedstock

ARUP report

Section 14 of the ARUP report covers combustion. It considers that in 2009/10 3.9Mt of Waste

Biomass Fuel Resource (WBFR) was used in the UK to support around 150MWe of installed

capacity. The report then considered that by 2020 this could double (7.8Mt supporting

300MWe capacity) and by 2030 to more than triple the 2009/10 figures (12.5Mt supporting

around 480MWe of installed capacity)

ARUP use the following definitions and/or assumptions. Industry comments are in italics.

1. ‘Waste Biomass Fuel’(WBF) comprises Municipal Solid Waste (MSW) and part of the mixed

Commercial and Industrial Waste (CIW).This does not include all CIW waste available and

therefore is an under estimate.

2. Net Calorific Value of WBF is 9GJ/t or 9MJ/kg. Industry believes this is a reasonable

assumption for MSW but that CIW waste will generally have a higher Net CV in the range

of 10-12MJ/kg.

3. Biogenic Content is 50%, whilst recognising it could be 62.5% or as high as 68%. Industry

believes that 50% is a likely reasonable worst case and that biogenic fractions will

generally be proven to be higher than this number.

4. EFW design lives are 25 years. Industry believes this is a realistic number for traditional

EFW’s and is a good target for the emerging ATT

5. Load factors are 85% (or 7446 hrs per year) Industry believes this is a reasonable

assumption for traditional EFW’s and is a good expectation or target for some variations

of ATT but that over the next 10 years ATT availability will tend to increase as the

technologies develop.

6. Electrical Conversion Efficiency is 23%. Industry believes this number is an over

simplification for the sector but that efficiency ranges from 18-27% are realistic depending

on the feedstock preparation burden and individual characteristics of the technology.

7. 90% of WBF by 2030 is expected to be treated in EFW (432MWe) and 10% in ATT (48MW).

This is dealt with below.

Addressing points 1 and 7 in the first instance we will use a number of Authoritative reports to

show the actual expected quantity of prRW in each of the target years. Where a third party

report is referenced we will use the acronym used in the third party report but translate

them into prRW whenever possible.

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TOLVIK 2010

This report entitled 2010 Briefing report – Residual waste in England and Wales, was published

in July 2010. In this report Tolvik utilise waste data sources from Defra, STATSWALES, HMRC and

their own to consider the generation of Residual waste over time to 2030. They generally use

2 or 3 scenarios to predict likely arising and for the purpose of this document we have taken

the middle tonnage scenario in each case. The middle scenario generally considers good

recycling increases and they also model a declining feedstock per tonne to 2030.

Consolidating the Tolvik numbers would give a minimum installed capacity of 800MWe in

2030 if we assume that the waste sector built to the minimum tonnage (that they predict in

2030) rather than the higher available streams in 2020. If we maintain the assumptions in the

ARUP report for load factors etc then this would suggest a potential installed capacity 40%

greater in 2030 than predicted by ARUP and 66% greater in 2020.

The report splits the source contribution to prRW from MSW and CIW in 2030 as 11.9Mt and

9.1Mt respectively.

Eunomia 2011

This report published in October 2011 and entitled Residual Waste Infrastructure Report

considers not only current but also future feedstock capacity and plants built, in build, with

planning and seeking planning permission. The report takes into consideration;

1. Increasing recycling rates for both MSW and CIW waste

2. 14% of CIW’s have access to low cost disposal routes (land spreading etc) and are

therefore excluded from the calculation of residual waste used in their modelling.

3. Defra predictions of UK growth and consumption patterns

4. That an RDF-SRF plant will produce fuel quantities approximately 40% of the input

tonnage. Industry notes that RDF would be expected to have a net CV of around 12-

16MJ/kg and SRF a net CV of around 18-22MJ/kg thus energy output from a Energy

from Waste plant would be significantly greater per tonne of input than would be the

case for untreated MSW or CIW waste.

5. Have suggested that 50% of all RDF-SRF is exported and 50% retained in the UK.

Industry notes that the proportion of RDF exported will greatly depend on the

economics and should the economics of RDF-SRF usage in the UK deteriorate, it is

likely that more materials will be exported.

Eunomia suggest that the tonnage of prRW available in 2009/10 is around 26Mt. Eunomia do

not model beyond 2020 but for the purposes of comparison we have assumed their

production continues to flat line and that 2030 feedstock availability will be the same as

2020.

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In the modelling however we have maintained the Net CV as used by ARUP but we note

that the RDF-SRF product used in the Eunomia figures will have a higher net CV and therefore

greater energy output per tonne of input fuel.

