Cleanaway Waste Management (ASX:CWY), Australia's largest provider of waste, recycling, and environmental services, has announced a joint venture with LMS Energy to monetise landfill gas (LFG) at Cleanaway's Lucas Heights landfill in New South Wales.
Waste to watts
Landfill gas is a natural by-product of the decomposition of organic waste within landfills. It consists primarily of methane and carbon dioxide.
Instead of letting the gas escape (which would be environmentally harmful), it can be captured, filtered to remove impurities, and then burned in an engine or turbine to generate electricity.
LMS specialises in capturing and converting LFG.
The deal
The joint venture will see LMS Energy invest $46m in the construction of new bio-electricity generation assets, including a 22MW power generation facility. This facility will replace the existing electricity generation infrastructure, which is currently owned and operated by a third party.
Under the agreement, Cleanaway will grant LMS exclusive rights to the gas for 20 years.
The formation of the joint venture is still subject to a number of third-party approvals.
Returns
Both Cleanaway and LMS Energy will hold equal ownership of the joint venture, each deriving 50% of the revenue.
The JV is expected to generate incremental EBIT of $5m in FY25 and $10m in FY26. Once the new assets are fully commissioned, the joint venture is projected to deliver an incremental EBIT of $15m annually beyond FY26, subject to regulatory and operational conditions.
The financial benefits from this initiative are included in Cleanaway's existing guidance for FY25 EBIT of $395m to $425m.
Mark Schubert, Chief Executive Officer and Managing Director of Cleanaway, commented: "Optimising our landfill gas opportunity is a key focus area of our Blueprint 2030 strategy and is part of our Operational Excellence program of work. The JV aligns with our commitment to disciplined capital management, and utilising capital-lite approaches to grow earnings and drive improved returns for shareholders while also supporting our commitment to reduce greenhouse gas emissions."
Shares in Cleanaway are trading 0.75% higher at $2.69.
