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New report distils UK anaerobic digestion industry

The UK Green Investment Bank (GIB) has published its first market report on anaerobic digestion (AD).

The report, the first of its kind, gives an overview of the issues facing the market and identifies the opportunities and barriers regarding investment. The key findings are detailed below:

The sector is a growing opportunity: There was 106MWe of capacity installed or in construction by 2012, more than double that in 2010. An additional 148MWe of specific capacity has been identified as potentially available to be developed

It is a fragmented, young market:  The top five operators account for less than 28% of the market, which compares to 71% in the offshore wind sector.  The majority of AD facilities in the UK have been in operation for less than three years. This presents a funding challenge for the sector, as it lacks an established and informed investor community.

Wide ranging performance factors: There is a marked divergence in operational performance between different facilities;

Critical factors to project success: The main barriers to growth in the sector are
a) Feedstock selectivity
b) Deep understanding of, and access to local markets for digestate
c) Dedicated operating personnel
d) Active process management.

Financing: The identified development pipeline requires capital investment of approximately £650 million (€760 million). Although the AD market has indicated that it is in need of debt funding, equity may be more appropriate in many cases due to the youth of the market.

GIB states UK government research has indicated that AD could deliver between 3 and 5TWh of electricity by 2020.

‘AD is rightly at the heart of the Government’s waste policies, and GIB’s waste investment strategy,’ says Adrian Judge, GIB MD for waste and bioenergy. ‘Although the UK market is still young, and there are challenges for projects in delivering a consistent revenue stream, well operated AD facilities have the potential to achieve attractive commercial rates of return to both equity and debt providers.’

The findings of the report will be used to inform GIB’s strategy on the potential for debt investment in the AD sector as it is investigating the opportunity to directly participate in up to £50 million of debt financing for AD projects.