Waste-to-Energy: How Ukraine Can Generate Heat and Electricity from Municipal Waste

24 06 2019

The waste-to-energy process is the utilization of waste as a secondary resource for energy production by burning it. In 2017, two hundred and fifty thousand tonnes of municipal waste were used to generate energy in Ukraine, which is about 2.5% of the 11 million tonnes of waste collected during the same year. Most of the collected municipal waste was directed to landfills.

For many European countries, the waste-to-energy process is the next stage in waste handling, effected after sorting the waste. It allows to not only to efficiently utilize the remainder of waste that cannot be further processed but also to produce electricity and heat as close to their consumers as possible. That is why many waste incineration plants are located close to densely populated areas – the Spittelau plant in Vienna, the newly built Amager Bakke plant in Copenhagen, three plants in the suburbs of Paris, etc. Among other reasons, the proximity to municipal waste generation centres reduces waste delivery costs.

There is only one waste-to-energy plant operating in Ukraine – Energia plant in Kyiv, which provides heat and hot water to a number of apartment buildings in the Pozniaky residential area. By 2018, Ukraine planned to incinerate almost twice as much municipal waste if compared to 2016, specifically by building two new waste incineration plants as envisaged in the Ukrainian National Waste Management Strategy until 2030 (hereinafter – the "National Strategy"). In addition to the strategy, the State Agency on Energy Efficiency and Energy Saving of Ukraine has developed a Concept of Legislative Changes to create conditions for starting the municipal waste-to-energy process in Ukraine (hereinafter – the "Concept"). Despite the State's intention to focus on enhancing the waste-to-energy generation, we do not observe any new plants being built in Ukraine. Let us try to understand why.

Regulatory Aspects

There are in fact no major regulatory obstacles to the construction and operation of such plants in Ukraine. Although the Law of Ukraine "On Waste" (hereinafter – the "Waste Law") does not directly regulate waste-to-energy activities, it provides for the possibility of using waste as an energy resource. Pursuant to the above law, a waste-to-energy plant will dispose of waste and, additionally, carry out a number of other related activities – waste collection, which also includes waste accumulation and placement, waste storage and treatment, and will prepare waste for processing. All of these activities require a waste processing license.

There is certain unclarity as to obtaining a waste management permit from a local state administration – since incineration of municipal waste generates a leftover, the plant must obtain a permit if such leftover exceeds 1,000 waste generation units. Since the procedure for issuing such permit has not yet been approved by the Cabinet of Ministers of Ukraine, the permit is not issued by local authorities. However, according to the State Regulatory Service, the absence of an approved procedure for issuing permits does not constitute the ground for refusing the permit; incineration plants may follow the principle of tacit consent without obtaining such permit.

In any case, the procedure for issuing permits cannot be approved until amendments are first made to the Waste Law – because the Law of Ukraine "On Permit System in Business Activities" stipulates that the list of necessary documents and the grounds for refusing the permit shall be determined exclusively by law; the relevant draft law No. 6602 is now pending before the responsible committee of the Parliament. Anyway, currently an incineration plant having the relevant licence may start its operations without the permit, as soon as ten business days elapse after applying for the permit to the relevant state administration.

Doing business

From the investment perspective, the successful operation of an incineration plant requires а guaranteed and uninterrupted supply of municipal waste and profitability of processing activity.

How to provide for uninterrupted waste supply?

First, the uninterrupted waste supply can be provided under an agreement with the waste owner since the law provides that the waste has an owner. In practice, it is difficult to determine who owns the municipal waste generated in urban areas since the Waste Law does not expressly provide how and to whom the ownership of waste placed in a waste container is transferred from a person who threw it out.

For example, in Kyiv, waste removal is done by a municipal enterprise, which also owns the waste containers. It thus may be deemed that the ownership of municipal waste passes from a Kyiv resident to this enterprise as soon as the waste is deposited in a container. Consequently, the Kyiv Municipal State Administration or any other state authority does not acquire the waste and, thus, cannot manage it. An incineration plant will, in this case, have to either enter into a municipal waste supply agreement with the enterprise supported by a guarantee of the municipal authorities or into a tripartite agreement, etc.

