The London Waste and Recycling Board business plan 2015 - 2020

November 2014

London Waste and Recycling Board

169 Union Street

London

SE1 0LL

info@LWARB.gov.uk

www.LWARB.gov.uk

2015 – 2020 Business Plan

Contents

I. Foreword ................................................................................................................. 1

II. Executive summary ................................................................................................. 2

III. What is LWARB setting out to achieve? .................................................................. 4

IV. Services offered by LWARB .................................................................................... 6

V. Funding & financial plan ........................................................................................ 13

VI. How will LWARB measure and monitor its performance? ...................................... 13

1

I. Foreword

The London Waste and Recycling Board is delighted to be able to present this new Business

Plan covering the next five years. No doubt we will need to accommodate change over this

period, and the Business Plan is designed to be flexible should we need to change course.

However there are some big issues that will need to be addressed over the next five years and

this plan captures three main issues.

London local authorities, including Joint Waste Authorities and partnerships, are, like every other

local authority in the country, facing a real challenge to meet recycling targets by 2020. The

Mayor has set his target in London that 50 per cent of local authority collected waste should be

recycled by 2020. London local authorities are facing unique challenges as well as the continuing

need to make financial savings. LWARB has formed a partnership with WRAP to deliver more,

and more targeted support to London’s councils to improve recycling and save money.

London still needs additional waste infrastructure to meet the needs of more and better quality

recycling. It is estimated that a further 1.6 million tonnes of recycling, anaerobic digestion and

composting capacity is required in London by 2031. This is in addition to the need to upgrade

existing equipment to facilitate high quality recycling. LWARB has set aside £20 million to help

businesses in the waste sector to expand. LWARB has supported around 50 businesses in the

recycling and reuse sectors and has provided funds to develop four new facilities - three of which

are now operating, whilst the other is in construction.

All of this work will need to be mindful that the global economy will need to produce consumer

goods to meet a vastly expanded global demand, using rapidly depleting resources. The recovery

of secondary materials from ‘waste’ for remanufacturing will soon become a normal feature of

production. LWARB has helped to develop the waste and resource sections of the Mayor’s

London Infrastructure Plan, and the Mayor has asked that LWARB help to deliver a Circular

Economy Route Map for London. We estimate that, by 2050, London will not only need to

maintain its current processing capacity, but introduce 40 new facilities more aligned to reuse and

remanufacturing. In planning for this new model of resource management, LWARB will be

helping to lead the way by establishing a new programme and dedicated resource.

Richard Tracey AM

Chairman – London Waste and Recycling Board

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II. Executive summary

Statutory context

The London Waste and Recycling Board (LWARB) was established under the Greater London

Authority Act 2007 (the Act). The LWARB Order 2008 sets out certain administrative and

governance requirements including the requirement that LWARB produce a Business Plan by

31st March each year, setting out how it will meet its objectives including its priorities and its

strategy for the provision of financial assistance to any person.

Business plan layout

This Business Plan describes what LWARB is looking to achieve and the services that LWARB

will offer to meet these aspirations. In addition, the source of LWARB funds, as well as the

proposed allocation of these funds, can be found within this document.

Funding overview

LWARB is budgeting for the period 1 April 2015 – 31 March 2020. The total budget available for

this period is estimated to be c. £32.5 million. This is a conservative estimate and the actual

amount available will depend upon the performance of LWARB investments and, to a lesser

extent, the success of repayable ‘no win no fee’ service offerings provided to London waste

authorities. LWARB will review available budget against the programmes identified in this

Business Plan on an annual basis.

Service offerings

LWARB has considered the services it should provide in order to deliver this Business Plan.

Those services it intends to pursue over the next five years are broken down into four principal

areas:

1. Infrastructure investment – Provision of funding to enable the development of projects that

meet the strategic requirements of LWARB (geographically and technologically) to the extent

that funding is not available from the private sector.

2. London waste authority support – Working through a new partnership with WRAP to help

waste authorities to divert materials from landfill and increase recycling rates that contribute

towards the Mayor’s 50% recycling target; help them recover high quality recyclate and

maximise the income generated from that material; help them to realise and generate more

value from their waste management services; and help them to promote and encourage

waste prevention and re-use.

