Investor Opportunities in Waste and Recycling

Global macro trends of escalating waste streams along with declining landfill capacity, set against the background of the Earth’s dwindling resources, are driving development of waste disposal and recycling technology.

Bank of America Merrill Lynch analysts found poor waste management is now a “global reality,” with only 25 percent of the 11 billion tons collected annually recycled or recovered. And the situation is likely to get worse, with waste volumes growing faster than urbanization rates and GDP growth and waste volumes set to double in 2025 versus 2005, and double again from 2025 to 2050.

In the U.S. alone, the BoAML analysts estimate the waste management market is worth $1 trillion today, which includes municipal solid waste, industrial waste, waste-to-energy and sustainable packaging.

These solid market fundamentals have seen some of the biggest waste deals for some time, such as a $40 million investment in Germany’s plastic recycler Friedola Tech by Silver Lake Kraftwerk to set up a U.S. plant, Clean Harbors’ acquisition of U.S. environmental services provider Safety-Kleen, French transport group Veolia’s $1.9 billion asset sale of its U.S. waste management business to Highstar Capital and a $17 million VC investment in recycling booth company EcoATM. And Enerkem, which converts waste into biofuel, which has been discussing a possible IPO, raised more than $60 million in venture capital in 2011 and reportedly raised several private funding rounds last year. Earlier this year, the Cleantech Group’s Sheeraz Haji said that waste-to-energy companies present a “massive opportunity” for venture investors during a conference call.

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Waste and recycling is a long-running theme offering plenty of investment opportunities, said Raj Atluru, Managing Director of Silver Lake Kraftwerk, the growth equity fund backing Friedola Tech with Kleiner Perkins.

With landfill capacity falling 4 percent and the amount of waste people and businesses produce rising 3 percent annually, “waste streams have value,” he told an audience at the Cleantech Forum in San Francisco.

Building the finance syndicate

Waste Management vice president and head of corporate venturing Joseph  Vaillancourt said building a financing syndicate around young companies is one of the most important components of advancing the cleantech sector.

“The biggest problem today is, for the most part, all of these technologies have been around for a while… but a lot of them are now facing first and second plant risk – they need a lot of capital,” he warned, pointing to the need for strategic and private equity partners in support.

Atluru agrees: “We’ve been successful on the energy side in China, but it’s been challenging. The biggest challenge is ‘first plant’ – but it’s no different from any other sector.

“It’s very hard for private equity companies – to be successful you usually have to find a partner. If you get into the first plant you can get into project finance and raise more capital on that,” he added.

But Atluru noted the risks involved in building waste-to-energy plants are less than developing large-scale solar projects.

Technologies wanted

Melanie Nutter, a director at the San Francisco Department of the Environment, underlined the opportunities available for companies to develop technologies and innovation in support of the city’s ambitious goal of reaching zero waste.

San Francisco, considered to be best in class in municipal waste disposal, is targeting zero waste by 2020, meaning the city will send nothing to landfill or incineration, from 80 percent  in 2010.

“We can certainly get to 90 percent, but we know it’s the last 10 percent that means we are going to need turn to innovation and technologies and companies like those in the room,” she said.

“How can we either find ways to deal with the products that are still going to landfill by eliminating them or utilizing different types of technologies like anaerobic digestion, which we’re looking very closely at to help us reach that ultimate goal,” Nutter added.

Waste Management’s Vaillancourt looks for technologies that allow the company to maximize the value of the waste stream it manages as part of its core business.

“There is really no innovation out there today, at least from a pure recycling sense, that isn’t serviceable anywhere. What it really comes down to is the costs – the more diversion you have, the more it costs,” he added.

Recycling, recovery and regulation

Steve Hahn, Dow Chemical Company’s senior research scientist, said the company has shifted the way it runs its business towards recycling and waste heat and water recovery.

“The cost of raw material is immensely important to us. A lot of the work being done to take a waste stream and convert it into a raw material that we can access speaks very much to our bottom line,” he said.

Although regulatory oversight triggered Dow Chemical’s shift towards making more efficient use of resources and energy, the company now sees the economic rationale.

“If we want to stay in business then we certainly have to figure out how to adapt our operations to deal with regulatory oversight in certain areas,” he said.

Waste Management’s Vaillancourt identified regulation – both by federal and state governments – as a major challenge in the U.S.

“It isn’t so much we are looking for the ‘dream’ regulation, we’d just like some consistency, or something we can plan around,” he said.

Susan Betcherm, Perkins Coie partner and co-chair of the law firm’s cleantech practice, said regulations can make technologies more affordable by making certain practices mandatory and introducing costs incentives.

“Some of what the EPA is doing with emissions, where they allow early solutions on the market as long as they can meet an ‘in standard’, so they’re not going through as many standards… would help,” she added.

The water-energy nexus

Dow Chemical’s Hahn described the challenges facing the company due to the water ‘footprint’ of waste solutions.

“It takes energy to purify water; that’s a critical issue. And also it takes water to create energy,” he said.

“People are increasingly recognizing the costs of doing business are very much associated with energy and water. Water used to be free or nearly free, but that’s not going to be the case for much longer.”

Water and Wastewater is also a big venture capital investment theme this year, with the number of deals growing by 29 percent in the first quarter of 2013 versus last quarter, according to the Cleantech Group.

In addition, Dow is spending a “lot of time” talking to customers about solid waste immunization technologies, which Hahn identified as an area that will be strong in the future.

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Osita Henry (11.17.2015)

Looking for company that will invest in waste management in my country Nigeria, Thanks

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