Slide 1: EfW plants and Lakeside
EfW plants and Lakeside Tuesday, 18 October 2011
Slide 2: Disclaimers
Pennon Group Plc (“Pennon Group”) Disclaimers For the purposes of the following disclaimers, references to this "document" shall mean this presentation pack and shall be deemed to include references to the related speeches made by or to be made by the presenters, any questions and answers in relatio
Slide 3: David Dupont, Group Director of Finance
David Dupont Group Director of Finance 3
Slide 4: Pennon Group Plc Overview
Pennon Group Plc Overview • Pennon Group Plc is a large FTSE 250 which operates and invests in utility infrastructure businesses. The Group is committed to: - sustainable development - enhancing the environment and - providing high quality customer services • We have around £4.1 billion assets and e
Slide 5: Investment Characteristics
Pennon Group Plc Investment Characteristics • Top end of FTSE 250 • Clearly focussed strategy • Steady growth with exposure to resource/cyclical upswings • Index linked asset base • Defensive • Strong SRI credentials
Slide 6: Colin Drummond, Chief Executive, Viridor Ltd
Colin Drummond Chief Executive, Viridor Ltd 6
Slide 7: Viridor – Overview
Viridor – Overview From Waste to Resource Our strategy is to grow and add value by: • proactively developing new recycling operations to meet ambitious EU/UK targets • successfully exploiting the huge potential in waste-based renewable energy generation • capitalising on our strong position in landf
Slide 8: Viridor - Continuing to Deliver Strong Financial Performance
Viridor - Continuing to Deliver Strong Financial Performance (1) PBIT + JVs (2) PBT (1) Figures after 2009 on an IFRIC 12 basis 8 (2) JVs contributed from 2008
Slide 9: Viridor – Profit Contribution by Segment
Viridor – Profit Contribution by Segment Year ended 31 March 2001 Year ended 31 March 2011 • Business continues successfully to evolve • 46% of profits from recovering value in waste (3) (1) Contribution plus joint ventures (share of PAT and interest) before intangibles and overheads (including pens
Slide 10: Recovering Energy from Waste - 1
Recovering Energy from Waste - 1 • A form of biomass • Two routes − methane gas (landfill gas and anaerobic digestion) − combustion technologies • Waste already accounts for 1.5% of UK electricity − comparable to wind − 1.2% landfill gas − 0.3% combustion • Unlike wind − provides base load power (80
Slide 11: Recovering Energy from Waste - 2
Recovering Energy from Waste - 2 • EU Landfill Directive requires major reduction in amount of waste going to landfill − which will need instead to be used for energy generation − UK government targets imply at least 15m tonnes energy from waste capacity by 2020 compared to 5m tonnes currently − sup
Slide 12: Viridor – Renewable Energy
Viridor – Renewable Energy • 137MW operating capacity at 31 March 2011 (compared to 28MW in 2001) − LFG (108MW), EfW (27MW), AD (2MW) • Additional 60MW EfW under construction • Four large EfW plants giving a further 1.3m tonnes/120MW achieved planning consent over past year • Target over 300MW total
Slide 13: Andrew Kirkman, Finance Director, Viridor
Andrew Kirkman Finance Director, Viridor 13
Slide 14: Overview of current and pipeline EfWs
Overview of current and pipeline EfWs Map of geographic locations Operational In construction Dunbar Planning permission secured Viridor‟s other operational sites Bolton within its four regional businesses Runcorn I Runcorn II Oxford Lakeside Trident Park Avonmouth Exeter 14
Slide 15: Overview of current and pipeline EfWs
Overview of current and pipeline EfWs Summary of key statistics Construction/commissioning Operations EfW Capital cost 1 Tonnes p.a. MWs Start End End 2 Lakeside £160m 410k 37 Nov 2005 May 2010 2033 Bolton n/a 120k 9 1970s/1998 1970s/2001 2034 Runcorn I £218m 375k 28e/51th Apr 2009 Mar 2013 25 years
Slide 16: Overview of current and pipeline EfWs
Overview of current and pipeline EfWs Key points to note • Viridor has significant (and increasing) construction management and operational expertise • Construction and commissioning risk passed to EPC contractor – Lakeside delay did not disadvantage Viridor • The ratio of waste to generation capaci
Slide 17: Viridor's energy generation capacity – summary
