Michael Berrington, principal consultant, energy and environment at Grant Thornton UK LLP, discusses the future of the refuse-derived fuel export market in the UK… with uncertain times ahead, but this can present new and exciting opportunities for the sector
We are expecting an uncertain time for the Refuse Derived Fuel (RDF) and the Solid Recovered Fuel (SRF) markets in the UK over the coming few years. This is driven by a wide range of macro-economic factors notwithstanding the uncertainty caused by Brexit and the strengthening Euro.
The key drivers behind the creation of the RDF and SRF market are well known. The development of municipal waste infrastructure through the Waste Infrastructure Delivery Programme led to significant mechanical and biological treatment (MBT) capacity. This has tended to produce lower grade RDF – when the facilities are working – but the development of further diversion infrastructure to deal with this has not always occurred.
The export market from the UK to Europe (and wider) has grown exponentially since 2011, taking advantage of excess European energy from waste capacity – particularly in Germany and the Netherlands – that is happy to take this lower grade fuel. The economics of transport costs have continued to make sense. There is now an increasingly complex arrangement of trade routes sourcing RDF (and to a lesser extent SRF) from a diverse range of suppliers through a wide variety of ports to an increasing number of end facilities.
Changes Afoot
These current arrangements are set to change. Over the next five years there will be an increasing amount of RDF and SRF to manage in the UK. This is due to increasing levels of waste going through local authority infrastructure and more MBT facilities coming on stream. There is also an expectation that European economies will return to levels of consistent growth. These markets will therefore need to start satisfying local waste demand and will not be actively seeking imports.
The impact of Brexit on the exchange rate is also starting to bite. As the weakening pound feeds its way through into contract pricing, the comparison between exporting to Europe and utilising UK capacity will be an important factor. There is a general consensus that we are approaching a tipping point where it will make sense to invest in UK infrastructure to help deal with this RDF, rather than export the material. Precisely when this will happen though is not clear.
There is still an on-going debate around the quality of RDF. It remains to be seen if it would be impacted by any changes in UK legislation following Brexit negotiations, which could affect the dynamics of the market in the short to medium term.
All of the above means that those entities looking to procure medium term RDF disposal contracts will be entering into a market which is significantly more uncertain, and likely to be more challenging, than the growth markets of recent years. It will be difficult for end suppliers to provide price certainty in the long term and the proliferation of disposal routes is certain to diminish. It may well be that the RDF will have to travel further with the likelihood that the Baltic states and Polish markets play a greater role given they are likely to have the available capacity.
Local Authorities procuring municipal contracts will therefore need to be flexible in their processes to ensure that they can attract the best competition the market is able to offer.
One of the key questions is whether new and emerging UK infrastructure can take advantage of this situation and provide a competitive alternative. Nothing can be done, certainly in the short term, where capacity does not yet exist. But where it does, the stars may be aligning to develop a UK offering that can provide a less risky alternative in an uncertain market.
