A “jaw-dropping” report into the way Sutton Council set up an energy network has concluded it won’t be financially sound for more than 10 years.
The Sutton Decentralised Energy Network (SDEN) was set up in 2016 and provides hot water and heating to homes in the New Mill Quarter development in Hackbridge.
The company is wholly owned by Sutton Council and was started with £4.5 million from the authority’s own pocket.
But residents have experienced a series of network failures which left hundreds without heating and hot water.
On Monday (October 25) an independent review from the Chartered Institute of Public Finance and Accountancy (CIPFA) was published.
The organisation reviewed documents and heard evidence from more than 20 councillors and council staff. It found that SDEN will not be financially sustainable until 2033-34 without further cash from Sutton Council.
The report goes on to say that the financial viability of the project relied on funding from the government which the council cannot get.
It shows that under this assumption the network would have had positive cash flow of £720,000, but without the government cash it drops by more than £1 million to a loss of £608,000.
Without this, Sutton Council will have to put in more money or start charging more for energy. Either way, local taxpayers will likely bear the financial burden of keeping the company going.
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One of the options suggested by CIPFA is to increase energy bills by an extra 11 per cent in 2023, and again in 2024 to compensate for earlier price reductions.
It also shows that Sutton Council includes 80 extra properties in its business plan for SDEN. This was based on a planning application that was expected to come forward but never did.
Removing these homes from the estimations, takes out another £830,000 from the cash flow.
The report concludes that by January next year, Sutton Council should develop a new financial model for phase one of the project.
Sutton councillor and Tory London Assembly member, Neil Garratt, expressed his shock at the findings.
He tweeted: “It is gob smacking. Jaw-dropping statements on nearly every page. And since it’s now public let me say this – I feel that I have been systematically lied to, year after year. I am furious and you should be, too.
“How about this – SDEN finances include huge sums of Renewable Heat Incentive grant money. Removing RHI changes the cash flow from positive £720k to a loss of £608k. It’s unviable. But SDEN was never eligible for RHI and this was known from the start, it was a lie.”
In a statement, Sutton Council leader Ruth Dombey said the review focused on the council’s decision to invest in SDEN and the ongoing financial sustainability of the company.
She said: “The report found no evidence of fraud or conflicts of interest. Nonetheless, the processes on which the project was approved and the governance were not to the standard they should have been.
“We welcome the findings and recommendations of the report, many of which the council had already started to put in place, including strengthening SDEN’s board and taking steps to ensure the company’s long term viability. We are also strengthening our scrutiny and governance processes, especially in respect of major capital projects.”
The findings of the review are set to be discussed by Sutton Council’s strategy and resources committee on November 1.