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3. Accelerate the move to a circular economy in London – The Mayor has asked that

LWARB works with the private sector and the London Infrastructure Delivery Board to

understand the regulatory and fiscal environment that needs to be in place to accelerate the

move to a circular economy. It will do this by developing a Route Map to the Circular

Economy for London to be available by early 2016. LWARB will also work with the Mayor and

Government to ensure that incentives are in place to allow, promote and encourage more

widespread adoption of circular economy systems, and work with the Mayor to enable the

sharing of good practise through active participation in circular economy networks and work

with stakeholders and industry so that all the benefits of circular business models are

understood to encourage business from FTSE 100 companies to SMEs to adopt them.

4. Continued delivery of existing commitments – Monitoring and reviewing existing grant

and loan commitments.

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III. What is LWARB setting out to achieve?

Mission statement: The London Waste and Recycling Board will promote and encourage the production of less

waste; an increase in the proportion that is reused or recycled; and the use of methods of

collection, treatment and disposal of waste that are more beneficial to the environment.

In doing so, LWARB is required to act in accordance with the Mayor of London’s Municipal Waste

Management Strategy and in general conformity with the London Plan.

Objectives and goals

An overview of LWARB’s objectives is set out below, together with a set of secondary goals.

a) The production of less waste;

b) An increase in the proportion of waste that is reused or recycled;

c) The use of methods of collection, treatment and disposal of waste that are more beneficial to

the environment.

These objectives are supported by the following secondary goals:

Creation of a collaborative working environment with key stakeholders (including1: the

Government, the London boroughs and the City of London, Statutory Joint Waste Disposal

Authorities (WDAs), the Greater London Authority (GLA), waste management companies

and reprocessors, private sector financiers, feedstock providers, energy producers and

users, and the third sector);

Provision of support across the range of potential technology and non-technology solutions;

Delivery of a ‘London Solution’ for waste management through the delivery of a minimum

recycling offer for London, promotion of joint working, and promotion of shared services;

To work with boroughs and business to enable recycling rates to increase to meet the

targets identified in the Mayor of London’s waste strategies and the London Plan;

Delivery of efficiencies support to enable London’s waste authorities to save at least

£10 million per year by 2016; and

1 List not exhaustive

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Support for the delivery of the Mayor’s Municipal Waste Management Strategy, Business

Waste Strategy and London Plan (inasmuch as it relates to waste).

Long term aspirations: LWARB will not be able to meet the capacity gap requirements of

London’s waste infrastructure given the value of its available funds, but will seek to lever in

additional funds as described below. On this basis, LWARB has some long term aspirations

beyond its current remit:

To develop a London-wide plan that clearly sets out the infrastructure requirements beyond

the capability of the fund with technology and geographic indicators for delivery through to

2031 (as set out in the Mayor’s Municipal Waste Management Strategy);

To reach a position whereby LWARB’s continued existence and ability to continue to

contribute to the development of London’s infrastructure requirements and support London’s

waste authorities does not rely on taxpayer funded grants. This can be achieved by ensuring

a return on LWARB’s current funds to enable redeployment of capital for future investment;

To roll out the LWARB business model to other UK major cities.

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IV. Services offered by LWARB

The services LWARB intends to offer over the next five years are broken down into four principal

areas: Infrastructure Investment; London Waste Authority Support; Accelerating the move to a

circular economy and continued delivery of existing commitments. These are discussed in more

detail below.

1. Infrastructure investment programme

London’s waste treatment capacity gap

The Mayor of London, in his Municipal Waste Management Strategy and Business Waste

Strategy, sets out his preferred approach for managing London’s local authority collected waste

and business waste to 2031.

The GLA have commissioned SLR to undertake an analysis of London’s waste management

capacity and provide an estimate of any capacity gaps. This analysis takes into account the

targets set by the London Plan to achieve reuse and recycling targets and net self-sufficiency and

will be subject to further work to check that the understanding of existing capacity is accurate.

Currently the analysis estimates a large demand for recyclate bulking and material recovery

facilities with an annual requirement for c.1 million tonnes of new capacity by 2031. These

estimates are based upon achieving recycling rates of 60% for local authority collected waste and

70% for commercial waste (there is projected to be very little industrial waste arising) by 2031. A

smaller gap exists in organic waste treatment, c.0.6 million tonnes per year, and just 0.3 million

tonnes estimated for additional residual capacity by 2031.

The European Commission, in their Communication, “Towards a circular economy: A zero waste

programme for Europe”, has proposed that 70% of municipal waste is reused or recycled by

2030. If this target is enshrined in legislation London will need further additional recyclate sorting

and bulking capacity, as well as organic waste capacity. Considering the needs of a move to a

more circular economy, significant new reuse and remanufacturing infrastructure will also be

required.

