Decision Maker: Cabinet Member for Resources
Decision status: Recommendations Approved
Is Key decision?: Yes
Is subject to call in?: Yes
The Cabinet Member:
1. Approved the amendment of the terms of the Strategic Partnership with Empower Community Management LLP
2. Approved the amendment of the financing agreement with ECS Peterborough 1 LLP
3. Approved the Council entering into such further agreements with ECS Peterborough 1 LLP and any other body necessary to facilitate the arrangements set out in this report.
4. Delegated to the Corporate Director, Resources and Director of Law and Governance the ability to finalise matters 1 to 3 above.
5. Delegated to the Corporate Director, Resources the ability to extend the funding facility which will be included in the financing agreement at 3. above on a monthly basis for up to 6 months based on the methodology for extending the facility set out in this report
In December 2014 the Council entered into a strategic partnership agreement with Empower Community Management LLP to deliver solar panels on residential properties. As part of this arrangement and subsequent additions to the original scheme, the Council invested capital funds totalling £23m which resulted in over 7,700 rooftop installations which have been providing free electricity for the householder The Empower Loan is fully secured over the solar rooftop assets of ECS Peterborough 1 and is returning a commercial rate of return to the Council. This return is contributing towards the Budget position of the Council and helping to support the delivery of services. By continuing to finance the loan the Council is receiving income which is assisting with the alleviation of its Budget pressures.
The Council has received a net return of over £2m in the last four years from this loan and currently receives a net return of over £80k per month
Proposal to Extend the PCC Funding Facility
JULY17/CAB/16 paragraph 4.2.3 provided that: The Council’s funding facility for ESCP1 is contracted to terminate in October 2017 but the Council has the opportunity to extend the facility to March 2019 and thereby continue to receive the interest on the funding of new projects and existing projects which will complete after September 2017, until they too are completed and refinanced.
In October 2017 a Director’s Award report was signed by the Corporate Director, Resources extending the Facility to the end of March 2018 only.
The decision MAR18/CMDN/123 provided in recommendation 5 to delegate to the Corporate Director, Resources the ability to extend the funding facility on a monthly basis for up to 4 months based on the methodology for extending the facility set out in the report
The Corporate Director Resources extended the facility for a further month at the end of March, April, May and June 2018 respectively.
Decision JUL18/CMDN/01 approved the extension of the facility for a further two months to the 30 September 2018
Decision OCT18/CMDN/40 approved the extension of the facility for a further two months to the end of November 2018. During this time the Council continued to receive a commercial rate on the loan and all advisor costs were recharged to Empower.
The decision NOV18/CMDN/57 provided in recommendation 5 to delegate to the Corporate Director, Resources the ability to extend the funding facility on a monthly basis for up to 4 months based on the methodology for extending the facility set out in the report
The Corporate Director Resources extended the facility for a further month at the end of December, January and February 2019 respectively. During this time the Council continued to receive a commercial rate on the loan.
Progress since November 2018
The refinance of the Council’s loan facility was progressing with a major bank to provide the senior debt and junior debt to Empower during October and November 2018. The Council continued to receive a commercial rate on the loan and all advisor costs continued to be recharged to Empower. In November the suitability of this refinance proposal was reviewed in the light of alternative sources of finance available in the long term renewables financing market.
The Council has therefore approached, through its financial advisor Deloitte major refinancing organisations who have an interest in renewable energy and have received seven Expressions of Interest and is actively exploring these proposals in further detail. The organisations approached and proposals the Council are pursuing are detailed in Appendix A. The Council continues to consider all potentially viable financing options including the exercise of its rights under the financing agreement.
A summary of the alternative sources of finance options and providers are detailed in Appendix 1
Proposed Extension of Bridge Loan Facility
It is proposed that the Corporate Director, Resources in consultation with the Corporate Director, Law and Governance will authorise extension of the loan facility on a monthly basis under delegation from this report. This decision will be informed by a weekly progress call with Empower and the Council’s legal and financial advisors to maintain momentum. In respect of each additional month authorised, the Corporate Director, Resources will complete a delegation report in consultation with the Corporate Director, Law and Governance confirming their decision. This decision will also be subject to the following conditions
1. Interest accruing on the existing loan will be paid by ECSP1 on existing commercial terms to the Council, in accordance with an agreed payment plan. Agreement of the payment plan is delegated to the Corporate Director, Resources.
2. Payment of the Council’s advisor fees (to Pinsent Masons’ and Deloittes’ ) by ECSP1 as invoiced, and payable in accordance with the agreed payment plan
3. A weekly progress call with Empower and the Council’s legal and financial advisors.
The Council will retain and reserve all rights while able to assess the position on a month by month basis.
If the Council fails to extend the loan, then on 1 April 2019 the loan repayment will be due in full and if it is not made ECSP1 will be placed into default and the Council would be required to exercise its security and take over the assets of the company. At this point the Council will then have to operate the company either on a long term basis or on a short term basis whilst it sourced an alternative long term funder itself. This option is not considered to be in the Council’s best interests at this time for the following reasons:
1. The Council does not have experience of operating in this market and would therefore need time to acquire the additional skills and personnel required to operate the ECSP1 business, in addition it would require additional advice from its legal and financial advisors Pinsent Masons and Deloitte and would need to procure a specialist technical advisor for this process.
2. The refinancing negotiation progress with the long term funders would be subject to considerable delay to accommodate the change of ownership
3. Any due diligence required in connection with ECSP1’s proposed new long term financing will be more comprehensive and timely if provided by Empower, as they are active in this market.
4. Taking ownership of ECSP1 back into the Council at this point may potentially reduce its attractiveness and subsequent value on the open market.
The Council can choose to continue funding for ECSP1 over the life of the solar panel assets, but the current loan was not constructed as a long term facility, a long term loan will require the implementation of a new loan facility.
Cabinet Report JULY17/CAB/16
Councillor Member Decision Notice MAR18/CMDN/123
Councillor Member Decision Notice JUL18/CMDN/01
Councillor Member Decision Notice OCT18/CMDN/40
Councillor Member Decision Notice NOV18/CMDN/57
Publication date: 29/03/2019
Date of decision: 29/03/2019
Effective from: 04/04/2019