There's Electricity In That Garbage

In the altered calculus of green economics, what used to be garbage is now a valuable fuel, which can be used – or really, reused - to generate electricity.

That’s the basis for the largely unsung waste-to-energy (WtE) industry, which is enjoying a resurgence, largely because of high electricity prices.

Wheelabrator Technologies Inc., the waste-to-energy subsidiary of Waste Management Inc , the world’s largest garbage company, has bid on half a dozen new projects in the last year and expects another six projects to be put up for bid this year.

“That’s a pretty good clip for projects of this magnitude – you are talking about hundreds of millions of dollars,” says Wheelbrator’s Frank Ferraro.  “We’re quite excited about the renewed interest in the market – and [we’re] working hot and heavy.”

There is a lot of potential upside. Americans combust just 8 percent of the 280 million tons of garbage generated each year. (The nation recycles 28 percent and landfill absorbs 64 percent.) That compares to 50 percent combusted in Sweden and even more in Japan and Taiwan, where space is at a premium.

Since no new plant has been built in the US since 1995, the percentage of waste combusted is actually slipping, according to the Integrated Waste Services Association, the industry’s trade group.

But now a growing number of cities are choosing WtE (or Energy-from-Waste, EfW), many in environmentally sensitive areas including Hawaii and Florida, as well as Minnesota and densely populated Maryland.

“We are starting to see the process unfold now and I do think we are going to see a renaissance in the industry moving forward in the next ten years,” says Tom Michaels, president of the IWSA.

There are a number of factors driving this new interest, including the rising cost of using landfill. As nearby landfills reach their limits and close, replacements come on line, but they are located further and further away – raising transportation costs at a time of high energy prices.

There is also the industry’s claim to be a “net reducer” of greenhouse gases because of the fossil fuels (oil, gas or coal) not burned because of the electricity WtE plants produce.

“Internationally, that is a selling point,” says Derrick Porter, of Covanta Energy , a Fairfield, New Jersey-based firm that combusts 15 million tons a year.

That’s about half of the total the US combusts, but the company has started finding work in Europe and already has two joint ventures in China, a particularly hot market.

Three companies dominate the US industry, including Wheelabrator, the North American subsidiary of Veolia  Environnment SA , the French multinational, and Covanta, whose major shareholder is billionaire investor Samuel Zell, also the firm’s chairman.

Through his spokesman Zell, who was traveling, said he “sees significant opportunity in the industry.”  Zell, who bought into the company in 2004, owns more than 23 million shares -- or 15 percent -- of the company.

Porter says WtE’s virtues should get a boost from the carbon emission, cap-and-trade system advocated by all three US presidential candidates to control greenhouse gases. 

Recognized as renewable source of energy, WtE projects are eligible for federal tax credits. The 89 plants currently in operation here generated 23 percent of the country’s renewable electricity, enough to power 2.3 million homes.

That is an unsung feature of these ugly duckling plants, which still spend years overcoming NIMBY (not-in-my-backyard) objections to any new smoke stack, even though they emit far less than in past years.

Sam Zell

The changed economics  - coupled with deregulated electricity prices  - make municipally-owned plants particularly attractive.

“Governments are looking to have greater control over their own infrastructure and have the [financial] stability that having a waste-to-energy plant would provide them,” explains Ferraro.

Just a few years ago electricity typically provided 10 percent of a plant’s revenue – which also comes from a ‘tipping fee’ for receiving garbage – but nowadays electricity contributes 30-40 percent, says Porter.

Those calculations played into the decision by energy-hungry China to burn 30 percent of its garbage by 2030 – from two percent in 2005 – which will mean hundreds of plants.

With opportunities like that, Covanta regards international markets as the most promising while Wheelabrator is looking closer to home – including Canada and the Caribbean.

“We have quite a bit to keep us busy right here after a ten-year hiatus for the whole industry,” says Ferraro.

© 2009 CNBC.com