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We assessed the Department's readiness to deal with wider issues that may affect the PFI programme and provided actions which the Department could implement alongside our recommendations

Changes in environmental legislation and regulation

Amount and composition of waste

Technology performance

Planning permission

Wider markets

Description of the issue

Wider regulatory and legislative regulation on the use of waste materials will affect both types of projects (MBT and EFW) that are needed and the operational performance of projects.

Key issues that are subject to frequently changing legislation are: Carbon emissions; incineration permits and taxes; recycling targets; changes to the requirements for renewable energy and whether waste-based processes count as renewable energy; and the use of products derived from the waste treatment process (such as fuels).

The Department must constantly update its estimates of the new infrastructure required based on changing amounts of waste produced and the proportion of waste being dealt with by other means, such as recycling. Local authorities must plan ahead to predict the required capacity from their infrastructure. Some technologies may be sensitive to changes in the type of waste generated. An authority faced with too little capacity may have to invest in new infrastructure to mitigate this or would have to purchase capacity from elsewhere, which could be very expensive.

The range of technology solutions being used on PFI projects is limited. The Department recommends local authorities use proven technologies such as Energy from Waste and Mechanical Biological Treatment. Better access to a greater range of technologies may improve choice and may be more appropriate for local needs.

Failure to gain planning permission for waste facilities delays construction, which reduces the effectiveness of the programme.

As well as the direct contractor marketplace, issues in wider markets such as the market for waste-derived outputs and the energy market are also important to the value for money of waste PFI projects. Some waste treatment processes include saleable products including recyclates, solid recovered fuel (SRF) and compost-like products. Potential sales of these provide opportunities to generate revenue, which may reduce the overall cost of the project to the authority. Despite initially high expectations, a market for SRF has been slow to develop.

Impact on operational projects

Changes to facilities may be required. This may require additional capital and operational expenditure.

The impact would depend on the type of change, the technology being used and the output specification of the project. For projects with well designed output specifications, the impact of composition changes should be relatively small, although the risk would usually lie with the local authority.

Any impact on authorities would be relative, depending on the nature of their initial solution.

We found several examples of significant delays to projects as a result of this problem (see part 2).

Some projects are experiencing reduced performance as a result of limited opportunities to sell these products.

Impact on projects in development

Changes to project scope may be required. Costs may change during procurement if new legislation is foreseen.

Future projects should be better placed to understand the issue and develop output specifications that account for possible changes. If authorities are procuring multiple collection, processing and treatment contracts under the new PFI criteria it must take great care to ensure that it has accounted for this risk across all contracts, not just the PFI contract.

Better access to a greater range of technologies may improve choice and value for money of future projects.

Our consultation with local authorities confirmed that this remains a key risk for future projects. Authorities with experience of this issue told us that adverse public opinion and opposition is often made worse by a lack of awareness about modern waste facilities: how they work, what they look like and why they are needed.

Local authorities may face reduced choice of technology and/or increased costs as a result of the risks associated with these wider markets. Contractual arrangements will dictate the extent to which local authorities share in any gain or loss from changes to the market value of recyclates, SRF or other products.

What the Department has done

Most of these issues are outside WIDP's direct control. The Department has set up a variety of initiatives to deal with these various and complex issues. In terms of specific actions on PFI projects, the Department has issued special derogations to the Treasury's standard PFI contract to deal with the issue of potential changes in law. The Department has issued guidance on these derogations.

The Department is now collecting monthly information on project development and is updating its capacity model on a regular basis.

The Department has produced and is consulting on a draft payment mechanism that provides specific mechanisms to account for potential changes in the volume and composition of waste. Where changes are required, these would be covered by Treasury's guidance on handling changes to operational contracts.

The Department has established a New Technologies Demonstrator Programme (NTDP) in partnership with the private sector, in order to demonstrate the viability of newer and less well-used technologies in a small scale working environment.

Planning policy is outside the Department’s direct control. The Department for Communities and Local Government’s planning policy statement 10 (PPS 10) sets out the principles of planning for sustainable waste management. The Department issued revised guidance stating that the authority should provide suitable sites but that the contractor should apply for planning permission once the contract has been awarded, and also advising local authorities to engage at an early stage with their planning departments.

The Department has appointed a senior secondee to lead work with industry. The Department has also established the New Technologies Demonstrator Programme (NTDP).

What it could do to improve this

On an ongoing basis the Department should, as it is in a position to do so, identify specific changes in law and issue specific guidance on these laws and set out how these should be interpreted under the derogations. The developing list should be regularly updated.

The Department should analyse data on changes in volume and composition of waste from operational projects. The Department should ensure that project output specifications are sufficiently robust to deal with foreseeable changes. If there is an issue around the capability of certain technologies to cope with these changes, it should be prepared to revise its guidance on acceptable technologies.

The Department should do all it can to promote the NTDP to both local authorities and the private sector. If possible, it should work with banks to develop a better understanding of the evidence they require to consider funding new technologies within the PFI programme, and seek to gain this evidence from the NTDP.

The Department needs to continue to work with Department for Business, Enterprise and Regulatory Reform and the Department for Communities and Local Government to find ways to minimise the chances of delays due to the planning system.

The Department, in partnership with other relevant Departments including the Department for Business, Enterprise and Regulatory Reform and the Department for Communities and Local Government, should draw up and implement a strategy for accelerating the development of wider markets for waste derived products such as solid recovered fuel.

Source: National Audit Office