WRAP 2010

In July 2010 WRAP produced a report entitled ‘Comparing the cost of Alternative Waste

treatment options’. This report considered the likely MSW and CIW (part) arisings as part the

complete report. Taking the tonnage remaining after recycling but before they apply the

biodegrable municipal waste (BMW) adjustment, they predict 2020 prRW arisings between

23.2Mt and 27.8Mt, similar or higher than the 2020 predictions used by Tolvik and Eunomia.

SITA UK 2009-2010

In 2009 and through to 2010 SITA constructed a model of waste arising in the UK, considering;

1. Recycling targets and improved performance

2. Reduction in waste arising per head of population by 23% from 2007 to 2030.

3. Population growth and therefore a larger source of waste.

4. Composition (14 sub categories for MSW from Paper/card and glass through to haz

waste and WEEE and 25 sub categories for CIW waste)

5. Historic trends from 1971 for MSW and 2002 for CIW were used to provide a baseline

for the total arising waste currently and going forward.

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6. Arising and outputs were then split and scenarios used (like the table above) to

indicate the likely treatment capacities required in 2020 and beyond for the main

treatment routes described. (Organic treatment includes composting and AD).

SITA predicted a likely tonnage to energy recovery of around 25Mt in 2020 with a potential

for a likely maximum capacity by 2030 of around 36Mt.

SITA UK graphs shows no decline over the period as a result of increasing recycling

performance and reductions in residual wastes per head of population being offset by

increasing population. By 2030 the SITA UK model is predicting residual waste arising per head

of population to be significantly lower than that currently arising per head in Germany.

Results

Using the data presented above the following table shows the variance between ARUP

biogenic MWhrs output in 2020 and 2030 and the other studies presented.

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Table 1 (output figures in MWhrs)

Biogenic Output 50% biogenic fraction

Arup Tolvik Eunomia SITA

50%

2020

1,116,900

3,293,423

3,436,615

3,579,808

2030

1,787,040

2,978,400

3,436,615

5,154,923

Biogenic Output 62.5% biogenic fraction

Arup Tolvik Eunomia SITA

63%

2020

1,396,125

4,116,779

4,295,769

4,474,760

2030

2,233,800

3,723,000

4,295,769

6,443,654

Biogenic Output 68% biogenic fraction

Arup Tolvik Eunomia SITA

68%

2020

1,518,984

4,479,055

4,673,797

4,868,538

2030

2,430,374

4,050,624

4,673,797

7,010,695

Further we present the following table for Feedstock likely to arise and again point DECC to

the discrepancy in installed capacity between ARUP and the other studies. (It should be

remembered that the SITA 2030 feedstock number is a likely maximum to energy from waste).

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Table 2a

Table 2b

Table 2c

Table showing the potential splits of capacity by prediction and technology type.

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Table 3

The table suggests that in excess of 800 MWe of ATT capacity is currently being worked on in

the UK. The survey does not cover every developer of ACT for waste projects and not every

project on the list would be expected to complete under the current RO regime. Assuming

only 50% of projects not in build obtain planning and finance then potentially 420MWe

capacity could be delivered. If we compare this number to the predictions shown in Table 3

it can be observed that the industry, working on the current RO regime, is working to an

expectation nearer the 40% technology split rather than the ARUP assumption of 10%.

A significant proportion of this tonnage is embedded with DECC defined ‘simple’ gasification

technology providers and would be most impacted by the proposed changes. However

DECC continual changes to the RO regime (together with those of their regulator) undermine

confidence in the whole sector, impacting not only on simple gasification but also advanced

gasification and pyrolysis

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Table 1: Projects

Gasification and Pyrolysis Projects

Projects in Build

Total Project No. Total MW capacity Total MWhrs

4 27.9 209,250

Projects with planning permission

Total Project No. Total MW capacity Total MWhrs

21 125.65 942,375

Projects waiting for Planning Permission to be awarded

Total Project No. Total MW capacity Total MWhrs

13 150.8 1,131,000

Projects Planning Process being started

Total Project No. Total MW capacity Total MWhrs

17 209.6 1,572,000

Early Stage Projects moving to Planning Application

Total Project No. Total MW capacity Total MWhrs

18 296.3 2,222,250

NOTE: MWh are calculated on conservative basis of 7500 hours uptime pa

Understanding gate fee and power price relationships

Industry considers that the ARUP review and DECC consultations fail to understand the

relationship between gate fee for feedstock and the revenue from the sale of energy,

including incentives. This misunderstanding has led to fundamental failures in understanding

the funding market, the relationships between feedstock, energy and incentive revenues,

funders’ expectations or requirements and developers’ ability to deliver projects.

