The government-spawned Green Investment Bank (GIB) is looking to provide up to £50 million of debt financing for anaerobic digestion (AD) projects.
In its first market report since launching last November, the bank says capital investment of £650m will be required to produce the amount of electricity (3-5 TWh) which a government report has suggested should be generated from AD by 2020.
AD is a natural process in which micro-organisms break down organic matter, such as food waste, slurry and crop residues, into biogas and digestate. A number of commercial and on-farm AD plants are already operating in Scotland to manage waste and release energy.
The process avoids food and agricultural waste going to landfill in addition to being a renewable source of energy and fertiliser. It is at the heart of the government’s waste policies.
However, the industry has expressed concerns about its ability to access funding and GIB expects AD to be an area of significant focus for debt financing.
“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,” said Adrian Judge, the bank’s managing director for waste and bioenergy.
“AD is rightly at the heart of the government’s waste policies and GIB’s waste investment strategy. It provides a green and efficient way of managing waste, whilst providing both energy and fertiliser. For organic waste, AD is a cost-effective and sustainable waste management option.”
Judge added that the UK market was still young and there were challenges for projects in delivering a consistent revenue stream. But well-operated AD facilities had the potential to achieve attractive commercial rates of return to both equity and debt providers.
GIB will continue to make equity investments in AD through its nominated waste fund managers, Foresight Group and Greensphere Capital.
The majority of AD facilities in the UK have been in operation for less than three years which Judge said presents a funding challenge for the sector, as it lacks an established and informed investor community.
There is a marked divergence in operational performance between different facilities. Critical factors to project success identified by the report include feedstock selection, the market for digestate (which is used as a fertiliser), dedicated operating personnel and active process management.
The Edinburgh-based Green Investment Bank was launched by the UK government in November, 2012, with £3 billion of funding from Westminster.
It is the first bank of its kind in the world with a mission to accelerate the UK’s transition to a greener economy.