UK Green Investment: Commercial Opportunity, Low

Carbon Challenge and Sustainable Delivery

27 October 2014

Master Class: Waste

Chris Holmes

Managing Director, Waste & Bioenergy

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Master Class: Waste

Section 1 - Introduction to GIB Waste & Bioenergy team

Section 2 – UK Waste Market & GIB Residual Waste Report

Section 3 – Report in Brief

Section 4 – Key Takeaways

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Section 1 Introduction to GIB Waste & Bioenergy team

1

4

OUR JOB

Our vision: green and profitable Our task: crowding-in capital

Our markets:

Offshore

Wind Waste &

Bioenergy Energy Efficiency

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SUMMARY OF WASTE & BIOENERGY TRANSACTIONS

Project Name Sector

Direct Investments (£m) Fund Investments (£m) Fund manager

GIB capital Total capital

mobilised

GIB capital Total capital

mobilised

Derby Waste PPP Waste and bioenergy 64.0 127.0 – – –

Estover Speyside Waste and bioenergy 13.0 74.0 – – –

Willen anaerobic digestion project Waste and bioenergy – – 7.4 14.9 Foresight

Northern Ireland on-farm AD: Bridge Energy Waste and bioenergy – – 1.5 3.0 Foresight

Northern Ireland on-farm AD: PAR Renewables Waste and bioenergy – – 1.7 3.5 Foresight

Norfolk waste PFI1 Waste and bioenergy 51.2 226.0 – – –

Birmingham BioPower gasification plant2 Waste and bioenergy 12.0 35.7 5.6 Foresight

Merseyside waste PFI Waste and bioenergy 20.0 335.5 – – –

West London waste PFI Waste and bioenergy 20.0 223.7 – – –

Evermore waste to energy plant3 Waste and bioenergy 20.2 81.3 – – Foresight

Wakefield Waste PFI Waste and bioenergy 30.4 121.7 – – –

Drax biomass conversion Waste and bioenergy 100.0 990.0 – – –

Greenlight anaerobic digestion project Waste and bioenergy – – 7.8 16.0 Greensphere

TEG Biogas plant, Dagenham Waste and bioenergy – – 2.0 20.9 Foresight

Gloucester Waste PPP Waste and bioenergy 46.8 185.4 – – –

Port Talbot biomass plant Waste and bioenergy – – 11.3 24.9 Greensphere

Greensphere fund initial capitalisation Waste and bioenergy 30.0 60.0 – – –

Foresight fund initial capitalisation Waste and bioenergy 50.0 100.0 – – –

2012-13 total – 458 2,560 37.3 83.2 –

GIB’s Waste Bioenergy team and FM’s have invested c.£415mn across 16 transactions

To date, 84% of team’s investment in Waste sector have been in PFI/PPP transactions vs Merchant projects

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FINANCING NEW TECHNOLOGIES

Birmingham Biopower’s gasification process is the first of its kind in the

UK. GIB has taken a debt and equity position

Total investment: £47.8m

1 : 1.6

GIB £12m

GIB via

UKWREI

Fund £6.2m

Balfour Beatty

Eternity

GCP

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FINANCING NEW TECHNOLOGIES

Derby Waste PPP is the first long term, project financed, municipal

gasification plant in the UK. It demonstrates the investment potential of this

type of technology.

Reduction in GHG emissions by 48k tonnes CO2e

Equivalent to 22,000 cars off the road

12MW Renewable Energy

generation. Enough to power

14,000 homes.

Recycling over 35,000 tonnes of materials per

year and diverting over 170kt/year of waste from

landfill.

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Section 2

UK Waste Market & GIB Residual Waste Report

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OVERVIEW: UK WASTE MARKET

• GIB Waste Strategy focuses on municipal element of Household, Industrial and Commercial

Waste (HIC)

• Total Waste in the UK = approx. 175mn of which 85mn is HIC waste

Total HIC Waste Arisings* (85.0Mt)

Unsuitable C&I

Waste

Total Suitable Waste Arisings (64.8 Mt)

COMMERCIAL & INDUSTRIAL WASTE

(C&I WASTE)

Municipal C&I

Waste

Other Suitable

C&I Waste

43% 5% 42% 10%

LOCAL AUTHORITY

COLLECTED WASTE (LACW)

Household

Waste

Other LA

collected waste

* Excludes Construction & Demolition Waste – Total Waste in UK c.175Mt

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HOW WE VIEW THE MARKET?

