Sunday, 24 August 2008

You could clean up with Augean and hazardous waste

Richard Rivlin
Last Updated: 9:27pm BST 23/08/2008

Paul Blackler runs Augean, a business that deals with hazardous waste, helping the likes of AstraZeneca and Morrisons to get rid of their rubbish. He has been knee-deep in the industry for 16 years and now heads one of only two listed waste businesses in the UK.
There are three categories of waste - inert, non-hazardous and hazardous - and Augean is focused exclusively on dealing with the hazardous stuff. It owns and operates several sites from Paisley down to Avonmouth, focusing on recycling, treating and testing the waste.
Blackler says: "People have this vision of what this type of waste is. But it does not have to glow green and ooze down the corridor to be hazardous." This category includes contaminated soil, asbestos and chemical waste from industrial processing. Domestic examples of hazardous waste include fluorescent tubes, batteries and old fridges.

Augean is an unusual company. Investors are unsure whether to classify it as a business services group earning fees for the work it does or as an infrastructure group that owns several industrial sites to process the waste.
Combining the two makes it not easily understood and unloved by the market. But Blackler thinks it is only a matter of time before the stock is re-rated, as investors succumb to his infectious enthusiasm for waste.
Shares are currently 67.5p, valuing the company at £44.21m. The business has debt of £20.17m, but is comfortably operating within its banking facilities of £40m. Augean is highly cash-generative so could reduce the debt reasonably quickly, if it were not investing in new plants and products.
It is forecasting sales of £35m and profits of £4m in 2008. Shares are not cheap but then this is an asset-rich business with high barriers to entry. For instance, the Environment Agency regulates how hazardous waste is processed and industry practitioners need vetting and permits to operate.
Augean has 10 of these permits, which is a relatively small number. But they account for 50 per cent of the permitted capacity in the UK for processing hazardous waste. Its major competitors in this field are Veolia Environmental Services and SITA UK, which are both huge businesses.
Blackler does not wait for the next question. He says: "Of course they are major businesses and could pick us up, but they are focused on much wider activities than Augean is. We focus exclusively on the hazardous waste sub-sector."
One factor that prospective investors should bear in mind before putting their hands into their pockets is how few shares are owned by the current management team. Blackler was appointed as chief executive last December after the abrupt resignation of his predecessor. The management team he runs owns a tiny number of shares between them and this is something he unsurprisingly wants to change in future.
If the next few months go well, he will knock on the door of the non-executive chairman in January to re-negotiate the options scheme for himself and the company's senior management.
Blackler says: "If I deliver, I will want to get the fruits of my labour. This is a long-term infrastructure development business, but I think it is important that we are able to demonstrate progress year-on-year."
In the onger term, this business is unlikely to remain as a small Aim-listed company as it looks more likely to be sold. It does not take a corporate finance guru to develop an interesting shortlist of bidders. There are Augean's two rivals, or it could be taken private with backing from a private equity or infrastructure fund that likes the quality of the assets that underpin the business.
Then there is One51, the Irish investment company that has built a 26.89 per cent stake in Augean. It already owns 21 environmental services businesses, so who would bet against Augean becoming the next one?
Richard Rivlin is managing director of Bladonmore

Greens plot to reduce speed limits

Ministers want vehicles to slow down on motorways and national primary routes
Stephen O’Brien

