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Report of theStrategic Director
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To the Deputy City Mayor,Property on 26 June 2012 and
The Assistant Mayor Environment & Housing & Planning on 26 June 2012
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TITLE:PROPOSED HYDRO ELECTRIC SCHEMES AT JUBILEE WEIR (CHARLESTOWN) AND ADELPHI WEIR (BROUGHTON)
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RECOMMENDATIONS:
That the City Mayor and the Assistant Mayor:
1.Note the options and endorse the recommended course of action.
2. Approve council staff entering into formal discussions with Water Power Enterprise (H2ope), with a view to hydro electric schemes being delivered at Jubilee and Adelphi weirs.
3. Approvethe drawing up of draft Heads of Terms for an 18 month exclusivity agreement between the council and H2ope, to allow the latter to undertake pre development work,prior to the construction of hydro electric schemes at Jubilee and Adelphi weirs in relation to council ownership.
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CONTACT OFFICER:TEL. NO:
Mike HemingwayExt: 3209
Brian EnrightExt 3784
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EXECUTIVE SUMMARY:
In September 2011, the community interest company, Water Power Enterprises(H2ope), approached council officers with a proposal to develop two 100 Kw hydro electric schemes at Charlestown and Adelphi weirs, on and adjacent to land owned by the council. H2ope’s proposal included for developing these schemes at its own risk. This development stage would, if approved, include getting all necessary permissions and, importantly, setting up Special Purpose Vehicles (SPV) to own and run the weirs. In return for their up front investment of £30,000 - £40,000 per scheme, H2ope are asking for an exclusivity agreement from the council to develop the two sites.
In terms of benefit, H2ope’s model includes for the SPV paying the council rent for the lease of both sites (to be determined by negotiation), as well as a slice of the profits generated by each scheme going to the local community (estimated to be £250,000 over a 40 year period). In addition to this, it is envisaged that each site couldgenerate a total of 875MWhof renewable electricity per year (the equivalent of supplying approximately 100 homes), as well as saving around 470 tonnes of CO2.
If approved, construction on both sites could commence in 2013.
However following discussions with legal and procurement there are a number of options to secure development.
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BACKGROUND DOCUMENTS:H2ope Proposal
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KEY DECISION:YES
An entry has been made in the Forward Plan until June 2012
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DETAILS:
1. The Proposal
In September 2011, a representative from H2ope (a community interest company) approached council officers and a resident member of the Charlestown and Lower Kersal Development Framework Group with a proposal to develop two separate hydro electric schemes on the River Irwell – i.e. one at Jubilee weir (see Annex1), and the other at Adelphi weir (see Annex 2) at an estimated cost of between £600,000 to £750,000 each.
H2ope’s model for delivering these schemes is predicated on it being given exclusive rights (at its own risk, and for a period of 18 months)to undertake the pre-development work for each scheme (estimated cost for this work is between £30,000 and £40,000 per scheme). This would include setting up a company in the form of a Special Purpose Vehicle (SPV), as well as:
- Obtaining planning permission;
- Obtaining an abstraction License from the Environment Agency;
- Working with the Environment Agency on the installation of fish passes to allow the movement of fish up the river in line with the Irwell Catchment Pilot and the Water Framework Directive;
- Confirming land ownership and obtaining a lease from the council in relation to it’s ownership;
- Raising the necessary finance to deliver each scheme - i.e. through a share offer and bank loan;
- Undertaking conceptual design leading to full detailed design;
- Undertaking community consultation and involvement and;
- Project management of construction and commissioning.
Once this pre-development work is completed(i.e. ‘Financial Close’), contracts would then be let for equipment and the construction phase.H2ope does ultimately charge a fee for its work, but this fee is only payable at “Financial Close”(70%) and at the successful commissioning of the scheme (30%) and is chargeable to the SPVs that would own the Hydro Electric Plant at the respective weirs.
2. H2Ope’s Track Record
H2ope have been developing hydro schemes since 2006 and have built up a body of knowledge and the practical experience. They have successfully developed community hydro schemes at Bainbridge, New Mills and Settle and are currently developing two sites in Stockport, one at Saddleworth and a further scheme on the river Tees.
