Rookery South Energy Recovery Facility, UK

After years of financial and environmental challenges, owners of the 60MW Rookery South Energy Recovery Facility (ERF) at Rookery South Pit near Stewartby, Bedfordshire, brought the project to financial close.

Covanta, Green Investment Group (GIG) and Veolia are developing the project, which will provide 545,000 tonnes of annual treatment capacity for non-recyclable waste and features a 60MW combined heat and power (CHP) plant which will sell energy to the grid on a 100% merchant basis.

Veolia is sourcing the majority of the waste feedstock under long-term contracts, with the rest coming from commercial, industrial and municipal counterparties. Covanta will operate the plant once it reaches commercial operation, scheduled for 2022. 

Hitachi Zosen Inova, meanwhile, was awarded the contract to carry put the EPC work.

Debt

Total capex is estimated £463.23 million ($601.8 million) and the project value comes in at £430 million arranged with a gearing of 67:33, with a senior debt package of £315 million and an equity contribution of £129 million. It reached financial close on 22 March (2019).

The debt was arranged by:

  • Crédit Agricole
  • Banco Sabadell
  • Investec
  • NatWest (formerly RBS)
  • Natixis
  • Siemens Bank

The senior loan has a legal maturity of 19 years and six months – maturing in September 2038 – with the debt pricing over the three-year construction phase at Libor +250bp, stepping up to 300bp once operational. There are a number of cash sweeps post-construction.

Efforts to raise debt were first launched in early 2017, but it took until March this year (2019) to reach financial close due to environmental permit issues and local opposition. IJGlobal reported in April 2017 that a club of banks was due to complete the deal with financial close scheduled for later that year, but this was not achieved.

Details on the initial debt then started to emerge in July 2017 with sources saying that pricing would come in at 300-400bp over an 18-year tenor with financial close imminent. However, the project struggled to negotiate environmental permits with the UK government’s Environment Agency (EA) which was conducting public consultations with Bedfordshire residents.

Approval was granted on 26 January 2018 enabling the project to proceed. However, the decision was appealed in November 2018 by lobby group Bedfordshire Against Covanta Incinerator (BACI), but his was rejected in a judicial review – allowing it to progress in late 2018.

It then took until March 2019 to arrange the debt and bring it to financial close.

The advisory team included:

  • Macquarie Capital – financial
  • Hogan Lovells – sponsor legal
  • Ashurst – lender legal
  • Ardent – sponsor technical
  • Mott MacDonald – lender technical
  • Fichtner – engineering consultant

Equity

The project ownership is led by the developer and the Macquarie-owned renewable investment arm, with the key technology provider taking a minority position.

The team is structured:

  • Covanta – 40% – £51.6 million
  • GIG – 40% – £51.6 million
  • Veolia – 20% – £25.8 million

The partners brought in three lenders to arrange a project-level, equity bridge loan to defer funding requirements until commercial operation. The equity bridge financing equates £129 million which will be retired with equity once commercial operations start in 2022.

The equity bridge loan was provided by:

  • Barclays
  • Natixis
  • NatWest

GIG joined forces with Covanta in December 2017 when it agreed to develop up to six energy-from-waste (EfW) projects with the sponsor in the UK and Ireland, with Rookery being one of these.

GIG then paid £34 million to Covanta at Rookery’s financial close to cover procurement costs incurred by the developer including a premium in addition to a further premium for the right to invest in the project.

The project

The project was originally brought to market by Covanta alone and was approved in 2013 under a development consent order (DCO) for the delivery of nationally-important infrastructure in the UK. The DCO was valid for five years from the date of issue – until 2018 – meaning construction had to start by 25 March 2018. The equity bridge loan was put in place to start construction before the deadline.

Veolia joined the consortium for Rookery in 2016 and the project was re-launched with plans put in place to achieve final approvals. The developers had hopes to commence construction in 2017 with the facility becoming operational by 2020.

The following year (December 2017) after Covanta refinanced its Dublin Waste-to-Energy plant and sold 50% to GIG, the pair entered into a 50:50 JV for up to six EfW projects in UK and Ireland. After complications with environmental permits, GIG made noises about pulling out of the JV in January 2018, however this never came to pass.

The plant was plagued by opposition from outset of procurement when the UK parliament granted the project approval, despite objections from the local council. The public consultation run by the EA received 3,300 responses with the vast majority in opposition.

The EA noted in a document explaining its decision to approve the project that under the relevant legislation it “could only consider the issues which were relevant to the permitting process”. This meant that any planning issues – including the strategic need for a major waste plant in this location or traffic related impacts – would not be considered. The EA only considered objections raised on materially significant technical grounds.

Public opposition began when both Central Bedfordshire County Council and Bedford Borough Council opposed the plant, leading to a special parliamentary procedure being conducted. Due to the plant (at original inception) being 65MW, it was deemed to be of national significance and planning permission rights were passed without local approval – apart from surrounding the compulsory purchase of land, which resulted in it needing special parliamentary approval.

Public opposition centered on the chimney height at 105 metres as well as the feedstock which BACI claims will contain too many plastics… which can be shipped in from any part of the country.

Asset SnapshotRookery South Energy-from-Waste Plant (60MW)

Est. Value:
GBP 452.00m (USD 585.66m)
Full Details

Transaction SnapshotRookery South Energy-from-Waste Plant (60MW)

Financial Close:
22/03/2019
Value:
$600.19m USD
Equity:
$193.71m
Debt:
$406.47m
Debt/Equity Ratio:
68:32
Full Details