Mobilizing Private Capital and Know-How to Turn Waste into Energy

Context

The People’s Republic of China is the world’s largest producer of municipal solid waste, generating about 215 million tons in 2017. This is expected to increase to 500 million tons per year by 2025 as urban population continues to rise.

The ineffective disposal of solid waste poses serious environmental and social challenges in the cities. It contaminates soil and groundwater when dumped in un-engineered landfills. Meanwhile, a number of emission control and leachate treatment facilities in engineered landfills also lack adequate clean technologies and operational know-how. These expose many urban poor, especially those living near landfills, to severe air and water pollution and the threat of infectious diseases.

Incineration is recognized as an effective method for waste treatment since it reduces waste volume by 90% and eliminates methane emissions. Waste-to-energy technologies recover energy from the incineration process to produce electricity and heat. By replacing fossil fuel combustion and avoiding methane, these technologies help avoid greenhouse gas emissions and mitigates climate change.

Development Challenges

The government of the People’s Republic of China enacted laws and regulations between 2004 to 2007 to promote waste management and control environmental pollution and city-level public-private partnership (PPP) based on concession agreement.

Despite the recent policy shift in favor of waste-to-energy and the increased interest of municipal governments in clean technologies, market barriers still limit the expansion of waste-to-energy projects with clean technologies in the country.

One of the key bottlenecks is the lack of access to finance due to the following:

• There are gaps in clean technology knowledge and misperceptions of actual technology risks.
• Clean technologies require higher initial capital expenditure, making the total investment requirement higher, while commercial banks are often unfamiliar with environment and health benefits that are difficult to quantify.
• The due diligence costs associated with waste-to-energy projects with clean technologies are high because of the need for technical evaluation regardless of the project size.
• Under PPP arrangements, municipal governments often require private sector partners to fund project equity in hard currency. However, the availability of long-term loans to finance project equity, in US dollar, in particular, is limited.

Solution

To reduce the environmental impact of unhygienic waste disposal, ADB in 2009 approved a $100 million long term loan to support, through PPP, the construction and operation of waste-to-energy projects in the People’s Republic of China. The project aimed to:

• build, own and operate waste-to-energy plants with clean technologies;
• treat 8,000 tons of municipal solid waste daily to benefit an urban population of 16 million; and
• generate 800 gigawatt-hours of electricity by 2013.

China Everbright International Limited served as the project sponsor while China Everbright Environmental Energy Limited (CEEEL)—in charge of building, operating, and maintaining waste-to-energy plants based on the concession agreements with the municipal governments —was the borrower.

The project featured an efficient private sector participation model in waste-to-energy projects through PPP for multiple projects in medium-sized municipalities. Located in different cities, these multiple waste-to-energy projects are often too small for banks to finance on a standalone basis. ADB structured a facility to support portfolio subprojects efficiently using a portfolio approach. Under this approach, the ADB loan was provided to a holding company and channeled to the waste-to-energy project companies.