Agenda item

Decentralised Energy Networks (DEN) Outline Business Case (OBC)

[Report of the Director of Housing, Regeneration and Planning.  To be introduced by the Cabinet Member for Environment, Transport, and the Climate Emergency and Deputy Leader of the Council]



The Cabinet Member for Environment, Transport and the Climate Emergency and Deputy Leader of the Council introduced the report which sought approval of the Outline Business Cases for both the Tottenham Hale and Wood Green Decentralised Energy Network (DEN) projects and to accept and release Government funding to progress enabling works and develop the Full Business Case (FBC) which would be brought back to Cabinet in late 2022.


The Cabinet Member and Officers responded to questions from Councillor Cawley-Harrison:

-           The general principles of the DEN were set out at paragraph 6.39, and it was important to recognise that customers would get significant benefits from this supply, which was benchmarked against the higher carbon alternative.  The expectation from all of the modelling and work carried out, which included sensitivities in terms of fluctuations in prices, was that this option would still remain affordable.

-           There were issues with the Southwark DEN, but there were also lots of positive learnings from other DENs.  In developing the full business case, all analysis would be taken into account to design the full implementation in Haringey.


Following consideration of exempt information,


RESOLVED that Cabinet


1.         Notes the progress to date of the Council’s DEN to deliver a significant decarbonisation of the borough’s developments as outlined in section 6 of this report


Recommendations related to Tottenham Hale DEN Project


2.         Approves the Outline Business Case at Appendix 2 in respect of the Tottenham   Hale DEN, including a link to Broadwater Farm, in order to progress the proposal to FBC


3.         Subject to recommendation 2, approves the acceptance of Heat Network Investment Partnership (HNIP) funding (subject to approval of the Funding Agreements at 11 below):


a.    £1.2m for commercialisation grant funding to develop the proposal to FBC;


b.    £3.4m of construction grant funding; and


c.    £12.65m of construction loan to be used to construct the DEN, subject first to approval of the FBC


4.         Approves entry by the Council into an Adoption Agreement with Argent LLP for the installation of heat network infrastructure at sites in Tottenham Hale as further described in paragraphs 6.24 to 6.26 of the report and gives delegated authority to the Director of Housing, Regeneration and Planning to finalise the terms of the Adoption Agreement for it to be entered into


Recommendations related to Wood Green DEN Project


5.         Subject to recommendation 2 (approval of the Tottenham Hale scheme) approves the Outline Business Case at Appendix 2 in respect of the Wood Green DEN and the extension of the link from Broadwater Farm, in order to progress the proposal to FBC


6.         Subject to recommendation 5, approves the acceptance of HNIP funding (subject to approval of the Funding Agreements at 11 below):


a.    £0.85m for commercialisation grant funding in order to develop the proposal to FBC; 


b.   £7.18m of construction grant funding; and


c.   £2.56m construction loan to be used to construct the DEN, subject first to approval of the FBC


Recommendations related to both Tottenham Hale and Wood Green  


7.         Agrees that officers will develop and negotiate Heat Offtake Agreements with Energetik (purchasing heat) in accordance with the Council’s Standing Orders. All agreements will be subject to the approval of the FBC by Cabinet


8.         Agrees that officers will develop a proposal for the set-up and governance of an appropriate corporate vehicle (working title Haringey Energy Service Company, HESCO) to deliver the DENs as the heat supplier and manager of the network with a report setting out the proposed delivery structure being brought back to Cabinet for approval once complete


9.         Note that officers will negotiate connection and supply agreements (selling heat) with developments in the borough following processes set out in planning agreements and legislative frameworks. All agreements will be subject to the approval of the FBC by Cabinet


10.      Note that officers begin communication and consultation with local communities and developers on the delivery of this low carbon infrastructure


11.      Subject to recommendations 3 and 6, approves the Funding Agreements at Appendix 3 as described in paragraphs 6.51 to 6.56 and Appendix 4 of the report and gives delegated authority to the Director of Housing, Regeneration and Planning, in consultation with the Monitoring Officer and Chief Finance Officer, to approve any amendments to the Funding Agreements as may be necessary, for reasons including but not limited to ensuring consistency and finalising any outstanding areas.


Exempt recommendations 1-2 are set out in the exempt part of this report.


Reasons for decision


Approving the Outline Business Case in respect of both Tottenham Hale and Wood Green allows the Council to move forward with commitments in the CCAP to deliver the DEN projects and reduce the borough’s carbon footprint.


The DEN projects will deliver affordable and secure heat for residents to a good standard of service and provide substantial local air quality and economic/ community wealth building benefits.


There is a window of opportunity created by the scale of ongoing development and availability of central government funding for the Council to act to deliver a DEN in Haringey to ensure the benefits of the borough’s DENs are maximised and best aligned with the Council’s priorities.


The Tottenham Hale and Wood Green schemes are in the existing energy masterplan along with the North Tottenham DEN which Cabinet approved an OBC for in January 2017.


The next stage of work (the development of the Full Business Case) is 100% Government grant funded presenting a lower risk for the authority and a key incentive for the project. The grant is subject to either 0% clawback, 50% clawback or 100% clawback as set out in section 6.54 of the exempt report.


