Covanta Holding Corporation (CVA) generates its energy-from-waste (or EfW) revenues in three ways:
- tip fee
- service fee – owned
- service fee – operated
In the tip fee model, Covanta (CVA) receives a tipping fee per ton for collecting and disposing of waste. Around 45% of its total waste is processed under this model at the company’s 18 EfW facilities. Under this model, Covanta receives only the waste collection fee from the client and generates electricity and metals revenues on its own. The risks and rewards of the EfW facility are Covanta’s responsibility.
Service fee – owned
As of December 2014, six Covanta facilities operated under the service fee (owned) model with around 20% of total waste processed. Covanta receives an inflation adjusted fixed operation and maintenance fee for collecting and disposing of waste. Covanta typically retains 20% of the electricity generated from the waste and about 50% of the extracted metals (DBB).
Since these projects are owned by CVA, debt remains on the company’s books. However, its clients pay interest as part of the service fee. After the expiration of a contract, the facilities convert to the tip fee model, or they can remain under the service fee with new terms.
Service fee – operated
About 35% of Covanta’s waste is processed under the service fee (operated) model. Covanta acts as a contractor for municipal clients. The facilities are owned by clients, and Covanta receives a service fee. Just like in the service fee (owned) model, electricity and metal revenues are shared between clients and Covanta.
The EfW model differentiates Covanta from larger peers such as Waste Management (WM), Waste Connections (WCN), and Republic Services (RSG). Covanta is part of the iShares Russell 1000 Growth ETF (IWF).