Waste Management Inc. (WM), the biggest trash hauler in the U.S., estimates the $12.3 billion it gets for carting off rubbish to landfills may be worth more than $40 billion a year in energy.
That’s the value of fuel and chemicals the Houston-based company estimates could be extracted from the 112 million tons of trash it collected last year if the entire waste stream was diverted from landfills, said Carl Rush, senior vice president of Waste Management’s Organic Growth unit.
About 82 percent of that rubbish currently is put into dumps. Since 2009, Waste Management has bought stakes in eight companies that gasify, ferment or digest trash, turning it into a source of heat, power, transportation fuel and specialty chemicals. All of it is worth more than trash buried underground.
“We don’t think the future, long term, is going to be continuing to put everything in the landfill,” Rush said in an interview. “It’s going to be recovering more value from this material. The customers will demand it, the struggle for resources will demand it, and quite honestly, economically, it’s the thing we should be doing.”
About 92 million tons of the garbage that Waste Management hauled away last year ended up in dumps, with collection, landfill and transfer operations generating $12.3 billion in revenue. The company’s total 2011 revenue of $13.4 billion includes a $2 billion reduction for intercompany payments.
While it’s impossible to divert all of the waste, the never-ending source of raw materials holds the potential to produce energy, fuel and chemicals that the company is at the forefront of tapping.
Trash to Electricity
Waste Management already produces energy from trash, by incinerating it to make electricity at 17 waste-to-energy plants and capturing methane from decomposing garbage at 131 landfill facilities. The company’s investments highlight a strategy to develop more profitable conversion technologies and move beyond a business model dependent on per-ton disposal rates, known as tipping fees, Rush said.
About 7.1 percent the company’s trash was burned to make electricity last year and it recycled 12 million tons of garbage worth $1.58 billion in revenue. The entire stream, if recycled, would generate about $12 billion a year, Rush estimated. The company charges about $20 to $100 a ton to collect garbage and to customers who dump waste at its landfills.
“Based on a typical tipping fee,” the returns from selling fuel and chemicals made from garbage are “pretty attractive,” Rush said.
Pursuing those returns means Waste Management is taking on a new role, which may not be a good fit for its existing businesses, said Hamzah Mazari, an analyst at Credit Suisse Group AG in New York. By investing in technology startups the waste-hauler is becoming a source of capital, requiring it to evaluate multiple prospects to identify the most promising recipients.
The company “has no core competency in any of these businesses, so they’re strictly acting as a silent partner, or acting as really a venture capital company,” Mazari said.
“Whoever develops the technology needs Waste Management, and they can strike a deal once a technology is commercial,” Mazari said. “Waste Management doesn’t have to make these investments because they already control the waste stream.”
Waste Management shares have risen about 12 percent since the beginning of December, tracking the 13 percent gain in the Standard & Poor’s 500 index.
Waste Management owns 11 percent of Enerkem Inc. (NKM) and 12.3 percent of Fulcrum BioEnergy Inc. (FLCM), which are developing systems to process waste into ethanol. It also has 25 percent of Agilyx Corp., which converts waste plastic into a synthetic crude oil. It owns 6.9 percent of Genomatica Inc. (GENO), which is developing genetically modified microorganisms that convert gasified garbage into chemicals.
Waste Management is backing four other ventures developing processes to produce transportation fuels, heat or electricity from waste: Terrabon Inc., Harvest Power Inc., Agnion Energy Inc. and InEnTec Inc.
Enerkem expects to produce about 100 gallons (379 liters) of ethanol from a ton of municipal solid waste, and Fulcrum is aiming for about 70 gallons a ton, according to filings.
Agilyx can convert a ton of plastic into about 5 barrels of oil, according to chief executive officer Chris Ulum. At those conversion rates, the companies can turn a ton of waste into about $520 of oil, or as much as $232 of ethanol, based on current prices. As much as $600 of chemicals could be produced from a ton of waste, Rush said.
“That’s a significant step up in value,” Rush said.
Waste Management won’t say how much it’s invested in garbage-to-energy companies. Mazari estimates it’s “spending about $8 million per investment on average,” and more than $50 million a year.
Beside revenue from selling energy and fuel, Waste Management’s minority holdings may yield a return if the ventures sell shares in public offerings. At least three are planning to do so.
Enerkem is seeking to raise as much as $137.8 million and may price its shares at $17 to $19 each tonight. Fulcrum and Genomatica are planning to raise as much as $115 million and $100 million through IPOs, respectively, and haven’t said when their shares may start trading. Agilyx may register for an IPO this year, according to Chrysalix Energy Venture Capital, one of the company’s other venture backers.
Buying Technology, Production
Waste Management’s investments are aimed primarily at acquiring new technology and production capacity, Rush said.
“The only reason we invest in the companies, quite frankly, is to get some opportunities to invest in those kinds of facilities,” Rush said. “At a minimum we want be partners in facilities that use our feedstocks. We do not care to be just a feedstock supplier.”
Waste Management is building a plant in Oregon to use Agilyx’s fuel technology, and its investment includes rights to the plastic-conversion technology for a decade, Rush said.
The company is providing feedstock for Fulcrum’s first commercial ethanol plant near Reno, Nevada, and agreed in December to jointly develop chemicals with Genomatica for four years.
The trash hauler is also developing energy technology internally. It operates a pilot plant in Oklahoma City, Oklahoma, that converts landfill gas into about 250 gallons of diesel a day for the company’s trucks. He said the company is open to acquiring outright energy companies instead of buying minority stakes.
Moving into energy is a good strategy for Waste Management, according to Aleksandra Rybczynska, an analyst with Bloomberg New Energy Finance.
“Landfill space in the U.S. is getting more and more limited,” she said. Fulcrum and Enerkem offer a new source of revenue and a new way to dispose of waste, while Genomatica provides an opportunity to “tap into high-revenue chemicals.”
Having Waste Management’s support helps small companies achieve scale as they move their technologies from a lab to a commercial setting, she said. “That’s what Waste Management needs, commercially available technology,” she said.
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