Caithness Heat and Power - Council Letter

31st March 2011

In response to recent press items and letters Steve Barron, Director of Housing and Property for Highland Council has issued the following letter.

Dear Sir

Council Reassurance on Caithness Heat and Power

Further to the article in the 25th March edition of the Journal I write to reassure your readers that Highland Council is confident that the Caithness Heat and Power (CHaP) project can be successfully transferred to Ignis, such that loyal customers can continue to enjoy the benefits of low cost heat and hot water.

Since it became sole owner of CHaP in August 2008, the Council has worked hard to find a long term solution to the problems which have beset the project while continuing to run the district heating system on temporary oil boilers. Once it became clear that the technology problems associated with the original design could not be overcome, the Council committed to a major Procurement exercise in which we have sought a private sector partner to invest in and take over the project. The Council's principal objective in this is to ensure that existing customers can continue to receive an affordable supply.

Evaluation of the Procurement responses led to the Council inviting a shortlist of 6 bidders to submit their proposed solutions first in outline, then in detail. As these solutions were considered, the field of bidders was narrowed down to 2 and the Council received final tenders from both of these companies. Ignis were appointed as the Council's preferred bidder in November 2010 and have been working since that time to a timetable which aims to achieve financial close at or around the end of April 2011.

Your article sets out some concerns about Ignis's credentials to take over CHaP and deliver its obligations to customers. It is important that I reassure customers and the wider public in Wick that the Council is confident that Ignis can deliver and that no deal will be signed until Ignis demonstrate that they have all the technical, contractual and financial components in place to do so. Ignis is a relatively new company formed specifically to operate in the renewable energy market. The CHaP project will be their first operational plant but as part of the Procurement process the Council has satisfied itself that the Ignis directors, Craig Ibbetson and John Chappell have the knowledge and previous experience required for this venture. Ignis is working with large established companies who are the leaders in their field, they are supported by Ludgate Environmental Fund and they will secure around £17m of funding from one of several banks with whom they are currently negotiating.

The Council is confident that all of these components will be in place by the end of April and we will conduct due diligence checks to assure ourselves that this is the case before closing the deal. There is a lot of work to do yet and this includes asking existing customers to commit to an Ignis contract on the assumption that the transfer goes as planned. Following discussions with customers, Ignis are writing to confirm that the deadline date for signing the new customer contracts has been extended to 15th April.

I believe that customers understand that the alternative to this transfer is the closure of the district heating system. This is not the Council's preferred solution, but if it is the outcome, the Council will work with tenants and private customers to ensure that the options for reinstating independent heating systems are explained and implemented before the network is closed down. I hope that customers are clear that the Ignis offer is an attractive one and will be at significantly lower cost than the alternatives, particularly for those who have been good payers under the existing scheme.

I take this opportunity to thank those who have supported this initiative to date.

Yours faithfully

Steve Barron
Director of Housing and Property
The Highland Council