ARUP appear to consider that the feedstock market bears little relationship to the capacity

to supply, the available feedstock in the market for use and the intrinsic energy value of the

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fuel. Traditionally waste used for the production of energy has had few significant drivers

beyond competition with the landfill market. However in the last 5 years with the reduction in

landfill capacity and availability of sites, coupled with the increase in energy prices and

technologies able to use it productively, prRW is increasingly being recognised as a

commodity and has exhibited trends in use and value more commonly associated with pure

commodities.

The growth in the export of RDF to overseas markets as referred to in page 3 of this document

is also a very real and strong indicator of waste becoming a commodity. In the future the

waste and renewable energy industry expects prRW to become a fully embedded

commodity and to react to local and international drivers. It does however seem

incongruous that UK prRW should not be utilised for base load renewable energy in the UK

but dispatched overseas to provide renewable energy for others.

The intrinsic market value of prRW and its value as a commodity must be clearly understood

by DECC. The ARUP report’s reliance on the stability and high gate fee for waste is

unfounded and dangerously misunderstands the types of feedstock, from crude to fully

refined, underestimates the uncertainty in gate fee values today and in the future and fails to

recognise the need for incentives to allow this emerging industry to develop, prosper and

ultimately mature.

Given that significant uncertainty exists in all of short, medium and long term prices for

feedstock and power produced (as explored below), Government creating uncertainty

around incentives and qualifying technologies is a dangerous addition to development risk.

To deliver the potential for this feedstock and these technologies in the UK given the other

risks, Government must provide a stable and foreseeable incentive system that can be used

by developers and the funding community to deliver real projects, renewable energy, direct

and secondary employment and the opportunity to export relatively high value goods and

services

Resource Potential of Waste as a Renewable Energy feedstock

ARUP report.

Section 14 of the ARUP report considers that in 2009/10 3.9Mt of Waste Biomass Fuel

Resource (WBFR) was used in the UK to support around 150MWe of installed capacity. The

report then considered that by 2020 this could double (7.8Mt supporting 300MWe capacity)

and by 2030 to more than triple the 2009/10 figures (12.5Mt supporting around 480MWe of

installed capacity). In the previous section evidence has been provided that ARUP have

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seriously underestimated the potential feedstock supply, This section addresses some of the

other issues arising in the development of new projects.

Importance of understanding gate fee, energy and potential incentives revenues in

delivering new projects

It is important to understand that with any project development, developers and funding

agents need to model, predict and understand the risks and opportunities. Simplistically

considering the basics of a business plan the following would be listed;

Costs

Cost of obtaining permissions, contracts and land

Capital cost of the plant and equipment

Operational costs of the plant

Operating capex to keep the plant running

Labour and administration

Revenues

Revenue (or cost) from the receipt of feedstock

Revenue from the sale of power

Revenue from the incentives earned.

Often all the cost items are reasonably well known and can be defined with reasonable

certainty. Items such as operating costs for newer technologies may well be less understood

than those for technologies with more proven operating records and this uncertainty will be

elaborated in assumptions, risk and sensitivity work on any business plan and development.

With the revenues there can be significant uncertainties on the future markets in power and

some incentives (the current process being an excellent example of Government induced

uncertainty). As waste is increasingly valued as a commodity, the level of uncertainty on

waste gate fees has increased markedly. With projects intending to use commercial and

industrial waste the level of uncertainty is even greater than that for municipal waste.

Developers spend considerable time and effort in understanding these markets and

providing evidence and predictions to funders in seeking to manage the risks in project

development. Due to changes induced by Government in the renewable incentive support

for waste to energy, developers and therefore funders are unable to predict and therefore

provide any certainty for making investments in new projects.

In the following sections an attempt is made to elucidate on both waste market and power

market influences and the impact these factors can have on certainty. Developers are

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skilled at providing high degrees of knowledge and as much certainty as is possible for gate

fee and power sales and the development chain of projects moving forward under the

existing RO scheme is testament to these efforts and skills. Developing projects using waste as

a feedstock is not easy however unless Government can provide certainty in the incentives

and recognise the need for incentives to assist this emerging industry reach its full potential,

many projects will not be able to provide sufficient risk certainty in the magnitude of likely

revenues to overcome the hurdles of development. Government changes to incentives,

such as proposed in the current RO banding review is unnecessary and unwelcome

Influences on waste markets

To understand the waste market and especially the changes in waste as an energy source it

is necessary to understand the complex influences on the composition of waste and

especially the composition of prRW The composition of waste can change for many reasons

and these will be explored below. Waste composition is a major driver of the use of prRW as a

feedstock for energy production. The major components of waste vary through a number of

different drivers and these drivers are influenced by multiple issues. For instance carbon

burdens of tax could directly impact on one customer’s production of waste or implicitly

impact on another through marketing or Community Social Responsibility (CSR) in the way

they purchase materials and in the nature and volume of waste they produce. Other issues

such as customer usage patterns, producer production changes, seasonal trends, waste

management practice; waste collection and consolidation practice, cleverer recycling

practices and prRW refinement processes, can all lead to significant changes in the

composition, energy potential, renewable energy potential and intrinsic value in energy

production.

