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Commercial Matters
Dublin Waste to Energy Project
Why use PPP for Incineration?
• Initial Reasons– Complex and expensive equipment, high maintenance– No existing incineration industry in Ireland– Optimise whole life cycle cost (design – build – operate)– Focus on reliability (finance & unitary gate fee)– Statutory permissions & design interaction
• Subsequent Reasons– Attractive “volume risk” sharing offer received as variant bid– Real commercial partnership (not just project finance)
Why PPP? – Unitary Gate Fee• All costs included in unitary fee
– Design, construction, operation & maintenance, hand-back– Taxes and fees– Development period and long term finance – Financial model part of contract
• City pays no costs (except site) until plant begins to process waste
• City pays only for waste actually processed– Contingent “put or pay” guarantee– Bypass waste– Options to use additional capacity
Why PPP? – Volume & Price
• City Request– 400,000 tpa plant– 320,000 tpa City waste– 80,000 tpa third party waste
• Tender Offer– 550,000 tpa plant– 320,000 tpa City waste– 230,000 tpa third party waste
Economy of scale price reduction
Contract Issues
• Broadly patterned on SOPC & NDFA template• Performance specification
– Basic configuration definition– Facility availability guarantee– Electricity production guarantee– Emissions guarantees per EU incineration directive
• Price change provisions– Annual inflation of unitary gate fee– Few change in law adjustments (high triggers, incineration specific)
– Contractor carries full commercial risk on 42% of facility
Financial Arrangements - 1
• Revenue– Put or pay guarantee from City 58% of nominal facility capacity at fixed unitary gate fee
– “Target” third party revenue from Contractor 42% of nominal facility capacity at “target” third party gate fee
– Electricity revenue €0.035 per kwh “strike price” calculated into base City unitary gate fee price fluctuations above or below strike price shared 50% - 50% expected excess electricity revenue to City over entire contract period
– Additional shared revenue third party revenue above fixed annual amount is shared 50% - 50% Contractor profits capped at a fixed rate of return (measured every 5 years)
– Windfall profit cap
Financial Arrangements - 2
• Costs– Lump sum turnkey design-build price– Fixed operations & routine maintenance price– Fixed major maintenance costs– Limited cost adjustments
• Financing– Construction & long term loans (equity structured as arms length loans)
– Expected bank refinance (after commencement of operations)
Performance Indicators
• City – 25 year fixed unitary charge (at current cost of alternative treatment)
– Profit sharing (potential modest decrease in effective unitary charge)
– Private sector competition (treatment price pressure)
• Contractor– Solid commercial return (City put or pay + target third party revenue)
– Below market return (City put or pay + below target third party revenue)
– Break even (City put or pay revenue only)
• Joint– National landfill levy (prevent lessening of cost alternative treatment)
– First mover advantage (only incinerator in catchment area)
Long Term Viability
• Commercial & regulatory issues– Landfill always cheaper than incineration– Ownership of waste & existence of private sector competitors– Cost recovery, direction of waste & competition issues– User fees and cost recoverability
• Commercial versus economic– Full societal economic cost of landfill greater than incineration– Economic instruments
• Waste management system transition– Transition period is hardest to manage
Ireland in the Balkans?• Policy & planning (start early)
– Education & enforcement– Landfill size restrictions– Scalable economic instruments
• Limited short term ability to pay– Governmental or grant based incinerator subsidy?– Calibrated increase in user fees over time
• Private participation– Private sector risk appetite not usually as high as Dublin– Bundle incinerator with other infrastructure?
• Hire good advisors for the complicated bits