WASTE TYPE

PROJECT /

CONTRACTUAL STRUCTURE

TECHNOLOGY TYPE

GIB TYPICAL

FINANCING ROLE

RISK PROFILE

TYPICAL FUNDING

STRUCTURE

LOW HIGH

LOCAL AUTHORITY C&I WASTE

CONVENTIONAL

CONVENTIONAL

GASIFICATION / PYROLYSIS

- AD

PFI/PPP MERCHANT

TIER 1 SPONSORS

SENIOR DEBT EQUITY – MEZZ – SENIOR DEBT

EQUITY

DEBT

TIER 2 SPONSORS TIER 3 SPONSORS

COMMERCIAL BANKS NICHE LENDERS MEZZ/EQUITY FUNDS,

INFRASTRUCTURE FUNDS, EIS/VCT

• Old World vs New World Split

• Key differentiation for PFI/PPP projects vs Merchant projects

‘Old’ World ‘New’ World

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CONFUSION IN MARKET

OVERCAPACITY IN SECTOR UNDERCAPACITY IN SECTOR

• Differing industry reports had led to confusion in the market as to whether there is over or under capacity of UK EfW treatment and stalled investment in the sector

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GIB ISSUES WASTE REPORT – JULY 2014

• W&B team engage Tolvik Consulting for independent analysis of the UK Waste Sector

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KEY REPORT HIGHLIGHTS

Waste management is critical to the UK and where economically viable our

residual waste (post recycling) can be turned into energy

Source: GIB 2014 – The UK Residual Waste Market

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Section 3

Report in Brief – How to Calculate Gap in the Market?

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WASTE HIERARCHY DICTATES WASTE FLOWS

• Other Recovery – principally refers to Energy for Waste treatment of Residual waste that

otherwise would go to landfill

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WASTE ARISINGS EXPECTED TO INCREASE

Total Waste Arisings

• GIB/Tolvik modelled a low availability and high availability scenario

• Key forecast assumptions - growth in number of UK households and resource efficiency

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RECYCLING RATES HAVE INCREASED

UK Recycling Rates

• Household waste recycling rates in the UK have risen dramatically over the

last ten years but at c. 44% still significantly lag behind our European peers

• We estimate that 37.1 million tonnes of waste was recycled in 2012 and

estimate that 44.0-46.8 million tonnes will be recycled by 2020 based on our

low and high availability scenarios (recycling range of 50%-64%)

Rate Period Target

England 43.3% To Jun 13 50.0%

Scotland 41.2% To Dec 12 60.0%

Wales 53.0% To Sep 13 64.0%

Northern Ireland 39.7% To Apr 13 60.0%

European Recycling Comparables

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Landfill Recycling Incineration Composting Other

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RESIDUAL WASTE – 3 OPTIONS TO TREAT

• 27.7mn tonnes of Residual Waste in 2012

• There are 3 treatment options

• MBT / Pre Treatment

• Export

• Energy for Waste

Residual Waste Treatment options

MBT / Pre Treatment Export UK Energy for Waste

Treatment

• UK MBT capacity is currently 2.4

million tonnes and it is estimated that

with the build out of existing local

authority backed projects total capacity

will reach 3.6 million tonnes by 2020.

• Pre-treatment is a physical, thermal,

chemical or biological process which

can include sorting or altering the

characteristics of the waste in order to

reduce its volume and/or its hazardous

nature and improve its potential for

energy recovery.

• It is important to avoid ‘double counting’

when analysing pre-treatment facilities

– either of waste which is processed at

more than one facility or of facilities

which are part of a wider supply chain.

2mn tonnes

estimated by

2020. Current run

rate 2.4mn p.a.

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PROJECTING SUPPLY – EXISTING/FUTURE CAPACITY

• 5.2mn tonnes of existing EfW waste facilities currently operating

• 11.9mn tonnes of projected EfW capacity to come on stream by 2020

• Assume 62% probability of development inline with DEFRA

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A CAPACITY GAP EXISTS

• A need exists for additional infrastructure in the UK, to 2020

• 22mn-27mn of residual waste available in 2020

• We estimate between 4.0 mn - 7.7 mn tonnes of merchant capacity is required

• This represents a potential investment opportunity of approximately £5 billion

Gap

Treatment Capacity

Residual Waste

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Section 4

Key Takeaways

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KEY TAKEAWAYS

• Estimated waste to landfill will drop from 21mn in 2012 or 75% of Residual Waste to 7mn in 2020 – equivalent to 32% of Residual Waste

• EfW treatment is expected to rise from 20% to 56%

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KEY CONCLUSIONS

• GIB will continue to invest in the Merchant Waste space There is a Capacity Gap o GIB £5bn investment target compares to £8bn for Veolia & £10-15bn at SITA

• GIB will assess a Project’s ability to flex gate fees

o Why? Levels of exports are increasing and setting prices o Why? Generally less waste in the market – pressurising gate fees

• GIB will continue to look at recycling opportunities

(move up the Waste Hierarchy)

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CONTACT US

Chris Holmes

chris.holmes@greeninvestmentbank.com

+44 (0) 330 123 3041