The London Waste and Recycling Board business plan 2015 2020 November 2014 London Waste and Recycling Board 169 Union Street London SE1 0LL info@lwarb.gov.uk www.lwarb.gov.uk
2015 2020 Business Plan Contents I. Foreword... 1 II. Executive summary... 2 III. What is LWARB setting out to achieve?... 4 IV. Services offered by LWARB... 6 V. Funding & financial plan... 13 VI. How will LWARB measure and monitor its performance?... 13
I. Foreword The London Waste and Recycling Board is delighted to be able to present this new Business Plan covering the next five years. No doubt we will need to accommodate change over this period, and the Business Plan is designed to be flexible should we need to change course. However there are some big issues that will need to be addressed over the next five years and this plan captures three main issues. London local authorities, including Joint Waste Authorities and partnerships, are, like every other local authority in the country, facing a real challenge to meet recycling targets by 2020. The Mayor has set his target in London that 50 per cent of local authority collected waste should be recycled by 2020. London local authorities are facing unique challenges as well as the continuing need to make financial savings. LWARB has formed a partnership with WRAP to deliver more, and more targeted support to London s councils to improve recycling and save money. London still needs additional waste infrastructure to meet the needs of more and better quality recycling. It is estimated that a further 1.6 million tonnes of recycling, anaerobic digestion and composting capacity is required in London by 2031. This is in addition to the need to upgrade existing equipment to facilitate high quality recycling. LWARB has set aside 20 million to help businesses in the waste sector to expand. LWARB has supported around 50 businesses in the recycling and reuse sectors and has provided funds to develop four new facilities three of which are now operating, whilst the other is in construction. All of this work will need to be mindful that the global economy will need to produce consumer goods to meet a vastly expanded global demand, using rapidly depleting resources. The recovery of secondary materials from waste for remanufacturing will soon become a normal feature of production. LWARB has helped to develop the waste and resource sections of the Mayor s London Infrastructure Plan, and the Mayor has asked that LWARB help to deliver a Circular Economy Route Map for London. We estimate that, by 2050, London will not only need to maintain its current processing capacity, but introduce 40 new facilities more aligned to reuse and remanufacturing. In planning for this new model of resource management, LWARB will be helping to lead the way by establishing a new programme and dedicated resource. Richard Tracey AM Chairman London Waste and Recycling Board 1
II. Executive summary Statutory context The London Waste and Recycling Board (LWARB) was established under the Greater London Authority Act 2007 (the Act). The LWARB Order 2008 sets out certain administrative and governance requirements including the requirement that LWARB produce a Business Plan by 31 st March each year, setting out how it will meet its objectives including its priorities and its strategy for the provision of financial assistance to any person. Business plan layout This Business Plan describes what LWARB is looking to achieve and the services that LWARB will offer to meet these aspirations. In addition, the source of LWARB funds, as well as the proposed allocation of these funds, can be found within this document. Funding overview LWARB is budgeting for the period 1 April 2015 31 March 2020. The total budget available for this period is estimated to be c. 32.5 million. This is a conservative estimate and the actual amount available will depend upon the performance of LWARB investments and, to a lesser extent, the success of repayable no win no fee service offerings provided to London waste authorities. LWARB will review available budget against the programmes identified in this Business Plan on an annual basis. Service offerings LWARB has considered the services it should provide in order to deliver this Business Plan. Those services it intends to pursue over the next five years are broken down into four principal areas: 1. Infrastructure investment Provision of funding to enable the development of projects that meet the strategic requirements of LWARB (geographically and technologically) to the extent that funding is not available from the private sector. 2. London waste authority support Working through a new partnership with WRAP to help waste authorities to divert materials from landfill and increase recycling rates that contribute towards the Mayor s 50% recycling target; help them recover high quality recyclate and maximise the income generated from that material; help them to realise and generate more value from their waste management services; and help them to promote and encourage waste prevention and reuse. 2