The recommendations work towards delivering on the Borough Plan commitments to:


·         Lead on the delivery of an energy network where more sustainable energy is generated for use within the borough; and


·         Explore setting up an alternative local or regional energy savings company(s) that would serve our community by helping to tackle fuel poverty


The recommendation to set up DENs fed from the Energy Recovery Facility (ERF) is based on analysis in the Economic Case of the OBCs showing that this is the most advantageous option. It is also in line with previous analysis in the Council’s Decentralised Energy Masterplan and in the Upper Lea Valley Opportunity Area Planning Framework which complements the London Plan (see also Section 7. Energetik (Enfield Council’s Energy Company) has an exclusive deal in place with the North London Waste Authority (NLWA) to buy heat from the ERF and so the proposed DENs will need to buy energy from Energetik.


The OBCs cover two separate projects for Tottenham Hale and Wood Green. These projects have many synergies which is why a combined OBC has been produced. However it should be noted that whilst the Tottenham Hale scheme could be delivered independently of Wood Green, the Wood Green project is dependent on approval of the Tottenham Hale scheme to progress. 


Approving the OBCS is a key step in the project to proceeding with a FBC for both schemes in 2022.


Further detail is set out in paragraphs 4.10 - 4.11 of the exempt part of this report.


Alternative options considered


Do Nothing


This would neither deliver the maximum carbon, air quality and economic benefits to the local area nor meet commitments in the CCAP and Borough Plan. If the Council did not enter this market, due to the planning requirement to deliver communal heating, developers would procure private energy companies to manage their systems. These would most likely be based on gas. As this is currently an unregulated market, any provider could be chosen. As seen already in a few private developments in the borough, this may put residents at risk from a private monopoly where the private company is focused on increasing profits rather than user’s costs. Additional information on other sources of low carbon heat can be found in Appendix R.


Seek a smaller DEN Network


The option for creating a smaller DEN incorporating fewer sites in the Borough was considered and ruled out at this stage. DENs tend to become more viable with size and even the schemes proposed here require grant funding. Smaller schemes would need more grant funding to be viable and HNIP funding criteria specifically favour larger schemes. No viable smaller schemes could be found.


Additionally, the Council has declared a Climate Emergency and is seeking to accelerate decarbonisation to achieve a zero carbon borough by 2041. A smaller scheme would contribute less to this target and ignores the urgency of the need to decarbonise.


Seek a larger DEN Network


There are two ways to seek to deliver a larger DEN; either by seeking to add more customers in the proposed areas or extending the network to larger additional areas.


In terms of adding customers in the areas served by the scheme, a thorough review of potential customers has been conducted. While this identified many smaller existing buildings (including e.g. medium density homes with individual heating systems), the cost of connecting such customers makes it impossible to make an attractive offer at present.


In terms of adding additional areas to the network, the opportunity has been identified to extend the DEN southwards towards St Ann’s and Hackney (including Woodberry Down). This opportunity is less time critical than the Tottenham Hale and Wood Green schemes and so can be considered separately in the future. Including it within either of the schemes proposed today would improve the viability but also increase the risk and financial requirement of the scheme. On balance it was considered preferable to seek to deliver the extension opportunity as a potential subsequent project.

Keeping the OBCs focussed to two key growth areas in Tottenham Hale and Wood Green allows significant development of the DEN without it becoming unmanageable. The Wood Green project is entirely dependent on the Tottenham Hale project progressing.


Alternative Sources of Heat


The Council considered several alternative heating systems for the DEN and the borough buildings. Installing individual Heat Pumps is both more expensive to install and more expensive to operate than gas boilers. Furthermore, mass roll out will require a major investment in the national electricity grid. At this time this was considered not a viable option.


Many of the solutions available to decarbonise our buildings are still under development and are not yet market ready. DENs bring opportunities at scale, for example, a DEN could tap into energy sources and ship it (a body of water or an Energy Recovery Facility), via pipes buried in the ground to heat customers. If heat sources are large enough and cheap enough, and the energy demand is sufficiently dense, it can be a cost-effective solution. While the cost of connecting customers is similar for all heat sources, the cost of supplying them varies and so the network extent will differ depending on choice of heat source.


Alternatives to a Council owned energy company including potential for Private Sector led schemes


A full spectrum of options has been considered for delivery (i.e. acting as the owner/heat supplier) ranging from 100% delivery by a third party (e.g. private sector) organisation to 100% publicly owned and delivered in-house by the Council. These options are detailed in the Commercial Case of the OBCs. Involving a third party in these roles requires the Council to confirm the customer base that will connect (which it is not currently in a position to do) and there is not sufficient time in the programme to both confirm the customer base and select a suitable partner.


The Council does not have sufficient control over the customer base at this time and by the time it can exert such control, there will be insufficient time to find a partner.


Indeed, the programme for the DEN projects is such that, even if the Council had control over the customer base today, it would be extremely challenging to select a funding partner in time to initiate the project. If the project is not initiated to the timescales set out in the OBCs, a substantial portion of the opportunity will be lost to the point that the projects are no longer viable to link into the heat network. The OBCs do identify areas where there may be scope to involve third parties later in the development of the schemes.


Therefore, the Council will need to take on the roles of owner and heat supplier in the delivery of the project and the question comes down to whether this is in-house or via a Special Purpose Vehicle. This is discussed further in 6.46 to 6.50.


As a Council scheme funded via the Heat Networks Investment Project (HNIP), the Council is required to sign up to consumer protection scheme Heat Trust or equivalent. This will ensure the maintenance of customer service standards; providing access to an Ombudsman; and promoting best practice and continuous improvement.


Further detail is set out in paragraph 5.15 of the exempt part of this report.

Supporting documents: