United States: Developing Waste To Energy Plants In The Gulf Region –Lessons Learned From Sharjah

IN RECENT YEARS THERE HAS BEEN INCREASED ENVIRONMENTAL AWARENESS AND A GREATER FOCUS ON SUSTAINABLE AND "GREEN" ENERGY PRODUCTION IN GCC COUNTRIES. BUDGETARY PRESSURES CAUSED BY THE RECENT LOW OIL PRICES HAVE LED GCC COUNTRIES TO START DIVERSIFYING THEIR ENERGY MIXES AWAY FROM HYDROCARBON-DEPENDENT TECHNOLOGIES AND TOWARDS WASTE TO ENERGY (WTE) PROJECTS TO PROVIDE A SOLUTION.

THE SHARJAH PROJECT

Masdar and Bee'ah are developing the Sharjah Project on a 50/50 basis, with Bee'ah supplying municipal solid waste (MSW) and Sharjah Electricity and Water Authority (SEWA) purchasing the power produced.

The Sharjah Project will be located adjacent to Bee'ah's existing landfill site in Sharjah and, once completed in 2020, will incinerate approximately 300,000 tonnes of MSW and displace almost 450,000 tonnes of CO2 emissions per year. It will contribute to Sharjah's effort to reach its "zero waste-to-landfill" target by 2020 and the UAE's goal of diverting 75% of MSW from landfills by 2021.

Although WtE is not new technology, with established WtE markets in Europe and the US, it is still very much in its infancy in the Gulf Cooperation Council countries (GCC). The lack of project financed WtE projects in the GCC, meaning there are no established "precedent" projects, undoubtedly impacts developers when considering these projects. Furthermore, WtE projects, although beneficial, are not a simple solution to waste and energy challenges. A number of key factors contribute towards a successful WtE project, including an appropriate site, a wellfunctioning waste management system with a stable supply of MSW (and a sufficient minimum energy content); and a suitable environmental, regulatory and legislative framework in the host country (or the desire to develop one).

On that basis, what are the key considerations that might impact the successful development of such a project?

PROJECT DEVELOPMENT CONSIDERATIONS

In practical terms, potential lenders to GCC WtE projects will, unsurprisingly, be looking for developers and contractors with a proven track record of developing, constructing and operating WtE facilities in the region (if not in the specific jurisdiction).

However, given the infancy of WtE in the GCC, it is likely that it will be difficult to find developers or contractors with specific, relevant experience. As a result, experienced Middle Eastern developers may instead partner with experienced European WtE contractors that bring their specific industry expertise to WtE projects in the GCC.

A key consideration in any WtE project will be the location of the WtE facility itself. WtE facilities need to be reasonably proximate to infrastructure (e.g., gas, water and roads) which, in rural areas in certain GCC countries, may be challenging.

The location of the WtE facility also has to facilitate connection to the power transmission system, allow for the construction of any required interconnection facilities and synchronise with the logistics of the existing waste management system to ensure a consistent supply of MSW feedstock.

The Sharjah Project addressed this issue by locating the WtE facility on an existing landfill site. This meant that the WtE facility did not cause any additional disruption to the local community and, being built on a working site at the centre of the Emirate's waste management system, was able to utilise existing utility and grid connectivity.

From a technological perspective, WtE remains both complex and expensive compared to landfill and conventional I(W)PP technology. To fulfil WtE strategies and encourage private sector participation, governments will need to "create" this incentive by ensuring that the price paid for power produced by WtE projects reflects the increased development costs of WtE projects, generates sufficient revenues to support a limited recourse financing and provides the developer with a worthwhile equity return.

A number of the financing concerns which arise in GCC WtE projects are similar to those in conventional I(W)PPs, and prospective lenders will be looking for a bankable project structure with a risk allocation that de-risks the generator to the greatest extent possible. As a result, potential lenders to GCC WtE projects are likely to attempt to replicate, as much as possible, the 'typical' risk allocation found in conventional GCC I(W)PPs.

As well as replicating the I(W)PP tariff structure, prospective lenders to GCC WtE projects are also likely to expect project risks to be addressed in the same way as in a conventional GCC I(W)PP. For example, in a GCC I(W)PP, fuel supply risk is typically allocated to the government offtaker, and the generator is kept whole with respect to losses arising from a fuel supply failure.

Likewise, in a project-financed WtE project, lenders would expect supply risk with respect to MSW (the "fuel" or feedstock) to be addressed the same way.

CONCLUSION

Whilst the appeal of WtE projects in the GCC, from a policy perspective, is clear, it is also clear that with decreased oil revenues and more strained government balance sheets, GCC governments cannot rely on selffunding WtE projects to make their ambitious WtE strategies a reality.

As a result, private sector participation in the GCC WtE sector will be necessary, and the Sharjah Project is an excellent example of how this can be accomplished.

However, increasing private sector participation in a sector where projects are complex, expensive and heavily regulated will require significant investment, and risk sharing, by GCC governments.

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