Pennon Group Plc

Our Core Businesses

Viridor

BUSINESS AND STRATEGY

Viridor is one of the UK’s leading waste management, recycling and renewable energy companies. Over the past 10 years we have evolved from waste collection and disposal into a more broadly based resource recovery business with major activities in recycling and waste-based renewable energy generation. At the same time we have increased our profits at an average rate of over 20% (PBITA plus joint ventures) per annum since 2001. Over 40% of our profit contribution now comes from recovering value from waste.

We have core competencies in landfill disposal, recycling and waste-based renewable energy generation. The company operates materials recycling facilities (MRFs), waste transfer stations, treatment plants, household waste recycling sites (HWRS), composting facilities, landfills and renewable energy generation facilities in most regions of the UK and has a collection fleet focussed on the industrial and commercial market.

Continuing developments in the UK’s waste management and renewable energy policies, driven by climate change and environmental awareness, create major opportunities for Viridor.

Our strategy is to deliver strong growth and add value by:

  • capitalising on our strong position in landfill waste disposal
  • proactively developing new recycling operations to meet ambitious EU/UK targets
  • successfully exploiting the huge potential in waste-based renewable energy generation.

Viridor’s landfill market consists of municipal, commercial and industrial wastes, along with certain other special types of waste. Landfill is currently the major final disposal route for these wastes.

Viridor is a major landfill site operator within the UK with a total consented landfill capacity of approximately 77 million cubic metres as at 31 March 2010. Viridor is at present filling this at a rate of around five million cubic metres per annum, which results in an average remaining life of 15 years at current rates of fill, which is significantly longer than for the industry as a whole.

Gas produced from decomposing waste on landfill sites is increasingly used to generate electricity. It is a form of renewable energy and now represents 1.2% of the UK’s total electricity generation. Energy from Waste (EfW) represents a further 0.3% according to Defra. The Government’s stated strategy is to increase the percentage of electricity generated from all renewable sources from the current figure of around 5% to a target of 10% in 2010 and 15% in 2015. Viridor has called on the Government to set a target of 6% of electricity to be generated from waste sources by 2015. The UK has an EU target of generating 15% of total energy from renewable sources by 2020, which is likely to require over 30% of electricity to be generated from renewable sources. Historically, renewable energy projects were supported by the Government through the NFFO scheme. Under this fixed price, Retail Prices Index (RPI) contracts with terms of up to 15 years were awarded to the most competitive renewable projects in five tranches of bidding. In April 2002 the NFFO regime was replaced by the Renewables Obligation (RO) regime. Under the RO, eligible generators receive the brown energy price plus the value of the associated Renewables Obligation Certificate as described on page 23 of the Pennon Group 2010 Annual Report.

The overall price for electricity supplied under the RO regime is currently substantially higher than that achieved under the most recent NFFO scheme. This has facilitated the increase of Viridor’s total landfill gas power generation capacity to 100 MW at 31 March 2010, compared with 27 MW in March 2002. Of this power generation capacity, 63% is under the RO regime and 37% is under NFFO. Viridor’s existing NFFO contracts end in tranches over the next six years after which the capacity can transfer to ROCs.

To take advantage of opportunities presented by the Government’s developing waste strategy, Viridor is pursuing EfW schemes detailed below (including, where feasible, CHP) and a range of recycling or related treatment opportunities, including materials recycling facilities, mechanical-biological treatment, anaerobic digestion, composting and household waste recycling sites. These facilities may be combined in integrated waste management contracts.

Viridor is pursuing possible long-term EfW opportunities, including proposals in Cardiff (which received planning permission in June 2010), Avonmouth, Dunbar and Oxfordshire (which have had planning permission turned down locally and are being appealed), and near Plymouth. Construction of the consented Exeter EFW plant is expected to start during 2010/11.

In pursuing its strategy, Viridor seeks to grow its recycling, renewable energy and waste management business, both organically and through acquisition. It has continued to be an active participant in the consolidation of the UK waste market to date and, between October 2001 and March 2010, has made 17 acquisitions in the waste sector for an aggregate consideration of over £310 million. These businesses have now been integrated into the Viridor group.

www.viridor.co.uk