CARL SHILTON, our Sutton investigations editor, discovers that the council’s troubled heating network scheme has suffered a massive blow – from St Helier Hospital
Council leader Ruth Dombey’s plans for a lucrative “Phase 2” of the Sutton Decentralised Energy Network (SDEN) have taken a beating after St Helier Hospital opted to replace its creaking old boilers with a modern, efficient heating system, rather than buy-in to the overpriced council-backed system.
After receiving planning permission in September 2018, the Epsom and St Helier University Hospitals NHS Trust has begun the replacement of its 1930s boilers that deliver heating, hot water and power to the St Helier site, in a £21.6million upgrade.
While good news for the patients and staff at St Helier, and for the environment (the new heating system is reckoned to provide a 3,000-ton saving in CO2 emissions), the move further undermines the troubled and costly SDEN, which is supposed to offer heating through water heated by the Viridor incinerator at Beddington Lane.
Dombey’s LibDem-run council knew about St Helier’s planning application last June but continued to claim that negotiations were “ongoing” with the Trust management.
They even tried to say that SDEN could run alongside the hospital’s power system.
The council has been depending on St Helier buying in to the SDEN scheme since 2012, when Viridor commissioned a report by consultants Fichtner for Sutton’s planning committee, which suggested that the hospital had a “strong interest” in being part of the heat network, and that a £6million business could be build around the incinerator…
Until very recently, the one and only commercial organisation to have signed up to SDEN is Barratts, for what they call their New Mill Quarter housing development on the former Felnex site at Hackbridge.
But having sold a pup to Barratt’s unsuspecting house-buyers, Sutton is finding it tougher to mug-off other potential SDEN customers, such as St Helier.
On June 27 last year there was a meeting of the Sutton Shareholding Board, which oversees SDEN on behalf of Sutton Council. There, Councillor Tim Crowley, the leader of the Tory opposition, asked whether the planning application for its new power system by St Helier would have an impact for Phase 2 of SDEN.
Amanda Cherrington, the council-appointed managing director of SDEN, gave a somewhat equivocal answer. She admitted that St Helier was the hoped-for anchor heat load for Phase 2.
Cherrington explained that the Greater London Authority had provided public cash to fund feasibility work investigating the possibility and routes of pipeline extensions to St Helier from the Felnex boundary, through its Decentralised Energy Enabling Project (DEEP).
Finally, she stated that SDEN was looking at how the Sutton heat network could “overlap” with St Helier’s system, despite the fact that St Helier’s system is steam-based, and SDEN only delivers hot water.
The irony is that the GLA is helping to fund the new energy centre at St Helier, with £21.6million from the Mayor of London’s Energy Efficiency Fund (MEEP), which focuses on energy efficiency, decentralised energy and renewables.
Sutton had estimated that it could sell more than 12GWh of energy to the hospital.
Given that the 800-unit Felnex development is expected to take just one-third of that amount (4.3GWh), losing St Helier as a customer blows a huge hole in Sutton Council’s business plan for the expansion of the network.
“The pipeline from the incinerator is now a white elephant,” one Sutton Council source said. “For all intents and purposes it will never be used.”
‘On the limit of what is acceptable’
Meanwhile, Sutton Council continues to defend the ridiculously high-priced hot water and heating it supplies to home-owners in the New Mill Quarter.
Secret internal council reports, seen by Inside Sutton, describe the charges to residents as “on the limit of what is acceptable”, an acknowledgment that the “cheap” energy generated from the incinerator was a bit of a fib.
For the foreseeable future, the New Mill Quarter residents will not be receiving their heating from the Viridor incinerator or its gas engines, but from three boilers being installed near the site, to be powered with gas from a traditional 36-inch gas main that is being laid into the estate from the public network.
This will be heating homes at 4p per kWh, but residents will still be charged around 14p per kWh by SDEN until the Viridor energy is online.
Residents of New Mill Quarter have no choice who supplies their energy.
The high costs of heating from SDEN are likely to force some residents into fuel poverty, which could create a “bad debt” problem and affect SDEN’s viability.
At a St Helier, The Wrythe and Wandle Valley local committee meeting in March 2018, a resident asked what SDEN intended to do about the potential for fuel poverty. A promise was made that SDEN was finalising a “vulnerable person policy” which would be published on the SDEN website, and which would address concerns of fuel poverty.
Some 13 months later, that policy has still not been published.
Meanwhile, “Calamity” Jayne McCoy, the LibDem councillor who chairs of Sutton’s Housing, Economy and Business Committee, is now insisting that SDEN was never intended to fight fuel poverty.
Yet Inside Sutton has obtained a copy of the original business plan for SDEN. Its opening lines state: “Fuel Poverty and Energy Security are two of the most serious issues facing local residents. The London Borough of Sutton has ambitions to help residents cope with these pressures and intends to deliver a decentralised energy network within the borough… The council is seeking to invest in this network to address fuel poverty and energy security in Sutton.”
These objectives have quietly been adjusted over the years as the council has been forced to accept that it could never keep its promise of providing “cheap” energy.
In its supposedly secret business plans, Sutton Council has always claimed that the cream for the financially challenged SDEN will come with the Stage 2 expansion of the heat network.
Indeed this seems to be the case, as a relatively small expansion of the network, recently agreed with Clarion Housing to the Lavenders development in Carshalton, will see a much higher rate of return for the council.
SDEN’s supply to this 460-home estate will make the council more money and a higher rate of return (£1.84million at 11.76 per cent Internal Rate of Return) by supplying just 1.6GWh, than the whole of the Phase 1 programme at Felnex (originally stated at £1.54million at 9.04 per cent IRR, but revised to £1.64million at 9.09 per cent).
These projections raise a key anomaly in the financial model to which SDEN is working. Over the 25-year period of Phase 1, SDEN will make, on average, £81 per household per year for the New Mill Quarter homes. At Lavenders, the average profit per property per year over 25 years will be £160.
This compares very unfavourably with the big suppliers like British Gas, whose 2016 profit margin per customer was stated at around £52.
Apart from its continuing issues with its reputation, SDEN has one major risk in its business: it is on the borderline of being competitive over the full life cycle cost of heat supplies which, by its own business model is limited to 25 years.
If SDEN cannot offer competitive prices to larger customers like St Helier Hospital (whose old boilers lasted 85 years), and needs to rely on cosy deals on mid-sized housing developments within the borough, then its prospects look somewhat undercooked.
This is why the failure to convince St Helier Hospital to adopt SDEN will have such an adverse affect on SDEN’s finances.
Its oft-stated aim to reduce fuel poverty in the long-term has been little more than a cover for its true objective of creaming in as much money as possible from a captive market paying well over the odds for supposedly “green” energy.
Now, though, it looks as if the Epsom and St Helier Trust have seen through Sutton’s shabby charade.
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