Landfill valuations

A recent potential deal, 3i's bid for Novera, has stimulated a need for a rule of thumb on the value of landfill gas.

Existing landfill projects receive 1 ROC per MWh, making their total electricity price around £90/MWh (electricity £40/MWh, ROC £35/MWh, recycle value c. £15/MWh).

Analysis of the OFGEM ROC register shows that, in a typical month, the UK's 800MW of operational landfill capacity generates 130,000 ROCs. Each MW of capacity therefore generates 165 ROCs in a month or 2,000 per year. 1 MW therefore enjoys revenues of £180,000/yr (at £90/MWh)

No, we know that landfill was economic even before ROCs, but only just, so let's assume £40/MWh of operating costs run at around the electricity price in those days, say £30/MWh, making the gross profit £120,000/yr/MW.

Now, If we assume this goes on in perpetuity (which on a DCF basis is fair enough, as landfill sites typically operate for 20 years or so - effectively infinite in DCF terms). With a discount rate, this would make 1 MW worth £1.2 million pretax.

The deals we found in the analysis of the Novera offer reassuringly bracket this figure: one was 7 MW for £25 million - about £3.5 million per MW, and the other was £30 million for 45 MW or £0.67/MW.

So a rule of thumb of £1 million/MW may be about right.