Long-term investment opportunities in the waste incineration industry
In my analysis of investments in the waste sector for the year 2019, I have addressed the potential of waste-to-energy as a great way to dispose of waste. According to Green Giraffe Energy Blog (2019), waste-to-energy facilities have great potential solving the waste crisis many countries face and offering a solid return on investment. I would add this is despite the fact that they are now many different players in the market offering different solutions. This is mainly due to the fact that this sector of the waste industry is still growing and shows a particularly strong growth in Asian countries. Just to emphasize this point, publicly-available news (outlets) have pointed this out in a great number of news articles.
Internationalization of the European waste industry will have serious consequences
There are currently some major changes in the European waste industry that will reshape the whole industry in the coming decades. In particular, we see the internationalization of the European supply chain. My general impression is that the construction of waste incineration plants might have levelled off in the European Union. Publicly available data by Eurostat may suggest that the amount of waste grows at a slower pace in Europe. At a hazard guess, this would imply further restrictions on the development of new waste incineration capacity.
There is also recurring competition with the cement plants for alternative fuels as pointed out by Waste Management World (2015). One might add this is partly related to climate policy, and partly by higher prices for coal imports. Cement plants pay to receive the alternative fuels to create cement, whereas incineration plants are paid to incinerate municipal solid waste, assuming that they produce heat and electricity from it. Although the calorific value for alternative fuels might be higher than the calorific value for Refuse Derived Fuels found in the bunkers of waste incineration plants, the competition is strong.
A general understanding of assets and liabilities suggests waste businesses are relatively stable
This is mainly due to the fact that some of these companies have other business models with potentially very high growth rates, often combining their energy and water business lines in unique ways. In case of sewage sludge treatment, it allows companies to recover phosphorus. Waste incineration companies also have a considerable amount of fixed assets, which is obviously the case because of high CAPEX and land acquisition. What follows from that is this may provide collateral for investors.
In addition, we are seeing that French waste companies invest heavily in new incineration capacity in East Asia and Southeast Asia, where investor demand for new plants may grow in the future.
Interest in the waste sector may increase gradually over time, as this area promises strong growth despite global downswings.
China’s economic rise means that more and more waste incineration plants are being built in East Asia, where an increasing amount of municipal solid waste is being generated.
The economic rise of a country correlates very strongly with waste growth. China, in particular, is rapidly expanding its waste incineration capacity, which in the foreseeable future will allow China to become a leading market in the development of environmental technology in this area due to the rich experience it will have gained in building waste incinerators. So it is worthwhile for European companies (such as is currently the case with French waste businesses) to get a foot in the door to partake in Asia’s economic development. But investors should be careful to distinguish between good and bad investment opportunities.
References and reading list:
Jan Theulen (2015), Cement Kilns: A Ready Made Waste to Energy Solution? Waste Management World, viewed 09 02 20, https://waste-management-world.com/a/cement-kilns-a-ready-made-waste-to-energy-solution.
Michael Ware (2019), Is energy from waste the next big investment opportunity? Green Giraffe Energy Blog, viewed 20 08 2019, https://green-giraffe.eu/blog/energy-waste-next-big-investment-opportunity.
Many thanks for the shared interest in the energy world!