3. Community involvement/benefit
As indicated above, H2ope’s model involves working with communities so that they become part owners of the hydro site. Some previous schemes undertaken by H2ope have resulted in communities being 100% owners of the hydro scheme, but recent changes in the Feed in Tariff system have had the effect of making such full ownership practically impossible. However, as an alternative H2ope is confident that an SPV can be established such that part community ownership is possible – the percentage of ownership being dependent upon the proportion of finance raised through a community share offer, as a percentage of the whole equity required for the scheme.
The Charlestown and Lower Kersal Development Framework Group would seem the most appropriate vehicle to ensure community representation and distribute any community benefit arising from both schemes, the DFG has been involved in preliminary discussions with H2Ope and supports the approach taken in this report.The Development Framework Group was formed as part of the New Deal for Communities succession arrangements following the dissolving of the partnership in March 2011. The DFG is comprised of elected members, community representatives and council and university officers. Part of it’s remit is continuing to develop schemes which assist in the regeneration of Charlestown and Lower Kersal. It is a fully constituted group with the council acting as it’s accountable body. The DFG has indicated that it is willing to take on this role.
Benefits to Salford Council:
There are a variety of benefits that can accrue to Salford Council:
- As landlord, it would enter into a lease with the SPV and be entitled to a commercial rental payment;
- Previous hydro schemes have helped boost local tourism and the use of local river walks;
- Previous hydro schemes have all successfully proven themselves to be educational attractions;
- In total, both sites would reduce CO2 emissions by approx 470 tonnes per year and could be used to supply renewable electricity to any planned housing developments adjacent to the sites (for example, Charlestown Riverside).(Each site will have an installed capacity of 100kw generating a total estimated 875MWh of electricity per year which will save the equivalent of 470 tonnes of CO2 per year;
- The community share offer involves national, regional and local publicity which wouldhighlightSalford council’s commitment to renewable energy and;
- 2 Hydro Schemes on the Irwell would be highly visible symbols of Salford’s commitment to tackle climate change.
In addition to these benefits to the council, there may also be benefits to local companies in terms of supplying equipment.
Next Steps
To this end, it is suggested that a small project team is established that would include staff from the Sustainable Regeneration Directorate’s Regeneration section,the Principal Officer – Climate Change, a representative fromthe Council's Legal Service, a member of the procurement team and a staff member from Urban Vision’s Estate’s section. This team would be charged with confirming land ownership and drawing up draft Heads of Terms for an agreement between H2ope/SPV.
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OTHER OPTIONS CONSIDERED BUT DISCOUNTED
Do nothing
The council could choose to do nothing – i.e: not develop either one or both of the proposed schemes.
Arrange for a commercial company to develop both schemes
There is the option of one or more commercial companies developing schemes at each weir. In return for the occupation of land next to the weirs, the council could expect rental income.No commercial companies have approached the City Council to develop either site. This may be because the 2 schemes are relatively small scale.
This option, however, was rejected as it would not attract the community benefit income arising out of the H2ope model.
Develop the Charlestown site as part of the proposed CharlestownRiverside Housing site
Lead Members are aware that the council remains committed to the redevelopment of the Charlestown Riverside site. One option, therefore, is to request that the preferred developers to undertake the development of a hydro electric scheme that could feed directly into future development.
This option has been rejected given that it would present the developers with an additional upfront development cost on a site that already has significant development costs attached to it.
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KEY COUNCIL POLICIES:
Salford’s Climate Change Strategy – Creating a city prepared for the future.
The Greater Manchester Climate Strategy 2011-2020.The proposal supports the three key themes of Salford’s Climate Change Strategy – Carbon Reduction, Climate adaptation and encouraging behaviour change.
It will also in a small way support the transition to a low carbon economy proposed by the Greater Manchester Climate Strategy and help reduce collective carbon emissions.
The proposal for hydro generation at Adelphi Weir would be entirely consistent with the long term vision for the Meadows and the aims of the IrwellRiverPark programme.
