The recent Government response to the Biomethane tariff review provides an insight into gate fees in the sector.
The original tariff was set on the assumption of food waste gate fees of £25-£41 per tonne, in line with WRAP’s Gate Fee reports for local authority contracted waste.
Following the consultation, DECC has reduced the gate fee assumption to £15 per tonne for unpackaged waste. Overall, cost quotes on waste gate fee levels received by DECC during the consultation suggested an average gate fee of approximately £30 per tonne for packaged waste (with a range of £20-55 per tonne) and approximately £15 per tonne for unpackaged waste (with a range of £0-35 per tonne).
In its response DECC noted that gate fees vary geographically according to waste supply and demand and also because waste is not homogenous but varies, for example, by calorific value and the level of packaging and contamination. DECC also recognised that costs associated with waste feedstocks which can not be processed, for example landfill costs to dispose of unusable waste such as packaging, should be accounted for in tariff setting and that it would be reasonable to assume a cost of approximately £100 per tonne assuming 5% of waste tonnage is rejected.
Of course feedstock security as well as gate fees are important factors in investor considerations. Given the scarcity of long-term waste supply contracts, AD developers receiving waste on short-term contracts (typical of commercial and industrial waste supplies) are discounting the level of gate fees assumed in investment decisions and/or configuring plants to take other feedstocks such as agricultural wastes or energy crops as a means of mitigating feedstock supply risk, with these potentially accounting for up to around 30% of the feedstock mix.
DECC’s modelling has therefore been based on a feedstock mix of 70% unpackaged food waste and 30% energy crop assuming crop feedstock costs of £35 per tonne. When this is worked through the net gate fee income in the model is almost zero.
But of course the lower the assumed gate fee income in the modelling the higher the tariff. One might argue that it was generally helpful to the industry that DECC accepted their view of the market.
Author: Adrian Judge