A £5 billion ($8.6 billion) investment gap has been identified in the UK's waste sector over the next six years.
By 2020, the UK will produce up to 7.7 million tonnes more waste than there will be infrastructure to process it, according to a report by the UK's Green Investment Bank (GIB) in partnership with Tolvik Consulting.
Filling this infrastructure gap will require investment of between £3.5 billion and £6.5 billion, of which the mid-point is £5 billion.
With much residential waste already being processed under public/private sector partnerships, the biggest opportunities for investors lie in using advanced conversion technologies in the comparatively untapped commercial and industrial (C&I) sector, the report argues.
"There is clearly a capacity gap in the UK waste market," said Chris Holmes, the GIB's managing director, waste and bioenergy. "Energy-from-waste infrastructure remains an attractive asset class, offering good financial and environmental returns and a strong project pipeline over the coming years.
"We are confident that this changing landscape can continue to provide attractive investment opportunities."
The report points out that the way in which the UK handles waste has changed drastically in recent years. Since 2000, the amount of waste sent to landfill has dropped by 70% from 70 million tonnes to 20.9 million tonnes and on average household waste recycling rates have risen from 18% to 44%.
But the country still lags behind the EU average in terms of the proportion of its waste sent to landfill.
The report predicts that the amount sent to landfill in the UK will reduce further by 2020, and although there are plans for further waste-to-energy plants, there will be an infrastructure gap of between 3.7 million and 7.7 million tonnes of waste.
"This could equate to at least ten new energy recovery facilities being built each year until 2020, which is equivalent to an annual investment of more than £800 million into new energy technology," the report says.
The GIB, which has £3.8 billion of government money to co-invest in the transition to a low-carbon economy, is working with two equity firms, Foresight and Greensphere Capital, to mobilise £160 million of finance for the waste sector. It has already invested in 13 new waste facilities across the UK, from small scale anaerobic digestion plants, processing food and garden waste, to large scale waste to energy plants, and said further investments were planned.
"The GIB can play a limited but important role in structuring and mobilising capital into this potential merchant C&I waste infrastructure market, however the engagement of other waste sector participants is critical," the report adds.
Peter Cripps
Channels:Markets
People:Chris Holmes