The Mayor of London’s London Infrastructure Plan identifies the need for an additional 40 new

waste facilities by 2050, as well as replacing existing facilities as they reach the end of their life.

LWARB’s infrastructure investment fund

To help deliver the infrastructure that is needed to treat London’s waste, LWARB has set up an

Infrastructure Investment Fund. Its aim is to ensure that London’s waste infrastructure

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requirements are delivered ahead of the economic curve such that the opportunities for early

landfill diversion and a shift towards a circular economy are not missed.

To date, LWARB has invested c.£30 million in waste infrastructure projects in London, including

Plasrecycle, the UK’s first dedicated plant for recycling post-consumer shopping bags; TEG

Biogas, London’s first anaerobic digestion and composting facility; and Ecotech, a PET bottle

reprocessing and material recovery facility. LWARB has helped to establish and fund the London

Reuse Network and investments have been made through the London Green Fund, in which

LWARB is a major investor. As a result, about 50 businesses have been either supported or

established.

LWARB’s Infrastructure Investment Fund provides financial support to businesses interested in

developing waste treatment infrastructure projects in and around London. This is offered on

commercial terms and no State Aid is involved. This support can take the form of debt funding or

equity financing and it is tailored to the needs and characteristics of each project. The forecasted

budget available for the Infrastructure Investment Fund for the period 2015-2020 is £20 million.

LWARB’s risk tolerance for investments is medium to high. This is required in order to make a

positive difference to the market. The following elements underpin LWARB’s investment criteria:

Commerciality: Projects must be commercially viable and capable of taking on board

investment at commercial rates. LWARB will only consider sub-commercial positions in

exceptional circumstances and has in the past only awarded sub-commercial terms to third

sector organisations. Any financial support made through LWARB must comply with

European legislation regarding State Aid.

Non-displacement of private sector funders: LWARB funding should not be viewed as the first

option for project developers. LWARB’s focus is on optimising leverage of funds and delivery

by helping to de-risk those projects that are on the margins of private sector delivery. Project

sponsors will need to demonstrate that they have explored private sector funding options

before approaching LWARB.

Project location: LWARB will seek to invest in waste projects or waste businesses primarily

within London, but will also consider projects outside of London providing that such facilities

accept significant amounts of waste from London.

Environmental requirements: LWARB operates in accordance with the principles and

approach set in the Mayor’s Municipal and Business Waste Strategies and therefore supports

projects which move up the waste hierarchy.

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Site and technology: LWARB will finance projects which have access to a site (or are in the

process of securing one) and have identified a technology which is proven on the proposed

waste stream at pilot scale as a minimum, recognising that process efficacy may be

dependent upon the interaction of multiple technologies.

Additionality: LWARB believes that it must lever-in significant private sector finance through

its investments by financing projects which have already secured (or are in the process of

securing) investment from the sponsor and/or other private investors. Exceptions may apply

to small corporate or development loans. Given the urgent need to develop additional waste

infrastructure in London, LWARB will not be setting any leverage targets, but will judge each

project on its merits whilst reporting leverage achieved.

Public and private sector support: LWARB will support projects that are being developed by

the public or private sector (or a combination of both).

The types of projects likely to be financed

LWARB invests in technologies and infrastructure that meet the requirements of the Mayor’s

Municipal and Business Waste Strategies, in particular the Mayor’s Carbon Intensity

Floor2.These are likely to be:

reuse manufacturing and circular economy technologies;

infrastructure for secondary reprocessing and manufacturing of recyclate into new materials;

reuse and recycling collection infrastructure;

recycling reprocessing and MRF (material recovery facility) technology;

composting or anaerobic digestion facilities;

advanced thermal and/or chemical conversion technologies that maximise combined heat and power opportunities (e.g. gasification/pyrolysis);

projects that offset fossil transport fuel such as the infrastructure required to produce biodiesel from used cooking oil, for example, for use in London’s buses and other suitable vehicles;

innovative technologies such as hydrogen fuel cells.

2 Mayor’s Municipal Waste Management Strategy, Policy 2

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Investment methods

LWARB has met with industry partners to discuss the barriers to waste infrastructure

development in London and the products that LWARB could deploy to alleviate those barriers.

The investment methods proposed are:

Equity – indicative budget c. £7 million

Equity financing is currently provided by means of the London Green Fund. LWARB has

contributed £18 million into the waste and recycling element of the fund which is managed by

the Foresight Environment Fund (FEF). LWARB works closely with FEF in reviewing project

opportunities in London. In some circumstances, both FEF and LWARB have invested in

projects, sometimes at different stages of the development cycle. Further information on the

London Green Fund is accessible from Foresight’s website www.foresightgroup.eu.

