Report of the Directors
REGULATORY AND COMPETITIVE ENVIRONMENT
The UK is required under the EU Landfill Directive to reduce the amount of biodegradable municipal waste going to landfill sites to:
- 75% of 1995 level by 2010
- 50% of 1995 level by 2013
- 35% of 1995 level by 2020.
The Pre-Treatment Regulations 2007 require all waste going to landfill to have undergone some form of pre-treatment (including recycling).
At the same time the Government has set targets in England for recycling and composting of municipal waste to increase from the current level of around 35% to 40% by 2010, 45% by 2015 and 50% by 2020. Higher targets are in place for some of the devolved administrations. The Government is promoting recycling by various measures including encouraging councils to provide separate collection of recyclables which enhances the recycling rate obtainable at MRFs. There are specific targets for recycling of all packaging with financial incentives in the form of Packaging Recovery Notes (PRNs) and Packaging Export Recovery Notes (PERNs). Specific regulations affect waste electrical and electronic equipment (WEEE) which has its own system of Evidence Notes.
The Government introduced landfill tax as an incentive to divert waste away from landfill sites. Landfill tax applies to all waste disposed of at a licensed landfill site, unless the waste is specifically exempt, such as soil from historically contaminated sites up to 2012. Landfill tax is chargeable by weight.
For inert waste, landfill tax was chargeable at £2.50 per tonne from 1 April 2008 and this has been frozen to 2010/11. A standard rate of £48 per tonne currently applies to all other taxable waste (up from £32 in 2008/09) which is due to rise by a further £8 per tonne per annum to reach a level of £80 per tonne in 2014/15.
Viridor believes that good environmental and operational management is important to winning future planning consents
In order to meet the requirements of the Landfill Directive, individual local authorities have also been set statutory targets for the diversion of biodegradable municipal waste from landfill. Each waste disposal authority has been allocated an allowance of the amount of biodegradable waste it may dispose of to landfill for the years 2005 to 2020. These allowances are designed to ensure that the UK as a whole achieves the requirements of the EU Landfill Directive. Subject to some constraints, local authorities can carry forward or trade allowances under the Landfill Allowance Trading Scheme (LATS). Any authority exceeding its allocation without such an allowance faces a penalty of £150 per tonne in addition to the cost of disposing of the waste. This is expected to result in the introduction of alternative treatment and disposal processes at higher cost than current routes.
The Government is currently consulting on possible long-term bans on the disposal of certain types of waste to landfill.
Under the Environmental Permitting (England and Wales) Regulations 2007 all waste handling, treatment and disposal facilities previously operating under either a waste management licence or a Pollution Prevention and Control (PPC) permit require an Environmental Permit.
Planning for waste and recycling infrastructure
All waste management facilities, including the development and expansion of landfill sites, are subject to planning permission from the relevant local authority. Major facilities such as EfW plants above 50 MW must receive consent from the relevant Secretary of State.
Viridor believes that good environmental and operational management is important to winning future planning consents. It has now implemented its integrated Business Management System incorporating externally accredited environmental, quality and health and safety management standards (ISO 14001, ISO 9001 and OHSAS 18001).
Planning applications are subject to rigorous assessment by local authorities who will consider them against the backdrop of policies contained within the local development plan framework, which have been adopted for their areas. Applications have to address a wide range of issues and the relevant regulators are statutory consultees in this process.
Integrated municipal waste management contracts and the role of private finance initiatives or public private partnerships
To assist in meeting their landfill diversion targets, many local authorities are seeking to let integrated waste management contracts covering a range of activities often including household waste recycling sites (HWRS), composting, recycling and recovery, EfW, waste transfer and bulk transport and final disposal.
In a number of instances these will be financed under PFI arrangements where local authorities apply to the Government for the funding of capital projects which fall within the eligibility criteria. Successful applicants receive cash funds (known as PFI credits) which do not have to be repaid and can be used by the local authorities to fund a proportion of the capital and operating expenditures needed for projects.
Viridor is pursuing a number of Anaerobic Digestion opportunities and has currently secured six planning consents
Councils may also choose to let long-term contracts using PPP arrangements. Under this they avoid the complexities of securing PFI credits. Viridor considers that the operational nature of the contract is very similar whether it is a PFI or a PPP.
Viridor has been operating a 29-year PFI contract with West Sussex County Council since 2004, and a 25-year contract with Somerset County Council since 2006. In early April 2009 the Viridor/Laing consortium reached financial close for the 25-year Greater Manchester PFI waste and renewable energy contract, the largest of its kind in the UK.
Viridor recognises that there is a range of risks associated with entering into such contracts, which are often for a 25-year term. However, subject to a careful assessment of the risks on a contract-by-contract basis, the company will continue seeking to secure such contracts.
Waste regulation environment
EU Directives and related UK legislation, as well as planning and licensing, have been referred to previously.
The Environment Agency (EA) and the Scottish Environment Protection Agency (SEPA) monitor performance against permit and licence conditions and general environmental law. Major breaches are subject to prosecution. The EA and SEPA can also require the operator to undertake upgrades to ensure future compliance and, where a pollution incident or permit or licence breach has occurred, remedial action.
Waste facilities are also subject to the same regulations as other industries, including health and safety, Control of Substances Hazardous to Health (CoSHH) and the Working Time Directive. In addition the transport of waste and recycled materials is subject to specific regulation and controls.
Renewables obligation (RO) order 2009 (ROO 2009)
Under the RO the Government has a target to generate 10% of UK electricity usage from renewables by 2010, and 15% by 2015 (compared with around 6% generation from renewables at present). The EU has set the UK a target of 15% of total energy, including heating, transport and other energy uses, to be generated from renewables. This potentially equates to over 30% of electricity from renewables in the UK.
Production of renewable energy is incentivised under the RO whereby renewable energy generators get a premium for the Renewables Obligation Certificate (ROC) in addition to the underlying 'brown energy' price for their production.
This premium relates to the balance between actual UK output and target UK output. At present the UK is behind target and many believe it will remain so for some considerable time. In addition, ROO 2009 has introduced a mechanism so that such 'headroom' will be maintained. Eligibility for ROCs is governed by complex rules. Landfill gas, anaerobic digestion (AD) and certain other waste technologies including 'good quality' CHP (such as the planned Runcorn EfW CHP plant) are eligible.
A recent change in RO in 2009 was the introduction of the banding of ROCs. The impact of this change is that all landfill gas projects accredited by 1 April 2009 will continue to receive one ROC per Megawatt hour. This will also apply to any additional capacity provided it is commissioned by 1 April 2011. Those accredited after that date will only receive 25% of one ROC. Viridor ensured that the vast majority of its potential capacity was appropriately accredited by 1 April 2009. In addition certain technologies such as AD have been incentivised with double ROCs. Viridor is pursuing a number of AD opportunities and has currently secured six planning consents.
Accreditation to OHSAS 18001 international health and safety standard planned across all sites
37% of Viridor's landfill gas power generation output is under NFFO schemes. These contracts are due to end in tranches over the next six years after which the output can transfer to the RO. Prior to the RO, renewable energy generation was incentivised under the NFFO. Under this, users of relevant technologies could sell their output on medium/long fixed price contracts rising in line with inflation. The overall price per MWh achievable under NFFO contracts is lower than that currently received under the RO.