The Corporate Director – Communities presented a report, the purpose of which, was to update Cabinet on progress made with regards to the development of the Bridgend Town Heat Network Project and secure a number of key decisions regarding the progression of the project.

She explained that the Bridgend Town Heat Network Project is included as a project within the BCBC Smart Energy Plan (SEP) (approved by Cabinet February 2019).  The Smart Energy Plan details the projects that BCBC will participate in during the period 2019 – 2025. This proposes to test various technologies, consumer propositions and business models to provide a pathway to the decarbonisation of Bridgend County Borough.  It is also a key contributor to the Welsh Government’s decarbonisation strategy (published March 2019) “Prosperity for All: A Low Carbon Wales”.  

She continued by stating that a capital grant application was made to UK Government via the Heat Network Investment Programme (HNIP) in April 2019 and this was approved in December 2019 for £1,000,000 capital investment towards the construction of the heat network and £241,000 for pre-construction activities.

Throughout 2020 the project has been progressed through the creation of a new financial model, preparation of a planning application for the thermal store, development of an environmental permit for the energy centre and the creation of a tender pack for the procurement of a design build operate and maintain (DBOM) contractor to manage the construction and operation of the network.

The Bridgend Town DHN project had reached a critical stage with several crucial milestone decisions needed to ensure progression in line with the Conditions Precedent laid out in the Grant Funding Offer provided by the Dept. of Business, Energy and Industrial Strategy to BCBC as part of the HNIP grant conditions. 

This must happen by 19 March 2021 and therefore, it was essential, that the procurement must be underway by March 2021. In order to achieve this, the procurement notice must be launched in February 2021.  

It was then the Corporate Director – Communities explained, that a full business case will be prepared and will be subject to Cabinet approval before the appointment of any contractor would take place.  During the procurement process the Council will explore different options and innovation from the market to consider in the final business case. The details of the SPV to be established will be the subject of a further report to Cabinet for approval in the immediate future. Following this, the tender documents for the appointment of the DBOM will be released, but no appointment will be made until Council approve the scheme and additional loan amount as part of the Capital Programme. The detail of these individual tasks were set out in paragraph 4.4 of the report onwards.

In line with the BCBC Local Area Energy Plan, which indicates that heat networks are the most technical and economically advantageous option for the decarbonisation of heat within Bridgend Town, the Council is seeking to develop a Phase 2 of the heat network.  Phase 2 would be a more ambitious project than Phase 1 and would have the potential to connect two hospitals, four schools and a care home as well as potential new development within Bridgend Town centre.

The Council made an application for grant funding from UK Government (Business, Energy & Industrial Strategy) through its Heat Network Delivery Unit (HNDU) in June 2020 for £132,150 to contribute towards the cost of preparing an Outline Business Case for Phase 2 of the project (£102,150) and Project Management resource support (£30,000).

BEIS approved the funding application in September 2020 and a tender pack is being developed to procure the technical, financial and legal consultants needed to prepare the outline business case for Phase 2.  The cost of developing the outline business case has been estimated as £150,000.  The remaining £47,850 needed to prepare the outline business case is being provided by the Council.  The £47,850 will be funded from the Heat (SEP) Programme budget within the Strategic Regeneration Fund.

In terms of the reports financial implications, the Cabinet Report in April 2018, had the Phase 1 Year 1 capital outlay as £1.959 million, this increased to £4.229m in April 2019 when an amended financial model was created as part of the grant submission to UK Government through the Heat Network Investment Programme.  The increase was driven primarily by the inclusion of the new Sunnyside development.  The withdrawal of the development from the scheme has meant that the Year 1 capital outlay is currently £3.389 million.  The costs within the project are different to those presented in the original outline business case to Cabinet in April 2018 and those presented to Corporate Management Board in April 2019 due to a number of factors most notably withdrawal of the Sunnyside development from the project, upgrades to the transformer required at the Bridgend Life Centre, inflationary impacts and future proofing of the further network connections. Further information on the breakdown of the financial costs were outlined in paragraphs 8 of the report.   

The Interim Chief Officer – Finance, Performance and Change advised briefly of the report’s complexities concerning the Council having to amend its Treasury Management Strategy, in order that it may lend in excess of a £1m to SPV and in order to do so, to borrow from PWLB.

A further report in order to achieve this, would therefore be placed before Budget Council in February, she added.

The Cabinet Member – Communities advised that this report related directly to the previous agenda item ie the Bridgend 2030 Decarbonisation Strategy, which would look to improve energy consumption and the decarbonisation of energy in Council buildings. The Bridgend project would consist of a number of phases and as the project was a new venture, he stressed that it would come with some challenges. He added also, that some of the Council’s procurement procedures would require adjusting, in order to accommodate some of the project’s proposals.

The Leader confirmed that there had been huge preparation and planning for this project as it was both complex and the first of its kind for Bridgend. He welcomed further progress reports as the project evolved.

RESOLVED:                          That Cabinet:

•           Approved the continued delivery of the Bridgend Town District Heat Network project.

•           Agreed that a report be taken to Council for its approval to amend the Capital Programme for the inclusion of the Bridgend Town District Heat Network project within the Capital Programme and agrees the loan to the SPV, subject to approval to changes to the Treasury Management Strategy.

•           Noted that the Treasury Management Strategy will need to be revised to enable the Council to make a loan of £1.821 million to the SPV, and this will be reflected in the draft Treasury Management Strategy 2021-22 that will be presented to Audit Committee on 28 January 2021, and to Council for approval in February 2021.

•           Approved the procurement of and subsequent appointments of technical/financial consultant and a legal advisor to prepare an Outline Business Case for Phase 2 of the Bridgend Town Heat Network Project.

•           Delegated authority to the Corporate Director Communities to tender for the technical/financial consultant and Legal Advisor to prepare an Outline Business Case for Phase 2 of the Bridgend Town Heat Network Project and award the contracts to the successful tenderers, the contractual terms of the contracts to be approved by the Corporate Director Communities in consultation with the Chief Officer – Legal, HR and Regulatory Services.

•           Suspended the relevant parts of the Council’s Contract Procedure Rules which require procurements to be conducted under the Public Contracts Regulations 2015 and approve the procurement of a Design Build Operate Maintain contractor for the Bridgend District Heat Network by utilising the negotiated procedure with prior call for competition under the Utilities Contract Regulations 2016.

•           Approved Brodies LLP running the procurement of the Design Build Operate Maintain Contractor under the negotiated procedure with prior call for competition under the Utilities Contract Regulations 2016 on behalf of the Council.

•           Delegated authority to the Corporate Director Communities to tender the contract for the Design Build Operate Maintain contractor for the Bridgend District Heat Network, in consultation with the Chief Officer – Legal , HR and Regulatory Services using the negotiated prior call for competition under the Utilities Contract Regulations 2016 and noted that a further report shall be presented to Cabinet following the conclusion of the procurement of the Design Build Operate Maintain contractor for a decision on whether to award the contract.

•           Noted that a report shall be presented to Cabinet in February 2021 on the creation of the Special Purpose Vehicle which will provide the commercial delivery mechanism for the project.