The London Green Fund is required to deploy its funds by December 2015. Its Investment

Board has commissioned a review of the Fund and will make recommendations for the

operation of any successor fund. For the 2015-2020 period, LWARB will look into

opportunities to contribute to a future London Green Fund or an alternative equity fund.

Project finance – indicative budget c. £6 million

LWARB will continue to provide finance to establish new waste infrastructure projects. To

date, LWARB has invested senior and subordinated debt into three major projects:

Plasrecycle, TEG Biogas, and Ecotech.

LWARB will seek to invest in projects which have access to a site (or are in the process of

securing one), have identified a proven technology, and have already secured (or are in the

process of securing) investment from the sponsor and/or other private investors. LWARB will

seek to secure its project finance loans against land or other project assets.

Corporate loans – indicative budget c. £5 million

This is a new investment option for LWARB targeted to existing businesses looking to expand

that cannot attract private investment. For example, LWARB could support those businesses

that need to upgrade their equipment to fulfil the requirements of the new MRF regulations3

3 https://www.gov.uk/government/consultations/draft-materials-recovery-facility-mrf-regulations-for-

insertion-into-environmental-permitting-england-and-wales-amendment-regulations-2013

10

and the Waste Regulations4. Where waste businesses require specific equipment, LWARB

will look to deploy asset finance. LWARB will also consider providing debt to waste collection

businesses seeking to expand on the back of good operational history.

LWARB will seek to develop partnerships in this area with other corporate debt providers

where appropriate. Any corporate loans will be secured against property or purchased

equipment.

Development loans – indicative budget c. £1 million

LWARB will be making limited amounts available for the provision of development loans to

two to four projects that require capital in order to get them to financial close. Such projects

must have a clear route to financial close and LWARB will only invest on a fully secured

basis.

Venture capital - indicative budget c. £1 million

Depending on market appetite, in 2015/16, LWARB will look into the opportunity to leverage

private sector funds to create a waste focused externally managed Venture Capital (VC)

Fund on a similar basis to the London Green Fund. VC equity investments will typically be

small scale at high risk. LWARB will engage with major waste companies and others to

explore the opportunity of matched funding.

The allocation of funds to each investment method will remain flexible and adapt to market

demand. This will be done in consultation with the Investment Committee.

Selection process

LWARB will regularly launch calls for Expressions of Interest (EoIs) to gather interest from the

market and develop a pipeline of projects to work with and invest in the next five years.

All EoIs will be evaluated against the investment criteria described above. Once it has been

established that LWARB support is required, the other financiers and the project sponsor will

work closely with LWARB to develop a business plan and finalise the finance structure. LWARB

has developed a robust due diligence process that assesses projects with respect to the project

viability and LWARB’s desired outcomes. The summary process and funding application

templates are available on our website www.lwarb.gov.uk.

4 https://www.gov.uk/waste-legislation-and-regulations

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2. London waste authority support programme

LWARB has run an Efficiencies Programme aimed at London Waste Authorities since 2012

which it estimates will deliver £10 million of savings per year by 2016. A new programme of

support, the London Waste Authority Support Programme, will be delivered between 2015 –

2020. The programme will work with London waste authorities to:

Deliver a more consistent and efficient waste management service;

Help them to divert materials from landfill and increase recycling rates;

Help them recover high quality recycling and maximise the income generate from that

material;

Help them to realise and generate more value from their waste management services

and;

Help them to promote and encourage waste prevention and re-use.

To deliver this programme, LWARB is establishing a partnership with WRAP in London. The

partnership will initially be established to deliver support in 2015-16, but aspires to a longer term

delivery.

LWARB’s contribution to the Local Authority Support Programme is £1.5 million in 2015-16 with a

further annual budget of £1.5 million through to 2020 (£7.5 million total). This budget is inclusive

of staff resources.

The partnership will see significant resources deployed to support London’s waste authorities.

The aim is that by 2020 London will have more consistent and more efficient waste and recycling

services that:

achieve the Mayor’s target that London recycles 50 percent of local authority collected

waste by 2020; and

are able to make a significant contribution towards England achieving its 50 percent

household waste recycling target in 2020.

