The funds are coming to a bin near you...

Australia’s?waste market is in a period of significant transformation.?This is driven by both changes in the global market, including the China National Sword,?and a growing social awareness?of environmental challenges?with waste processing.?These changes have culminated?in Australia banning?the export of?plastic, paper, glass and?tyre?waste.??

As a?result,?Australia must?heavily?invest in waste infrastructure?to?meet?with?projections?for?growth in demand for?onshore?waste?processing.?

In recycling alone, these projections?estimate?an additional 645,000 tonnes?will need to be processed?domestically?by 2024.?PwC estimates?that?this is the equivalent of?nearly?a third?of all of?Australia’s?waste?being?collected today.?

For organic processing,?a national target?of?diverting?80%?of organic waste away from landfill (the diversion rate)?will see an additional 4.1 million tonnes?per year?to be processed.?PwC?Australia?analysis?indicates?between?$3.5 to $4.2 billion?needs to be?invested?in new waste processing infrastructure?to develop Australia’s onshore organic?value chain to?process?at?this?capacity.??

This unprecedented demand in the waste sector has?caught the attention of prominent and emerging infrastructure investors.????

Infrastructure characteristics?attract?the funds?

A high-quality infrastructure asset?will exhibit characteristics?such as?resilience?across the business cycle?and?uniqueness of locations or?limited?operating?licenses.?These characteristics?present an attractive risk profile?for?an?infrastructure?investor.?

Economic resilience?

Waste infrastructure assets have demonstrated?a?defensiveness against volatile economic conditions, particularly when combined across waste streams.?An example is?the?volume?growth in the?following waste streams:??

• Metropolitan solid waste (MSW)?–?volume is?positively?correlated to?population growth and GDP. That is, this waste stream increases?with?economic activity.?
• Construction and demolition wastes (C&D)?–?volume is?positively?correlated?to?population growth?and?infrastructure construction and demolition.?If economic activity?is forecast to?decline,?governments typically invest in infrastructure to?maintain employment and?stimulate economic growth. This?waste stream acts as?a buffer?to any decline felt in MSW volumes?through?declining economic?activity.??

?Unique assets –?a?business?difficult?to replicate?

Market players with established assets,?contracts and?strong environmental credentials?are?well positioned?to take advantage of the waste market transition.??

The?need for Environmental Protection Authority licences (EPA licences) and land development approvals (DA)?provides?for uncertain lead times?for new market entrants.??

However,?existing market players?cannot take their position for granted.?If they cannot?access the capital to?invest in new waste processing infrastructure,?they will miss the opportunity to?take?advantage of?the market?transformation and be outgrown by?their?competitors.??

Funds are the key to unlock growth?

The waste market?is?fragmented.?PwC?analysis estimates that?as much as 60% of the waste processing market is?held by?small to medium?enterprises?(SMEs).?The remaining 40%?of the market is held by?Cleanaway, Veolia / Suez,?Remondis, JJ Richards and Bingo.??

SMEs?in waste?processing?have?typically accessed capital?through?reinvesting profits?or borrowing with collateral against personal or family assets.?This, coupled with a?lack of?depth and understanding in?the?project financing?market,?inhibits the ability?of?these SMEs?to?access?the?capital?needed to capitalise on growth in the waste market.?

A?compelling?value proposition?exists?for well capitalised funds to acquire?a number of these?SMEs?to develop an integrated?waste processing business.?

A match made...

With infrastructure funds having a need to deploy capital and promote environmental credentials, and SME waste businesses needing capital to access the burgeoning waste infrastructure market, it seems inevitable that funds will be coming to a bin near you very soon...

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