Green Investment Bank releases AD market report

The U.K. Green Investment Bank has published a market report on anaerobic digestion (AD) that provides an overview of issues facing the market. The report also identifies opportunities and barriers for investment.

According to the report, AD is at the core of the U.K. government’s waste policies, and the sector is developing rapidly. As of March, 106 AD plants were operating in the U.K. outside the water industry, with a dozen additional plants under development.

Within the report, the GIB states that the AD industry has expressed concerns that securing senior debt financing is a key constraint limiting development in the sector. However, prospective debt investors have indicated that the U.K.’s AD industry is relatively immature and has a risk profile better suited to equity investment.

According to the GIB, the report assesses the development of the AD market and operational performance of U.K.-based facilities in hope that that sharing the findings of the market analysis will help improve industry and investor understanding of the sector. “Better understanding  of the necessary factors required for project success should enable the investment community to allocate capital appropriately to AD projects, and successful projects should in turn increase investor confidence in, and capital commitments, to the sector,” said the GIB in the report.

The document includes an overview of AD technology, and its application in processing agricultural waste, segregated food waste and residual waste. According to the analysis, preliminary data shows that total power generation from AD facilities, excluding those processing sewage sludge, increased by 38 percent from 2011 to 2012, reaching 330 GWh last year. The report also addresses the fragmentation of the U.K. AD market, noting that the top five operators account for less the 28 percent of the market. In addition, the majority of current facilities have been in operation for less than three years.

According to the GIB, the analysis has identified several factors critical to project success, including feedstock selectivity, an understanding of and access to local digestate, operating personnel, and a culture of seeking to make a series of small changes to actively improve operational performance.

“[AD] provides a green and efficient way of managing waste, whilst providing both energy and fertilizer. For organic waste, AD is a cost-effective and sustainable waste management option,” said Adrian Judge, managing director for waste and bioenergy at the GIB. "Although the UK market is still young and there are challenges for projects in delivering a consistent revenue stream, well operated AD facilities have the potential to achieve attractive commercial rates of return to both equity and debt providers."

In the report, the GIB states it intends to update the Ad market report on a regular basis and share its findings with industry and potential investors. With regard to debt investment in the sector, the bank said it is actively investigating the opportunity to directly participate in up to £50 million ($77.92 million). For equity investment in new AD facilities, it will continue to make investments through Foresight and Greensphere.

A full copy of the market report can be downloaded from the GIB website.