NEW BUSINESS AND ASSET MANAGEMENT (Notes)

12 Months Ended

Dec. 31, 2020

Notes To Financial Statements [Abstract]

New Business and Asset Management

Zhao County, China Venture

On December 31, 2019, we made an equity investment in a venture that signed a concession agreement with Zhao County, China for the construction and operation of a new 396,000 metric ton-per-year WtE facility located approximately 200 miles from Beijing ("Zhao County"). The project is being developed jointly by Covanta and a strategic local partner, Longking Energy Development Co. Ltd. Construction began in April 2020, with completion expected in 2021.

As of December 31, 2020 and 2019, our equity investment in the venture totaled $7 million and $5 million, respectively, and was included in Other assets on our consolidated balance sheets, which represented a 26% ownership interest. We are required to contribute an additional RMB 61 million ($9 million) by the end of 2021, at which point our eventual ownership interest in the venture is expected to increase to 49%.

In January 2020, in connection with our Zhao County agreement, we obtained local equity financing in the amount of RMB 61 million ($9 million), the proceeds of which we provided to the project in the form of a shareholder loan. The loan is due in January 2022 and is collateralized through a pledge of our equity in the project. As of December 31, 2020, the shareholder loan balance was $9 million and was included in Other assets on our consolidated balance sheets. The total estimated project cost is RMB 650 million ($93 million), of which RMB 488 million ($75 million) will be financed through non-recourse project debt.

Covanta Energy Asia Pacific Holdings Ltd., a wholly owned Covanta entity, issued a parent guarantee for $15 million of the total debt. The fair market value of the guarantee liability is deemed to be immaterial.

Green Investment Group Limited ("GIG") Joint Ventures

In December 2017, we entered into a strategic partnership with GIG, a subsidiary of Macquarie Group Limited, to develop WtE projects in the UK and Ireland.

Protos

In December 2020, we reached financial close on the Protos Energy Recovery Facility (“Protos”), a 400,000 metric ton-per-year, 49 megawatt WtE facility under construction in Cheshire, England. Through a 50/50 jointly-owned and governed entity Covanta Green Protos Holding Ltd., we and GIG own a 75% interest in Protos with Biffa plc, a UK waste services provider, holding the remaining 25% interest. Biffa will provide approximately 60% of the waste supply to the project, and we will provide operations and maintenance ("O&M") services, in each case under a 20-year arrangement. Protos is expected to commence commercial operations in 2024.

In connection with the transaction, we received $19 million (£14 million) of total consideration for the value of our development costs incurred to date and related fees and for GIG’s right to invest 37.5% in the project (50% investment in Covanta Green Protos Holding Ltd.). For the year ended December 31, 2020, as a result of this consideration and a step-up in the fair value of our retained equity investment, we recorded a gain of $17 million (£13 million) in Net gain on sale of business and investments in our condensed consolidated statement of operations. As of December 31, 2020, $6 million of the consideration received remains in Covanta Green Protos Holding Ltd. and is expected to be utilized for future equity contributions in projects in the UK.

As of December 31, 2020, our equity method investment of $6 million and a shareholder loan of $1 million related to this project were included in Other assets on our consolidated balance sheets. The fair value of our retained equity investment in Covanta Green Protos Holding Ltd. was determined by the fair value of the consideration received from GIG for the right to invest in 37.5% in the project.

Newhurst

In February 2020, we reached financial close on the Newhurst Energy Recovery Facility (“Newhurst”), a 350,000 metric ton-per-year, 42 megawatt WtE facility under construction in Leicestershire, England. Through a 50/50 jointly-owned and governed entity Covanta Green UK Ltd. ("Covanta Green"), we and GIG own a 50% interest in Newhurst with Biffa plc, holding the remaining 50% interest. Biffa will provide approximately 70% of the waste supply to the project, and we will provide O&M services, in each case under a 20-year arrangement. Newhurst is expected to commence commercial operations in 2023.

In connection with the transaction, we received $8 million (£5 million) of total consideration for the value of our development costs incurred to date and related fees and for GIG’s right to invest 25% in the project (50% investment in Covanta Green). For the year ended December 31, 2020, as a result of this consideration and a step-up in the fair value of our retained equity investment, we recorded a gain of $9 million (£7 million) in Net gain on sale of business and investments in our condensed consolidated statement of operations. As of December 31, 2020, $4 million of the consideration received remains in Covanta Green and is expected to be utilized for future equity contributions in projects in the UK.

