Set up Waste-to-Energy plant project for Dummies! Make or Buy? International experience of risk-sharing between public and private entities in Waste-to-Energy plants construction Christophe Cord homme ESWET Member Company CNIM Global Market Forum, Pollutec, Lyon, 04.12.2014 1 Waste-to-Energy Market Characteristics Whose? Municipal Solid Waste (MSW) ownership Collection and treatment obligations legally given to local public sector in general! Rules of public market tenders Strict and changing legislation Management of external interferences: permitting process, political issues, public opposition What? MSW: low-quality fuel, variable composition and high contents of pollutants Requiring synergies between municipalities for MSW Extension to other wastes?: Wastewater sludge, Commercial and Industrial waste (C&I), clinical waste 2
Waste-to-Energy Market Characteristics How? Large infrastructure projects with tailored technical solution! Similar to conventional Power plant (technical principle, energy efficiency concern, availability ) Even more complex because of MSW fuel quality and stringent regulation in evolution Public tender process requiring a significant, serious feasibility study and know-how Where? When? How much? Complex interfaces (site issue, environment, architecture, technical parameters ) Long construction time and significant delivery risks (delay - budget - performances) Capital intensive and gate fee discussion Monaco WtE 3 Waste-to-Energy Market Actors on main contracts Who? Impact of the public / private approach in waste management! Public entities (Municipalities or Public Companies responsible of waste management) acting directly or not Waste management or power production private industry (when required) providing waste management services to public entities (waste disposal contract BOT - BOO) Plant constructors providing the entire unit to owner on turn-key basis (EPC contract) or split into lots Operation and Maintenance Companies ensuring O&M service to owner if sub contracted 4
Waste-to-Energy Market Other Actors Public entities Waste management or power production private industry Plant constructors Operation and Maintenance Companies Power industry recovering produced energy (electricity, district heating, steam ) Investors, banks, lenders Advisors, consulting engineers Permit and Control authorities Public, neighbours and associations 5 Let s compare this topic with a more «Daily Life» example!
Suppose that you have a new job: Mayor of Metropolis! SCHOOL Imagine that you are in charge of school logistics! 7 School transport in Metropolis Organise school transport with buses! SCHOOL Public, Private or mixed solution? 8
School transport in Metropolis: First, scope and needs to define! Whose? SCHOOL What? Who? Where? How? When? How much? 9 School transport in Metropolis: Answers and means to implement! Plan? Build? Operate and maintain? Finance and remunerate? 10
Levels of private sector involvement: MAKE OR BUY? MAKE BUY Approach: Public/ Private Lots EPC Private BOT Merchant plant Final Ownership Public Public Public Public Private Financing Public Public Public Private Private Operation Public Public Private Private Private Design Public Private Private Private Private Construction Private Private Private Private Private Competences PUBLIC PRIVATE 11 Public / private approach in waste management (1) Public sector including public companies and mixed companies (Stadtwerke) Source: Suez / Bipe (2010) Public / private market shares in different European countries for municipal waste treatment 12
Examples of WtE market organisation in different countries France Municipal ownership with private operation subcontracting Or Delegation of Public Service to private companies (BOT) UK Complete privatisation with Private Finance Initiative (PFI) Contractual documents detailing how to handle low probability events but with high economical impact (British common law) Denmark Public responsibilities of the treatment of all types of wastes Municipal ownership and operation of EfW plants Poland New law in 2011: transfer of MSW ownership to cities European cohesion funds to build WtE Italy Mixed public - private multi-utilities companies owning /operating WtE 13 Know-how and risk sharing in WtE sector MAKE or BUY? choice by public waste owner: political issue depending on competences and risk-sharing Typical risks in waste treatment: Plant design and construction risks Plant performance and availability risks during operation Financing risks Demand risks (waste supply, authorisations, changing laws, energy revenues ) Best risk sharing between different actors to be analysed by public client: Lowest and reliable cost estimation of risk coverage According to competences and interfaces 14
Risk distribution and management in WtE sector Some typical associated risks: Realisation costs exceeding budget Realisation time exceeding schedule O&M costs exceeding operation budget Performances lower than expected Lack of availability due to bad quality equipment or O&M performances Waste quantity or quality not as expected Project risks are to be allocated to the most suitable parties through fair contractual structure Essential for costs optimisation and efficient delivery 15 Allocating Project risks: What is a fair contractual structure? MAKE BUY Typical risks sharing Lots EPC Private BOT Merchant plant 1- Demand risks (waste supply, laws,..) Public Public Public Public Private 2- Financing Public Public Public Private Private 3-Performances & availability during operation 4-Plant design & construction Public Public Private Private Private Public Private Private Private Private Competences PUBLIC PRIVATE 16