Overview of current and pipeline EfWs Viridor’s energy generation capacity – summary Total Viridor EfW Energy capacity (MW) Waste capacity (kt) Viridor share Energy capacity (MW) Waste capacity (kt) Operational today Landfill gas 108 n/a 100% 108 n/a Lakeside 37 410 50% 18.5 205 Bolton 9 120 100% 9
Slide 18: Accounting for EfWs
Accounting for EfWs Key considerations 1. Financing structure − EfWs funded by project finance are off balance sheet, remainder are corporately financed and on balance sheet − financing structure comprises debt, subordinated debt and equity 2. Equity ownership − JV projects are equity accounted with
Slide 19: Accounting for EfWs
Accounting for EfWs Summary of different accounting treatments Project or corporate Equity or subsidiary IAS16 vs IFRIC12 finance accounted Lakeside Project Equity IAS16 Bolton Corporate Subsidiary IAS16 Runcorn I Project Equity IAS16 Runcorn II Corporate Subsidiary IAS16 Exeter Corporate Subsidiary
Slide 20: Accounting for EfWs: Generic plant financials
Accounting for EfWs Generic plant financials • To illustrate the accounting differences and the types of expected return, we have set out the financials for a generic EfW plant: • £200m capex, 350kt p.a. waste and 25MW electricity • 80% debt, 20% sub debt and equity • First full year of operations,
Slide 21: Generic plant financials – Profit profiles
Accounting for EfWs Generic plant financials – Profit profiles • Profits over the life of the projects should increase with inflation • PBT under IAS 16 increases as debt and sub-ordinated debt are repaid, IFRIC 12 has a more constant notional interest calculation Generic EfW EBITDA under IFRIC 12 v
Slide 22: Generic plant financials – Cash flow
Accounting for EfWs Generic plant financials – Cash flow • The chart below shows the expected shareholder cash in-flows and out-flows over the life of the project – the accounting treatment does not affect cash flows 22
Slide 23: Valuation of EfWs
Valuation of EfWs Valuation methodologies • There are a variety of different valuation techniques available to value EfWs but those based on accounting measures have significant flaws: Methodology Comment • EBITDA depends on accounting method (IFRIC12 or IAS 16) Multiple of EBITDA • Does not take ac
Slide 24: Valuation of EfWs: Key DCF inputs
Valuation of EfWs Key DCF inputs • The key assumptions driving cash flow and returns are: Inputs Comments Revenues • Gate Fee EfW needs to be economically attractive compared to rising landfill costs. Costs are expected to be over £100/t by 1 April 2014 (£80/t landfill tax and gate fee) • Energy pri
Slide 25: Return on invested capital vs cost of capital
Valuation of EfWs Return on invested capital vs cost of capital • As stated, Viridor targets a minimum 8% real after tax project return • The table sets out the value creation for the same generic EfW plant, assuming: • £200m capital spend evenly over 3 years • 25 year operating life • 3% inflation
Slide 26: Valuation of EfWs: Upsides/risks
Valuation of EfWs Upsides/risks • The ultimate value of these EfWs is dependent on Viridor‟s ability to outperform base case assumptions and manage risks • Viridor believes that there will be a shortage of EfW capacity and as a result merchant capacity will be particularly attractive • In addition,
Slide 27: Lakeside EfW - Summary
Appendix 1 Lakeside EfW - Summary • Waste capacity and supply: 410kt (all merchant). Supply split between Viridor, Grundon and Lakeside • Energy: 37MWe • Capital expenditure: £160m • Build profile: Start – November 2005. End – May 2010 (Expected 36 months, actual 54 months) • Operating life: 25 year
Slide 28: Bolton EfW - Summary
Appendix 1 Bolton EfW - Summary • Waste capacity and supply: 120kt (all supplied by via the Greater Manchester PFI) • Energy: 9MWe • Capital expenditure: n/a • Build profile: As an incinerator: start – 1970s, end – 1970s. Energy recovery: start – 1998, end – 2001 • Operating life: 2034 concession en
Slide 29: Runcorn I EfW - Summary
Appendix 1 Runcorn I EfW - Summary • Waste capacity and supply: 375kt (up to 325kt from GM PFI, remainder merchant) • Energy: 28MWe and 51MWth • Capital expenditure: £218m • Build profile: Start – April 2009. End – March 2013 (48 months) • Operating life: 25 years • Construction contractor: Keppel S
Slide 30: Runcorn II EfW - Summary