Since there is no single waste ownership system provided for by the law, each populated area may have its own system. Therefore, the right of each municipal authority to dispose of waste shall be analysed in each particular case.

Ho to make waste incineration profitable?

Second, globally waste incineration is a paid service for which waste owner pays the gate fee for each tonne of municipal waste delivered for processing. The gate fee may be defined in an agreement made between the processing enterprise and municipal waste owner or set as a separate tariff. The gate fee for recycling of one tonne of municipal waste must be lower than the tariff for delivering one tonne of waste into landfill so that the waste recycling is a more attractive choice for the waste owner.

So far, there is no tariff for waste-to-energy processing of municipal waste. If the gate fee is set at the tariff in future, it is preferable that it is constantly reviewed to account for the changing operating expenses of the plant; however, often the review process is too slow due to a complicated regulatory procedure. If the investment is made in a foreign currency, the tariff shall account for the currency exchange rate to protect the investor from the fluctuations of Ukrainian hryvnia exchange rates.

Alternatively, a processing company may receive the gate fee under a direct agreement with the waste owner. We note that if the waste owner is a funded by the state budget, the agreement for utilization services shall be made in line with the Law of Ukraine "On Public Procurement". Currently, the agreements under the law are executed only for periods, for which the budget financing has been already allocated, that is not longer than for one year.

One of the options is to turn to the public-private partnership which, under the Law of Ukraine "On Public-Private Partnership", may be applied in waste processing industry as well, save for waste collection and transportation. The public-private partnership instrument would enable the parties to enter a long-term agreement and to define the state partner's obligation to supply municipal waste in proper volumes.

Selling generated energy

A recycling company may make profits by selling thermal and electrical energy generated through waste incineration.

Thermal energy is supplied at a set tariff; once the electricity market starts operating, a recycling company may sell electricity at a competitive market.

There are constant legislative initiatives to define the municipal waste as an alternative energy source, including, in particular, the draft law No. 4835, which was registered with the Parliament already in 2016. In April 2019, the similar amendments to the Law of Ukraine "On Alternative Energy Sources" proposed draft law No. 8449-д. were voted for by the Parliament.

This draft law introduced the notion of "solid renewable fuel" as a source of alternative energy generated from municipal waste, from which the recyclable components and hazardous waste were removed prior to incineration.

As we may see from the meeting transcript, the reason why such amendments were rejected was that the members of parliament disagreed with such fuel being termed as "renewable". It is true that generally the fuel may be regarded as "renewable" only if is it is derived from the natural sources. Thus, perhaps after the proposed provisions and definitions are modified, we may expect that municipal waste would be defined as an "alternative energy source" so that waste-to-energy plants would be able to participate in the green auctions and receive support from the government on the same terms as renewable energy producers.

Summary

Generally, Ukraine needs new waste-to-energy plants. The regulatory uncertainties which now exist in the waste processing industry may be dealt with. More so, there are legislative initiatives to eliminate them.

While planning the project, it is essential to thoroughly examine the procedure for disposing of the municipal waste effective in each particular area, as it would be different for each region or city of Ukraine.

The future investors should consider the public-private partnership instrument as a means to formalize their relations with the authorities or the waste owners, which would enable to define the parties' contractual duties to supply waste and pay the gate fee if the relevant tariff is not set.

Though municipal waste is not an alternative energy source per the current law, this issue is actively discussed in the Parliament and was repeatedly considered in several draft laws. We may hope for further legislative initiatives enabling waste-to-energy plants to participate in auctions and receive support from the government.

A recycling plant in Ukraine may be successfully constructed and operated. The government may make such projects more attractive for investments by eliminating regulatory uncertainties, introducing a reliable mechanism for cooperation between the authorities and the investors and defining the municipal waste as an alternative energy source.

Published: The Page, 24 June 2019

Authors: Alexander Borodkin, Tetiana Revutska