DD1429 ELENA Decentralised Energy Programme Contract Extension

Type of decision: 
Director's decision
Code: 
DD1429
Date signed: 
05 November 2015
Decision by: 
Fiona Fletcher-Smith, Executive Director of Development, Enterprise and Environment

Executive summary

In July 2015 the ELENA funding agreement between the GLA and the European Investment Bank’s (EIB) for the provision of specialist advice to emerging Decentralised Energy (DE) projects came to an end, with the Ove Arup’s Decentralised Energy Programme Delivery Unit (DEPDU) having delivered an Investment Programme of £101.2m, exceeding the investment target set by the EIB by 67%.The three-year programme started in 2011 and was later extended for a twelve-month period, until 31st July 2015, in order to meet its obligation under its grant from ELENA. At the end of the ELENA programme, a number of emerging DE projects have not yet reached their delivery phase.

The original intention was to continue to support these projects via Energy for London (EfL), a GLA programme grant funded using ERDF. However, the ERDF tender issue for grant funding application was delayed, causing the start of the EfL programme to slip to early 2016. Following on that, in June 2015, the extension of the contract between GLA and Ove Arup was extended until 31st December 2015, in order to ensure continuity of support to those emerging DE projects. At the time this extension was sought, it was not clear when the EfL project would have commenced. In September 2015 the Mayor, under cover of MD1542, approved a bid for grant funding from the ERDF to run EfL from February 2016.

This decision requests approval to further extend contract with Ove Arup’s DEPDU from 31st December 2015 until 31st March 2016, and related expenditure of £85,000, to continue to provide technical assistance to those projects that have yet to reach their delivery phase and require public sector support.

This decision replicates DD1292 (approval to extend and increase ELENA DEPDU Contract until July 2015) and is linked to MD824 (approval to enter into contract with the EIB in order to receive the two grant awards), MD678 (approval to submit two grant applications - DEPDU and RE:FIT - to the EIB), DD604 (approval to enter into contract with Ove Arup to provide the DEPDU‘s services), MD1503 (approval for the GLA Environment Team’s 2015/16 work programme and associated expenditure) and MD1542 (approval to bid for grant funding from the ERDF to run EfL).

Decision

That the Executive Director approves:
•    expenditure of £85,000 from the Energy for London (EfL) project budget for the extension of the GLA's existing contract with Ove Arup's DEPDU until 31st March 2016; and
•    a related exemption from the requirement of the GLA's Contracts and Funding Code to seek three or more quotations for or call off the services from a framework.

 

Part 1: Non-confidential facts and advice

Introduction and background

With €2.9m funding support from the European Investment Bank’s European (EIB) Local ENergy Assistance facility (ELENA), in November 2011 the GLA appointed a team of technical, commercial and financial specialists to help others develop and bring to market Decentralised Energy (DE) projects. 

This project was transferred from LDA to GLA following approval recorded under DD544 on 1st July 2011 and was aimed at bringing to market DE projects for a total investment value of over £60.5m. 

The GLA had its contract with the EIB extended until 31st July 2015 in order to meet its obligation under its grant from ELENA.

By the contract end date of 31st July 2015, the ELENA funded programme has delivered an Investment Programme of £101.2m, exceeding the investment target by 67%. 

The Mayor, under cover of MD678 approved a GLA bid to the European Investment Bank’s ELENA fund for €5.79 million (£4.8m). The bid supports delivery of the RE:FIT and DEPDU programmes as set out in the MD. On 3rd August 2011 the GLA entered into a three-year funding agreement with the EIB.

Following a competitive tender process, the Executive Director of Development, Enterprise and Environment , under cover of DD604 dated 26th October 2011, approved the GLA’s entry into a three-year contract with Ove Arup for a value of £2,689,578 for the provision of technical, commercial and financial advice in order to assist the GLA further its decentralised energy development activities.

On 24th July 2014 the EIB extended the funding agreement for further twelve-months to allow projects time to meet the requirements of that agreement.

As a consequence, the GLA extended its contract with Ove Arup until the 31st July 2015 and, with that regard, a Single Source Justification was signed by TfL Procurement in October 2014. 

The contract extension between GLA and Ove Arup was approved on 21st November 2014 under cover of DD1292 and it was accompanied by an increase of its value by £69,000, from £2,689,578 to £2,758,578, to ensure the GLA has the necessary support services available until the end of the EIB ELENA funding agreement.

The above increase was fully funded by the GLA from the Energy for London (EfL) budget in FY 2014/15. 