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EQUALITY IMPACT ASSESSMENT AND IMPLICATIONS:
Initial Community Impact Assessment Completed. No detrimental community impacts were identified.
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ASSESSMENT OF RISK:
Risks (upon the council) / Likelihood / Impact (upon the council) / MitigationH2ope’s proposed schemes not deemed to be viable / Medium / Low / H2ope has previously developed several similar schemes
Approvals (e.g. planning, abstraction licence from the Environment Agency) not given / Medium (may be High in terms of Adelphi Weir and the ability to obtain an abstraction licence from the Environment Agency) / Low / H2ope has experience of working with the Environment Agency on matters relating to abstraction licences.
h2ope are developing Broken Scar Weir on the river Tees, just upriver of Darlington, which is of similar size to the weirs on the Irwell currently under consideration. Broken Scar Weir is an EA gauging station and they have just received planning permission for the development, with two conditions from the EA concerning the abstraction licence and the use of the weir as a gauging station.
One or more of the schemes has to be abandoned / Low / Low / Put a clause in any lease that the SPV is liable for any decommission and removal costs
Local anglers object / High / Low / H2ope are experience in working with local angling groups. Fish passages could be constructed on both schemes.
Archaeological interest in the vicinity / High (at least in terms of Jubilee weir) / medium / H2ope would work closely with the Greater Manchester Archaeological Unit to identify, and where necessary, record any archaeological interest in area
Risk of challenge / Low / High / Procurement recommend the council put the opportunity to develop hydro-power on the weirs out to tender or market test. However, Legal Services have stated that they view this agreement as a simple land transaction, and is not a procurement issue as such.
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SOURCE OF FUNDING:
H2ope’s development model proposes that there are no capital or revenue costs associated with the development of both weirs. However, the council will need to enter into a legal agreement with H2ope in order to grant it exclusivity in terms of developing the schemes to a point where two SPVs can take responsibility for the proposed schemes. Costs to the council will be limited to officer time.
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LEGAL IMPLICATIONS: Supplied by Tony Hudson
It is most important to establish the extent of the Council’s land ownership and any restrictions affecting it as soon as possible to ensure that the two schemes can proceed.
(Land ownership has been established but would be confirmed during negotiations with Urban Vision)
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FINANCIAL IMPLICATIONS: Supplied by Joanne Hardman ext 3156
There should be minimal cost associated with this proposal given that H2ope will be responsible for the development of the sites however there may be a small risk of costs falling on the council for the decommissioning of the schemes if the scheme is abandoned. In order to mitigate this risk, a clause should be included within the lease agreement which clearly sets out the tenant’s responsibility for reinstating the site and giving the landlord a right of possession over works on site if the lease is terminated. The key question around finance is the opportunity cost of granting exclusivity to H2ope. Officers should be satisfied that any proposed agreement with H2ope achieves the best outcome for the Council in terms of financial benefit from the lease of land. As part of this agreement, H2ope have made a commitment to pay 6% of gross profit to the local community which it estimates to be £250,000 over a 40 year period – an average of £6,250. Whilst this is not a significant amount it could be taken into account in determining whether any proposed agreement is achieving best value for the Council.
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OTHER DIRECTORATES CONSULTED:
Urban Vision – Estates
We need the approval from Lead Member Property to entering into negotiation/period of exclusivity with H2ope. The terms of the lease/agreement can be dealt with through delegated authority and the drafting of any agreement is a natural progression to the agreement of Heads of Terms and doesn’t need specific approval - authority for the completion of legal agreements will form part of the approval of agreed Heads of Terms.
Procurement
Advocate a ‘market test’ approach to ensure VFM is being achieved through this process.
(This will be approached in the in accordance with normal procedures for simple land transactions)
The Development Team – Office of the Chief Executive
The proposal for hydro generation at Adelphi Weir would be entirely consistent with the long term vision for the Meadows and the aims of the IrwellRiverPark programme.
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WARD(S) TO WHICH REPORT RELATE(S):
Irwell Riverside and Broughton
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Annex
Examples of schemes developed recently
New Mills
Bainbridge
P:\Climate Change\Hydro\hydrodecisionpaperformayors.doc