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Energy Law Exchange

July 11, 2016

Will PPPs Provide the Catalyst for Waste to Energy Projects in the GCC?

Recent activity in the waste management sector in many Gulf Cooperation Council ( GCC ) countries suggests that governments in the region are starting to look again at waste to energy ( W2E ) projects.

Within the span of 18 months, there have been a raft of new W2E procurement announcements, including:*the KABD Municipal Solid Waste project in Kuwait;

*the upgrade of the Domestic Solid Waste Management Centre in Doha, Qatar;

*the integrated waste management project in Bahrain;

*various industrial waste management projects in the Royal Commission of Yanbu in Saudi Arabia;

*the Beeah and Masdar strategic partnership to develop a W2E Centre of Excellence in Sharjah;

*the Al Warsan W2E plant in Dubai; and

*the Northern Emirates W2E projects. This revival of the W2E pipeline in the GCC region following a period characterised by a series of abortive W2E procurement processes indicates that W2E projects have once again been identified as a possible solution to one the most significant challenges facing GCC governments; namely how to deliver efficient and environmentally sustainable waste management in a low oil environment.

This article explores the background of W2E projects in the GCC, the advantages and challenges in delivering W2E projects and whether the regions new found enthusiasm for public private partnership ( PPP ) delivery models will help to bring more W2E projects to fruition.

The Challenge Facing the GCC

Saudi Arabia, UAE, Qatar, Bahrain and Kuwait can be counted among the worlds largest waste producers in terms of per capita waste generation. In several GCC states, waste generation now exceeds 2 kg per person, per day. Regional urban waste production alone has now exceeded 150 million tons per year.

The surge in the amount of waste generated can be attributed to a high rate of population growth, urbanization and economic expansion. This has resulted in rising consumption and consequently, an increase in the generation in all types of waste. Naturally, such increases have placed a significant additional burden on existing waste management infrastructure and increased the demands for power.

Historically, GCC countries have placed a reliance on landfill for waste disposals, and on conventional power production for meeting energy demands. However, these options are becoming undesirable and unsustainable for economic, environmental and practical reasons. [1]

W2E Drivers

Over the past decade, many of the GCC states have embarked on several policy-led initiatives to evaluate the various options available to address the growing waste management issue. This has included Saudi Arabias commissioning of the World Bank to undertake a comprehensive study on waste management in the Kingdom. In the UAE, the government of Dubai has focused on waste management in the Dubai Strategic Plan 2021 and the Dubai Integrated Energy Strategy 2030 and Abu Dhabi launched a Waste Management Master Plan 2040 in 2015.

Additionally, there is a desire on behalf of GCC countries to take steps to combat climate change. The United Nations Framework Convention on Climate Change and the Paris Agreement requires countries such as the UAE, Bahrain and Kuwait to reduce their carbon output "as soon as possible" and to do their best to keep global warming "to well below 2 degrees C" . In this context, it is unsurprising that waste-to-energy projects are proving such an attractive option for GCC governments.

The result of these strategic plans has been the launch of tenders to deliver W2E projects. Unfortunately, many of these projects have been unable to reach completion most notably the Al-Warsan W2E plant in Dubai, which has been tendered on three separate occasions and the proposed 100MW Mussafah Sea Port W2E plant which has yet to materialise.

One of the barriers to bringing these projects to fruition has been financing. Governments in the region have long been wedded to using traditional delivery models for infrastructure, principally through direct contracting with an engineering, procuring and construction contractor. The implication of this has been that significant public capital is required to initiate the projects.

However, the current low oil environment combined with an increase in interest in PPPs could provide an answer for GCC governments. Throughout the GCC there has been a general move towards bringing PPPs into the mainstream of project delivery. This is characterised by the 2014 Kuwait PPP law, the 2015 Dubai PPP Law, the Saudi Vision 2030 and the anticipated PPP laws in both Oman and Qatar. Governments are attracted to PPPs due to successful international examples of their use in delivering large infrastructure projects alongside the ability to exploit the benefits of using private finance. The ability for governments to effectively deliver W2E schemes using PPP is considered further below.

Waste to Energy How does it Work?

The cornerstone of a successful approach to waste management is undoubtedly a strategic integrated waste management plan. Such a plan must incorporate several interconnected systems that address all aspects of the waste spectrum from policies to target reduction of waste, recycling of waste and disposal of waste. It is this latter area where W2E really can deliver substantial improvements.

