UK Landfill Will Soon Become More Expensive than Waste Treatment in Waste Facilities
The campaign which started in 2000 to enable the UK to comply with the EU landfill waste reduction targets, reaches a tipping point soon (Autumn 2007).
Until now we have seen a continuing onslaught of regulations to improve landfill practices and also to comply with various EU regulations (such as the recent WEEE regs), almost without exception these have increased the cost of landfill.
Even those measures that have diverted waste away form landfill tend to increase landfill prices, as the reduction in volume delivered to the gate itself reduces economies of scale at the landfill where fixed cost of staff salaries also tend to remain static.
We have another “nail in the coffin for landfill” in force this month, as from 1 November 2007 the pre-treatment regulations have made it impossible to take mixed waste direct to landfill.
But, the big one comes next year, when the landfill tax will rise by £8 per year, again, on the way to take it to £48 per tonne by 2011.
Now that pretreatment requirements are in-force, they will become more stringent with time, and the obvious place to do much of this pre-treatment will be in purpose-built waste facilities.
These factors coming into play will soon result in the economic conclusion that building new waste processing facilities will provide waste disposal/recycling/re-use cheaper than sending waste to landfill. This is the long-awaited tipping point for landfill.
After the tipping point, the market economy will start to rule the development of such facilities within the commercial sector, driven by legislation and not government financing policy (as long as the legal framework remains in place) it will be this, rather than any government cash incentives (always prone to cancellation and amendment), that will finally encourage the private sector to invest in waste facilities.
The Comprehensive Spending Review (CSR) settlement for waste infrastructure was announced in October and places a heavy reliance on the use of private finance initiative (PFI) funding to introduce the much needed Waste Facilities (MBT Plants, MRFs, Incinerators, etc.)
Chancellor Alistair Darling has given the waste industry provision for funding through the PFI credit system which should rise from £380M in 2007/8 to £700M in 2010/11, a total investment of £2bn.
However, PFI credits typically cover 25% of the capital costs of facilities. The government wishes raise this ratio to 50% and increasing the credit funds available was a necessary part of that.
However, a new concern now arises about the speed at which the industry can ramp up and progress the necessary build rate for these new facilities which will be essential if the local authorities are to comply with the increasingly taxing landfill (Biological Municipal Waste (BMW) diversion targets.
Inflation in the construction industry may be double that of inflation and is rising, so it is to be hoped that this will not delay the tipping point.
ICE waste board vice-chair Jonathan Davies welcomed the increased government investment. But he warned that local authorities might struggle to find contractors willing to deliver facilities funded through PFI.
Landfill-Site.Com believes that only the largest and best funded contracting organisations can bid for PFI schemes, and even those will not want to increase their exposure to the Waste/Resource Management market beyond a certain point.
"There are 52 projects to be tendered in the next five years - at least twice the current rate of closes," said Davies.
"These will put additional pressure on the planning system, the resources to process procurement and design and contractor appetite."
Waste PFI contracts often take two years to get through planning and typically cost each bidder between £3M and £5M to get to the preferred bidder stage.
With many contractors already holding full order books, there is a danger that contractors will reject bidding for waste PFI schemes in favour of less costly procurement routes.
If that occurs the government’s targets to increase PFI above 25% of the capital costs of facilities, may prove futile and a heavier demand on the public sector purse may result than is currently being considered by government. In this scenario the government may well need to take this on-board or else sit back and watch the targets fail within the late starting local authority areas.
Or, after the “tipping point” when landfill has become the most expensive option, will the industry be spurred on by the realisation that the new facilities they build will be the natural lowest cost option. Only time will tell, but the risk of non-compliance, will be high.
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