3. Accelerate the move to a circular economy in London The Mayor has asked that LWARB works with the private sector and the London Infrastructure Delivery Board to understand the regulatory and fiscal environment that needs to be in place to accelerate the move to a circular economy. It will do this by developing a Route Map to the Circular Economy for London to be available by early 2016. LWARB will also work with the Mayor and Government to ensure that incentives are in place to allow, promote and encourage more widespread adoption of circular economy systems, and work with the Mayor to enable the sharing of good practise through active participation in circular economy networks and work with stakeholders and industry so that all the benefits of circular business models are understood to encourage business from FTSE 100 companies to SMEs to adopt them. 4. Continued delivery of existing commitments Monitoring and reviewing existing grant and loan commitments. 3
III. What is LWARB setting out to achieve? Mission statement: The London Waste and Recycling Board will promote and encourage the production of less waste; an increase in the proportion that is reused or recycled; and the use of methods of collection, treatment and disposal of waste that are more beneficial to the environment. In doing so, LWARB is required to act in accordance with the Mayor of London s Municipal Waste Management Strategy and in general conformity with the London Plan. Objectives and goals An overview of LWARB s objectives is set out below, together with a set of secondary goals. a) The production of less waste; b) An increase in the proportion of waste that is reused or recycled; c) The use of methods of collection, treatment and disposal of waste that are more beneficial to the environment. These objectives are supported by the following secondary goals: Creation of a collaborative working environment with key stakeholders (including 1 : the Government, the London boroughs and the City of London, Statutory Joint Waste Disposal Authorities (WDAs), the Greater London Authority (GLA), waste management companies and reprocessors, private sector financiers, feedstock providers, energy producers and users, and the third sector); Provision of support across the range of potential technology and nontechnology solutions; Delivery of a London Solution for waste management through the delivery of a minimum recycling offer for London, promotion of joint working, and promotion of shared services; To work with boroughs and business to enable recycling rates to increase to meet the targets identified in the Mayor of London s waste strategies and the London Plan; Delivery of efficiencies support to enable London s waste authorities to save at least 10 million per year by 2016; and 1 List not exhaustive 4
Support for the delivery of the Mayor s Municipal Waste Management Strategy, Business Waste Strategy and London Plan (inasmuch as it relates to waste). Long term aspirations: LWARB will not be able to meet the capacity gap requirements of London s waste infrastructure given the value of its available funds, but will seek to lever in additional funds as described below. On this basis, LWARB has some long term aspirations beyond its current remit: To develop a Londonwide plan that clearly sets out the infrastructure requirements beyond the capability of the fund with technology and geographic indicators for delivery through to 2031 (as set out in the Mayor s Municipal Waste Management Strategy); To reach a position whereby LWARB s continued existence and ability to continue to contribute to the development of London s infrastructure requirements and support London s waste authorities does not rely on taxpayer funded grants. This can be achieved by ensuring a return on LWARB s current funds to enable redeployment of capital for future investment; To roll out the LWARB business model to other UK major cities. 5
IV. Services offered by LWARB The services LWARB intends to offer over the next five years are broken down into four principal areas: Infrastructure Investment; London Waste Authority Support; Accelerating the move to a circular economy and continued delivery of existing commitments. These are discussed in more detail below. 1. Infrastructure investment programme London s waste treatment capacity gap The Mayor of London, in his Municipal Waste Management Strategy and Business Waste Strategy, sets out his preferred approach for managing London s local authority collected waste and business waste to 2031. The GLA have commissioned SLR to undertake an analysis of London s waste management capacity and provide an estimate of any capacity gaps. This analysis takes into account the targets set by the London Plan to achieve reuse and recycling targets and net selfsufficiency and will be subject to further work to check that the understanding of existing capacity is accurate. Currently the analysis estimates a large demand for recyclate bulking and material recovery facilities with an annual requirement for c.1 million tonnes of new capacity by 2031. These estimates are based upon achieving recycling rates of 60% for local authority collected waste and 70% for commercial waste (there is projected to be very little industrial waste arising) by 2031. A smaller gap exists in organic waste treatment, c.0.6 million tonnes per year, and just 0.3 million tonnes estimated for additional residual capacity by 2031. The European Commission, in their Communication, Towards a circular economy: A zero waste programme for Europe, has proposed that 70% of municipal waste is reused or recycled by 2030. If this target is enshrined in legislation London will need further additional recyclate sorting and bulking capacity, as well as organic waste capacity. Considering the needs of a move to a more circular economy, significant new reuse and remanufacturing infrastructure will also be required. The Mayor of London s London Infrastructure Plan identifies the need for an additional 40 new waste facilities by 2050, as well as replacing existing facilities as they reach the end of their life. LWARB s infrastructure investment fund To help deliver the infrastructure that is needed to treat London s waste, LWARB has set up an Infrastructure Investment Fund. Its aim is to ensure that London s waste infrastructure 6