In order to achieve this aim, a range of support will need to be employed by the partnership. The

new programme will seek to work with London waste authorities on a targeted basis, supporting

those where the performance returns on investment are highest. The Programme will identify

opportunities to work with a waste authority, tailoring support offerings to meet the needs of the

waste authority and deliver the greatest available savings and recycling rate improvements. A

more bespoke support offering could see different types and levels of support being provided

across London authorities which cumulatively would deliver the 2020 aim.

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The Programme will use existing brands for consumer communications (Recycle for London,

Love Food Hate Waste and Love Your Clothes).

The Programme will be governed through a Partnership Board, comprising LWARB, WRAP and

representatives from other key London stakeholders. This replaces the existing LWARB

Efficiencies Committee.

3. Accelerate the move to a circular economy in London

The Mayor has asked that LWARB work with the private sector and the London Infrastructure

Delivery Board to understand the regulatory and fiscal environment that needs to be in place to

accelerate the move to a circular economy. It will do this by developing a Route Map to the

Circular Economy for London which will identify partners, actions and opportunities along the

path to the Circular Economy. The Route Map will be available early 2016. LWARB will also work

with the Mayor and Government to help ensure that incentives are in place to allow, promote and

encourage more widespread adoption of circular economy systems. LWARB will work with the

Mayor to enable the sharing of good practise through active participation in circular economy

networks and work with stakeholders and industry so that all the benefits of circular business

models are understood to encourage business (from FTSE 100 companies to SMEs) to adopt

them.

In order to deliver these outcomes, LWARB will establish a three year programme, supported by

a fixed term dedicated resource to develop the Circular Economy Route Map and assist in the

delivery of programmes developed in the Route Map and the London Infrastructure Plan.

The Circular Economy work stream will have a three year annual budget of £175,000 (£525,000

in total) inclusive of staffing costs. Project spend from this budget (net of staffing costs) will be

matched by external funds.

4. Continued delivery of existing commitments

Over previous plan years, LWARB has provided funding to a range of projects. LWARB will

continue to manage and monitor these projects, in accordance with the funding agreements. In

addition, LWARB will provide case studies of projects’ performance in order to inform the market.

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V. Funding & financial plan

Source and value of funds

LWARB’s funds comprise carry forward of unspent funds, released commitments and recovered

funds from previously invested projects, repayments to the efficiency review fund, and

repayments of interest and principal from loans. Estimates of income are conservative. The total

value of funds available to LWARB for the period 2015 - 2020 is estimated to be £32.5 million.

Allocation of funds

The table below breaks down the proposed budget for 2015-2020

LWARB Budget 2015 - 2020* 2015/16 2016/17 2017/18 2018/19 2019/20

£000

Project Income** 945

975

1,685

2,535

1,710

Infrastructure Investment - 4,000

- 4,000

- 4,000

- 4,000

- 4,000

Local Authority Support*** - 1,500

- 1,500

- 1,500

- 1,500

- 1,500

Circular Economy - 175

- 175

- 175 -

-

Programme Professional Fees - 75

- 75

- 75

- 75

- 75

Overheads

Serviced Accommodation - 85

- 85

- 85

- 85

- 85

Staff and Board Member Costs - 535

- 535

- 535

- 535

- 535

Professional Fees - 30

- 30

- 30

- 30

- 30

Other Overheads - 75

- 75

- 75

- 75

- 75

Total Overheads - 725

- 725

- 725

- 725

- 725

Corporation tax - 115

- 130

- 140

- 130

- 105

* Budget subject to revision prior to beginning of 2015/16 dependant on final expenditure for 2014/15 ** Project Income includes return of capital as well as interest, and is conservatively forecast to reflect project risk. *** Local Authority Support budget includes direct staff costs for Local Authority Support programme

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VI. How will LWARB measure and monitor its performance?

Measure: All projects supported with LWARB funds will be required to capture and report data

such that the following Management Performance Indicators can be measured (on a project and

on a consolidated basis):

Public / private fund leverage ratio

LWARB funds / total funds leverage ratio

Annual landfill diversion

- absolute levels

- per £/LWARB funding

CO2 reduction levels

- absolute levels

- per £/LWARB funding

MWh of energy production

- absolute levels

- per £/LWARB funding

Number of jobs created

- skilled and unskilled

- number of ethnic minorities

- disadvantaged groups

Monitor: LWARB monitors its performance against the measures set out above. The

performance of individual projects will be monitored by a combination of self-assessment returns

from project developers, officer review and, where deemed appropriate, by independent

assessments.

Risks: LWARB maintains a risk register and this will be included with the performance

monitoring reporting packs.