A temporary reduction in the speed limit on motorways and other national roads will be discussed by a cabinet sub-committee this week, as the government seeks to reverse carbon-emission increases that are moving Ireland further away from meeting its Kyoto target.
Green party ministers want to bring the limits down from 120kph to 100kph (75mph to 60mph) on motorways and from 100kph to 80kph (60mph to 50 mph) on national primary routes in order to achieve short-term reductions in the country’s carbon footprint.
The idea will be discussed at the cabinet sub-committee on climate change in advance of the publication of figures by the Environmental Protection Agency (EPA) showing an increase of about 1% in Ireland’s carbon emissions in 2007.
The programme for government commits the coalition to reducing carbon emissions by an average of 3% per annum over five years. The biggest reductions are expected closer towards 2012, the end of the government’s scheduled five-year term.
The speed-cuts proposal, which has been confirmed by Dan Boyle, the Greens’ chairman, could result in a clash with Fianna Fail as it is clearly encroaching on the political territory of Noel Dempsey, the transport minister.
Any decision on speed-limit changes would have to be endorsed by the full cabinet, but a formal proposal on a transport matter would normally be expected to come from Dempsey’s department.
The transport sector, along with agriculture, is among the biggest contributors to Ireland’s carbon footprint and one of the most difficult in which to achieve reductions in emissions without having an impact on economic productivity.
“Since going into government, we have been able to introduce a number of measures that will have a medium- and long-term effect in terms of our national carbon footprint,” said Boyle.
“What we haven’t been able to do yet is introduce some short-term measures that will deal with the problem here and now, and the type of measure that can do that is critically looking at our speed limits. It won’t actually cost people anything and they will see their own fuel bills fall.”
Maximum fuel efficiency on the open road is believed to be achieved in most cars by driving at about 90kph (56 mph). There would a lot of practical problems to address in reducing limits, however, including the need to change speed signs on a huge number of roads.
Spain’s decision to cut its speed limits a month ago was prompted by the rising price of oil. It cut motorway speeds to 80kph and urban speed limits to 40kph.
Even the Germans have been considering making the cultural leap of imposing speed limits on their extensive autobahn network. A limit of 130kph has been imposed near Bremen and Angela Merkel’s junior coalition partners, the Social Democrats, threatened at a party conference last year to impose a national 130kph limit to reduce annual carbon emissions by 2.5m tonnes.
Boyle said the extent of the speed reductions imposed in Spain could be unpopular with Irish motorists, but a 20kph reduction on motorways and national primary roads might be acceptable. “Given the scale of the credits we have to buy if we don’t tackle the problem, it is something we should give serious consideration,” he said.
Provisional EPA figures indicate that the 1% reduction in carbon emissions achieved in 2006 was reversed in 2007. Ireland’s target under the Kyoto Protocol is to limit the increase in emission levels recorded in 1990 to no more than 13% by 2012. Between 2004 and 2005, Ireland’s emissions increased from 23.5% to 26.5% above the 1990 figure, but then fell by one point to 25.5% in 2006.
The target set in the programme for government is to get back down to 19% above 1990 levels over the next five years, and then pay a fine in the form of carbon credits that are bought to bridge the gap to the 13% target.
The Green party also regards the introduction of a carbon levy — an extra tax on petrol, diesel, oil and coal — as vital to reducing carbon emissions but insists that tax reductions in other areas, particularly on labour, will offset the carbon tax and render it revenue-neutral to government.
The carbon levy is not due to be considered by government until after the Commission on Taxation reports in 2009, but the Greens are expected to push for some progress towards a carbon tax in December’s budget.
Noel Brett, chief executive of the Road Safety Authority (RSA), said he would welcome a national debate on speed limits that examined the environmental and road safety benefits and looked at the economic and social impact of any change.

Double whammy won't blow renewables off course

Closure threat to wind tower factory and end of subsidy belie optimism in the sector, writes Rosemary Gallagher

