High Growth To Be High Cost For Cleanaway

Australia | Jun 15 2022

Cleanaway Waste Management has outlined growth opportunity in the waste-to-energy market, but investors are warned costs will increase sizeably in coming years to accommodate it.

-Cleanaway pursues growth with $2bn waste-to-energy investment
-Costs to increase $15m annually to support growth initiatives
-Carbon goals should provide further opportunity for investors

By Danielle Austin

With Cleanaway Waste Management ((CWY)) pursuing sizeable growth and a competitive advantage, the company has guided to a permanent $15m increase to annual spending, reflecting a 60% increase to previous costs. The company is pursuing growth through to the end of the decade across six pillars, notably including the waste-to-energy market, representing its continuing investment in a broad range of long-term waste infrastructure opportunities.

The company has highlighted the waste-to-energy sector as its largest investment opportunity, and outlined an intention to build WTE facilities in both Victoria and Queensland. With Cleanaway guiding to capital expenditure requirements of $0.7-1.0bn per facility, or a combined investment of $1.4-2.0bn, over the coming five years, the WTE investment alone represents a doubling of Cleanaway’s tangible asset base.

The facilities will use residual waste otherwise marked for landfill to fuel power generation, and with the company anticipating each of these facilities will deliver a 300-500,000 tonne capacity annually, Cleanaway’s landfill sites should also benefit from some reduction in volume and therefore an extended life expectancy. The company has suggested it will utilise low-emission technology modelled by similar projects in Sweden and Ireland to operate its WTE facilities, with 85-90% of revenues to come from gate fees. Notably, the company highlighted that both sole and joint ownership of these facilities remained options for the company.

Opportunity outside energy-from-waste

The company outlined six pillars of targeted growth within its strategic plan, including construction and demolition, plastic recycling, food organics & garden organics (FOGO), and broadly growing collection capacity.

Within the construction and demolition space the company believes there is further potential opportunity, with the Victorian and Tasmanian awards both due in the first half of FY23. Some market analysts anticipate the company will focus on the Melbourne and Brisbane sectors, both regions where significant market share gains remain a possibility.

The FOGO market also presents one of Cleanaway’s fastest growing opportunities, with local councils looking to implement schemes encouraging increased FOGO recycling. Investment in the market is also significantly less than what is required for the larger WTE opportunity, but has potential to offer meaningful returns if the company can secure sizeable market share.

The company’s strategic plan also outlined the importance of carbon targets to both its 2030 and 2050 strategic plans, and emissions goals will be announced in August. With Cleanaway’s current emissions derived 79% from methane and 21% from carbon dioxide the company sees landfill gas capture as an opportunity moving forward.

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