Conventional public procurement for plants construction With public ownership, public procurement for plant construction with public funding, input-based specifications and short-term contracts (3 years) 2 main approaches: Preliminary design (process & building) by public with allotment for supply (2 to 6 lots in gen.) Management of technical and contractual interfaces (with suppliers specificities). Costs, delays, performances and operation risks partially supported by the public client. Design and Build contract with typical EPC supplier (Engineering, Procurement and Construction) guaranteeing global performance and delivery time. Public risks limitation (Spread payments during erection and Take-Over only when plant fits for purpose) Marchwood (UK) Kara Roskilde (DK) 17 Private procurement for the construction in case of concession With privatization, public client buying waste treatment service But public engagement on long term basis (20-25 years) For bankability conditions for long-term financing by private sector at risk for infrastructure building Oxford (UK) For risks coverage payment transferred to private sector with required return interest for project economy. Demand risks covered or capped by public To reduce completion risks, private lenders or investors prefer to use Turnkey contract with reliable and proven WtE technologies 18
EPC general contractor Turn-key / EPC contract: Fixed global price and strong engagement on delivery time Single competent responsible with adequate knowledge to complete tailor-made project on budget and on time Avoid complex, uncertain and time-consuming interfaces and coordination management Obtain global guarantees of performances and availability EPC client (public or private): Marseille (Fr) Specify performance criteria to be achieved and principles rather than design himself the facilities Exercise control to follow work progress on the way chosen by the Contractor 19 Fair Contract conditions Key of successful completion of Turnkey contracts: fair contractual conditions and equitable risk-sharing Avoid unusual risks transfer which are hard or impossible to evaluate Give all relevant information to increase certainty of risk estimation and therefore of final price Good balance in project definition requiring key performances but allowing Contractor own specific equipment design Improvements for fair and reasonable competition: Compensation for unsuccessful bidders to encourage serious preliminary feasibility studies and avoid unsuccessful inquiries Standardisation of contract terms avoiding unacceptable conditions 20
Reliable and proven technologies! Technologies which fit to purpose! Buy a device but also a performance: x passengers to carry in comfort and safety for y km/year with z l fuel /100km during n days/year Importance of availability and performances to reach cost optimum! Development of alternative technologies subject to this cost goal! WWII gasifier bus with fuel trailer & refill Some might be proven, but are often not reliable or cheap enough! Back to the future! with Fusion engine! Some could be Science Fiction!!! 21 Some References for turnkey WtE plants Plant location Country CNIM Client (Public/Private) Final end customer Order year Capacity in tonnesof waste per year CNIM supply Contractor Plant operation Approach Public/ Private LONDON GREAT BRITAIN SELCHP (Private company) LONDON Boroughs 1990 450,000 EPC (for BOT) CNIM Private Merchant plant BAKU AZERBAIJAN Ministry of Economic Development (Public) City of BAKU 2008 500,000 EPC(DBO) CNIM CNIM (Private) Private LA COLETTE THUMAIDE L5&6 BRNO SAINT-OMER MAARDU (TALINN) TORINO JERSEY ISLAND BELGIUM CZECH REPUBLIC FRANCE ESTONIA ITALY State of Jersey (Public) IPALLE (Public municipal association) SAKO A.S. (Public municipal-owned utility company) SMFM (Public association of 160 municipalities) EESTI ENERGIA (Public national state-owned utility company) TRM SpA (Public municipality-owned company) State of JERSEY IPALLE 2008 105,000 EPC(DB) 2006/ 2009 SAKO A.S. 2007 224,000 EPC (DB) SMFM 2007 92,000 EESTI ENERGIA JV CNIM/ CAMERONS Public 200,000 EPC (DB) CNIM Public EPC Process (DB) Consortium CNIM / SIEMENS CNIM Public Private 2010 220,000 EPC (DB) CNIM Public TRM SpA 2010 421,000 EPC (DB) ATI CNIM/ Unieco/ Coopsette Temp. ATI CNIM (Private) EPC & public EPC & public EPC & public Lots & Private EPC & public EPC STAFFORD GREAT BRITAIN VEOLIA UK subsidiary (Private Initiative) STAFFORD-SHIRE 2011 300,000 EPC (DB) Consortium CNIM/ CLUGSTON VEOLIA (Private) BOT LINCOLN GREAT BRITAIN WRG Ltd (Private Initiative) Lincolnshire County Council 2011 150,000 EPC (DB) Consortium CNIM/ CLUGSTON WRG Ltd (Private) BOT 22
Some Large Turnkey WtE plants London SELCHP (UK) (1994) Copenhagen Amager (DK) (2017) Torino TRM (IT) (2014) Baku AZERBAIJAN (2013) Photo credit : TRM- CNIM -BIG 23