Thursday 23 May 2024
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Nottingham

Taxpayers to foot bill as another city council energy company faces problems

The council will have to pay at least £17.5m to prop up the services of its EnviroEnergy company that provides power to 5,000 city homes.

Nottingham taxpayers face a bill of millions of pounds to bail out the services provided by another ailing city council-owned energy company.

Less than 12 months ago, the council’s Robin Hood Energy company collapsed leaving city taxpayers with anticipated losses of more than £38m.

Now the council is planning to liquidate EnviroEnergy – which it has owned since 2001 – and take the running of the firm’s services in-house.

During the last two decades, EnviroEnergy – which has 32 staff and is based on London Road – has been given a number of loans by Nottingham City Council.

Its most recent accounts show more than £11m of these loans remain unpaid. All the company’s outstanding debt will be taken over by the council when Enviroenergy is liquidated.

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If the company closed today, it wouldn’t have enough money in the bank to pay off its creditors and would leave £4.6m of liabilities to be picked up by local taxpayers.

EnviroEnergy provides heating and hot water to around 5,000 homes in St Ann’s and 70 commercial businesses, including the council-owned Motorpoint Arena and Royal Centre.

But its ageing network needs urgent upgrades, which EnviroEnergy cannot afford.

Nottingham City Council says it has no option other than to liquidate EnviroEnergy and take over the company’s heating services.

It estimates the cost of the network upgrade to local taxpayers will be at least £17.5m.

The council says EnviroEnergy saves the city “approximately £5m annually” because it removes the need for Nottingham to send waste to landfill sites.

The council pays to have its non-recyclable waste burnt at Eastcroft incinerator, on London Road.

Power generated by the incinerator’s steam is then sold on to customers in St Ann’s, by EnviroEnergy.

Cllr Michael Edwards (Lab), who sits on the three-person board of EnviroEnergy, said that  no-one else would buy the company because it doesn’t have the capacity to expand its customer base.

The Eastcroft incinerator isn’t big enough to generate any more power – and the council says other incinerators are too far away from Nottingham to be viable.

Cllr Edwards said: “You’re limited as to how many customers you have by how much steam comes out of the incinerator.

“The lines have a capacity and we reached that capacity a long time ago. We are at our limit – we’re turning people away.

“EnviroEnergy works as a company and it does what it needs to do. But it is not attractive to outside operators.

“It saves the council on landfill fees – it’s cheaper to bury ash than waste, by some margin. We make money by saving on landfill.”

The council says it needs to spend £17.5m to ensure it can continue to provide services to EnviroEnergy’s 5,000 existing customers.

The money will be used to upgrade the heating network – including boilers, meters, pipes and pumps – and the customer billing systems, between 2022 and 2026.

Cllr Edwards said the council would need to borrow the money – despite the local authority already having nearly £1bn of debt.

He added: “The council has to take on that burden… because it was a council company.”

The council took over the EnviroEnergy company in 2001. The company’s website says it is “one of the United Kingdom’s longest-established district heating schemes.”

The council says EnviroEnergy has been “profitable since 2013, with the exception of 2017”.

However, EnviroEnergy’s company accounts show these profits do not cover its long-term liabilities.

If it closed today, Nottingham’s long-suffering taxpayers would have to pick up the tab for up to £4.6m of liabilities, depending on how much of the more than £3.2m of assets – including old pipes and machinery – it was able to sell on.

This figure would be even greater if the £3m the company is currently owed by debtors was also not collected.

The city council intends to liquidate the company in January 2022 and take over the entire enterprise at an estimated further cost of £500,000 to city taxpayers.

Papers from the June meeting of the council’s Executive Board state the heating infrastructure was originally built in 1972 and “requires further investment to protect the supply of heating and electricity to customers.”

Councillor Andrew Rule (Con), leader of the council’s opposition Conservative Group, said: “EnviroEnergy is not sustainable as a company.

“It creates a hole in the council balance sheet and does not serve a purpose because of its ongoing losses.

“If it was me, I would never have set it up as a limited company.

“If you are a resident in St Ann’s you are getting district heating by the council. But the benefits of EnviroEnergy outside of St Ann’s are ideological rather than financial.”

Last year the council announced it would spend £460,000 on “urgent structural repairs” at its London Road Heat Station.

At the time it said: “The proposal is for these to be undertaken by the council as landowner and the costs recovered from its tenant, EnviroEnergy.”

Earlier this year, Labour-controlled Nottingham City Council was warned by Government ministers that if it is unable to reduce its debts – running at almost £1bn – inspectors from Whitehall will be called in to run the city.

The council has said it will sell-off council-owned assets, including land and buildings, to help balance its budgets.

A spokesman for the council said closing down the EnviroEnergy heating system was not an option as the complexity of the infrastructure means its 5,000 customers cannot immediately receive energy from other providers.

The spokesman added: “Each property provided with heat and hot water is connected to the district heating network – around 98km of pipes.

“It is a huge central heating system, with each property operating like a radiator with its own thermostat, drawing heat to meet requirements.

“Hot water is delivered to the property before returning at a lower temperature to EnviroEnergy’s heat station and then back to the incinerator to be reheated back to steam for the cycle to repeat itself.

“To replace the system would require each building to be connected to an alternative heat source ie. a gas boiler connected to the national gas grid, or an [electric] heat pump.

“For large parts of the domestic customer base, there is currently no local gas grid because St Ann’s was redeveloped in the 1970s.

“There is no connection between EnviroEnergy and Robin Hood Energy. EnviroEnergy trades as a going-concern and is solvent.”

•  Pictures: A look inside Nottingham’s Eastcroft Incinerator

The council is scheduled to liquidate EnviroEnergy next year.

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