Waste is comprised of the various and varied materials that people and industry have

purchased and for which they have no further use. Buying patterns of these entities and the

waste materials they discard therefore varies over time. Composition will change through

season and year by year. As composition influences the energy and renewable energy

potential of prRW so its value as a commodity in raw, semi or fully refined qualities changes.

For the purpose of this document and to avoid confusion over the terms used elsewhere that

have potentially different interpretations and complex origins 3 waste feedstock definitions

are used and defined: Raw waste, semi refined waste and fully refined waste.

Raw Waste

That delivered to a location which is simply the mix of waste collected from customers or

from consolidation or treatment stations which produce prRW. It may contain all manner of

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materials generally remaining in the form and size in which they were discarded bearing in

mind many recyclables have already been removed.

Semi Refined waste

This comprises post recycling residual waste which generally has been subject to some form

of crude size reduction and non combustible material removal (soil, earth, glass, metals etc ).

Its moisture content will be that naturally arising from the original input of material minus any

incidental losses during the size reduction and non combustible material removal stages.

Generally these materials will exhibit a CV of between 12 and 18MJ/kg.

Fully Refined waste

This comprises prRW which has been subjected specifically to treatment processes which are

designed to produce an output to a specific size range, to remove non combustible

materials, to remove deliberately, moisture from the waste and to meet a defined end

specification. Generally these fully refined prRW materials will exhibit a CV in excess of 18-

20MJ/kg.

It is important at this stage to understand definitions of waste and products made from waste

WASTE – materials discarded by people or companies because they have ceased to

have any realisable value to them(discards or intends or is required to discard).

Post Recycling Residual Waste – Almost all waste streams are subject to forms of

minimisation, re-use and recycling. This may comprise simple multiple bin deposit

systems and source separated collections through to single bin collections and

complex technology separation at industrialised plants. The residual waste arising

after these variant types of technology is prRW.

Municipal waste – that arising from domestic styles properties and sources

Household Waste: all waste, including recyclables, collected at the kerbside by, and at

bring sites and council household waste recycling centres. It also includes garden waste, litter

and household clinical/hazardous waste (not defined as such).

Municipal Solid Waste (MSW): includes household waste and other waste such as

grass and leaves from municipal parks and gardens, rubble, fly-tipped materials,

bulky household waste,

Commercial waste – that arising from commercial or industrial premises.

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An example of the potential collection options and mix outputs are indicated below.

Municipal waste is often collected by contractors working for local authorities under

contracts that may vary from 3-5 years up to in excess of 15 years. Often in these types of

contracts the style of collection and the delivery point for the waste or resources collected

will be designated by the local authority. In many instances the management of the waste

after being collected by local authorities is organised at county or unitary authority level

where it is more common for long term (10-30 years) contracts to be let. For these longer

term waste streams risk for volume and composition for any treatment solution is often shed

to the contractor providing the end solution.

Commercial waste is collected by a host of different waste management contractors,

engaged often on a business by business basis. With bigger commercial entities these can be

long contracts covering multiple sites but often have short notice contract break clauses of

only a few months. Customer retention and flux between different contractors can be high.

Certainty of composition can be predicted from municipal waste with a reasonable degree

of certainty between contract changes but changes in collection styles for local authorities

could significantly change waste composition at each contract change and lead to

increases and decreases in volume, organic content and CV. For a traditional energy

recovery facility built to service a municipal waste stream, significant change in composition

and volume could therefore occur every 5-10 years and therefore 3 times per local authority

over the asset life of a normal facility. The same is true for ATT. It is unusual for a single local

authority to be able to meet the capacity demand of energy from waste plant and as such

at county (Waste Disposal Authority) level contract or some commercial and industrial waste

streams would need to be accommodated.

As with any commodity, the value of the material varies by quality, quantity and demand.

As an example, the market for waste wood, which would have been a revenue stream for

feedstock to a plant 10 years ago is now a cost to many plants as market demand for this

feedstock and general energy market and incentives demand have changed its perceived

value. Crude prRW currently commands a gate fee of anywhere between £54-£97/t in the

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market for modern facilities based in an analysis of the WRAP gate fee reports. Semi and fully

refined waste will command lower gate fees at the energy from waste plants as they provide

a higher quality and energy intensive fuel. However the cost of semi or full refinement

incurred in fuel preparation should not be ignored in understanding the market economics.