requirements are delivered ahead of the economic curve such that the opportunities for early landfill diversion and a shift towards a circular economy are not missed. To date, LWARB has invested c. 30 million in waste infrastructure projects in London, including Plasrecycle, the UK s first dedicated plant for recycling postconsumer shopping bags; TEG Biogas, London s first anaerobic digestion and composting facility; and Ecotech, a PET bottle reprocessing and material recovery facility. LWARB has helped to establish and fund the London Reuse Network and investments have been made through the London Green Fund, in which LWARB is a major investor. As a result, about 50 businesses have been either supported or established. LWARB s Infrastructure Investment Fund provides financial support to businesses interested in developing waste treatment infrastructure projects in and around London. This is offered on commercial terms and no State Aid is involved. This support can take the form of debt funding or equity financing and it is tailored to the needs and characteristics of each project. The forecasted budget available for the Infrastructure Investment Fund for the period 20152020 is 20 million. LWARB s risk tolerance for investments is medium to high. This is required in order to make a positive difference to the market. The following elements underpin LWARB s investment criteria: Commerciality: Projects must be commercially viable and capable of taking on board investment at commercial rates. LWARB will only consider subcommercial positions in exceptional circumstances and has in the past only awarded subcommercial terms to third sector organisations. Any financial support made through LWARB must comply with European legislation regarding State Aid. Nondisplacement of private sector funders: LWARB funding should not be viewed as the first option for project developers. LWARB s focus is on optimising leverage of funds and delivery by helping to derisk those projects that are on the margins of private sector delivery. Project sponsors will need to demonstrate that they have explored private sector funding options before approaching LWARB. Project location: LWARB will seek to invest in waste projects or waste businesses primarily within London, but will also consider projects outside of London providing that such facilities accept significant amounts of waste from London. Environmental requirements: LWARB operates in accordance with the principles and approach set in the Mayor s Municipal and Business Waste Strategies and therefore supports projects which move up the waste hierarchy. 7
Site and technology: LWARB will finance projects which have access to a site (or are in the process of securing one) and have identified a technology which is proven on the proposed waste stream at pilot scale as a minimum, recognising that process efficacy may be dependent upon the interaction of multiple technologies. Additionality: LWARB believes that it must leverin significant private sector finance through its investments by financing projects which have already secured (or are in the process of securing) investment from the sponsor and/or other private investors. Exceptions may apply to small corporate or development loans. Given the urgent need to develop additional waste infrastructure in London, LWARB will not be setting any leverage targets, but will judge each project on its merits whilst reporting leverage achieved. Public and private sector support: LWARB will support projects that are being developed by the public or private sector (or a combination of both). The types of projects likely to be financed LWARB invests in technologies and infrastructure that meet the requirements of the Mayor s Municipal and Business Waste Strategies, in particular the Mayor s Carbon Intensity Floor 2.These are likely to be: reuse manufacturing and circular economy technologies; infrastructure for secondary reprocessing and manufacturing of recyclate into new materials; reuse and recycling collection infrastructure; recycling reprocessing and MRF (material recovery facility) technology; composting or anaerobic digestion facilities; advanced thermal and/or chemical conversion technologies that maximise combined heat and power opportunities (e.g. gasification/pyrolysis); projects that offset fossil transport fuel such as the infrastructure required to produce biodiesel from used cooking oil, for example, for use in London s buses and other suitable vehicles; innovative technologies such as hydrogen fuel cells. 2 Mayor s Municipal Waste Management Strategy, Policy 2 8
