The waste-to-energy (WTE) market has long been a cornerstone of the waste and recycling industry. But the industry’s frontline involvement shook a bit in late July when Houston -based Waste Management Inc. agreed to sell its giant Hampton , N.H.–based WTE subsidiary, Wheelabrator Technologies Inc. , to Short Hills , N.J.–based private equity firm Energy Capital Partners (ECP) for $1.94 billion .
Waste Management did agree to a long-term supply contract with the new owners for waste. The waste company said it sold the operation to focus on its core business and move away from the volatility of electricity pricing.
So, is the WTE market not what it used to be for the solid waste industry?
Jim Fish , chief financial officer for Waste Management, acknowledged that the business is more difficult than it has been in the past. Energy prices have fallen in the last 20 years and are expected to be flat in the future. The back-end revenue has been particularly volatile during the past couple years, he says.
“So we give the back-end maintenance of that volatility to somebody who’s better at it and, by the way, has a lot more capacity out there than we ever would have had,” Fish says.
Increased interest in fracking to extract natural gas has been a big factor in bringing the price of electricity down, says Harvey Gershman , president of Gershman, Brickner & Bratton Inc. , Fairfax, Va. That’s made tipping fees look very high and made the economics often unfeasible.
“If people are just looking at the tipping fee of the waste-to-energy project and not the entire system, waste to energy just won’t be attractive economically,” he says.
Gershman says waste collection, which is two-thirds of the cost of waste management, is key to changing that equation. “You need to make the collection system as efficient and as low-cost as possible.” That can be achieved by closing the market through means such as franchising. That will increase diversion, he says, and help WTE.
The one-bin approach is another potential salve. “If you have two or three different collections, that costs more than one collection,” says Gershman. Yet another solution is tying steam into the equation, selling the WTE byproduct to a commercial customer.
The changing waste stream also is affecting WTE. “I think the waste stream is getting hotter, if we take out food waste. We’ve got all these plastic films, packages, plastic bottles,” Gershman says.
Power purchase agreements have become much less common in the past 20 years and the market has become much more open, says Paul Stauder , senior vice president of sustainable solutions for Morristown , N.J.–based Covanta Holding Corp. , which is the biggest remaining waste player in the WTE business.
Covanta has about 80 percent of its energy contracted, which the company sees as an important achievement, he says. “A lot of that is because we have taken a position to try to find ways to establish more stable contracts,” Stauder says. “We’ve looked to do some deals with municipal utilities, little contracts to sell to them directly. And that’s worked out very well. Especially when we can link a deal with a municipal utility and also be bringing the waste in.”
Covanta also has benefited from having plants in areas that don’t have open markets. It has a price-hedging program for its energy and also tries to take advantage of the open market when prices are on the rise.
Stauder says Covanta has hopes for potential new government carbon emission controls that would impact older, coal-fired power plants and increase opportunities for alternative energy firms.
“We’re trying to position ourselves as a company to do everything we can to stabilize the energy price we get at our plant, try to maximize our margins, and be ready when the market changes, and the legislation is put in place that our industry will benefit from,” he says.
Fish doesn’t believe the Wheelabrator deal will change the WTE market much because of Waste Management’s continued waste supply deal to ECP. “From a price and volume standpoint it kind of replicates what we have today.”
Covanta and Wheelabrator have been the two big industry players; there aren’t a lot of others. Babcock & Wilcox Co. is building a WTE plant in West Palm Beach, Fla ,; a facility is being proposed in Hawaii . Gershman says he wants to see with the Wheelabrator deal how aggressively ECP responds to request for proposals (RFPs). “I’m hoping that Wheelabrator stays as an active proposer, developer. We need companies to respond to procurements so there’s competition.”
Stauder serves on the board of the Energy Recovery Council , and he sees an advantage from the Wheelabrator deal of a more unified industry. “We’re excited that we could be more aligned in some of our messaging about the industry.” However, Stauder says he doesn’t see any major change in the business as a result of the acquisition—at least not immediately.
Fish says that one challenge for the solid waste industry with the evolving waste-to-energy market is that it is slow to change. “We have to be willing and able to accept that change,” he says.
But opportunities remain for the industry. “At some point somebody will discover a technology that renders landfills obsolete,” Fish says. “I want to make sure that Waste Management is the one that develops the technology or at least owns the technology.” But the key is it will have to make sense economically.
One opportunity could come from an unintended consequence of the growing trend of aggressive government diversion goals. Municipalities are tending to establish diversion goals rather than recycling goals. Often that can mean waste still ends up in a landfill because it’s hard to recycle, but from the municipality’s perspective, it has been “diverted.” Fish says Waste Management now is taking some of that diverted waste to waste-to-energy plants.
Waste Management is developing a diversion technology for spec fuel, a product for which the company takes municipal solid waste, removes materials with no Btu content in them, and then uses a heat and pressure process that turns it into a pellet that can be a coal replacement.
Stauder sees hope with improving prices. “We’re excited that a lot of large companies and municipalities want to stay linked to energy from waste,” he says. “We’re seeing a lot of companies really wanting to take their waste out of landfills and bring it to another, alternative disposal higher up the hierarchy.”
But competing renewable energy sources will continue to challenge waste-to-energy. Gershman says in addition to the growth of fracking and natural gas, other alternative energies have hurt WTE.
“There’s a lot of solar, wind being implemented. So utilities don’t feel the need for renewable energy from garbage. It’s too bad, because garbage energy is 24/7, 365. Wind and solar aren’t.”