Question from Councillor E P Foley to the Cabinet Member – Regeneration and Economic Development

“At a time of drastic financial retrenchment, would the Cabinet Member for Economic Development consider the feasibility of developing BCBC as a not-for-profit energy supplier, working with solar panel engineering companies, for example, to produce green energy at a vast range of possible sites, including school buildings, surplus land, car parks and other council-owned premises. Would the Cabinet Member also consider researching the success of Nottingham City Council in this regard, which has launched Robin Hood Energy, to save customers circa £200 each per year on gas and electricity bills, the first not-for-profit company of its kind since nationalisation in 1948. Similar energy initiatives include Cheshire East Council which has recently launched Fairer Power, in partnership with OVO Energy; and Edinburgh, Glasgow and Manchester City councils, whose plans for civic energy generation are well advanced, and which would be happy to advise BCBC on matters of detail.”

QUESTION FROM COUNCILLOR E P FOLEY TO CABINET MEMBER REGENERATION AND ECONOMIC DEVELOPMENT

“At a time of drastic financial retrenchment, would the Cabinet Member for Economic Development consider the feasibility of developing BCBC as a not-for-profit energy supplier, working with solar panel engineering companies, for example, to produce green energy at a vast range of possible sites, including school buildings, surplus land, car parks and other council-owned premises.

Would the Cabinet Member also consider researching the success of Nottingham City Council in this regard, which has launched Robin Hood Energy, to save customers circa £200 each per year on gas and electricity bills, the first not-for-profit company of its kind since nationalisation in 1948. Similar energy initiatives include Cheshire East Council which has recently launched Fairer Power, in partnership with OVO Energy; and Edinburgh, Glasgow and Manchester City councils, whose plans for civic energy generation are well advanced, and which would be happy to advise BCBC on matters of detail.”

RESPONSE BY CABINET MEMBER REGENERATION AND ECONOMIC DEVELOPMENT TO COUNCILLOR E P FOLEY

Historical Context

Prior to the Second World War it was common practice for local corporations to deliver water, gas and electricity supplies to local residents through boards.  These local boards created the energy infrastructure that was regionalised and eventually nationalised after 1945 that ultimately created the centralised energy distribution model that was privatised in the 1980s.  Over the last decade several local authorities across the UK have begun to look at local generation and distribution and for widely different reasons e.g. social (address fuel poverty) or financial (generating new revenue streams).

Options for Local Authorities wishing to become energy providers

Across the UK many local authorities (Nottingham, Aberdeen and Southampton) are establishing energy service companies (ESCO), with a view to providing affordable energy solutions for residents and businesses as well as generating revenues which are to the benefit of local communities.

An ESCO is a commercial structure created to deliver a de-centralised energy service.  The structure of the ESCO can take several different forms with some of the most widely used being:

1.    ESCO created as an arm’s length special purpose vehicle wholly owned or majority owned by the Council.  The governance structure of this model would include individuals from the public, private and community sectors as well as elected members with the required skills and knowledge.  Aberdeen Heat and Power Company Ltd is an example of this.  An ESCO of this type does not have to preclude private sector involvement and commercial terms can still be offered to a private sector partner/s that may de-risk the project from a local authority perspective that does not have experience in this sector.  The important element of this model is that the local authority retains majority influence over the ESCO.

2.    ESCO created as an arm’s length special purpose vehicle with the Council having less than 20% interest in it.  The majority shareholding would sit with the private sector with the local authority still having an influence over the operation of the company but not to the extent of the previous example.  The Southampton District Energy Scheme is an example of this with Southampton Council working in partnership with Corfely. 

3.    ESCO created as a wholly owned and operated private sector venture, which as a legal agreement with the Council regarding its purpose and objectives.  An example of this is the Coventry “Heat-line” project which Coventry City Council awarded a 25 year contract to Corfely to build and operate its heat network scheme.      

What is Bridgend CBC Doing?

