The original financing of Covanta’s Dublin/Poolbeg energy-from waste (EfW) plant in 2014 took nearly a decade to close, unluckily catching the tail winds of the 2008 financial crisis. With banks entrenched, illiquidity in the market and a lack of governmental support, there was little room to negotiate, which favoured the few banks willing to lend.

Fast forward to 14 December 2017, the refinancing tells a different story, with Covanta and new equity owner Macquarie signing friendlier financial terms from a wider pool of lenders.

Dublin’s first EfW

The project is the first EfW plant in Dublin and features a non-traditional PPP model. The Dublin City Council (on behalf of four local authorities) signed a concession agreement and will provide revenue support, if Covanta cannot acquire waste at an acceptable gate fee to support the bankability of the plant. The difference to other EfW PPPs is that Covanta must acquire its own waste.

Therefore Covanta has signed multiple waste contracts with waste collection companies, including Panda. The plant has capacity to handle 600,000 tonnes of waste a year, outweighing the 560,000 tonnes of waste exported yearly. Ireland has five active landfill sites across the nation:

• East Galway Residual Landfill Site
• Powerstown Landfill & Recycling Centre
• Drehid Waste Management Facility
• Ballynagran Landfill
• Knockharley Landfill

It has become heavily dependent on exporting the waste to mainland Europe, however the EU is keen for each member state to deal with its own waste. Dublin aims to help Ireland comply with the EU Waste Framework Directive (2008/98/EC).

The 58MW Dublin EfW plant has changed hands in its history. In 2005 Danish company Elsam, a co-shareholder, was bought out by DONG Energy (now Orsted). Covanta purchased DONG’s share to become the sole owner of the project in early 2014.

In 2009 the project received the go ahead to begin construction but this never happened due to failure to get a foreshore licence - which would grant access to water from the river Liffey to be used as an incinerator coolant. It wasn't until 2014 that the license was granted and construction began. The plant came into operation in early 2017.

Less than a year into its commission, the plant faces charges for breaching its Environmental Protection Licence, after a series of incidents in June 2017, including lime ash expulsion that left several people hospitalised. In November 2017, the plant was given two months to decide how it would plead to charges related to the breach. This is an ongoing case, but the energy finance market has been forgiving, stating that these are just growing pains of a newly commissioned plant.

Financing

Covanta has delivered the plant under a 45-year concession. It entered full operations in November 2017 and the refinancing completed in short order (14 December) with a new mix of lenders, except two original lenders remaining – Allied Irish Bank and Bank or Ireland. The refinancing has extended maturities and reduced costs.

Alongside the refinancing, Covanta has also agreed to sell a 50% equity stake to the Green Investment Group for €136 million ($169 million). This is due to reach financial close by March 2018.

The refinancing covered all existing bank debt from the original financing. It comprised amortising debt:

• €396 million of senior debt of due in 2032 with an interest rate of 3.1%
• €50 million second lien junior loan due in 2032 with an interest rate of 5.2%

Approximately 35% (€139 million) of the senior debt was bank debt on a floating rate with a 15-year tenor. The remainder came from institutional investors at a fixed rate.

There are eight senior debt lenders including:

• AIB
• Bank of Ireland
• Hastings
• Helaba
• National Strategic Infrastructure Fund
• Natixis
• Rivage
• Samsung Life Insurance

Advisers on the refinancing include:

• A&L Goodbody - lenders' legal 
• Arthur Cox - sponsor's legal
• Ashurst - lenders' legal
• Macquarie Capital – financial
• Tolvik – technical

Original financing

The original financing in 2014 comprised:

• €375 million in non-recourse debt
• €125 million in equity
• €50 million junior debt from Macquarie Capital
• A 13.5% convertible preferred instrument held by First Reserve (which is now part of BlackRock), though the option was not executed.

There were just six lenders on the senior debt:

• Allied Irish Bank
• Bank of Ireland
• Barclays
• National Pensions Reserve Fund
• Ulster Bank
• Macquarie

Sources close to the deal stated that it took the best part of a decade to close and at the time the sponsor could sign the lender friendly terms or start again on negotiations – a tedious and expensive route.

Macquarie, which had been a junior lender, has found a new role as an equity owner through the Green Investment Group. Macquarie’s cost of capital is higher than most banks, making them less competitive in order to maintain profitability, and so it makes sense for them to invest as equity partners.

EU EfW market

The EU EfW market is booming, with several pipeline projects due to close in 2018, including:

• Drakelow – Future Earth Energy, Burton-on-Trent, UK
• Protos and Newhurst – Biffa and Covanta, Leicestershire and Cheshire, UK
• Rivenhall – Gent Fairhead & Co, Essex, UK
• Rookery – Covanta and GIG, Bedfordshire, UK

The EfW industry has historically faced issues, especially at gasification plants, due to some volatility for the municipal waste’s calorific quality and quantity, which is dictated by consumer trends. Some projects are now likely to proceed to financing without any subsidies, such as the Protos and Newhurst plants. Some in the market expressed interest in targeting the C&I market with corporate PPAs.

Macquarie, through GIG, has made a strong signal of its support for the sector by last year entering into an agreement to support Covanta as an equity provider on six of its new UK EfW projects including Rookery. Another UK energy from waste company, Bioenergy Infrastructure Group, has been established with capital from various funds and claims to have a 200MW project pipeline. Meanwhile Cory Riverside Energy has proposed to build a new 96MW energy from waste, anaerobic digestion, solar and storage facility at its existing site in East London.

New partnerships and the strong pipeline of greenfield projects in the EfW sector show it is still an attractive sector in the short term, even when subsidies for renewable power in Europe are generally declining as the technologies evolve.