Increased population means greater demand for energy. The region is expected to see electricity demand grow at a 3.7 percent annual rate, twice the global average, between 2016 and 2040^[2]. This is where waste-to-energy projects are expected to play an important role serving the dual goals of waste management and energy production in Southeast Asia.

In the circular economy, waste is a resource. One way to use this resource smartly is as a source of secure, stable and climate-friendly energy. In this way, waste-to-energy plays an important part of the waste hierarchy by making use of food waste, for instance, that cannot be avoided or recycled, reducing the need for fossil fuels and landfilling.

But while several Southeast Asian countries have policies to encourage and support the development of waste-to-energy plants, the implementation of these projects faces many challenges, from regulatory to technology and funding, as well as the need for coordination between governments, businesses and local communities.

Is more private investment coming into the region or are these projects largely being development by the public sector?

It’s both. There’s a strong government and public mandate across South East Asia. In Indonesia, they have allocated specific plots of land for waste-to-energy projects. But it will take private investment to get these developed.

On the government side, they need to be convinced that there is a need for waste-to-energy projects and implement a stable political framework that supports long term foreign investment in public infrastructure, and this will in turn attract the private sector.

We are seeing more green financing from the development banks but not every country will have an Asian Development Bank, for example, coming in to take on the debt or equity; it requires both the public and private sector to work together on this.

Most importantly, developers of waste-to-energy facilities need to develop a bankable solution from an early pre-feasibility stage that would attract lenders and financiers towards such an infrastructure project. This requires a proven technical solution, an optimal risk allocation, and a clear payment mechanism (gate fees, feed-in-tariffs). The public sector plays an important role to enable and attract investment by providing a stable political framework, clear goal setting and enabling regulations for achieving the sustainability, environmental and social aspects of the project outcomes.

Can you explain what types of contracts are being used for waste-to-energy projects and why?

The decision is typically made by the public sector and initially depends on the amount of risk that they want to take on but Design, Build, Own, Operate and Transfer contracts are generally the most popular. Like any complex infrastructure project, governments will try to balance risk through a robust contracting model to ensure that the facility is delivered as expected in a predictable manner.

This is even more necessary for countries in South East Asia that may not have done many waste-to-energy projects. Projects in South East Asia tend to stay away from models we see in Europe such as the Engineer, Procure, Construct and Maintain contract type where different packages are developed and the risk is spread. It can be much more difficult to get finance for these types of contracts in South East Asia because the investors want to deal with one entity rather than taking on the risk.