Agenda item

To consider the progress made towards the commercialisation of the Solihull Town Centre Low Carbon Energy Network.

The report was presented by the Project Manager (Growth and Development). 

Members were informed that funding applications submitted to the West Midlands Combined Authority (WMCA) and Heat Networks Investment Project (HNIP) had been successful in securing funding to support the commercialisation of the Energy Network. WMCA awarded £1.76M commercialisation funding and HNIP a total of £6,591,000M, of which £631,000 was commercialisation funding and £5,960,000M for project construction. The key commercialisation activities were noted to be:

·  Procurement of a Design, Build, Operation and Maintenance contractor to deliver phase 1 of the Energy Network.

·  Submission of a full Planning Application.

·  Secure agreements with customers for heat and power supply and building connection to the Network.

·  Initiate engagement activities with key stakeholders.

In March 2021, the Maintenance and Design Contract was released, receiving five submissions to date. The Energy Network Centre planning application was also submitted during March 2021, which entailed an eight week process.

Members were advised that the Council ESCo (Energy Service Company) would hold the Energy Network assets, enter into contracts for delivery and customer heat and power supply and manage/operate contracts on behalf of the Council as the sole Shareholder.

Councillor Mackiewicz (Cabinet Portfolio Holder for Climate Change, Planning and Housing) noted the Council had drawn upon a Grant Thornton  report reviewing lessons learned from the operating experiences of ESCo’s located elsewhere in the country, particularly in relation to operating and governance arrangements, and that this learning had consequently been embedded in the Solihull ESCo arrangements.  On-going scrutiny and oversight of the ESCo operations would be undertaken by the Councils Audit Committee

Officers drew the Scrutiny Board’s attention to the recommendations detailed within the report and invited Members comment and questions.

Councillor Qais noted the key milestone dates for the project running from February 2021 to December 2021 and queried whether they would be delivered to schedule. Members were advised that an ambitious timescale was in place with the necessary project funding secured, which supported momentum for project delivery. It would only be at the point of having the preferred contractor in place that timeframes could be definitively fixed, but considerable due diligence had been undertaken to thus far.

The Scrutiny Board sought clarification as to whether there had been any instances in U.K. case law pertaining to the use of ESCo legal and governance structures. Members were advised that the actual form of contract was bespoke and specific to the Energy Network project, although templates had been sourced from the central Government Department for Business, Energy and Industrial Strategy and therefore the contract arrangements did draw on recognised industry wide Best Practice.

In respect of Key Performance Indicators (KPI’s), Councillor Howell referenced  within the report ‘Failure to meet the target CO2 KPI may result in points and payments being levied against the DBOM Contractor’, noting that  this target was a key part for delivering the Net Zero Strategy and therefore advocated further strengthening of any such penalties to be applied.  With regard to the Education and Skills Plan, further detail was sought regarding the delivery of Social Value commitments referenced therein. 

The Scrutiny Board was advised that the existing KPI suite was indeed robust, but as the contract letting process progressed, further refinement and review was to be expected. It was confirmed for Members that there was a significant Social Value commitment within the current contract framework, with the Social Value contract element subject to further evaluation at a later date.

The draft KPI suite had been issued, but further dialogue had not been sought with contractors at this time. In terms of the financial penalty element relating to some of the KPI’s, the application of any such penalties was intended to be cumulative in nature (in the scenario that established targets were missed), which could ultimately lead to contract termination.

Councillor Qais sought detail pertaining to regular contract monitoring arrangements over the term of the contract and was informed that a substantial amount of detail was included within the procurement documents addressing contract monitoring arrangements. The intention was to ensure that the KPI’s and other monitoring arrangements would support delivery of Value for Money. Real time reporting for complaints was a specified requirement for example, with further stipulated monthly/annual reporting requirements in place for the Network performance. Some reporting requirements were the responsibility of the ESCo itself, with further reporting requirements placed on the Shareholder, which were to be detailed in the Shareholder Agreement.

Councillor Parker sought assurance that a transparent Management structure would be established, with regular and timely reporting to the Shareholder on any potential contractual issues and risks, supported by robust governance arrangements. Members were advised that the contract management and governance principles had been outlined at the start of the contract, as was the relationship between the Shareholder and ESCo. Further detail addressing reporting mechanisms was the next contract stage to be developed, which would also incorporate references from the Grant Thornton report with other examples of national Best Practice during the drafting stage.

Councillor Howell queried when was the Energy Centre expected to go live, and was advised January 2023, subject to the procurement timetable being met.

Having considered the report, the Economic Development and Managed Growth Scrutiny Board:

RESOLVED:

(i).   To note the refinement of the Commercial Delivery Model and the 

  progress of the Procurement Strategy made since the submission of the Energy Network Outline Business Case;

(ii).   To note the Outline Board and Governance Structure proposed for the Council’s Special Purpose Vehicle that will be established subject to Full Business Case approval by Cabinet; and,

(iii)  To note the programme and key milestones for submission of the Full Business Case.