Report of the Deputy Chief Executive and City Treasurer attached

The Executive considered a report of the Deputy Chief Executive and City Treasurer, which provided an overview of the operation and delivery of heat and power Manchester Energy Network since trading commenced in July 2021.  The report also outlined priorities for the Network for the 2024/25 financial year, with a business plan for the next 12 months being brought forward for approval.

The Executive Member for Environment and Transport advised that the Manchester Energy Network, formally known as Civic Quarter Heat Network, had been developed to provide heat and power to buildings within the Civic Quarter using a highly efficient Combined Heat and Power (CHP) engine.  A key objective of the Network was to assist with the decarbonisation of assets within the Civic Quarter which were difficult to address through other means due to the historic nature of the buildings and/or the restrictions around development/alterations to buildings.  At present, the CHP was fuelled by natural gas but there was ongoing work to put in place a decarbonisation strategy for the Network.

In 2018 a Special Purpose Vehicle (SPV) was established to operate the Network.  The Network was wholly owned by the Council, with a blend of equity and debt funding provided by MCC to be repaid over a 30-year term. In addition to the initial MCC funding, a grant was also received via the government administered Heat Network Investment Project (HNIP) in 2018.  The business model for the Network was structured in a way to provide heat and power to customers whilst ensuring sufficient revenue was generated to operate the company, as well as repaying the principal debt and interest to the Council.

The Deputy Chief Executive and City Treasurer advised that the Network commenced trading to customers in 2021. Since this time, the fortunes of the Network had been mixed given the recent turmoil in the international energy markets, coupled with the delay of the connection of the Town Hall, which was set to be a significant off taker and was a key element of the overall commercial case for the Network. 

Since trading commenced, the Network had been reporting annual deficits and significant work had been undertaken to stabilise the business following this period of volatility, with the 2024/25 business plan acting as a strong foundation for the Network to operate from.  A further £1.7m had been made available, following approval by the Executive in February 2024, to the SPV to draw upon, if required.  An element of the funds would be utilised to assist with company cashflow.

It was to be noted that this additional finance would be recovered through an extension to the loan currently provided by the Council to the SPV.  In order to set a prudent budget for 2024/25, there had been a line by line budgetary analysis undertaken on all income and expenditure of the SPV to present a comprehensive picture of the costs of the business.

It was reported that there was a strong governance and accountability framework in place for the SPV to operate to.  An overarching SPV Board met on a six weekly basis, which had four Non-Executive Directors appointed to it in order to provide specialist industry insight and ensure that the Network was taking sound business decisions in relation to operational processes and business policies.

The Deputy Chief Executive and City Treasure clarified that despite the reported trading position of the entity, the SPV remained a Going Concern. The SPV had been through a thorough review processes to ensure that improvements had been made to further strengthen a number of aspects of operation and advice from subject matter expert external advisors had been taken on board to ensure that recognised industry practice adopted and balanced business decisions ware taken. In addition, once the Town Hall was connected to the Network, then the Network would begin to deliver the anticipated outcomes from the original business case, fulling the Shareholders expectation of the SPV’s trading outputs.

Decision

The Executive note the report.