Appendix 1 Runcorn II EfW - Summary • Waste capacity and supply: 375kt (all merchant) • Energy: 42MWe • Capital expenditure: £214M • Build profile: Start – September 2010. End – Mid 2014 (45-48 months) • Operating life: 25 years • Construction contractor: Keppel Seghers • Operating contractor: Virid
Slide 31: Exeter EfW - Summary
Appendix 1 Exeter EfW - Summary • Waste capacity and supply: 60kt (all contracted with Devon County Council) • Energy: 3MWe • Capital expenditure: £46M • Build profile: Start – October 2011. End – July 2014 (33 months) • Operating life: 30 year concession • Construction contractor: TIRU SA • Operati
Slide 32: Ardley EfW - Summary
Appendix 1 Ardley EfW - Summary • Waste capacity and supply: 300kt (c.150kt contracted for 25 years with Oxford City Council via Oxfordshire PPP) • Energy: 24 MWe supplied to the National Grid – enough to power 24% of Cherwell District Council‟s needs • Capital expenditure: £205m • Build profile: St
Slide 33: Cardiff EfW - Summary
Appendix 1 Cardiff EfW - Summary • Waste capacity and supply: 350kt (all merchant) • Energy: 28MWe • Capital expenditure: £218m • Build profile: Start – 2012. End – 2015 (36-38 months) • Operating life: 25 years • Construction contractor: CNIM/Lagan • Operating contractor: TBC but if CNIM then for 1
Slide 34: Avonmouth EfW - Summary
Appendix 1 Avonmouth EfW - Summary • Waste capacity and supply: 350kt (all merchant) • Energy: 28MWe • Capital expenditure: c.£200m • Build profile: Start – H1 2013. End – H1 2016 (36 months) • Operating life: 25 years • Construction contractor: TBA • Operating contractor: Viridor • Plant ownership:
Slide 35: Dunbar EfW - Summary
Appendix 1 Dunbar EfW - Summary • Waste capacity and supply: 300kt (all merchant) • Energy: 23MWe and 17MWth • Capital expenditure: c.£200m • Build profile: Start – H2 2013. End – H2 2016 (36 months) • Operating life: 25 years • Construction contractor: TBA • Operating contractor: Viridor • Plant ow
Slide 36: Renewable energy incentives
Appendix 2 Renewable energy incentives • Viridor‟s EfW operations qualify for renewable energy incentives as follows Type of EfW Comment Landfill gas generation As at 31 March 2011, 69% of capacity qualified for 1 ROC (Renewable obligations certificates), the remaining capacity qualified for NFFO bu
Slide 37: Renewable energy incentives: ROC
Appendix 2 Renewable energy incentives ROC • Certification scheme introduced by the Government under the Renewables Obligation as the main way of supporting the production of „green‟ electricity in the UK • Will be replaced by EMR • Value of ROC estimated to be circa £42/MWh and stabilised by 10% he
Slide 38: Renewable energy incentives: RHI and LEC
Appendix 2 Renewable energy incentives RHI • Certification scheme introduced by the Government under the Renewables Obligation as the main way of supporting the use of „green‟ heat in the UK • Managed by OFGEM • Ring fenced budget (capped for a period) • Value £26/MWh thermal but only for bio-energy
Slide 39: Technical background: Permitting
Appendix 3 Technical background Permitting • Plant needs an Environmental Permit to operate • Awarded and regulated by the Environment Agency • Covers all aspect of the environmental impact of EfW operations, waste inputs, emissions to air/ground/water • Delivers compliance with Waste Incineration D
Slide 40: Technical background: WRATE and R1
Appendix 3 Technical background WRATE • WRATE (Waste and Resources Assessment Tool for the Environment) software compares the environmental impacts of different municipal waste management systems. Approved by the Environment Agency. • Normally required as part of a PPP bid – not specific to any indi
Slide 41: The planning process
Appendix 4 The planning process • Planning applications for EfW‟s producing >50MW of electricity are considered by the Infrastructure Planning Commission (soon to be consumed by the Planning Inspectorate) • Planning applications for EfW‟s producing<50MW of electricity are considered by the relevant
Slide 42: The planning process (continued)
Appendix 4 The planning process (continued) • If a planning committee grants planning permission, it is normal that it will be subject to a long list of planning conditions and a legal agreement. Planning permission cannot be issued until the legal agreement has been signed. Once the planning permis
Slide 43: Pennon Group Plc
PENNON GROUP PLC