FOR Enterprise Minister Jim Mather and the Scottish Government, events of the past week have left a big hole in plans to turn the country into a global leader in the renewable energy industry.On Friday Mather flew to Kintyre hoping to rescue Scotland's only wind tower factory near Campbeltown following a decision by Danish firm Vestas to halt production at the plant.Vestas, the world's biggest wind power solutions company with a market share of 23%, is struggling to make the Scottish factory profitable due to a lack of orders and is now in consultation with the 92 employees. Mather held talks with the staff, unions and management in a bid to salvage the operation but is already talking about life after the plant shuts. A Scottish Government spokesman insisted Vestas' decision would not derail the renewables policy, claiming the "announcement will not impact on Scotland's clear, competitive advantage in developing clean, green energy sources such as wind, wave and tidal power".However, Mather's trip to Campbeltown came on the day he was forced to react to a Westminster decision to shelve a planned subsidy for renewable energy schemes in Orkney and Shetland. The UK Government is no longer willing to cap transmission charges, a move Mather described as "deeply, deeply disappointing".Jason Ormiston, chief executive of trade body Scottish Renewables, warned that transmission charges can be a major component in the cost of running a wind farm and could affect the viability of projects.Following this double whammy, Mather has to ensure the Scottish Government keeps its energy strategy on track. It has a target of providing 31% of the country's electricity from renewables by 2011 and 50% by 2020. Commentators believe this can still be achieved. Ormiston said while the closure of Vestas is a "blow to confidence", its employees only represent a small part of the nation's growing green energy sector. There is speculation that while profitability may be the published reason for Vestas pulling out, some companies are concerned about the inability to secure planning permission for wind farms. Ormiston said there is a reluctance by both the Scottish Government and local authorities to give the go-ahead to projects that muster vocal opposition.Ormiston warned that foreign companies may be put off by the British approach to planning. And while Dr Martin Sales, partner with Biggart Baillie law firm, described the Scottish Government's achievements in promoting renewables as "excellent, almost beyond belief", he agreed planning permission is proving to be a stumbling block. He said this problem could get worse as more wind farms will have a greater visual impact on the environment. ScottishPower owner Iberdrola has expressed similar concerns. But Ormiston says attitudes are changing as a result of the previous administration's Planning Act and National Planning Policy Review and the SNP Government's commitment to quicker decision making. A Scottish Government spokesman confirmed it is working to speed up the planning process and referred to the recent announcement that the Clyde windfarm – Europe's largest single consented onshore windfarm – had been given the go-ahead. "This makes it virtually certain that the 2011 target will be met early. It is another step towards making Scotland the green energy capital of Europe."There are signs that this is an achievable milestone. ScottishPower Renewables has established itself as the biggest generator and developer of on-shore wind energy in the UK and while it is estimated that Scotland has the potential to provide 25% of Europe's wind power, it can also meet up to 25% of its tidal power requirements and 10% of the continent's wave power.Wind energy is the most advanced of these technologies and is dominated by overseas firms. But experts say Scotland's fledgling wave and tidal power sector could become the world leader if it is nurtured correctly by Government.Martin McAdam, who last week took up the position of chief executive of Aquamarine Power, an Edinburgh-based wave and tidal energy company, is confident that First Minister Alex Salmond can deliver on his ambitions for the industry. McAdam, who joined from wind farm company Airticity in Ireland, said: "Salmond wants Scotland to have an export-oriented renewable energy industry and I think that's a great vision."As well as potential to export electricity to England and Europe, the technology developed in Scotland to power the industry can be sold to countries with tide and wave resources, according to McAdam. "This is a unique time as we're starting out in the renewable energy industry," he said. "The only mature technology is wind, but we need a mixture of conventional and green technologies, including marine."Danish and German companies, such as Vestas and Siemens, dominate wind farming, a direct result of the support programmes their governments put in place as far back as the 1970s. "There's no reason why that same vision and model can't be applied in Scotland," said McAdam. "There is no real, mature marine renewable industry anywhere in the world yet and Scotland has the opportunity to take that leadership position."Aquamarine, one of the firms at the forefront of the sector, is to use the European Marine Energy Centre, established by the Scottish Government in Orkney, to test its two products, Neptune and Oyster. A full-scale prototype of Neptune, which extracts energy from tidal streams, should be in the water off Orkney next year, and in-sea testing of Oyster, which generates energy from waves, is scheduled for 2010. Unlike some critics, McAdam does not dismiss the Government's Saltire Prize to promote clean, green marine renewable energy as a "gimmick". Launched this month by Mather, the £10m prize it is the largest ever innovation award offered by the Scottish Government. It is designed to encourage Scottish and international scientists to develop technologies in the sector. "Awards such as this have helped spawn industries," said McAdam. With the oil price continuing to increase, the unsettled political situation in Russia and other former Soviet states and spiralling energy bills, there is awareness among investors that alternatives to fossil fuels must be promoted. "Renewables are hot for investment," McAdam said.

British Energy shareholder pushes for Centrica merger

Louise Armitstead and Mark Kleinman
Last Updated: 9:26pm BST 23/08/2008

The biggest institutional shareholder in British Energy is demanding a merger between the nuclear power generator and Centrica, the owner of British Gas, as the "obvious solution" to the future of both companies.
Invesco, which owns a 15 per cent stake in British Energy, worth about £1.5bn, as well as 5 per cent of Centrica, has presented to both companies' boards its views on the deal, which include a place for EDF, the utility giant majority-owned by the French government.
Speaking publicly about the proposed deal for the first time, Neil Woodford, the head of investment at Invesco, said: "A combination of British Energy and Centrica solves the problems facing both companies today. Together they can work out a joint venture with EDF to build nuclear sites."

Woodford will meet Government representatives on Tuesday, when he will lay out his plans to the Shareholder Executive, the body which manages the sale of Government assets.
British Energy's second biggest institutional shareholder, M&G, is backing the pressure for a merger between the companies, say insiders.
More on utilities
Earlier this month, Centrica revived the prospect of a £22.5bn all-share merger with British Energy, first mooted at the beginning of the year. This plan was given a lukewarm reception by ministers because the Government, which owns 35.5 per cent of British Energy, prefers the idea of a cash offer for its stake as the Treasury seeks much-needed funds. Centrica has since indicated that it would be prepared to pay cash for the Government's stake in British Energy.
Woodford, who also manages stakes in Drax and Scottish & Southern Energy, said: "In its handling of this sale, the Government has subordinated the value consideration to matters of policy and cash."
Invesco and M&G, which together own 22 per cent of British Energy, thwarted EDF's plans to buy it by rejecting the French firm's bid at the last minute. The bid, which was favoured by the Government, was at 765p per share. Although neither has said what level would be acceptable, sources say it could be over 900p a share.
Woodford denied he would block a deal at any price. He said: "Of course we would be sellers of British Energy at the right price, but our analysis of the company shows that this is significantly higher than the 765p a share EDF offered.
"British Energy is long capacity and short customers while Centrica is the other way round so they would make a great combination."

