Contact: Andrew Rolt, ext 7010

1. Summary

1.1 The following decisions are sought:

(i) That authority be given to enter into a contract, not exceeding a period of 10 years, for a landfill gas utilisation scheme to be awarded in respect of the smaller closed County Council landfill sites on the basis set out in the report.

(ii) That where such a scheme involves the granting of leases and/ or licences the Director of Property, Business and Regulatory Services (Head of Estates Practice) be authorised to settle suitable terms.

2. Reason

2.1 To maximise the County Council's potential income from the Renewables Order legislation in relation to renewable energy.

2.2 To meet the County Council's aims of stewardship of the environment by minimising release to the atmosphere of ozone depleting substances (ODS) inherent in landfill gas.

2.3 To implement more cost effective management of the County Council's responsibilities in respect of off site migration of landfill gas and meet best practice standards.

3. Other Options Considered and Rejected

3.1 Single tender negotiations, by undertaking negotiations concurrent with pricing as considered by other authorities with like aspirations. It is considered this will not procure the most competitive or best developed system.

3.2 Declining the challenge of opportunities presented by the Renewables Order to produce renewable energy and acquire an income. Without testing the market the potential level of income will never be known.

3.3 The level of the County Council's standards of landfill gas control is discretionary, however it is prudent to maintain and improve boundary migration systems. To install new `best practice' plant independent of landfill gas utilisation is not a `least cost' option and would conflict with the commercial interests of utilisation.

3.4 The level of control of fugitive gas emissions to the atmosphere is equally discretionary. A `do nothing' approach to comply with rising national standards and control the greenhouse impact of ODS gases would conflict with County Council's aim of stewardship of the environment and sustainability objectives.

3.5 Installation of the projects under direct Departmental management. The exposure to financial and technical risks due to the lack of experience and technical knowledge of both operational and market place issues would be significant.

4. Conflicts of Interest Declared by the Decision Maker or a Member or Officer Consulted - None.

5. Dispensation granted by the Standards Committee - Not applicable.

6. Reason(s) for the Matter being dealt with if Urgent - Not applicable.

Approved by: Date:

Councillor K B Estlin

7. Background

7.1 The proposal to utilise landfill gas to generate electricity at a number of the County Council's `smaller' closed landfill sites is included in the 2003/04 Waste Management Business Plan and was reported in principle to the Environment Policy Review Committee on 7 May 2003.

7.2 The Renewables Order (RO) effectively pump-primes schemes to utilise `green' energy. Its predecessor `the non-fossil fuel obligation' (NFFO) encouraged many landfill gas utilisation contracts, however these were only commercially viable at larger landfill sites. The unit prices offered for electricity under the RO and its administration and market trading opportunities has now promoted commercial viability of smaller sites. The market has reacted by developing engine/generator and plant management system electronics for small scale utilisation projects within the limited generating range of less than 0.1 megawatt and 1 megawatt and where gas yield and quality is less consistent. The major problems of utilising landfill gas from small older landfill sites have been overcome.

7.3 The obvious attraction of landfill gas utilisation is income from the export of electrical power to the local distribution network. This can be the principal factor in a decision to implement a scheme. However the benefits are environmental issues or `green credentials' associated with landfill gas utilisation which have a high value in terms of managing ozone depleting substances (the high toxic or greenhouse impact of methane), and effective management of the hazards of fugitive landfill gas emissions.

7.4 The small scale landfill gas utilisation market is becoming established, however its involvement with older landfill sites is cautious. The commercial risks reflect the fine balance between the difficult predictions of gas yield, quantity and quality, and the contract with the Regional Electricity Company (REC).

7.5 The decision to proceed with the offer to the small scale market of a Hampshire County Council `design, build, finance and operate' contract by competitive tender has come about by acknowledging that, although the financial attraction of the RO might not be great, the linkage with the positive environmental benefits and `best practice' approach make the effort worthwhile. A number of other authorities with similar older closed sites are taking similar decisions.