Smart System and Heat Programme

BCBC has been involved with the Energy Technologies Institute (ETI) and their Smart System and Heat (SSH) Programme since early 2013.  The ETI are a public/private partnership that aims to develop innovative solutions to energy related problems, the SSH Programme is one element of ETI’s work.  The programme aims to work with local authorities across the UK to develop innovative smart solutions to generating and distributing heat at the local level.  The programme required interested local authorities to complete a Pre-qualifying Questionnaire (June 2013) which ETI used to form the basis of its decision to draw up a shortlist of local authorities to move into the next phase of the project.  Over 70 authorities from across the UK expressed an interest in the scheme with 11 being shortlisted for the next stage of the project. 

ETI then engaged with the 11 prioritised authorities through a series of meetings and workshops to assess capacity, senior commitment, partner support, access to funding etc. and in June 2014 BCBC submitted a formal bid to be included in Phase 2 of the SSH Programme (Request for Proposal (RfP)) and in July 2014 senior representatives of BCBC attended an interview in Birmingham.  The RfP and the interview were used by ETI to decide which 3 local authorities from the 11 would be selected as the demonstrator authorities for the SSH Programme.  BCBC in partnership with Welsh Government was successfully selected as one of the 3 authorities along with Newcastle City Council and Greater Manchester Combined Authority.

The SSH Programme is divided into three phases, summarised as:

Phase 1 (2015 – 2016)

Phase 1 is essentially about creating the foundations for the subsequent phases of the programme.  This means:

Using EnergyPath Networks:  EnergyPath Networks is the software model that will generate the Low Carbon Transition Plan for Bridgend County Borough.  The plan will generate outputs on an area based approach and will

• Identify what the solution for an area looks like (energy demand assumptions and projections, heat solutions for different areas, retrofit solutions, heat networks etc.);
• Identify what the solution costs in terms of construction, operation and maintenance (employment of technology, network construction, retrofit costs and pricing to customer);
• Identify when the solution is to be implemented (based upon energy demand profiles, technology solutions etc.).

Using EnergyPath Economics: EnergyPath Economics is the software model that will generate the community benefits associated with the SSH programme.  It will identify how many jobs will be created, what training opportunities will be created through the programme within Bridgend.

Creation of a Low Carbon Transition Plan: The Low Carbon Transition Plan will be an area based, strategic document which will detail and give options regarding how Bridgend County Borough can make the transition away from the current centralised energy distribution model to a future decentralised model.   

Phase 2 Development (2016- 2018)

The Phase 2 Development stage of the SSH Programme will build capacity locally to ensure that when the Phase 2 Delivery stage begins in 2018 the programme can develop smoothly with every element in place.  The development phase will need to address: 

Supply Chain Development: A supply chain will need to be created to deliver the demonstration phase of the project.  The supply chain will ensure the community benefits identified through the EnergyPath Economics tool are delivered as well as maximising the economic benefits to Bridgend County Borough and Wales through job creation and training opportunities.

Funding Bid Preparation: Bids to the various funding sources needed to provide finance for Phase 2 will need to be prepared and submitted, with the finance packages in place to deliver the demonstration phase of the programme.

Community Engagement: Residents and the commercial sector will need to be engaged with and signed up to the SSH programme in order to deliver Phase 2 in 2018.  This is arguably the key element of the whole of the transition phase.

Creation of a Not-for-Profit Business Model: The operation of the heat network will require the creation of a delivery vehicle.  The delivery vehicle will operate, maintain and grow the heat network beyond the life of the SSH Programme and will necessitate creating an ESCO. 

Develop Technical Specifications for Chosen Demonstration Projects: The demonstration projects will require detailed technical and financial specifications to be developed for both schemes which meet the needs of all participants in the scheme.  

Procure Strategic Private Sector Partners 

Phase 2 Delivery Projects (2018 onwards)

The schemes chosen as demonstration projects for the programme will be ratified by the EnergyPath evaluation process but at this stage two schemes have been proposed.  These are:

Bridgend Town

Aim: Evaluate the value proposition required to realise a mixed commercial and domestic (2000 households) heat network into predominantly private housing, using a not-for-profit delivery vehicle.  Deploy advanced home energy management systems, fabric retrofit where required and assess household feedback to the new heating solution.  The project would also work with the investment sector to determine their requirements for similar schemes elsewhere in the UK.