Waste to energy (also known as energy from waste) is an umbrella term for the process of converting waste into a useable form of energy. This typically includes the production of electricity, heat and transport fuels (e.g., diesel).

The typical type of waste used in W2E projects is residual waste. This is waste which has already been through as many recycling processes as it is economically viable to undertake. Residual waste tends to form a mixture of different components, such as oil-based products like plastics and organic products including food, paper and wood. It is through the inclusion of such biodegradable products that residual waste can be described as a partially renewable energy source. W2E plants can also be configured to process industrial, commercial, medical and hazardous waste feedstocks.

The types of technology falling under the auspices of W2E, can be split into four broad categories of technology. The first, incineration, is the most common and well known of the W2E technologies. These facilities combust waste (including MSW, commercial and industrial waste and refuse derived fuels) at high temperatures (850C) to generate steam to power a turbine. The turbine generates electricity for sale to the local authority or direct to industrial, commercial or residential offtakers. Excess heat generated from this process can also be used for heating and cooling whilst the metals recovered can be sold on to recyclers. [2]

The main other types of W2E technology used include advanced thermal treatment; mechanical and biological treatment; and mechanical heat treatment.

Waste to Energy the Advantages

W2E is a well-established, proven and ever improving technology. It can provide a reliable source of baseload or surplus source of power with flexible configurations allowing a range of possible additional outputs.

As a solution to the waste management challenge in the GCC, W2E is widely regarded as the next-best environmentally friendly solution after recycling. Studies have shown that the use of W2E can reduce landfill waste volumes by up to 90%. [3] An integrated waste management strategy harnessing the strengths of a strategic recycling programme alongside W2E can lead to reduced pressure on landfill and decreased greenhouse gas emissions.

W2E can also deliver greater energy security. With a constantly replenished fuel source in residual waste, W2E facilities are able to operate for 24 hours per day and 365 days per year. This is particularly useful in a region increasingly turning towards solar for energy generation. As solar is reliant upon sunlight hours, without economically available energy storage solutions, GCC governments will need to continue to use conventional forms of power or secure other environmentally sustainable sources to maintain a constant balance in supply and demand. The ability of W2E plants to operate irrespective of external conditions means that they can act as one source of renewable baseload or surplus energy generation.

Furthermore, when W2E projects are developed using incineration or advanced thermal treatment technologies, there is also the potential to increase the efficiency of the plant through the harnessing of combined heat and power technology or cogeneration. Of particular relevance to the GCC region, the colocation of a W2E facility next to a district cooling plant means the run-off heat produced can be used in conjunction with absorption chillers to generate cooling through a heat exchange system. This is suitable for industrial, commercial or residential district cooling. Alternatively, the electricity generated from a W2E facility can be transmitted to provide the power source for a district cooling plant. This potential for a combination of energy efficient technologies would provide further environmental and economic benefits to governments, developers and offtakers across multiple utility sectors.

Waste to Energy Considerations

Development of a W2E facility requires significant capital expenditure. The main elements of capital cost are equipment costs, direct plant costs, purchase of suitable land and costs of obtaining any relevant governmental consents and permits. In terms of operational expenditure, this will encompass raw materials, labour, electricity consumption, maintenance requirements, general insurance, taxes and disposal of by-products, such as ash.

Additionally, W2E facilities rely on a consistent source of waste. As illustrated above, the amount of waste generated in the GCC is not in question. However, an efficient collection system to deliver sufficient quantities of waste to a W2E plant is required, and in some cases, this may not yet be in place. This lack of certainty in waste supply could undermine the operational effectiveness of the plant and, from a project financing perspective, have an adverse impact on the bankability of the project.

An additional difficulty with W2E is the apparent stigma attached to the treatment process. Communities have at times objected to the possibility of a W2E facility being located within their local area. This is compounded by a perception that W2E is a net contributor to air pollution. However, advances made in W2E technology, emissions control and successful examples of architectural integration of W2E plants means that W2E plants are now located in some central business districts in global cities with minimal emissions.

How can a Waste to Energy Project be Delivered?

As with most large-scale infrastructure projects, GCC governments seeking to procure a W2E facility must assess their requirements against a variety of different approaches to structuring development of the project.