Gate fees for prRW have varied significantly over the last few years due to its changing status

towards a commodity and to some extent the maturity in the market. Given that the range

of prices will somewhat reflect the crude, semi refined and fully refined quality influence the

degree of change shown since 2009 by the WRAP gate fee reports is significant.

Upper and Lower gate fees report vary over the 3 years of the report by around 20% from

2009 to 2011. In both instances the gate fee reported has decreased by 20% ranging from

£23/t in the upper range to £14/t in the lower range. Depending on the technology type and

the biomass content of the feedstock, industry generally estimates that the value of 1 ROC is

approximately equal to between £5 and £10 per tonne of feedstock depending on the CV

and organic content. As such the market price of gate fees expected to be earned by an

ATT plant has decreased by between 1 and 1.5 ROC’s equivalent in the last 3 years

according to the WRAP figures.

For ARUP and DECC to fail to understand the developments in the waste market, to fail to

understand changes in the market value of waste and then to attempt to draw conclusions

on the degree of incentive required to promote development in the sector is to create a

fundamental flaw in the current re banding proposals.

Influences on Energy markets

The UK energy market is complex and strongly impacted through international influences

such as commodity prices (oil, gas etc). Local demand, weather, tax, economic growth, mix

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of fuel source, combustion plant mix and other influences need to be taken into account to

understand and predict likely movements. Long term energy price forecasts therefore try to

predict various scenarios of prices, an example is given below.

The graphs shows two main sets of top level predictions and 4 potential scenarios within

each top level based on a matrix of different influences, including but not exclusively,

Oil, coal and gas price predictions

Energy demand

Cost and influence of carbon taxation under the various schemes that would

influence feedstock and energy production

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Energy production mix ( how much Nuclear, coal, coal with carbon capture,

renewables (and which type), CCGT and others )

Inflation and none direct taxation

Economic growth or contraction

exchange rates and energy self sufficiency

Cost of finance for new or replacement plants

Risk in all of the above.

No prediction is ever accurate, but predictions are useful tools in analysing project sensitivity

and in risk management for developments. In understanding risk in all revenues, developers

and funders seek to provide sufficient combined certainty to allow a project to gain funding

and be developed

The graph below shows the change in energy usage (on the basis of primary energy

equivalents) issued by BERR. This graph clearly shows the significant variation in electricity

consumption over time. Recent changes in consumption reflect the current recessionary

trend and this will lead to significant uncertainty over consumption over the next 5-10 years.

Changes in consumption and base generating capacity will impact significantly on the

value of electricity and green electricity in the marketplace.

Electricty consumption history UK

-

5.0

10.0

15.0

20.0

25.0

30.0

19

70

19

72

19

74

19

76

19

78

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80

19

82

19

84

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86

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88

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90

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92

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98

20

00

20

02

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04

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06

year

Pri

ma

ry E

ne

rgy

eq

uiv

ale

nts

Transport

Industry

Domestic

Services

Total

Energy price predictions are indicative only and as can be seen from the various graphs

above, energy price spreads from the lowest to highest predictions are in excess of £80MWhr

in 2020 for the Upper level prediction scenarios. It is also apparent that the amplitude of

21

variation between the scenarios in each main prediction significantly increase as the time

line extends.

Lower 2011 2020 2030 % 11-20 % 20-30 % 11-30

Light growth £/MWh 47.45 88.68 111.52 46% 20% 57%

BumpyGrowth £/MWh 51.50 117.56 128.42 56% 8% 60%

Technology

driven £/MWh 47.45 87.00 95.27 45% 9% 50%

Low change £/MWh 44.17 65.55 71.30 33% 8% 38%

On their own, the future power predictions varying by up to 60% by scenario and by inter

scenarios by up to 44% in the latter years and overall by up to 65% might seem

insurmountable. However developers and funders use these predictions to develop risk

models and business plans that can deliver funding.

If it is then borne in mind that:

General electricity consumption can impact on the number of MW’s required by

licensed suppliers to meet their obligations and this will affect the price of the ROC

and recycled Buyout in the market.

Government policy can change the percentage of biogenic content in the waste

(and therefore the proportion of any MWh output that would be eligible for ROC

support)

That this in turn can affect the volume of prRW and implicit drivers (like carbon)

The challenge to developers can be seen in its true complexity. The ARUP report has failed

to understand how these market uncertainties influence development and funding

decisions and as such the analysis of required incentive support is inadequately considered

and conclusions drawn are flawed.

Below is an example of a potential prediction of long-term ROC values (blue column is a

general all scenario, the green line being on the same basis as the blue column but with a

different position on the recycled buy-out). The most important is a prediction of the long

term ‘real’ price of ROC’s in the market place before the start of the current banding review.

