Agenda item

[Report of the Director for Planning, Regeneration and Development. To be introduced by  the Cabinet member for Economic Development, Soicla Inclusion &Sustainability.To present to Cabinet the proposal for a Decentralised Energy Network serving North Tottenham; to present the business case supporting this; and to seek approval to commence procurement.

The Cabinet Member for Economic Development, Social Inclusion and Sustainability introduced the report which set the proposal to establish a District Energy Network (DEN) for the North Tottenham area to support regeneration in Tottenham.

The report was the culmination of work by the Council over the last 8 years to establish a municipal energy company to challenge energy distribution in the markets, provide residents with affordable electricity and heat whilst keeping to low carbon requirements. The Spurs development has enabled this business case to be taken forward. The stadium would draw power and heat for local delivery to Northumberland Park and High Road West

The Cabinet Member highlighted this exciting opportunity which was not without dependencies and sensitivities linked to the regeneration programme proposed for North Tottenham. The DEN Project would need to achieve the overall objectives and parameters set out in the Business Case and report. Securing external funding towards the project, such as from the Heat Networks Investment Programme run by the Department of Business, Energy and Industrial Strategy would underwrite some of the development of the project and the investment profile for the Council

RESOLVED

1.    To consider the Business Case attached as Appendix 1 in the open report and Appendix 2 in the exempt report setting out the preferred delivery approach for the North Tottenham DEN and demonstrating project viability.

2.    To establish a District Energy Network for the North Tottenham area, subject to recommendations 3) and 4) below.

3.    That Option 2 as set out in paragraphs 6.25 to 6.31 and 6.60 to 6.64 of this report (the 100% Council Owned Special Purpose Vehicle) is the most appropriate delivery structure and gives delegated authority to the Director of Regeneration, Planning and Development in conjunction with the Council’s s151 officer after consultation with the Cabinet Member for Economic Development, Social Inclusion and Sustainability, to refine and finalise the delivery structure. The final structure and design of the SPV will be reported back to Cabinet for approval.

4.    To give delegated authority to the Director of Regeneration, Planning and Development in conjunction with the Council’s 151 officer, after consultation with the Cabinet Member for Economic Development, Social Inclusion and Sustainability, to agree amendments to the Business Case (and the supporting technical and financial models) that may be required, insofar as the overall objectives and parameters of the Business Case can still be achieved (as set out in section 6.18). This will ensure that the project can alter based on key dependencies and sensitivities changing, and that all agreements (including pricing structure) can be put in place to ensure that the business case can be delivered. Any substantial changes in the business case will be reported back to Cabinet for approval. The business case prior to Financial Close including supporting agreements will be reported back to Cabinet for approval.

5.    To facilitate the development of the Business Case including financial model give Delegated Authority to the Director of Regeneration, Planning and Development in conjunction with the Council’s s151 officer after consultation with the Cabinet Member for Economic Development, Social Inclusion and Sustainability, to progress the project and agree all documentation required to enter into agreements with customers for the supply of heat and electricity and funding agreements to reach financial close. This will be a commercially viable rate for both parties, and address future energy pricing mechanisms and regulation frameworks.

6.    To the commencement of a procurement process to procure contractor/s to design, construct, operate and maintain the DEN infrastructure, as well as perform billing and metering of customers.

7.    To give Delegated Authority to the Director of Regeneration, Planning and Development, after consultation with the Cabinet Member for Economic Development, Social Inclusion and Sustainability, to agree all documentation required to support the procurement process subject to funding approval at Council in February 2017.

8.    To give Delegated Authority to the Director of Regeneration, Planning and Development, after consultation with the Cabinet Member for Economic Development, Social Inclusion and Sustainability, to deselect bidders, in line with the evaluation criteria, throughout the procurement process and to return to Cabinet for approval of the preferred bidder following the conclusion of the procurement process

9.    To agree a capital budget for investment in the SPV.

10.To agree a capital budget of up to £1.6m to set up the Special Purpose Vehicle and support the process up to establishment, including procurement costs. This would be funded by the Council and grant allocated from GLA and Central Government to support project development.

Reasons for decision

The Council has set out in its Corporate Plan and associated strategies, a set of challenging social, economic and regeneration objectives. It also has challenging economic and housing growth targets from the London Plan.

The Council set out its commitment to reducing carbon emissions and managing the impact of growth across the borough in the Corporate Plan Priority 4, Objective 4, and stated aspiration to be a carbon neutral borough by 2050.

The borough-wide Energy Masterplan, undertaken previously by WSP | Parsons Brinckerhoff, identified North Tottenham, along with Tottenham Hale and Wood Green as initial opportunity areas for area-wide District Energy Networks and recommended the Council continue to sponsor development of each network.

This project will support the delivery of growth in North Tottenham, through the installation and operation of this planning policy requirement.

The development and expansion of a DEN in the North Tottenham area is a core contribution to Corporate Plan Priority 4.

In 2015, the Council commissioned Deloitte to examine the case for a North Tottenham DEN to deliver carbon reduction and manage the impact of new housing and economic growth. The detailed work to assess the strategic case, techno-economic assessment, commercial options, monetary and non monetary analysis, and management case is included in the Business Case at Appendix 1 and considered in detail below.

The option recommended is that the Council should establish a 100% Council Owned Special Purpose Vehicle (SPV) and seek through a procurement process, private sector contractor/s to deliver the design, build and operation of the DEN. This SPV does not preclude private-sector investment and the possibility of minority stake interest by a private entity. This will be investigated as part of a soft market testing exercise through the procurement process as highlighted in sections 6.65 to 6.68.

The 100% Council Owned model provides the greatest strategic control and flexibility to the Council including:

•      Reducing risk to ensure that delivery of the DEN development is aligned to the speed and scale of the High Road West regeneration and Northumberland Park regeneration programmes, as well as the THFC redevelopment in North Tottenham

•      Delivering wider social benefits such as setting energy tariffs for residents, setting up a local company to support local apprentices and skills development, and reinvesting local spend on energy on service delivery and other improvements in the borough

•      Network expansion and evolution (for example to support future regeneration in Tottenham and measures to reduce resident exposure to high and volatile fossil fuel prices),

•      Allows the Council to have the freedom to develop an energy mutual company with the community, whereby share options could be sold to the community of Haringey. This would increase community buy-in, raise capital, and for community to shape the strategic direction of the SPV

•      It maximises exit options and gains

•      the potential to deliver the greatest contribution to the Council’s revenue budget as the Council would benefit from 100% of the distributable profit from the entity, and also maximise the interest received on loans to the SPV

The Council accepts a degree of risk in that it will commit investment to the vehicle. It will bear the costs of the procurement and establishment of the SPV, and some limited development risk. However, the SPV will contribute to the ambition set out in the Corporate Plan for carbon reduction and support growth and higher design standards in new housing. The Council will also receive a financial return that it can reinvest in the fulfilment of its statutory functions, and particularly in measures to achieve such socio-economic objectives.

The Council has reviewed the delivery of District Energy Networks across the UK and within Europe. The 100% publically owned model is the most common approach and is seen in developments in places such as the London Borough of Islington, and cities of Nottingham, Gateshead, Aberdeen, Westminster and Manchester.

Alternative options considered

The potential alternative options are considered in detail in the business case attached as Appendix 1, and covered in section 6 of the report.