Upper Llynfi Valley

Aim: Assess the potential to use heat from local resources to improve energy security, reduce fuel poverty and address health inequalities.  Develop a DHN based on local mine water resource to install a heat network into 300 properties, predominantly private tenure, with fabric retrofit required due to many of the properties being of solid wall construction.  The project would test the large scale viability of geo-thermal heat sources and development of a credible financial investment model for export to the rest of the UK.  The project will also gain an understanding on the implications on policy to use local resources to provide energy.  Home energy management systems and demand management systems will be incorporated to assess household feedback/benefit.

Governance Structure for the SSH Programme

The SSH Programme is of strategic importance to both the UK and Welsh Governments and a National Programme Delivery Board has been created to drive the project forward.  The national board members are:

1. UK Government (Department for Energy and Climate Change, Department for Local Government and Communities and Department for Business and Innovation);
2. Welsh Government
3. Innovate UK
4. Energy Systems Catapult
5. Energy Technologies Institute
6. Hitachi
7. EDF
8. Bridgend County Borough Council
9. Greater Manchester Combined Authority
10.  Newcastle City Council

The national board has been mirrored locally with the creation of a local steering board which is led by BCBC and attended by:

1. Welsh Government
2. Cardiff University
3. Swansea University
4. Western Power Distribution
5. Wales and West Utilities
6. Valleys to Coast
7. Wales and West Housing Association

Benefits of the SSH Programme and Alignment to BCBC Corporate Objectives

• Job creation and new business opportunities locally within the demonstration areas but also huge potential with national roll-out.
• Skills and training development leading to a more highly skilled local work force that are advantageously placed to take advantage of new business opportunities across the region.
• The development of a new business model for energy generation and supply which creates new revenue streams for improving local services.
• Greater availability of affordable energy which will address fuel poverty and improve life expectancy.
• Development of a decentralised energy system utilising new energy sources and providing a greater degree of energy security for Bridgend communities.
• The creation of a decarbonised energy supply leading to a reduction in carbon emissions.
• Improved community cohesion through engagement and empowerment of residents and businesses.

The SSH Programme offers BCBC a unique opportunity to develop Bridgend as a centre of energy excellence in the UK through access to a network of expertise and know how that would be impossible to fund if BCBC were attempting to progress this agenda alone and access to funding sources that again would not necessarily be as available if BCBC were not part of the SSH Programme.  The investment and benefits emanating from the programme offer BCBC the opportunity to develop the County Borough as a centre of the transition to a low carbon economy. 

Funding

Finance for the SSH Programme will come from a variety of sources (Europe, Government and the private sector) and a variety of forms (grants and loans).  The main types are summarised below:

1. UK Government: BCBC has been working with DECC, ETI and the Energy Systems Catapult to prepare Cost Books for each of the proposed schemes which were fed into the Comprehensive Spending Review being carried out by the UK Government.  The aim is that up to a third of the funding required for the project will come from central government grant. 
2. European Funding: BCBC has held several constructive discussions with WEFO and an Operation Logic Table has been submitted to WEFO to draw Structural Funds into the project.  Trans-national sources of funding are also being looked at.
3. Welsh Government: The intention is that BCBC would access WG funding for the project from their established programmes such as Arbed, Smart Living and the Green Growth Wales scheme.
4. Community Shares and Crowd Funding: All three local authorities are being encouraged to look at this source of non-traditional finance as a means of raising capital but also gaining community buy-in for the schemes.
5. Horizon 2020: European funding that is open to innovation projects.
6. Private Sector: Private sector investment is expected to contribute up to a third of the total costs needed for the project. 

Councillor Foley thanked the Cabinet Member and officers for their detailed reply.  Councillor Foley requested an assurance that investment in a de-centralised energy service would not be at the expense of producing green energy.  The Cabinet Member Regeneration and Economic Development informed Council that this was very much part of the transformation agenda with the Council being selected alongside large cities such as Newcastle and Manchester to progress with the Smart System and Heat Programme.  He also informed Council that he would place in the Members Lounge a document produced by APSE which provided details of Councils engaged in the district heating and energy market, hydroelectric schemes and retailing electricity with providers.  He welcomed the scrutiny process being able to monitor the Council’s progress being made with the Smart System and Heat Programme.