In recent years, Europe has become painfully aware of its increasing waste problem. In the past, landfill sites have been established between hills, for example, or in any location where the waste is “out of sight, out of mind”. There are good reasons why restrictions have been imposed on landfill waste: if the site has not been built carefully, rainwater and meltwater run directly through the landfill, carrying toxic substances from the waste into natural environments and groundwater. This must not happen.
The primary concern of current legislation in Europe is the reuse of waste – that is, recycling and environmental protection. The energy use of waste is secondary. With old landfill sites filling up, the construction of new landfills and the acquisition of the necessary permits turn out to be so expensive that high gate fees must be charged. Added to these gate fees are the taxes applied to landfill waste to deter use of landfill disposal in the interests of environmental protection. Power plants have their own gate fees for receiving waste. This additional revenue makes the project attractive to investors: revenues are generated not only by producing energy, but also through the gate fee.
This trend is global, and it’s also evident in countries where waste is not yet used to generate energy. In Istanbul, for example, the city administration has decided that landfill sites will be built in accordance with the environmental standards set by the EU. In other words, sorting and recycling waste, and using non-recyclable waste to produce energy, will be more profitable than building new landfill sites.
The energy use of waste is growing rapidly
In the transition from fossil fuels towards renewable – typically intermittent – energy sources, the benefits of waste as a source of energy include reliable production. Waste-to-energy plants run day and night, throughout the year, which compensates for the more intermittent production of solar energy and wind power.
Waste-to-energy projects are currently underway in the UK in particular, where electricity generation based on both renewable sources and non-recyclable waste has been developed systematically over the long term. The advanced administration and funding system supports the development of such projects.
Investors need highly competent partners for power plant projects
New power plant projects are usually implemented by means of non-recourse project finance. This means some of the funding comes from loan providers, in addition to the equity invested by the owner. In these cases the power plant project serves as loan collateral. Naturally, investors and loan providers want guarantees that the power plant will generate revenues to the extent that the loans can be repaid with interest while also making a profit. In other words, the project development partners should be selected very carefully. Financiers are not usually willing or competent to actually run a power plant themselves to qualify for non-recourse finance. For this purpose, they need a reliable and bankable partner.
After a new power plant construction is completed, the party responsible for its operation and maintenance plays a very important role: they run and maintain the power plant and are responsible for its availability and productivity, as well as ensuring compliance with emission limits in line with the environmental permits etc. The power plant builder builder (the EPC company – Engineering, Procurement and Construction) is also a key partner. In addition, long-term contracts are needed for the sale of heat and/or electricity and for waste fuel supply. These aspects are of primary importance for the project.
Investors are looking for partners globally in line with a very detailed profile. To look after their interests, investors and lenders seek to select partners with the best references for the implementation of similar projects, as well as the competence and financial resources necessary for successful project completion. Fortum is one such partner in operation and maintenance.
Understanding the customer is key in the service business
Fortum is a company with excellent references. We offer long-term operation and maintenance services to third parties. We benefit from our long history as an energy producer and owner/operator of our own plants: it’s easier for us to see and understand the perspective of the customer – that is, the plant owner. We also keep the goals in mind at all times: how to reduce risks to safeguard the yield requirements. However, running one’s own plant is somewhat different from running a plant under a commercial contract as a service to the customer. In addition to having experience in the operation and maintenance of our own plants, Fortum has expertise in acting as a service provider in customer projects. Over the past 30 years, we have had more than 30 operation and maintenance contracts in Europe, Asia and Africa. Currently, we have contracts in countries such as the UK, Germany, Rwanda and Indonesia.
A provider of operation and maintenance services must be able to prove to the customer that they are capable of running a plant reliably in line with the planned financial model. Financiers also set strict sustainability requirements for their partners. The owner benefits when a plant is run by a reputable operator with a proven environmental, safety, quality and sustainability track record.
The planning and developing of a new plant may take a long time. During that time, numerous contracts need to be prepared, which is why project development usually requires a great deal of money and time. Because the revenues and risk management of a power plant are planned for a period of up to 25 years, the party providing operation and maintenance services must also be able to help the owner to prepare and plan for the future changes and other development needs, even unlikely ones.