Renewables backed by nuclear is energy key

Instead of pitting wind against uranium, harnassing both could provide the powerful mix of energy Ireland needs
Veronica Mcdermott

The Irish minister in charge of energy policy, Eamon Ryan, portrays himself as a man of vision. Under his watch, he assures us, Ireland will become a “world leader” in renewable energy.
The energy minister is enthusiastic about the onerous targets the EU Commission is set to impose, including that 20% of our energy supply comes from renewables by 2020. “We can meet, even surpass, the EU target,” he has declared.
It’s doubtful that his colleagues in government share this enthusiasm, particularly if the likely effect of his policy will be to accelerate the flight of industrialists from our shores.
The Irish Exporters Association estimates the EU package, which also includes a 20% reduction in greenhouse gas emissions from 2005 levels and a further 20% saving from energy efficiency, would increase Ireland’s annual energy bill by €2.6 billion. Other calculations suggest a figure of €1 billion. Either way, it’s a substantial amount of money for hard-pressed industrialists and ordinary families to find these days.
There are a few practical difficulties, such as the €650m investment in our electricity network to accommodate a vastly increased input from renewables, and the fact that they currently comprise only 3-4% of our energy mix. There’s also uncertainty that the rush to renewables will deliver. If it doesn’t, what’s Plan B?
But as was once remarked of King Philip II of Spain and his ill-fated Armada, for our minister it appears no experience of the failure of his policy is likely to shake his belief in its essential excellence.
Ireland is 85% dependant on imported fossil fuels. In time we will face a serious problem with security of supply, never mind the exorbitant cost that attends our current dependency on oil and gas.
Leaving aside arguments about climate change and emissions reductions, an aggressive policy to develop renewables is undoubtedly justified. But a conclusion that renewables represent the only option, to the exclusion of others, is not. Shortly after he was elevated to his ministry, Ryan said he would welcome a nuclear debate, and then immediately pre-empted it. The outcome, he said, would serve to confirm his belief in renewables as the only way forward.
Nuclear is illegal in Ireland, prohibited by the 1999 Electricity Regulation Act. Our politicians shamelessly acknowledge that electricity imported through east-west interconnectors may be nuclear in origin. But none will advocate removal of our ban on nuclear generation any time soon. In career terms, it wouldn’t be worth it.
There are valid arguments against the nuclear option for Ireland. We don’t have the skilled nuclear workforce of Britain and other EU countries. That expertise can take a generation to develop.
Our national grid would have difficulty with a nuclear power station of the size envisaged for Britain’s new programme, which is likely to be the best and safest option for us. We might end up exchanging our current dependency on fossil fuels for a dependency on uranium. Furthermore we could not manage the waste, given that we cannot even handle our existing tiny amount of nuclear wastes and for more than 20 years have politically dodged any decision to build a repository to store it.
Not least of all, we style ourselves the most anti-nuclear nation on the planet; the high moral ground is always a hard place to abandon without loss of face.
Equally, there are strong arguments in favour. Nuclear-generated electricity is cheaper than offshore wind and many of the other alternatives and is likely to remain so. Nuclear’s carbon emissions are negligible. We could invest in a smaller reactor than the 1,000 megawatt plus models being built elsewhere in Europe.
Wind requires back-up, usually gas, which can negate the emissions saved in the first place. Nuclear’s low-emissions profile makes it more compatible as a back-up for renewables.
Therein lies the rub — such debate as we have experienced to date pitches nuclear versus renewables, as if one or the other is the choice. We need a debate about all our energy options, about the economic cost and impact of the choices we must make, about security of supply, sustainability and the environment.
We know one thing about our past antipathy to nuclear power; most of what we believed was wrongly based. But in the years of plenty, we could afford a level of self-indulgence and the “world leadership” cant that went with it. We’re not in that place anymore.
Veronica McDermott is author of Going Nuclear — Ireland, Britain and the Campaign to close Sellafield (IAP, 2007). See