Historically, Governments have procured their projects through an engineering, procurement and construction contract. This has meant that the government has borne the capital expense (including all cost overruns) to construct the project and let an operation and maintenance contract. Typically, the government then owns the asset which sits on its balance sheet.

This model prevails when Governments have the necessary budget to fund the project and the expertise to procure the correct partner to construct the facility.

In the current climate of reduced sovereign oil receipts, the attractiveness of this model has been reduced. This situation has marked a change in some attitudes in the region which has been reflected in legislation and policy announcements made by the Kingdom of Saudi Arabia, the Emirate of Dubai and the Sultanate of Oman, amongst others. These announcements have included provisions for PPPs in the delivery of infrastructure and services.

It is in this environment, much like Europe of the 1990s, that PPPs can serve as one delivery model to facilitate the development of projects, including W2E.

Using PPPs to deliver W2E Projects

PPPs and W2E are a natural fit. The PPP model allows governments to harness the ability of the private sector to independently raise finance and gain the expertise of operators and contractors with track records in the industry. Whilst PPPs themselves come in many forms, they involve the host government entering into a long-term agreement with a private sector special purpose vehicle ( SPV ) created solely to deliver the project.

In a W2E context, under the long-term agreement, the SPV will typically be granted the right to design, build, finance and operate the W2E facility. In return, the government will pay an annual service fee or unitary charge to the SPV for its operation of the facility (often based on the volume of waste delivered to be disposed) and a power purchase agreement with the local electricity authority to purchase the related power output.

There are many benefits to the PPP delivery model in relation to W2E projects, not least the knowledge that PPP has been used to successfully deliver equivalent facilities across Europe and Asia. Also, by passing the burden of securing finance to the private sector, governments can overcome the upfront financing issues which may previously have stalled some W2E deals. The ability to structure deals to allow for capital recovery over the duration of a long-term contract, allows governments embark on large-scale infrastructure programmes without needing to factor in high initial design and construction costs into departmental budgets.

On a local level, GCC governments can take comfort from the success in the region of independent power producer and independent power and water projects which utilise structures which have similarities to PPPs.

From the private sector perspective, investors gain an asset with secure and long term revenue streams (waste disposal and energy output). The need for GCC countries to divert waste from landfill is likely to equate to a consistent income source for W2E facilities, which will assist in demonstrating bankability. Furthermore, the acceptance of the importance of integrated waste management plans means that investors can anticipate there will be a greater willingness from governments to commit to provide certain levels of waste, offering greater security, as well as the opportunity to combine W2E with waste management contracting opportunities.

The PPP delivery model provides governments with a single point of responsibility for all delivery and operation obligations. As PPP agreements are typically long term, the private sector is incentivised to deliver more effective operation and management of the facility and to deliver continuous improvement in service delivery. This serves to ensure that governments derive value for money from such projects.

The Structure of a W2E PPP

For the purposes of this discussion, a simplified structure of a typical W2E PPP is shown below.

As the structure diagram illustrates, W2E PPPs are complex and encompass a number of different parties and agreements. It is for this reason that the suite of project documents setting out the arrangements made between each of the different stakeholders is crucially important. Parties embarking on PPP projects must instruct experienced financial, technical and legal advisors to ensure the project has been structured efficiently and most importantly, that there is a well thought out risk allocation amongst the contracting parties.


W2E PPPs in the GCC Watch this Space

In many respects, the difficulties and challenges facing GCC governments in launching W2E projects are not dissimilar to those faced in other sectors, including utilities and social infrastructure.

However, the challenges facing GCC countries in terms of waste management and sustainable energy production are fundamental in nature. This makes investment to address these dual issues both crucial and inevitable. W2E is an environmentally friendly way of disposing of waste and a clean and renewable source of power. For these reasons, W2E can undoubtedly play a role in providing part of the solution to both problems.

W2E presents unique risks arising out of the high upfront capital requirements, social/environmental issues and the need for a supporting waste management infrastructure. However, PPPs can offer a means to delivering cost-effective, efficient and robust W2E infrastructure. With recent GCC PPP legislation paving the way, there is a significant prospect that the W2E PPPs can lead the waste management and renewables sectors for decades to come.

[1] Source:

[2] Bank of America Merrill Lynch No time to Waste Global Waste primer.

[3] Bank of America Merrill Lynch No time to Waste Global Waste primer.