7.6 The trend is to let a contract to a specialist company in the small scale market which can exercise experience and skills to maximise the long term gas yield, plant performance and sales with minimal maintenance and management costs and offer the client a landfill gas control service as well as a share of the income, if possible with all costs paid. The competitive tender, as developed, seeks indicative prices for two options:

(i) Option A: `without site boundary migration control', ie maximum `royalty' income from a primary dedicated gas abstraction system which focuses on income. The drawback of this option is the likelihood of conflict with the secondary system which focuses on boundary migration control and would remain the responsibility of the landowner.

(ii) Option B: `with site boundary migration control', ie the liabilities of the owner of the site (boundary migration control) and the supply contractor (electricity generating contract) are combined with a single system. This achieves management consistency over the whole site, however it would appear such liabilities are not favoured by the market.

7.7 The Westwood site at Netley (Westwood Country Park) is initially offered under the tender, since on a corporate `business' risk assessment basis this is the site with the best technical landfill gas information and without sufficient current gas control capacity. It is intended that the indicative prices of the tender are matched to quality statements covering operating management procedures, nature conservation interest, public protection management, post contract after-use issues and the provision of community and educational engagement. The contracts will not exceed a 10 year term and will comprise both a Lease and a Management Agreement. Authority for the granting of the lease in respect of the Westwood site was approved by the Executive Member for Policy and Resources on 12 June 2003. The tender confirms the Casbrook Common site at Timsbury will be offered within the same contract subsequent to the Westwood site, pending equivalent technical landfill gas information (anticipated available late August 2003) and, subject to resolution of some operational and `NFFO bid rights' issues, the Warsash site (anticipated spring 2004). Connection charges for such schemes can be significant; estimates for these charges have been obtained and will be quoted in the tender.

7.8 The minimum/maximum nominal generating capacity of the sites is estimated to be: Westwood 0.3/0.5 megawatts, Casbrook Common 0.3/0.5 megawatts, Warsash 0.5/1.0 megawatts. It is just possible one other site might generate 0.1/0.3 megawatts. Estimated connection charges have been provided by the REC for Westwood and Casbrook Common and are considered relatively low. Other sites may be more costly.

7.9 It is estimated that the total 10 year gross sales of generated electricity based on current RO prices and the minimum generating capacities at four of the County Council's closed sites is in the order of £1 million. Accordingly the tender has been advertised in the Official Journal of the European Community (OJEC) in September 2001 to meet European Union procurement rules and the replies matched with the County Council's criteria of financial and existing client references and technical competencies. A list of five tenderers has been drawn up.

7.10 It is difficult to assess the `market' view of the County Council's estimate of a potential 10 year contract value and until the tenders are examined, and the basis of the `indicative' prices understood, the level of gross royalties is uncertain. In the `least royalties' case the gas control responsibilities and environmental benefits will be managed at no cost, thus effectively reducing current revenue and capital commitments. In the `best royalties' case there will be an income in addition to the savings on current expenditure.

7.11 The tenders will be judged on the following keys matters:

(i) confirmation by the tenderer that the information provided by the tender is sufficient and, if at all, what other information must be acquired by further in-situ testing to meet the tenderer's satisfaction. (All the tenderers may seek further `specialist' pumping trial data or complex gas analysis);

(ii) basis of the `indicative prices' which relate key contract costs (such as design, effects of the outcome of the planning application, capital investment, construction, REC connection charges and operating the systems) to the level of any royalties;

(iii) the tenderer's proposals to interface with the client under tender option A and the tenderer's performance objectives under option B will be examined so as to achieve the best value on the indicative prices;

(iv) compliance with the Lease and Management Agreements; the key issues are expected to be the outcome of the planning application, installation procedures, public and ecological protection, nature conservation and the scope and status of the installations to be retained on termination of the contract; and

(v) other issues to be negotiated will comprise a `quality statement' whereby the County Council will partner with the contractor to encourage community and educational opportunities to enhance practical understanding of the County Council's aim of stewardship of the environment and sustainability objectives.

The preferred tender will be judged by a matrix of scoring key criteria. The scoring will favour the financial benefits to the County Council over all other benefits in the ratio of two to one. It may also be necessary to judge the financial benefits against the historic and current revenue and capital costs.

8100/AR