In June 2015, TfL procurement approved a further extension of the contract between GLA and Ove Arup until 31st December 2015. This extension was sought in order to continue to support those DE projects which have not yet reached their delivery phase and it was not accompanied by any increase of the contract value but involved a re-profiling of the cash-flow forecast beyond the original end date of 31st July 2015. At the time this extension was sought, it was not clear when the EfL project would have commenced.

Energy for London (EfL), a 3.5 years/£3.5m programme that will provide public sector intervention to help other realise larger-scale DE projects, was designed to succeed the DEPDU programme. 

EfL will be 50% grant funded by the European Regional Development Fund (ERDF), with the remaining 50% funded by the GLA. The GLA contribution of £1.75m is subject to a successful application to the ERDF for grant funding. The application process is currently underway and will be completed in early 2016.

On 20th May 2015, MD1503 approved a budget for EfL of £100,000 for the Financial Year 2015/16.

The original intention was to continue to support these projects via Energy for London (EfL), a GLA programme grant funded by the ERDF. However, the ERDF tender issue for grant funding application was delayed, causing the start of the EfL programme to slip to early 2016. 

The original intention was for EfL to come into operation following the completion of the EIB ELENA funding agreement. However, the ERDF tender issue for grant funding application was delayed, causing the start of the EfL programme to slip to early 2016, as approved by The Mayor under cover of MD1542 dated 24th September 2015.

Following on that, the GLA wishes to continue to provide technical assistance via Ove Arup to those DE projects that have yet to reach their delivery phase and require public sector support. In order to ensure continuity of DEPDU service provision, it is proposed that the GLA further extend its contract with Ove Arup until 31st March 2016 by when it is anticipated that the EfL programme becomes operational (maximum value £85,000). 

Section 4.1 of the GLA’s Contracts and Funding Code (“Code”) requires, where the expected value of a contract for services is between £10,000 and £150,000, an advertised tender exercise to be conducted or such services to be called off from an accessible framework. Section 5 provides however, that an exemption from this requirement maybe approved where a provider has had previous involvement in a specific current project or continuation of existing work which cannot be separated from the new project/work. 

Here:  
•    Ove Arup have provided the services since their appointment on 13th November 2011 following a competitive tender process for the provision of technical, commercial and financial advice in order to assist the GLA further its DE development activities;
•    the GLA’s agreement with the EIB required the GLA to achieve a leverage factor of at least 25 which is the ratio between the total investment costs in DE projects and the total cost of the project development service provided by the ELENA Facility. The equivalent investment target was £60.5m;
•    the GLA and Ove Arup have developed together strong internal processes and methods to rank, cost, implement and monitor all supported projects in order to prioritise those that have the highest likelihood of deliverability and therefore minimise the risk of the GLA not meeting its contractual obligation with the EIB;
•    to date, Ove Arup have been efficiently delivering the GLA’s DE programme, bringing to market £101.2m worth of projects, exceeding the investment target by 67%; and
•    from the contract end date of 31st December 2015 to the expected start date of the Energy for London (EfL) Programme (early 2016), the following eight DE projects with a cumulative value of over £55m continue to require DEPDU support to advance their stage of delivery:

Project

Estimated CAPEX

Ove Arup’s DEPDU current task

Investment category

Ladderswood

£1,430,000

Review of the Adoption agreement between LVHN Ltd and Enfield following issue of OJEU notice

Near to market

Metropolitan Clapham Park Homes

£9,300,000

Feasibility study to determine viability of heat network in the Clapham Park regeneration area

Near to market

Sutton Hackbridge

£5,600,000

Technical advice around the Sutton Decentralised Energy Network and its interconnection with sources of waste energy in the vicinity

Near to market

Richmond Kew Gardens

£2,750,000

Pre Tender Estimate for a heat network within Kew Gardens

Strong prospect

Lighthouse Heat Pump

n/a

Heat network preliminary design between Greenwich Power Station and surrounding buildings

Strong prospect

Silvertown Tunnel

n/a

Appraisal of heat network routing associated to a new road tunnel to link the Greenwich peninsula to the Silvertown area

Strong prospect

Croydon

£4,100,000

Energy Demand Assessment of Croydon Town Centre

Strong prospect

Old Oak Common

£32,500,000

Pre-feasibility study to determine heat network options in the Old Oak Common regeneration area

Strong prospect

TOTAL

£55,680,000

-

-

 

This submission includes a Single Source Justification which seeks to extend the GLA’s existing contract with Ove Arup for the provision of technical, commercial and financial advice in order to assist the GLA’s decentralised energy development activities:
•    from its original end date 31st December 2015 to a revised end date 31st March 2016, and 
•    from its current value of £2,758,578 to a revised new value of £2,843,578  (equivalent to an increase of £85,000).
Therefore, the director’s approval of an exemption from section 4.1 of the Code is sought. 