22

This predictive graph exceeds the period in which ROC’s might continue to be issued but is

presented to show how a predictive model might try to deal with uncertainties in the market

and how the value of a certificate might be translated to a true market price.

Scenarios and modelling of carbon prices (as shown above) and other direct and indirect

drivers are carried out and used to inform developers and funders alike. The need for

accuracy and therefore the ability of these parties to rely on predictions is significant. Often

in securing longer term contracts for power purchase agreements, the degree of visibility in

the predictions and underpinning assumptions are key to what level of price contract might

23

be offered. Currently 5 year PPA prices rarely exceed 60% of the current market price for

power.

The more stability and visibility Government can provide to the energy sector the greater the

assistance to developers and funders providing more predictable forecasts and more

revenue certainty. The more reliable the forecast the less the cost for risk and the higher the

fundable PPA power prices should be. The less reliable the predictions, the greater the risk

PPA power contract prices will be subdued and the more revenue vulnerable will be the

projects.

Predictable incentives help bridge the power sale uncertainties and provide additional

surety to developers and funders in developing projects. Unpredictable incentives provide

no such certainty.

Development time frames and requirements

Industry considers that DECC and the ARUP review have fundamentally failed to understand

the time and works that are necessary to bring new or developing technologies to market

and to commercialise them fully. Without a clear understanding of the development

timeframes, DECC may fail to appreciate the degree and duration of support and the future

visibility that is necessary for new technologies to mature.

The continual changes in the consideration and application of the renewable obligation and

matters such as the qualifying criteria and banding levels are occurring at a frequency that is

far in excess of any opportunity for the industry to bring forward technologies, to secure

permissions and funding and to develop and commission the individual facilities.

The industry in the UK is developing a leading edge in the deployment of ATT for the recovery

of energy from waste and the range of technologies available and the opportunities for the

outputs are significant and have the potential to bring new treatments, products, jobs and

industry to local communities. However any emerging technology needs a stable

development market, needs incentives to be sufficiently reflective of the needs of the

industry and needs to have sufficient visibility to allow technologies and facilities to be

constructed. Currently the myriad of changes to the RO has and is causing uncertainty,

delay in development and projects and if the current banding review progresses as

proposed, will curtail most developments and opportunities.

24

Development periods and programs

Periods and terminology of development

It is necessary to understand the basic terms and period of development of a technology.

Idea to Pilot from the conception of the technical process, through bench testing and

theoretical design and function and ending in the delivery of a working small scale pilot

plant can take 2- 5 years depending on the degree of innovation in the technology.

Pilot to first full scale plant – This period brings two parallel but linked aspects, the

technical/process development and the planning permission and permit process for the first

full scale plant. Dealing with the technical development first, the developer must work on the

manufacturing and processing challenges of the upscaling of the plant from pilot scale to full

scale, must deal with the procurement of the necessary equipment and acquiring the

knowledge base necessary to realise the first full scale plant. Prior to commencement of

development of the first plant the developer must deal with finance, for the permissions

stage, the procurement stage and the build period, the relevant commercial and legal

necessities of feedstock contracts, power sale contracts, land procurement or options,

planning and permit applications, EPC contracts, funding arrangements and cash flow

during the build period. Depending on the novelty or success of upscaling works the first

stage can take anywhere from 2 years to 10. For the second stage this is likely to take at least

2 years and can often take in excess of 5 to completion of permissions and 2-3 years for the

actual build period.

Single first scale plant to full development chain and commercial role out – Once the first full

scale plant has been constructed and operated to allow all the uncertainties to be resolved

or at least bounded sufficiently for funding and legal contracts to be deliverable; then each

new plant needs to progress through feedstock contracts, funding agreements, planning

and permit permissions, EPC and construction contracts, connection agreements and

delivery, RO accreditation, commission and then full scale operation. It is very likely that after

the first full scale plant operation and feedback period that each subsequent plant will take

a very minimum of 2 years to obtain permissions with feedstock and funding in place and a

very minimum of 2 years to complete construction. In reality it is more common that the

contracts and permissions periods are 3-5 years and the construction periods are 3 years or

more.

There are exceptions to the above time-scales, but the shortest development scales from

idea to first plant are in the 3-5 year time frame.

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Required development visibility

It can be seen from the periods above that the various stages of development are measured

in years and to move from concept to commercial delivery can take in excess of 6 years at

the very minimum and more usually around 10 years. It is therefore very important that

developers commencing on such programs can have maximum visibility of market and

Government policy. Ideally a reasonably fixed view of 10 years of policy is necessary to allow

the investment in technology and development to be commercialised and the developer to

achieve a satisfactory return on the investment.

If Government policy changes significantly at a frequency significantly greater than the 10

year return the level of uncertainty will inhibit and possibly prevent development work

progressing. Currently Government policy appears to be changing significantly at a

frequency of 3 years, destroying almost all visibility and confidence that development work

will ever make a profitable return.

