Agenda item

A report from the Director of Regeneration and Environment is attached. This seeks approval of the Lee Valley Heat Network Business Plan and Summary programme. (Report No.27, agenda part two also refers) (Key decision – reference number 3706)

Note: The appendices referred to in the report have been circulated and are available on the Council’s website as a separate reference pack.

(Report No.25)

(9.05 – 9.10 pm)

Councillor Alan Sitkin (Cabinet Member for Economic Development) introduced the report of the Director of Regeneration and Environment (No.25) setting out the progress and development of the Lee Valley Heat Network Business Plan noting the positive coverage on ITV London News on Monday 21 July.

NOTED

1.               That Report No.27 also referred as detailed in Minute No.22 below.

2.               That Members’ attention was drawn to the executive summary and recommendations detailed in the report. Councillor Sitkin outlined the project to members and highlighted the Council’s major policy objectives that would be met including environmental and regeneration activities. The links to the Meridian Water development were highlighted. This was a complex project that would present opportunities and risks to the Council as set out in the report.

3.               Councillor Taylor stated that this was one of the most important Cabinet decisions of the last four and a half years, with the opportunity to create a legacy that lasts for decades. It is a significant decision for the Cabinet as a major infrastructure project with huge potential for the Borough. It had the potential to protect and encourage the long-term viability of businesses within the Lee Valley.

4.               Members welcomed the project and noted that the potential risks were outweighed by the benefits to the Borough. This was an innovative and complex project which would for the first time provide local communities and businesses with low carbon energy from local heat sources. The potential to create a significant number of new jobs for the Borough’s residents was also noted.

Alternative Options Considered: NOTED that alternative options which had been considered as detailed in section 4 of the report.

DECISION: The Cabinet agreed

1.               To approve the Phase 1 Business Plan and Summary Programme for Tranche 1 (Ladderswood, Alma Road and New Avenue Satellite Schemes) and Tranche 2 (Meridian Water Phase, as the first stage of the strategic heat network).

2.               To approve, for recommendation to Council an addition to the Capital Programme, capital funding of £1.285m to fund development costs through to financial close in September 2015.

Noted that:

2.1     The Summary Programme showed financial close in September 2015, in order to supply heat to the first phases of homes at Meridian Water.

2.2     £1.285m was the Council’s total “at risk” investment at this stage.

2.3     The Council had recently submitted an application for match-funding to the Department for Energy and Climate Change’s Heat Network Delivery Unit (HNDU), to recover as much as possible of these development costs. HNDU grant funding could meet up to 67% of the estimated eligible external costs of heat mapping, energy master planning, feasibility studies and detailed project development work such as technical design, financial modelling, exploration of commercial models and contracts. Local authorities were required to secure the remaining proportion of match funding which could not be provided “in-kind”, such as staff time, office space and catering. A funding decision was expected around August 2014.

3.               To approve the estimated £85k revenue cost related to borrowing £1.189m, to cover interest payments and repayment of principal, with the remaining investment coming from existing budgets.

4.               To authorise the Directors of Regeneration and Environment, and Finance, Resources and Customer Services, to procure and appoint legal advisors to support the construction of Tranche 1 and 2 of the network by 2018. (This was estimated to cost up to £300k to September 2015 and with a positive investment decision by Cabinet, an additional £450k to maintain this legal contract to 2018).

5.               An “in principle” commitment to invest approximately £24 million in the strategic network located in Enfield in Tranche 2, including a loan of around £12 million plus £2 million contingency. Exact values would be confirmed at financial close.

Noted that:

5.1     the final investment decision was not required until summer 2015, since the capital investment was not required until demand had been confirmed and the various procurement exercises had been completed. In July 2014 Cabinet was committing to £1.285m development costs, with a further year available to reflect on the full investment.

5.2     The loan was indicatively able to be financed by a range of lenders, including the Public Works Loan Board, the London Energy Efficiency Fund (LEEF), the European Investment Bank (EIB) and the Green Investment Bank (GIB).

5.3     With the provision of £1.285m development costs for Tranche 1 and 2, the 3 satellite schemes require no further upfront CAPEX investment by the Borough. The investment in the energy systems would instead be covered by the appointed development partner under requirements set out in the Development agreements for respective sites. LVHN Ltd was forgoing the connection charges and paying for the assets out of cash flow, according to a formula validated by the GLA and to be agreed with Council (HRA), which calculates their commercial value.

6.               To authorise the Leader of the Council and the Chief Executive to approve the governance arrangements for the LVHN Ltd Board, the borough specific Portfolio Energy Agreement (Appendix A.2.1, LVHN Business Plan, containing exempt information) and the Shareholders Agreement for all participating boroughs (Appendix A.1.3, LVHN Business Plan, containing exempt information).

Noted that:

6.1     The Council would bring forward a separate Cabinet report to seek authority to enter into the Portfolio Energy Agreement on behalf of the Council (HRA), in due course.

7.               To adopt and include the following principles within the Shareholders Agreement:

·       For other boroughs to realise the benefits of joining an expanded network, and not simply funding the extension to it, a proportional financial contribution would be required to cover the cost and risk of Enfield developing, building, operating and maintaining the kick-start Lee Valley Heat Network;

·       To develop an incentive to encourage other boroughs early and active participation in expanding the heat network, by accepting the associated risks and benefits of joining LVHN Ltd’s newly established Board.

8.               To delegate agreement for the staff appointments within LVHN Ltd to the Director for Regeneration and Environment.

9.               To the tender for the legal work being progressed and delegate authority to the Director for Regeneration and Environment to award the final contract.

RECOMMENDED TO COUNCIL to approve an addition to the Capital Programme, capital funding of £1.285m to fund development costs through to financial close in September 2015 (as detailed in 2 above).

Reason: Enfield and the GLA had already invested significant resource and revenue funding to develop the LVHN Business Plan. Without Enfield Council’s investment in the strategic network and satellite schemes, it would not be possible to develop the strategic and satellite schemes in Tranches 1 and 2, which were critical to catalysing the heat network and subsequently delivering the significant economic, environmental and social benefits forecast for the city-scale heat network.

(Key decision – reference number 3706)