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ESG Focus: Waste To Energy Innovators

ESG Focus | Jul 18 2023

This story features CLEANAWAY WASTE MANAGEMENT LIMITED, and other companies. For more info SHARE ANALYSIS: CWY

Republished to clarify Remondis has withdrawn its application for the Ipswich Facility, which is listed under Major Australian WtE Projects towards the end of the story below.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future:

ESG Focus: Waste to Energy Innovators

Waste-to-energy is set to be a major green play over the next two decades as circularity imprimaturs kick in and a swathe of new waste-to energy technologies is coming to market.

-100% circularity targeted for 2050
-Innovation will be supported
-Waste to energy will be a player
-ASX waste-to-energy innovators
-Plenty of private players offer M&A and IPO options
-List of Australia’s major waste-to-energy projects

By Sarah Mills

Recycling has taken a back seat to the transition in recent years, the Ukraine War stealing the spotlight.

But don’t be fooled. Big capital has been quietly jockeying for position over the past few years, particularly in the waste to energy sector, which is also a climate play.

The competition is on to secure waste streams – the core energy resource – and establish capital-intensive operations, which create strong barriers to entry. 

Circularity, of which recycling is a component, is the longest term of all the energy plays and it requires investors with deep pockets and decades at their disposal.

While this favours the major players – and we list the major Australian waste-to-energy projects at the end of this story – the focus of this article is on a handful of Australian waste-to-energy innovators.

Innovation Will Be Supported

As the world moves towards its agreed 100% closed loop circularity target in 2050, innovation will be required. 

The ultimate profitability of these innovators is likely to be determined by how much of the resource waste stream they can secure. 

Otherwise, their profitability will be limited by the terms set by waste providers and competitors for key waste streams.

So the industry is likely to divide into three streams: Those that own the resource; those that own and mine the resource; and those that solely provide services to waste owners.

The latter will likely be divided into two: big waste-to-energy players that have the weight to bargain with waste owners; and smaller engineering and technology service providers.

Alternatively, innovators are likely to become takeover targets for bigger players or outstripped by newer innovators. 

Disruptees are likely to batten down the hatches and lock out disruptors by controlling plastic collections and building strong capital bases; but disruptors are forming collaborations with like-minded not-for-profits, ESG impact investors and energy-poor sovereign nations to forward their vision.

Much will depend on waste and competition regulation. 

But one thing investors can bank on is that innovation will be supported. 

Picking winners from losers might have been more fun when interest rates were low but the stakes have risen.

Investors face a choice between capital-expenditure-heavy core waste projects during the early phases of the transition (which are initially likely to offer plodding returns); or finding innovators with unique offerings and the backing of big capital, (and even then they may offer no returns for some time). 

Waste To Energy In Focus

Very few industries stand to benefit form the world’s major ESG trends as waste management.

Sustainability, the sustainable fourth industrial revolution, the circular economy, the war on plastic, and climate change, — you name it — the waste management industry sits in the centre of them.

Exchanges are starting to develop waste management indices. STOXX, for example, has established the iSTOXX Global Responsible Waste Management Index Select 30. 

Globally governments are also rewarding waste-to-energy projects.

In Australia, waste-to-energy companies can earn money from fuel sales via purchasing power agreements to industry, which enable those companies to meet their decarbonisation obligations; straight into the grid; and from generous government subsidies such as large-scale generation certificates and Australian Carbon Credit units.

Waste-to-energy is the first “circularity” play off the block. While it is by no means circular yet, it offers a one-time carbon re-use, making a small dent in the global emissions load.

Waste-to-energy markets and innovation revolve around core energy streams:

-Bulk solid waste
-Plastic waste
-Solid bio waste
-Wastewater and sewerage/biogas; and
-Industrial waste.

Bulk solids are the first kids off waste-stream the block, having been in place for decades, and are attracting the bulk of the focus of big capital.

There is innovation on this front and Cleanaway Waste Management ((CWY)) has been active in adopting new technologies and forming partnerships with innovators to overcome the many pollution problems facing the industry.

Straight incineration is an old and common technology but the production of pellets for use in industry is newer and has proven successful. These are targeted for use in hard-to-abate sectors such as cement and steel.

Plastic waste-to-energy has been mooted as an option with companies such as Licella, claiming to be able to recycle all plastic waste back to virgin oil through a hydrothermal liquefaction technology. 

But at the moment, plastic is being targeted as a closed loop plastic-to-plastic circularity play. The European Joint Research Centre recently published a paper determining all forms of plastic recycling (mechanical, physical or chemical) were preferred to energy recovery from plastic.

The report also noted that of all plastic recycling technologies, hydrothermal liquefaction's global warming potential was -50% lower than pyrolysis technologies.

This does, however, improve Licella's prospects in the plastic recycling market.

Plastic-to-energy is also likely to struggle to gain the backing of big capital, especially given such technologies step on the toes of big oil.

Finnish eco-warrior Neste is no longer listed as a partner on the Licella website, which begs a question. Dow and KBR are listed as partners. 

The general lack of support of big capital for waste-plastic-to-energy technology to date was also evidenced in the delisting of Integrated Green Energy Solutions (former ASX code IGE) in 2021, after the company went into liquidation. 

The company aimed to convert and process waste plastics and biomass to energy and had planned factories in Australia and around the world.

The company was left with $50,000 in the bank and creditors demanding $70m – a salutary lesson for investors in the innovation end of the waste-to-energy market.

It is unclear whether the efficacy of these technologies is part of the problem.

Bio-waste to energy has also been attracting investor interest. 

Given methane’s global warming quotient is 28 times that of CO2, it’s a winner. 

Bio-energy has come under attack from environmentalists and raised food-supply and biodiversity/forestry concerns given it generally requires cropping.

Bio-waste-to-energy is likely to be the only form of bio-energy with an assured long-term future; and bio-gas to electricity is likely to be the main play.

Typically, this involves running pipes and wells into the landfill and using a vacuum to pull the gas towards wells and then use biogas generators (big internal combustion engines) to create electricity. The main barrier to this technology at the moment is the cost of battery storage but innovation on the battery front over the next few years should solve this.

Land-fill-methane to biogas (fed into gas network) is not considered to be a viable long-term medium to long-term solution for the sector given the stated desire to move away from gas, and the fact that it takes an enormous amount of biogas to make renewable natural gas.

Biogas plants are also on the rise, offering oxygen-free conditions from anaerobic digestion of municipal and industrial organic waste, agricultural biomass and sewerage sludge to form fertiliser and energy. 

Research and Markets estimates the global biogas plant market hit 18.72GW in 2021 and expects it will hit 28.6GW by2027 – representing a six-year compound annual growth rate of 7.32%.

Wastewater and sewerage is one of the most interesting areas of innovation. 

Whereas bulk solid waste is likely to be dominated globally by mostly incineration technology for much of the decade, wastewater and sewerage innovation is likely to make strong headway.

Biogas plants mention above are already in use in the sector, and other technologies are also being developed. 

Industrial waste – emissions and other by-products – are likely to prove interesting. Innovators, particularly those with poor access to municipal streams, are likely to target industries with specific solutions to help them minimise their carbon and waste footprints.

ASX Innovators

While the majors are also innovating (Cleanaway’s Western Sydney Energy & Resource Recovery Centre being one example), this section focuses on the smaller end of town.

ASX-listed innovators include:

-Hazer Group ((HZR)) (Sewerage to hydrogen and graphite)
-Calix ((CXL)) (supports biogas generation)
-LGI Limited ((LGI)) (biogas from landfill)

Very few have annual revenue to date that would justify their market capitalisations, and compare poorly with other small caps innovators in other sectors – in other words none of them appear cheap.

Brisbane based LGI Limited proved a great stag and is trading at $2.42 after listing at roughly $1.75 – an indication of the demand for waste-to-energy stocks. The listing was mainly aimed at funding more batteries on sites.

LGI is a company that operates in the recovery of biogas from landfill and its conversion into electricity and environmental products. 

The company operates at least 26 projects on Australian landfills, seven of which generate energy by capturing biogas, mostly methane, emitted from the sites and converting it using a genset — a portable generator which generates electricity.

The company estimates there are more than 200 landfill sites in Australia that can support its biogas projects.

Hazer is one of the more interesting technologies targeting water waste and sewerage. 

Hazer’s process enables the conversion of natural gas, and other methane feedstocks, into hydrogen and high quality graphite (which is the depository for the carbon split out in the hydrogen making process), using iron ore as a catalyst. 

The energy produced qualifies as "blue" hydrogen.

The company has reached a final investment decision to proceed with the commercial demonstration plant and has commissioned and completed the plant.

Hazer advised in its quarterly activities report that the plant was on schedule to commence operations in the December half, and that the project had been sharply derisked by the securing of the heat-exchanger and reactor from China.

The company has signed a memorandum of understanding with Canadian and Japanese companies to establish Hazer facilities in those nations, and collaboration continues with ENGIE in France.

There is a long path to go to profit ramp-up but the company receives and is likely to continue to receive government support in the meantime.

Calix is a broad recycling and carbon play. 

A small part of Calix’s offering relates to waste-to-energy. 

The company’s ACTI-mag product can be used to make and extract struvite from sewerage waste, removing environmentally problematic phosphorous from the sludge.

The product also sharply boosts the conversion of organic waste into biogas, according to the company’s website, reducing odours and improving water quality.

Like Hazer, the company has a hefty price to book ratio and is a way off from profitability.

Plenty Of Private Operators

There are also many smaller unlisted private waste-to-energy companies such as LMS Energy, ResourceCo and Finn Biogas, servicing both the municipal and industrial sectors. 

It is possible that these companies will be subject to takeover offers from domestic or global companies.

LMS Energy is Australia’s largest biogas-to-energy player. It installs biogas capture systems, manufactures biogas flares and constructs and operates biogas power stations. 

Founded in 1982 it claims to be the first to capture biogas for fuel use; the first to purify biogas for injection into the gas network, and the first to establish a biogas-to-electricity plant connected to the grid.

It also built Australia’s first pilot and grid scale solar project on landfill (a left-field waste-to-energy play).

LMS says it has more landfill biogas projects than any other company in Australia, and includes 36 bioenergy facilities and five solar facilities, generating more than 550,000MW hours of renewable energy a year. It also has another 26 carbon abatement projects.

It mainly operates in partnership with councils and has more than 60 biogas projects in Australia, New Zealand and the United States.

ResourceCo manufactures processed engineered fuel (PEF) as a finished product from dry non-recyclable material commercial and industrial waste; not from municipal waste.

It also produces a tyre-derived fuel, re-purposing used tyre and conveyor belts for use in high-energy manufacturing environments and power plants.

PEF is used to fire cement kilns without generating residues. 

ResourceCo claims to produce a product with a lower emissions profile at a lower price point while abating hundreds of thousands of tonnes of CO2. 

The company partners with large energy users to install alternative energy infrastructure. It funds, builds, owns and operates the energy plant, taking on the capex and remove capital cost from user. Also offers long-term agreements.

ResourceCo was founded in 1991 by Simon Brown and David McMahon. It established an alternative fuel company JV with Brighton Cement and has worked with the likes of Suez and Cleanaway in joint ventures.

For example, the company is working with Cleanaway at the latter’s Wetherill Park site in NSW. The site processes dry non-recyclable waste and converts it to fuel, recovering more than 90% of all incoming materials that would otherwise be sent to landfill.

Cleanaway is contracted to supply PEF to major local and international cement kilns. 

Mercury Capital has a large minority stake in ResourceCo alongside the company’s two existing shareholders.

The company recorded $151.4m in revenue in FY2019, yielding a $38m profit. 

Finn Biogas claims to have invented a novel way to convert organic waste into biogas based on anaerobic digestion and specialises in industrial waste-to-energy as well as landfill gas augmentation. 

The company provides its biogas plant tanks to food and paper industries such as milk processing factories, red meat processing factories and pulp and paper mills, allowing waste to be processed on site and converted into biogas and fertilizer.

It is also being used at wastewater treatment plants, and to process manure in large-scale chicken farming and meat production in The Philippines and the US.

List Of Major Australian WtE Projects

Waste-to-energy has been a key focus for oil majors, infrastructure funds and conglomerates in the past few years. 

Buoyed by high oil prices, the oil sector has had the cash to plough into projects, managing to partly bypass many of the capital expenditure hurdles faced by other competitors. 

Australia’s major WtE projects (under way and proposed) include but are not limited to:

Avertas Energy in KwinanaWA, is Australia’s first thermal WtE project. Macquarie Capital and Phoenix Energy have stumped up $698m for the project. Acciona has won the construction contract and Veolia will service and maintain it. It has already encountered several obstacles, due mainly to covid. Meanwhile, Spain’s Acciona has lost its bid to exit the $700m project after a losing a lawsuit against the Western Australian government over covid lockdowns. The site is being developed by Macquarie Capital and Phoenix Energy  and is owned by Macquarie Capital and Dutch Infrastructure Fund.