If the Renewables obligation Order is considered as an example, in 2002 the ROC level was

set at 1ROC/MWh. This level was not high enough to encourage ATT to develop to any

material extent. 3 years ago RO banding was introduced. Gasification/pyrolysis was defined

as being either “standard” and entitled to 1 ROC/MWh or “advanced” and entitled to 2

ROC/MWh. The definitions turned on the CV of the syngas and therefore by implication its

quality. In parallel with this change was a requirement for developers to have technology

that would allow near continuous measurement of the syngas quality. Most

gasification/pyrolysis technologies were able to meet the threshold of gross calorific value

when measured at 25 degrees Celsius and 0.1 megapascals at the inlet to the generating

station of at least 4 megajoules per metre cubed and to achieve the near continuous

monitoring required by Ofgem and so developers were at last able to proceed towards

greater numbers of developments. However, rather than celebrating this small achievement

and retaining the subsidy at a level which will enable the developments to be carried out

Government has now proposed a new banding system that would support ROC support of

0.5 or 2 depending on a new technology classification. This leads to perverse positions that

the first (and only) delivered gasification plant to qualify for and receive 2 ROC support

under the existing scheme after 2013 will only receive 0.5 ROC support simply because

Government changed the qualifying technology classification. Given current practice,

developers of potential 2 ROC supported technologies (under the new proposed definition)

will look forward 3 years and consider that probably on recent history Government will once

again change the qualifying criteria and renewable incentives support. This is already

possible as the EMR process takes effect in 2016-17.

26

The REA has previously provided evidence that this sector has great potential to contribute

to renewable energy generation in the UK but the Government risks destroying this nascent

industry before it can deliver its significant potential through continually amending rules and

changing support mechanisms. By maintaining current definitions and support levels and

providing some certainty on how the EMR will be introduced, Government can allow

developers to maximise their skills, to bring forward new technologies and projects and

create construction, operation and manufacturing jobs in the UK and encourage the

development of the significant potential to export skills and knowledge to overseas markets.

If Government continues with the current proposals the only export will be of the developers

and technologies to more stable markets and waste as a resource, to countries which truly

recognise its potential for energy production.

Responses to specific questions

Q49: Do you agree with the proposal to replace the standard and advanced pyrolysis and

gasification bands with two new ACT bands? Please explain your response with evidence.

The new definition together with the banding levels proposed for the standard ATT band put

at risk over 70 projects presently in various stages of readiness to proceed. Introducing a new

definition in such a short time period with very little warning or discussion prior to the

publication of the consultation with industry has added further uncertainty in the investment

community upon whom the sector is dependent and across the industry, even for those that

fall into the new advanced band.

The proposals adversely affect:

Over 70 energy infrastructure projects with an estimated generation total of over

800MW, and with a capital value of about 3.6 billion pounds

Nearly 24,000 jobs (14,500 construction, 3,000 operating, and over 6,500 indirect

(manufacturing, administration and transport jobs)

Government’s renewable energy, carbon reduction and diversion from landfill

targets.

The proposed changes to the RO include the second fundamental change in eligibility

criteria, and level of support, for gasification and pyrolysis in less than 3 years (when banding

was first introduced.) These changes, occurring as they have in a period of almost

unprecedented financial uncertainty, have the effect of stifling investment in the sector as

investors can have no confidence in the continuity of support which will enable their

investment to deliver the expected returns. Technology investments require incentive

27

stability and projects in the waste derived fuel sector usually require years for development

and 2 to 3 years for construction.

The timetable for the currently proposed changes would not even allow a project under

construction (in the first half of its construction period) time to be commissioned and

accredited under the rules existing at the time the financial commitment was made.

Changes of this nature and timing do not create an environment in which investors and

funders can support renewable energy developments nor one in which developers can

devote their time and resources to project development rather than fighting for survival. If

DECC, notwithstanding the representations made are minded to proceed then

consideration must be given to grandfathering the small number of projects caught by what

will amount to retrospective rules.

Q50: Do you agree with the eligibility criteria for the new standard ACT and advanced ACT

bands? Please explain your response with evidence.

There are problems with the new proposed definitions and the timescale before the

introduction is too short. For those reasons the status quo including the existing levels of ROC

support should be retained. However, all members will not be affected in the same way and

will therefore express individual views in their individual responses to the consultation.

If notwithstanding what is said above and government is bent on changes, these should be

considered under the EMR. Industry is keen to engage in further discussions on definitions to

ensure they are practical and achieve policy objectives. It is suggested that DECC could

usefully consider new definitions under the Feed-in Tariff contracts for difference (FiT CfD).,.