As of December 31, 2020, our equity method investment of $9 million and a shareholder loan of $3 million related to this project were included in Other assets on our consolidated balance sheets. The fair value of our retained equity investment in Covanta Green was determined by the fair value of the consideration received from GIG for the right to invest in 25% in the project.

Rookery

In March 2019, we reached financial close on the Rookery South Energy Recovery Facility (“Rookery”), a 545,000 metric ton-per-year, 60 megawatt WtE facility under construction in Bedfordshire, England. Through a 50/50 jointly-owned and governed entity Covanta Green, we and GIG own an 80% interest in the project. We co-developed the project with Veolia ES (UK) Limited (“Veolia”), who owns the remaining 20%. We provide technical oversight during construction and will provide O&M services for the facility, and Veolia will be responsible for supplying at least 70% of the waste processing capacity. The facility is expected to commence commercial operations in the first half of 2022.

In connection with the transaction, we received $44 million (£34 million) of total consideration for the value of our development costs incurred to date and related fees, and for GIG’s right to invest 40% in the project (50% investment in Covanta Green). For the year ended December 31, 2019, as a result of this consideration and a step-up in the fair value of our retained equity investment, we recorded a gain of $57 million in Net gain on sale of business and investments in our consolidated statement of operations. As of December 31, 2020 and 2019, $17 million and $22 million, respectively, of the consideration received remains in Covanta Green and is expected to be utilized for future equity contributions in projects in the UK.

As of December 31, 2020 and 2019, our equity method investment of $4 million and $9 million, respectively, was included in Other assets on our condensed consolidated balance sheets. The fair value of our retained equity investment in Covanta Green was determined by the fair value of the consideration received from GIG for the right to invest in 40% in the project.

Earls Gate

In December of 2018, we reached financial close on the Earls Gate Energy Centre project ("Earls Gate"), a 215,000 metric ton-per-year, 21.5 megawatt equivalent generation capacity WtE facility to be built in Grangemouth, Scotland. GIG and Covanta together hold a 50% equity ownership in the project company, through a 50/50 joint venture, Covanta Jersey Assets Ltd., with co-investor and developer Brockwell Energy owning the remaining 50% stake. The Earls Gate facility is expected to commence operations in 2023.

As of December 31, 2020 and 2019, our equity investment of $9 million, for each of the years, and a shareholder loan of $16 million and $15 million, respectively, related to this project were included in Other assets on our consolidated balance sheets. For further information, see Note 13. Equity Method Investments.

Dublin WtE

During 2017, we completed construction of the Dublin WtE facility ("Dublin WtE"), a 600,000 metric ton-per-year, 58 megawatt facility in Dublin, Ireland. Operational commencement began in October 2017.

Covanta Europe Assets, Ltd. ("CEAL"), is structured as a 50/50 joint venture. As an initial step, we contributed 100% of Dublin WtE into CEAL, and GIG acquired a 50% ownership in CEAL for €136 million ($167 million). We retained a 50% equity interest in CEAL and retained our role as O&M service provider for the Dublin WtE.

On February 12, 2018, GIG's investment in CEAL closed and we received gross proceeds of $167 million ($98 million, net of existing restricted cash), which we used to repay borrowings under our revolving credit facility. The sale resulted in our loss of a controlling interest in Dublin WtE, which required the entity to be deconsolidated from our financial statements as of the sale date. For the year ended December 31, 2018, we recorded a gain on the loss of a controlling interest of the business of $204 million which was included in Net gain on sale of business and investments on our consolidated statement of operations. The gain resulted from the excess of proceeds received plus the fair value of our non-controlling interest in Dublin WtE over our carrying value. The fair value of our investment was determined by the fair value of the consideration received for the 50% acquired by GIG. There were no basis differences between the fair value of the acquired investment in CEAL and the carrying amounts of the underlying net assets as they were fair valued contemporaneously as of the sale date.

As of December 31, 2020 and 2019, our equity investment of $153 million and $143 million, respectively, was included in Other assets on our consolidated balance sheets. For further information, see Note 13. Equity Method Investments.

Palm Beach Resource Recovery Acquisition

In September 2018, we acquired the Palm Beach Resource Recovery Corporation ("PBRRC") for $46 million. PBRRC holds long-term contracts for the O&M services of two WtE facilities located in Palm Beach County, Florida.