-Kwinana: South East Rockingham Project in Perth is under construction.  The company has struck what appears to be Australia’s first power purchase agreement with Talison Lithium Australia, owned by IGO ((IGO)), and Albemarle Corporation. The project diverts 96% of residual waste from landfill. Masdar, Tribe Energy, John Laing Group, Acciona Concesiones and Hitachi Zoden Inova are funding the project.

Cleanaway’s Western Sydney Energy and Resource Recovery Centre, backed by Macquarie Capital, is the first of its kind, representing a break from old technology. The project is undergoing community consultation. The project has encountered community opposition. So far, Water NSW in particular has objected, saying the company failed to address risk to the Warragamba pipelines and says it believes site preparation and construction could pose risks to Water NSW infrastructure. 

Mt Piper Energy Recovery Project in Lithgow is Australia’s first proposed hybrid coal/WtE power station to use WtE to replace coal in power plants.  

Re. Group is partnering with EnergyAustralia (formerly TRUenergy) owned by Hong-Kong-based and listed China Light and Power Group. It connects to the Mt Piper Power Station near Lithgow.

-Also in NSW: The Condong Cogeneration Plant, which uses recovered timber fuel, the Eastern Creek Energy from Waste facility; and Veolia Woodlawn ARC.

Waste precincts include: The Parkes Activation Precinct; The Richmond Valley Regional Jobs Precinct in Northern NSW, and the West Lithgow precinct.

The Maryvale plant in Latrobe Valley, in Victoria, is an industry partnership. Nippon’s Opal Australia Paper has budgeted $600m in conjunction with Suez to burn its waste (largely biomass) and ship the fuel to the Port of Melbourne. Equity partners include Madar and Tribe Infrastructure, and Acciona is funding the construction. The project has a memorandum of understanding with Citiwide to source and supply waste via the rail link between Melbourne and the mill.

Advanced Waste Processing Project, Melbourne. The Melbourne Waste and Resource Recovery Group is behind the project, which involves the largest tender for new waste management infrastructure ever undertaken for Melbourne’s councils – an alternative to landfill for 16 councils in Melbourne’s south east. Construction was due to start in 2023, following the awarding of a 20-25 year contract, construction due to start in 2023.

Dandenong EFW project Dandenong Council as partnered with Great Southern Waste Technologies (GSWT) in an incineration project, which was scheduled for completion in 2025. The project is being funded by Surbana Jurong Capital, an investment arm of the Sinagpore Government Sovereign Wealth Fund,  according to GSWT.

-Laverton Recovered Energy Australia is proposing $150m high-tech MSW gasfication facility, owned by CLP Holding (China Light and Power) a Hong Kong based company.

The Remondis Waste to Energy facility in Ipswich, Qld is a traditional WtE project and Remondis, one the world’s largest recycling, service and water companies, is also obtaining approval for a $400m plant in Swanbank, west of Brisbane. Construction is pegged for 2024.

[Remondis has since the initial publication of this story clarified it has withdrawn its application for the Ipswich development].

Globally, Remondis (with a German parent) offers methane capture solutions based on anaerobic digestion; energy recovery from thermal treatment; energy recovery via biogas production; and refuse-derived fuel which can be used in power generation or energy-intensive industries.

Green Eggs and Amcor

As mentioned above, another interesting WtE player in Australia is the unlisted Licella. It claims to own hydrothermal liquefaction technology that can turn all types of plastic into oil, pure enough to create virgin plastic with negligible emissions. While one would imagine it would be a brilliant WtE play, the company seems to be making better headway in plastic recycling in Australia.

It has signed deals with several Australian FMCG companies and packaging companies, including Amcor ((AMC)).

Yet it has surprisingly struck no deals in the energy sector, which suggests it is either not all its cracked up to be (excuse the pun), or everything that it is cracked up to be. 

If it is not, Amcor is likely to end up with green egg on its face, which could take a while to wash off. Given its investment in the transition to date has been fairly poor, its partnership with Licella needs to bear fruit.

In the meantime, Licella is building plants in the UK, citing lack of government support in Australia. 

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