This would allow projects that had based finance on 2ROCs to proceed, while giving industry

sufficient time to adjust to the new eligibility criteria. .

The current proposals in the RO banding review consultation document seek to promote the

production of heat or products which are not electrons and which could comply or be seen

better to comply with other incentives such as the RHI (subject to the increase in the scale

of projects envisaged next year) or the RTFO. Some in the industry are concerned that

adding complexity to the RO in type and style of incentive will confuse and ultimately lead to

further changes in either or all of the incentive schemes named. Others view the current

proposals as a forward-looking mechanism which will help in planning for a future where the

type of energy needs are uncertain and where therefore flexibility is key.

Industry contends that the changes to the RO as currently proposed will significantly impair

the development and/or speed of development of new renewable energy facilities, thereby

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failing to utilise a domestic resource that can provide secure and reliable base load

electricity with significant renewable credentials for the foreseeable future.

Q51: Do you agree with the proposed levels of support for the new standard ACT and

advanced ACT bands? Please provide evidence on the relevant technology capital and

operating costs (including levels of gate fees) to support your comments.

These projects are more complex than a standard energy from waste CHP projects and very

few, if any of the projects that are in planning, would be viable at 0.5 ROCs. We understand

DECC’s interest in supporting the projects that lead to products but in order for investors to

feel more confident about an emerging technology. Some view that it is vital for the market

that there is deployment of basic renewable electricity projects first or at least side by side

with more advanced technologies. Government should not be picking winning technologies

at this very early stage.

The industry presents a great opportunity for the UK, and there is interest from foreign investors

in projects based in the UK. Some developers are already looking at developing second-

generation projects that could provide chemicals, and renewable transport fuel. It is crucial

that these projects retain 2ROCs.

Some developers are looking at using biomass in their projects as opposed to waste, these

projects if not using an engine will also only be eligible only for 0.5ROCs. This seems perverse,

as the feedstock would attract 1.5 ROCs under the dedicated biomass band.

The future of these technologies is promising and in the short term the impact on the RO

budget is a small proportion of the overall RO budget(less than 1% in 2017). The industry

estimates the impact of the technology would be 227million in 2017, the table below sets out

a trajectory below from 2013 to 2017.

Table: ATT 2013 – 2017 – impact on RO budget

Year 2013 2014 2015 2016 2017

£m 5m 20m 60m 120m 227m

ATT are emerging technologies and there are only a few plants actually commissioned.

Given the sector is still developing and developers are still seeking to build their first projects, it

is extremely damaging for government to propose any stepping down in the banding level

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to follow Offshore Wind. Government should not apply any degression to the band until more

projects are actually built. Regression is being considered for AD technology but in excess of

704 plants operating on farm or waste feedstock are in operation and as such an informed

decision on regression (or not) can be formulated. The number of operating ATT plants is less

than 4 currently and the information base to make informed decisions on banding and/or

regression is not available.

Q52: We would welcome evidence on the generation costs, deployment potential and gates

fees for the ACT technologies falling within the two new ACT bands proposed above.

Members if the REA’s gasification and pyrolysis group have engaged with government on

the data for the projects.

Industry has significant concerns with a number of aspects of the ARUP report which has

been relied upon by Government in determining their strategy for the banding review.

Industry considers that the report has errors and/or has failed to understand the information

provided to it (such as financial and technical data) to such an extent that the conclusions

drawn on the support required from the RO to promote the technologies are lacking or are

inadequate.

In particular, the gate fee values in the ARUP report are high and capital costs are low,

rendering the levelized cost values to be low as demonstrated earlier in this document. They

use WRAP figures for RA waste and fail to understand the increasing commoditisation of

waste feedstock or influence of refinement in the feedstock chain. Gate fees could be 80%

lower for refined feedstock at a plant level and by regional variation up to 20% different for

raw feedstock. Additionally, the deployment values provided in the ARUP report for ATT are

alarmingly low considering either the amount of waste actually available and the number of

projects in development.

Q53: We would welcome information on the nature and scale of actual or potential air

emissions produced in the generation of electricity from pyrolysis oil.

Expected to at least meet WID but as with some gasification technologies could be

significantly lower in certain outputs.

4 NNFCC AD map http://biogas-info.co.uk/maps/index2.htm

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Q68: Do you consider it would be appropriate to introduce a CHP uplift into the RO for ACTs?

If so, please provide evidence on capital and operating costs of plant operating in CHP

mode, together with likely deployment potential between now and 2020 and, if possible,

2030?

ATT are very well suited to be CHP, and are usually situated near a heat customer. Industry

would hope ACTs with a capacity above the biogas threshold of 200kWth are supported

under Phase 2 of the RHI.

January 2012