In the highly unlikely case would the intensity of the fire pass through the metal construction of the compactor and the adjacent brick wall to cause serious effect before the fire consumes itself or is extinguished?

We operate compactors inside several of our facilities as well as the external scenario you describe.

If the suggestion is stacking the accumulated baled material against the wall then you have a valid argument the insurers would back.

No I don't agree with you. Your electrician is being reasonable. It sounds like a fairly common industrial situation. 

You have of course completed a PUWER assessment, which asks the question is the machine/equipment suitable for use in its intended location.

I think you were right to review the risk that such apparatus may pose, but perhaps (with respect) a bit hasty about coming to your findings  Risk is of course, not IF a fire will originate, but how likely and how severe it may be. 

The construction and use of the building is relevant, as it may be not as desirable to place such a machine next to a timber or ACM clad hospital building, whereas for most other buildings it would be acceptable as long as the machine was installed and maintained to a high standard. I agree with others that the presence of combustible waste adjacent to the building that would make the hair on the back of my neck stand up, especially if it was likely to be stored there long term and if the area was insecure or within an area of moderate to high anti-social behaviour.