‘Developments’ in the Waste to Biofuels Market

Saeefar Rehman, associate director, energy and environment, Grant Thornton UK LLP, says there is now a clear expectation that waste will form a key component of the growth in biofuels.

The move to a sustainable economy – where waste is minimised, if not eliminated, and energy is harnessed from renewable sources – has moved from a mere aspiration to a real objective in the last few years.

The move away from landfill, the introduction of carbon reduction targets and, more recently, the emphasis on transitioning the UK transport system to a sustainable and renewable fuel supply, has not only gained momentum socially but also commercially.

The government’s intention to end the use of the conventional road vehicle by 2040 (although there have been discussions to bring that date forward) are well known and with stricter guidelines on emissions and low emission zones being created, the pressure is set to continue.

Major car manufacturers have announced new electric or hybrid models and Tesla’s recent announcement to bring the cost of their Model 3 to more affordable levels, coupled with evolving battery technology, will only accelerate the move to an electric passenger vehicle future.

Major car manufacturers have announced new electric or hybrid models and Tesla’s recent announcement to bring the cost of their Model 3 to more affordable levels, coupled with evolving battery technology, will only accelerate the move to an electric passenger vehicle future.

However, this transition is not as straightforward as it may seem. While a move to a fully zero-emission road transport system is quite a way into the future, there are major developments needed in terms of infrastructure to meet the expected growth in electricity consumption – a concern raised by the Distribution Network Operators (DNOs).

Cars are also just one part of the overall transport solution, with lorries and other large vehicle fleets still using diesel and needing to decarbonise. A key tool at the government’s disposal in this period of transition is the Renewable Transport Fuel Obligations (RTFO) Order to help drive the development of a renewable and sustainable fuel supply. 

Renewable Transport Fuel 

The RTFO has been in play since 2008. The government announced updates to the RTFO in 2017 following a market consultation process and has recently published updated guidance to deal with the management of the scheme, such as setting up trading accounts and trading certificates.

The RTFO applies to road vehicles and non-road mobile machinery (NRMM) eg, tractors. Suppliers of more than 450,000 litres of fuel per year are obligated to ensure that they have Renewable Transport Fuel Certificates (RTFCs) or must pay a buyout price per RTFC for their obligation during a period (which runs from January to December).

RTFCs will be generated and available from producers of renewable fuel and therefore suppliers can avoid paying the buyout price by purchasing them straight from the producers.

The government’s intentions are evident from the extension and increase in the level of the obligations. The target for fuels to come from renewable sources by 2020 was increased to 9.75% and rises to 12.4% by 2032 (target for 2019 is 8.5%). The consultation process in 2017, and the detailed guidance published for managing the obligations, has reaffirmed the government’s view of the importance of biofuels.

There is now a clear expectation that waste will form a key component of the growth in biofuels and, with the technology and processes to achieve this becoming more bankable, the use of waste as a major source of renewable fuel for the transport system is now becoming a reality.

The government’s confirmation, following responses from the market, that renewable fuels will be eligible for RTFCs – the biofuel equivalent of the old ROC regime for renewable energy production – was welcome news for the waste industry as waste qualifies as an eligible feedstock. The application and adherence of the waste hierarchy and directives within the RTFO framework also ensure consistency with established and understood waste definitions.

A certificate is available for every litre of biofuel produced and the price set by government is £0.80 per certificate. Fuel suppliers must therefore either pay £0.80 per certificate or buy the RTFCs direct from biofuel producers.

Of particular interest is the opportunity to use waste and waste derived fuels for developing bio-fuels that could be blended in ratios of 25% or greater and still meet the relevant fuel standards for petrol and diesel and thus qualify for development RTFCs.

Fuels that meet the definition of ‘development fuels’ qualify for double RTFCs. The producers of these can therefore obtain up to £1.60/litre from selling the RTFCs. While the biogenic content of the waste input can vary and has to be taken into account in the RTFCs awarded, this is nonetheless a significant amount of support.

Not only does this offer another alternative to the utilisation of waste, it provides a sustainable and renewable fuel source for the near future. Coupled with the fact that aviation fuel is also classified as a development fuel (presently there are no feasible alternatives to ‘conventional fuels’ for use in aircraft) the use of waste in producing fuels provides a long-term commercial opportunity.

Not only did the government confirm support for the use of waste to develop fuels, it has also limited the use of energy crops for this purpose. The current 4% limit on the use of energy crops for producing fuels in 2019, will be reduced to 2% by 2032, as the use of land for the production of crops to develop fuels, as opposed to food, is not viewed as a responsible long-term activity.

The implications of the RTFO and the requirement to purchase RTFCs now has a real financial cost to fuel suppliers. Grant Thornton has been engaged in projects in the waste to biofuels space and the change and interest in this sector is palpable.

For the major fuel suppliers having to write hefty cheques for purchasing RTFCs, entering into long-term arrangements with a biofuel producer or becoming a biofuel producer themselves, provides a hedge against market changes in the price of RTFCs and the ability to avoid the buy-out price.

Funders and equity providers are also starting to take note and are viewing this as a lucrative sector to invest in, subject to satisfying themselves on the technical feasibility.

There is now a clear expectation that waste will form a key component of the growth in biofuels and, with the technology and processes to achieve this becoming more bankable, the use of waste as a major source of renewable fuel for the transport system is now becoming a reality.

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