 

Objectives and expected outcomes

The current contract with Ove Arup’s DEPDU expires on 31st December 2015 with a remaining budget of approximately £20k that is allocated existing projects whose programmes have slipped beyond the EIB agreement end date of 31st July 2015. Support to projects from DEPDU and related development cash flow from the GLA is currently projected out to the above date.

The GLA now wishes to further extend its contract with Ove Arup DEPDU until 31st March 2016, and related expenditure of up to £85,000, to ensure continuity of specialist advice to the above listed 8 DE projects - three of which near to market - which would otherwise remain unsupported until the EfL programme becomes operational. 

It’s been estimated that to ensure continuity of support from Ove Arup’s DEPDU until 31st March 2016, £85,000 out of the £100,000 approved for EfL under cover of MD1503 for the Financial Year 2015/16 would need to be vired from the EfL project budget to ELENA DEPDU project budget. The remaining £15,000 would be the TfL Procurement fee for managing the EfL consultancy framework procurement. 

Equality comments

Decentralised energy is included in the Mayor’s framework for Equal Life Chances (June 2014)   under Environment Objective 1.2. 

The extension of the contract with Ove Arup and the vired budget will allow more decentralised energy projects come to market for delivery and will contribute towards the objective to ensure that those groups, such as older people, young families, and those and that are vulnerable, are better able to afford domestic energy and the outcome of Increased numbers of disadvantaged or vulnerable Londoners paying less for their energy. 

Other considerations

4.1    Links to strategies and Strategic Plan 

The Climate Change Mitigation and Energy Strategy is a Strategic Plan focused on meeting the Mayor’s objectives for London. The Mayor is legally required to produce this Strategy. The DE programme is one of the major programmes supporting delivery of the Mayor’s energy strategy. The Strategic Plan Delivery Form reference numbers that relate to this proposal are: 46SP10/11 (Climate Change Mitigation and Energy Strategy) and 39SP10/11 (LDA Climate Change Programmes).

4.2    Impact assessments and Consultation

The programmes have been consulted on as part of the public consultation of the Climate Change Mitigation and Energy Strategy in October 2010. 

4.3     Risk

The GLA has delivered an Investment Programme of £101.2m, exceeding the investment target set by the EIB by 67%. However, the EIB has yet to approve the GLA final claim on those projects supported and delivered from September 2014. In the unlikely event such claim will be rejected by the EIB, the GLA will be at risk of being unable to review its final claim submission as well as to provide any additional support that projects would need in order to become acceptable to the EIB, with the consequent risk for the GLA to having to repay in part or full the ELENA funding to the EIB.

In addition, the pipeline of DE projects that have yet to reach their delivery phase contains eight projects with a cumulative value of over £55m which are either near to market or strong prospects. Without the continuous DEPDU service provision until 31st March 2016, the GLA will be unable to continue to support the above emerging projects and therefore lose momentum for their development and delivery. This would have a potential long term detrimental effect on the implementation and final outcomes from the projects, which would also lead to a reputational risk for the GLA. 

Financial comments

5.1    The proposed contract extension with Arup’s DEPDU until 31st March 2016 totals £85,000 and will be funded from the Energy for London (EfL) project budget (approved via MD1503). The proposed contract extension of £85,000 will increase the total cost of the contract to £2,843,578.

Planned delivery approach and next steps

Activity

Timeline

Extension of contract [for externally delivered projects]*

Anytime before 31st December 2015

Announcement [if applicable]

n/a

Delivery Start Date [for project proposals]**

1st January 2016

Final evaluation start and finish (self):***

31st March 2016 – 31th May 2015

Delivery End Date [for project proposals]****

31st March 2016

Project Closure: [for project proposals]

31st March 2016

 

*GLA and TfL Procurement approve extension and increase of the current contract with Ove Arup until 31st March 2016

**Start date of extended contract with Ove Arup

***31st March 2016 end of extended contract with Ove Arup – beginning of self-evaluation, which can take an estimated 2 months

****31st March 2016 end of extended contract with Ove Arup