Economic Viability of an Energy from Waste Industry in Queensland CSIRO Workshop | June 2014

Content Introduction and key issues Energy from Waste (EfW) in an integrated waste management system EfW Technologies Waste Clusters Energy Market and CSO Financial Model Conclusion

Limitations This presentation is intended to provide an excerpt to the Department of Environment and Heritage Protection (EHP) on the economic viability analysis of an Energy from Waste Industry in Queensland. It does not purport to be comprehensive advice LGIS disclaims all responsibility and liability for any expense, damage, loss or costs EHP (or third parties) may incur as a result of use of or reliance on the content of this presentation LGIS acknowledges drawing on publicly available peer-reviewed resources. LGIS has not independently verified the information gathered

EfW is common practice in the US, Japan and Europe Introduction EfW is common practice in the US, Japan and Europe Objectives of EfW are to: Avoid long-term environmental risks associated with landfills Utilise the energy content of waste Reduce the waste facility footprint – scarcity of land Extract metals Create localised closed loops

Introduction – Waste Hierarchy

Introduction - Situation in Europe

Introduction - Benchmarking Germany Denmark UK Ireland Slovenia Spain

Objectives of LGIS Work Assist understanding of economic drivers for a EfW industry in Queensland Identification of regions or areas which are more likely to invest in sophisticated EfW technologies Consideration as to when investment conditions are likely to become favourable for sophisticated EfW technologies Identification of EfW technologies that may offer the best return on investment in Queensland Assist understanding of policy instruments that could influence EfW investment conditions in Queensland

EfW in an integrated waste management system Small scale RDF/RDFPP GF AD GF MBI Pyr RDF/RDFPP RDF/RDFPP LFG

Organic Waste to energy options Agricultural, Manure, Forestry, Food industry, Sewage sludge, Separately collected organics from residents Solid Biomass High in Oil High in Sugar Wet / Slurry Biomass

Landfill Gas – Bioreactor (LFG)

Anaerobic Digestion (AD) Example Kompogas

Refuse Derived Fuel (RDF) and RDF Power Plant (RDFPP)

Gasification (GF)

Waste Cluster Categories 5 major categories Waste composition Waste quantities Population forecasts NEM accessibility CSO implications Geographic locations Used a combination of criteria and assumptions to define the main cluster categories of waste, which included: Mixed waste composition Quantities of at least 10,000 tonnes/annum of waste Population forecasts by LGA to 2031 and extrapolated until 2055 for the 2030 scenario Accessibility to NEM distribution Access to CSO or contestability Geographic locations (not a primary) The five major categories are: Rural (defined by CSO and no access to the NEM) Isolated ( SEQ (Major population centre in SEQ, fully contestable market, NEM access) Urban/tourism (secondary population centres, Mining

Waste Cluster Categories Waste quantities Population forecasts In defining the key waste cluster categories and the associated volumes of waste that could be used as input for the economic model, it was essential that we looked at the key variables. The first consideration was for the composition of waste in order to determine the quantity of organic waste and high calorific waste available for WtE. In the report, the NGER defaults to describe the waste composition for the waste that is for. The NGER default values for Queensland outline the accessible organic wastes and other recyclables in the different waste streams that are currently buried in landfills. Weighting for the different waste streams Municipal Solid Waste (MSW), Commercial and Industrial waste (C&I) and Construction and Demolition waste (C&D) was calculated from the Department landfill records 2012. From the same records, weighted average quantities of waste per person per year have been derived to calculate the anticipated waste volumes by LGA. The weighted total waste composition will serve to determine the potential waste type available in each waste cluster category.

Electricity Market The report looks at the energy market conditions as a driver Using this platform, we considered the impacts of the two main factors in defining the key waste cluster categories which then input into the model to assess the viability of WtE solutions accessibility to the National Electricity Market (NEM) the Community Service Obligation (CSO) NEM - accessibility of the NEM will be crucial to the distribution of energy generated from waste. The ability to supply energy back to the grid The NEM mainly covers the Eastern seaboard. CSO - the provision of electricity in regional and isolated areas is subsidised by the government through the CSO payments to Ergon Energy Corporation Limited to ensure equitable access for all Queenslanders. The potential for WtE Potential reallocation of the CSO payments depending on the geographic location of waste clusters could potentially support the viability of WtE solutions. The fully contestable SEQ market is not subsidised and therefore clustered differently. With limited availability of publicly available information, LGIS has used an input cost for the CSO of $280 per MWh This was derived through the following calculation - In 2011/12, Ergon Energy was paid a total CSO of $415 million. - Ergon Energy owns and operates 33 isolated power stations which provide electricity to isolated and remote communities, and these power stations generate approximately 101,000 MWh of energy per annum . The component of CSO attributable for this isolated load in 2011/12 was $117 million. - From this information, LGIS has estimated a CSO subsidy of around $1,158 per MWh in isolated areas. - Given that the provision of electricity to isolated and remote areas is the most cost prohibitive, LGIS has made an assumption that the overall cost per MWh for the CSO network, on average, could reasonably be around half of the isolated CSO, therefore $579 per MWh. - Of this $579 per MWh, LGIS has assumed that network costs account for around 48 per cent of the total cost of retail prices (based on breakdown sourced from the QCA). Therefore, applying this to the estimated average CSO price, a figure of $278 per MWh was derived (rounded up to $280 per MWh for the final figure).

Electricity Price Queensland electricity base load spot price forecast by ACIL Tasman 2012

Model – Waste Flows

Model – Base Case Output

Model capex/opex sensitivity

Without direct policy intervention Landfill Gas is the lowest cost option to 2015 By 2020 Anaerobic Digestion should become lowest cost option except for SEQ, where RDF should become the lowest cost option by 2030. More sophisticated technologies Gasification and RDF - power plant remain highest cost options

Policy intervention possibilities Policies can have significant influence on the timing and viability of sophisticated EfW technologies Increased landfill standards or landfill surcharges will bring forward the point in time when AD and RDF will become more favourable Existing CSO could be an important revenue source if made available for embedded electricity generation EfW Standards and EfW in the context of a Queensland waste strategy in conjunction with the energy strategy would provide further investment confidence

Conclusions All variables together are important when considering attractiveness of EfW investments Economic variables suggest good EfW investment conditions by 2020 for AD and RDF, EfW projects have lead times of several years Non-economic environment needs to be set (such as EfW standards, community engagement)

Thank You Clinton Parker Manager, Business Solutions 07 3102 3064 cparker@lgis.com.au Umur Natus-Yildiz Senior Advisor 07 3102 3305 unatus-yildiz@lgis.com.au