Report of the Deputy Chief Executive and City Treasurer.

This report provides an overview of the operation and delivery of heat and power Manchester Energy Network since trading commenced in July 2021. The report also outlines priorities for the Network for the 2024/25 financial year, with a business plan for the next 12 months being brought forward under an accompanying Part B report.

The committee considered a report of the Deputy Chief Executive and City Treasurer which provided an overview of the operation and delivery of the heat and power Manchester Energy Network since trading commenced in July 2021.   

Key points and themes within the report included: 

·       Providing an introduction and background to the Manchester Energy Network, which began trading in July 2021; 

·       The Network’s current financial and trading position;  

·       How the Network was contributing to the Council’s decarbonisation works;  

·       The policy context for heat networks; 

·       Governance and accountability; 

·       Priorities for the Network for the 2024/25 financial year; and 

·       The business plan for 2024/25, which was presented in a part B report.  

Some of the key points and queries that arose from the committee’s discussion included: 

·       Noting that Renewable Gas Guarantees of Origin (RGGOs) were not currently recognised as contributors to the science-based carbon accounting that the Council followed, and querying why this was not flagged during the discovery phase;  

·       Why business plans had not been in place between 2022/23 and 2023/24; 

·       The specific work undertaken to decarbonise the energy network; 

·       What progress had been made to resolve challenges related to decarbonisation of the Town Hall and how the impact of this on network operations was being minimised;  

·       The importance of securing commercial customers;  

·       How the Network could be competitively priced and fulfil its financial obligations in the current context of high gas and energy prices;  

·       If there was any risk of current providers moving elsewhere; and 

·       The square footage of the Network.  

Introducing the item, the Head of Commercial Governance explained that this was the first time that the committee had received a standalone report on the Manchester Energy Network and gave a presentation.  

In response to a query regarding RGGOs, the Head of Commercial Governance explained that she clarified the carbon accounting methodologies when she took responsibility for the project in summer 2023 to ensure these were appropriate in achieving the Council’s decarbonisation targets by 2038. She stated that the Network had previously sought some advice, but this was not from the Tyndall Centre, which verified the Council’s carbon accounting and targets. She explained that this was later undertaken, and the Tyndall Centre had advised that RGGOs could not qualify for the use of carbon accounting. As a result, the Network exited the RGGO arrangement and a decarbonisation working group was established to ensure a clear pathway for decarbonising the Network. She stated that at the time when the Heat Network was put forward for Council approval, an RGGO was seen as the right decision. She explained that the electricity grid had since decarbonised quicker than anticipated and there were hopes at the time of approval that regulations and policy context around RGGOs would change in the time between the approval of the Network and it going live.  

The Head of Commercial Governance also explained that there were a number of projections and forecasts prepared for the Special Purpose Vehicle (SPV) Board to develop business plans for 2022/23 and 2023/24 but this did not lead to the establishment of a formal business plan. She explained that there had been a significant reset to ensure that the appropriate policies, processes and procedures had been established and work was ongoing to strengthen the business operations and oversight of the Network.  

The Deputy Chief Executive and City Treasurer thanked the Head of Commercial Governance for her work on this and stated that there was a long lead-in time to develop a business plan. She advised that financial reporting had been undertaken in 2022/23 and 2023/24 and that there remained a clean way of providing heat through the Network as the RGGO issue only related to power.  

With regards to the work undertaken to decarbonise the energy network, the committee was informed that a decarbonisation working group had been established and work had commenced to develop a Decarbonisation Strategy for the Network, with the initial work on this due to complete in summer. Further information on this would be provided in an update report to the committee later in the year.  

The Head of Commercial Governance explained that the original intention for the Town Hall absorption chillers to absorb the off-take from the energy network but technical issues meant that this could not be facilitated. She advised that a number of settings had been adjusted to act as a ‘soft solution’ until a thermal plate could be installed on 1 April. This was scheduled for this date to minimise disruption to the heating supply to the Town Hall Extension during the winter months. She advised that this ‘soft solution’ had been successful but acknowledged more work was needed in the upcoming months.  

The committee was informed that there had been initial discussions about connecting the Network to a wider base of commercial customers, but the focus needed to be on getting the decarbonisation offer right to further engage with commercial customers. The Head of Commercial Governance recognised the opportunity to connect the Network to other buildings with the current infrastructure and a tool was currently being established to ensure that the optimum connections were made to the Network whilst considering capacity.  

The Head of Commercial Governance stated that there had been a complete overhaul of the Network’s pricing structure for 2024/25 and there were clear comparators and benchmarks against industry. She confirmed that the Council did not cover the costs of the energy supplied through the Network and there had been active dialogue with customers about the pricing structure. She explained that there was a standardised offtake agreement within contracts and that contracts were reviewed annually. It was also acknowledged that there was a risk of providers moving elsewhere as a result of pricing, but specific arrangements were in pace that could be explained under the Part B item.  

The committee was informed that the Network spanned 2km from Heron House to the Art Gallery, which allowed for a number of potential external, commercial customers to be connected.  

Decision: 

That the report be noted.