In line with the Government’s Landfill Tax Escalator, Waste Management companies face a tax increase from £72 to £80 a tonne next April for rubbish dumped in the UK’s remaining landfill sites, which is saldy still the destination for about half of Britain’s refuse.
HM Treasury profits by more than £1bn a year from this tax, intended to encourage other forms of waste disposal ranging from recycling to anaerobic digestion and incineration. Meanwhile, operators of the UK’s remaining landfill sites are being severely affected by recession.
Last month Viridor took a hit of £78m in it’s accounts, primarily arising against the value of its land-fill assets. The bulk of their land-fill sites are doomed to eventual closure. The company, owned by Pennon, already plans to close all but three of its remaining 21 landfill sites by 2020 in response to the escalating tax and its own attempts to develop alternatives to landfill for local authorities and industrial customers. James Brand, analyst at Deutsche Bank, forecasts that near-term profits by Viridor will remain under pressure due to lower landfill volumes and lower prices commanded by recycled waste – factors that also affect its rivals.
Viridor is not alone in grappling with how best to wind down its landfill business. SITA UK, owned by Suez Environnement of France, also intends to reduce its landfill network after a series of closures that has left it as well with 21 sites. Veolia, another leading UK waste management operator, has only 10 remaining operational landfills and one joint venture, leaving it with unused landfill capacity of 39m cubic meters. That is substantially less than the other leading operators, says Estelle Brachlianoff, chief executive of Veolia’s UK waste-management arm.
The problem of being left with too much landfill capacity is demonstrated by Viridor. It forecasts that more than half of its remaining capacity – close to 40m of 62m cubic meter void – will be left unused. David Palmer-Jones, chief executive of SITA UK, says a combination of persisting recession and snowballing tax have hurt those companies that have maintained these large voids of landfill capacity.
“Back in 2007, it was obvious that there would be a snowball effect from landfill diversion, reducing demand on space once the annual £8 a tonne escalator increase in landfill tax began to accumulate,” he says.
Colin Drummond, chief executive of Viridor, insists his company has not been caught on the hop. Viridor, he argues, is well-advanced in its strategy of becoming a market leader in incineration, or energy from waste (EfW), projects that both divert rubbish from landfill and also provide a valuable addition to Britain’s electricity supply.
“It’s way cheaper than wind and it’s baseload [constant] capacity,” he says. “We are staring at the UK’s most efficient form of renewable energy.”
However, local opposition has slowed planning applications for several incineration projects, which can offer up to 10 times the margins to operators compared with the declining landfill option. The UK’s local authorities and industrial customers now generate close to 28m tonnes a year of waste, according to a report published last month by Eunomia, an adviser to the UK’s Environment Agency. The handling capacity of dozens of plants, either operating or under construction, able to deal with waste suitable for diversion from landfill now stands at slightly more than 18m tonnes a year, forming a “capacity gap” of about 9m tonnes. That could prove a strong incentive for companies to build yet more incinerators, anaerobic digestion and autoclave plants as their traditional landfill businesses decline.
However, Eunomia also pointed out that planning consents have been granted to rejects that could represent a further 21m tonnes a year capacity. Based on current demand, that could form excess capacity of 12m tonnes a year in an industry that already struggles with excess landfill voids. The industry now faces the danger of too much capacity in both landfill and its alternatives, says Matthew Farrow of the Environmental Services Association.
“With half of our waste still going to landfill, the waste management industry’s willingness to make investment plans for landfill alternatives is to be welcomed,” he says. “However, all projections of future potential under-[capacity] or overcapacity need to treated with caution.”
One things remains clear – any business that does not separate it’s waste and recycles wherever possible is incurring unnecessary costs that will only increase.
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