Long-term investment opportunities in the waste incineration industry
In my analysis of suitable 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 East Asian countries.
Internationalization of the European waste incineration industry will have serious consequences
There are currently some major changes in the European waste incineration industry that will reshape the whole industry in the coming decades. In particular, we see the internationalization of European supply chain of Refuse Derived Fuel in northwestern Europe. It has been the case for some years now that waste is being exported to other northwestern European countries due to the high landfill tax in the UK. In general, the construction of waste incineration plants has levelled off in most member states of the European Union according to publicly available data. Publicly available data also shows the amount of waste grows at a slow pace in Europe. This may not justify making larger investments in the construction of new waste incineration plants.
There is also recurring competition with the cement plants for alternative fuels, partly driven by climate policy, and partly by higher prices for coal imports. For people who do not work in the waste industry, it is important to know that 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 is higher than for Refuse Derived Fuels found in the bunkers of waste incineration plants, the competition is strong.
Why do I think large waste incineration companies are good investments
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 provides additional collateral for investors in case of bankruptcy. In addition, these companies are investing heavily in new waste incineration plants in East Asia and Southeast Asia, where investor demand for new plants may grow in the years to come.
The investment horizon promises strong growth despite a more than probable global recession.
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 that are active in East Asia to get a foot in the door to participate in the economic development. Investors in these companies will benefit handsomely for the next 10 years or so.
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>.