Investment methods LWARB has met with industry partners to discuss the barriers to waste infrastructure development in London and the products that LWARB could deploy to alleviate those barriers. The investment methods proposed are: Equity indicative budget c. 7 million Equity financing is currently provided by means of the London Green Fund. LWARB has contributed 18 million into the waste and recycling element of the fund which is managed by the Foresight Environment Fund (FEF). LWARB works closely with FEF in reviewing project opportunities in London. In some circumstances, both FEF and LWARB have invested in projects, sometimes at different stages of the development cycle. Further information on the London Green Fund is accessible from Foresight s website www.foresightgroup.eu. The London Green Fund is required to deploy its funds by December 2015. Its Investment Board has commissioned a review of the Fund and will make recommendations for the operation of any successor fund. For the 20152020 period, LWARB will look into opportunities to contribute to a future London Green Fund or an alternative equity fund. Project finance indicative budget c. 6 million LWARB will continue to provide finance to establish new waste infrastructure projects. To date, LWARB has invested senior and subordinated debt into three major projects: Plasrecycle, TEG Biogas, and Ecotech. LWARB will seek to invest in projects which have access to a site (or are in the process of securing one), have identified a proven technology, and have already secured (or are in the process of securing) investment from the sponsor and/or other private investors. LWARB will seek to secure its project finance loans against land or other project assets. Corporate loans indicative budget c. 5 million This is a new investment option for LWARB targeted to existing businesses looking to expand that cannot attract private investment. For example, LWARB could support those businesses that need to upgrade their equipment to fulfil the requirements of the new MRF regulations 3 3 https://www.gov.uk/government/consultations/draftmaterialsrecoveryfacilitymrfregulationsforinsertionintoenvironmentalpermittingenglandandwalesamendmentregulations2013 9
and the Waste Regulations 4. Where waste businesses require specific equipment, LWARB will look to deploy asset finance. LWARB will also consider providing debt to waste collection businesses seeking to expand on the back of good operational history. LWARB will seek to develop partnerships in this area with other corporate debt providers where appropriate. Any corporate loans will be secured against property or purchased equipment. Development loans indicative budget c. 1 million LWARB will be making limited amounts available for the provision of development loans to two to four projects that require capital in order to get them to financial close. Such projects must have a clear route to financial close and LWARB will only invest on a fully secured basis. Venture capital indicative budget c. 1 million Depending on market appetite, in 2015/16, LWARB will look into the opportunity to leverage private sector funds to create a waste focused externally managed Venture Capital (VC) Fund on a similar basis to the London Green Fund. VC equity investments will typically be small scale at high risk. LWARB will engage with major waste companies and others to explore the opportunity of matched funding. The allocation of funds to each investment method will remain flexible and adapt to market demand. This will be done in consultation with the Investment Committee. Selection process LWARB will regularly launch calls for Expressions of Interest (EoIs) to gather interest from the market and develop a pipeline of projects to work with and invest in the next five years. All EoIs will be evaluated against the investment criteria described above. Once it has been established that LWARB support is required, the other financiers and the project sponsor will work closely with LWARB to develop a business plan and finalise the finance structure. LWARB has developed a robust due diligence process that assesses projects with respect to the project viability and LWARB s desired outcomes. The summary process and funding application templates are available on our website www.lwarb.gov.uk. 4 https://www.gov.uk/wastelegislationandregulations 10
2. London waste authority support programme LWARB has run an Efficiencies Programme aimed at London Waste Authorities since 2012 which it estimates will deliver 10 million of savings per year by 2016. A new programme of support, the London Waste Authority Support Programme, will be delivered between 2015 2020. The programme will work with London waste authorities to: Deliver a more consistent and efficient waste management service; Help them to divert materials from landfill and increase recycling rates; Help them recover high quality recycling and maximise the income generate from that material; Help them to realise and generate more value from their waste management services and; Help them to promote and encourage waste prevention and reuse. To deliver this programme, LWARB is establishing a partnership with WRAP in London. The partnership will initially be established to deliver support in 201516, but aspires to a longer term delivery. LWARB s contribution to the Local Authority Support Programme is 1.5 million in 201516 with a further annual budget of 1.5 million through to 2020 ( 7.5 million total). This budget is inclusive of staff resources. The partnership will see significant resources deployed to support London s waste authorities. The aim is that by 2020 London will have more consistent and more efficient waste and recycling services that: achieve the Mayor s target that London recycles 50 percent of local authority collected waste by 2020; and are able to make a significant contribution towards England achieving its 50 percent household waste recycling target in 2020. In order to achieve this aim, a range of support will need to be employed by the partnership. The new programme will seek to work with London waste authorities on a targeted basis, supporting those where the performance returns on investment are highest. The Programme will identify opportunities to work with a waste authority, tailoring support offerings to meet the needs of the waste authority and deliver the greatest available savings and recycling rate improvements. A more bespoke support offering could see different types and levels of support being provided across London authorities which cumulatively would deliver the 2020 aim. 11
The Programme will use existing brands for consumer communications (Recycle for London, Love Food Hate Waste and Love Your Clothes). The Programme will be governed through a Partnership Board, comprising LWARB, WRAP and representatives from other key London stakeholders. This replaces the existing LWARB Efficiencies Committee. 3. Accelerate the move to a circular economy in London The Mayor has asked that LWARB work with the private sector and the London Infrastructure Delivery Board to understand the regulatory and fiscal environment that needs to be in place to accelerate the move to a circular economy. It will do this by developing a Route Map to the Circular Economy for London which will identify partners, actions and opportunities along the path to the Circular Economy. The Route Map will be available early 2016. LWARB will also work with the Mayor and Government to help ensure that incentives are in place to allow, promote and encourage more widespread adoption of circular economy systems. LWARB will work with the Mayor to enable the sharing of good practise through active participation in circular economy networks and work with stakeholders and industry so that all the benefits of circular business models are understood to encourage business (from FTSE 100 companies to SMEs) to adopt them. In order to deliver these outcomes, LWARB will establish a three year programme, supported by a fixed term dedicated resource to develop the Circular Economy Route Map and assist in the delivery of programmes developed in the Route Map and the London Infrastructure Plan. The Circular Economy work stream will have a three year annual budget of 1,000 ( 525,000 in total) inclusive of staffing costs. Project spend from this budget (net of staffing costs) will be matched by external funds. 4. Continued delivery of existing commitments Over previous plan years, LWARB has provided funding to a range of projects. LWARB will continue to manage and monitor these projects, in accordance with the funding agreements. In addition, LWARB will provide case studies of projects performance in order to inform the market. 12
V. Funding & financial plan Source and value of funds LWARB s funds comprise carry forward of unspent funds, released commitments and recovered funds from previously invested projects, repayments to the efficiency review fund, and repayments of interest and principal from loans. Estimates of income are conservative. The total value of funds available to LWARB for the period 2015 2020 is estimated to be 32.5 million. Allocation of funds The table below breaks down the proposed budget for 20152020 LWARB Budget 2015 2020* 2015/16 2016/17 2017/18 2018/19 2019/20 000 Project Income** 945 9 1,685 2,535 1,710 Infrastructure Investment 4,000 4,000 4,000 4,000 4,000 Local Authority Support*** 1,500 1,500 1,500 1,500 1,500 Circular Economy 1 1 1 Programme Professional Fees Overheads Serviced Accommodation Staff and Board Member Costs Professional Fees Other Overheads Total Overheads Corporation tax 85 535 30 725 115 85 535 30 725 130 85 535 30 725 140 85 535 30 725 130 85 535 30 725 105 * Budget subject to revision prior to beginning of 2015/16 dependant on final expenditure for 2014/15 ** Project Income includes return of capital as well as interest, and is conservatively forecast to reflect project risk. *** Local Authority Support budget includes direct staff costs for Local Authority Support programme 13
VI. How will LWARB measure and monitor its performance? Measure: All projects supported with LWARB funds will be required to capture and report data such that the following Management Performance Indicators can be measured (on a project and on a consolidated basis): Public / private fund leverage ratio LWARB funds / total funds leverage ratio Annual landfill diversion absolute levels per /LWARB funding CO 2 reduction levels absolute levels per /LWARB funding MWh of energy production absolute levels per /LWARB funding Number of jobs created skilled and unskilled number of ethnic minorities disadvantaged groups Monitor: LWARB monitors its performance against the measures set out above. The performance of individual projects will be monitored by a combination of selfassessment returns from project developers, officer review and, where deemed appropriate, by independent assessments. Risks: LWARB maintains a risk register and this will be included with the performance monitoring reporting packs. 14