Requestion for information on the North London Heat and Power Project

Further to our email acknowledging your freedom of information request (reference 2024-239), our response is as follows. This includes context which outlines the consideration which has gone into the matters you raise.

Response 1: 

The North London Waste Authority submitted a Development Consent Order in 2015 to provide new assets which would safeguard the waste disposal services for north London for the next generation. The Order was considered through public examination and approved by the Secretary of State in 2017. Following this the Authority began construction preparations for the range of facilities included in the North London Heat and Power Project.

The Authority was mindful that it would be a long and complex construction programme of activity – well in excess of 10 years in total. It would be on an industrial site; the construction projects would need to be carried out without disrupting the ongoing activities which are essential to treat the waste of 2 million residents in north London. To enable this, contracts would need to be developed and let and be compliant with public procurement rules which means that contracts would be awarded based on transparent tender applications considering price and quality. The latter point is how public authorities are required to secure value for money. In addition, the Authority’s analysis was that it would be substantially better value for money, and more environmentally responsible, to build and own a facility rather than having to pay the price set by private sector operators of energy from waste facilities to treat hundreds of thousands of tonnes of waste miles away from the area.

Recognising all these factors, the Authority conducted a cost “baselining” exercise in 2019 in line with best practice. This was to assess – having regard to the works to be delivered and the contingency which would be required to deal with uncertainties – what the likely delivery cost would be for the project.

As noted above, the projectwas always expected to last over 10 years, so changes in annual inflation rates can make a large difference to final outturn costs for a project of this scale. Therefore, the initial budget was set at £1.2 billion in 2019 prices.  As the project has proceeded the price set in 2019 prices has been updated to reflect expected outturn prices now that some years have passed, and the main works have been successfully tendered. Taking the £1.2billion baseline cost estimate and updating it to take into account inflation gives an estimate of between £1.42bn and £1.52bn in outturn prices (the reason for a range is that there are still some years before the project is completed). The project remains within that estimated cost range. 

Response 2: 

Officers produce a report on progress for every Authority meeting which has included an update on expenditure and progress against the estimated project cost.  Examples of reports from previous years which set out the position are at:

Response 3:

Committed and spent costs: Many projects include just the cost of construction in their cost estimate. In order to provide a comprehensive cost assessment for the North London Heat and Power Project, NLWA’s cost estimate includes a much wider range of factors. These are included within the cost estimate mentioned above. 

Provided below are the estimated costs for the following key components of the project as of December 2024. 

• Enabling works - £29m
  A wide range of enabling works were completed to allow the construction to proceed. These include:

  • site preparation works consisting of clearance of above and below ground structures
  • ground remediation
  • the development of a “laydown” area which provides offices, materials storage, welfare facilities for construction workers and parking
  • the complete construction/reconstruction of two new roads providing access to the construction site
  • utilities works including bringing in tunnel boring machines to divert and rebuild sewers
  • the relocation of LondonEnergy Ltd’s transport yard. 

   

• Temporary Bulky Waste facility - £11m
  Preliminary works including:

  • investigatory ground works and surveys
  • design and construction of a temporary bulky waste facility to allow NLWA to continue delivering its statutory obligations by processing borough waste on site.

   

• EcoPark South - £164m 

  • A new Resource Recovery Facility to enable more material to be extracted for recycling and reuse and for waste that cannot be recycled to be prepared for energy recovery
  • A new public Reuse and Recycling Centre
  • EcoPark House, which serves as a visitor and education centre for the north London community
  • The construction included:
    • site surveys
    • preparatory ground works and piling
    • installation of steel frame works
    • installation of utilities and infrastructure
    • ventilation systems, fire suppression systems and other features for safe operations
    • rigorous testing and commissioning of the complex systems, to ensure they worked as required to meet environmental permits and specified discharge consents. 

   

• Energy Recovery Facility (ERF) - £868m

  • This facility will treat non-recyclable (residual) waste instead of sending it to landfill and will also generate heat and power.
  • The facility is currently under construction and involves a range of works including:
    • site surveys, investigatory and preparatory ground works and structural reinforcing ground works (piling)
    • constructing the bunkers to hold the waste prior to incineration
    • constructing steel frames to encase the turbines used to generate electricity and other plant
    • installing various machinery plant including boilers, turbine, the flue gas treatment system and stack through which emissions are processed and filtered
    • installing fire safety systems and other safety features for safe operations.
  • The cost also includes a series of processes of rigorous testing and commissioning of the complex systems to ensure they work optimally and in compliance with environmental permits and discharge consents.

   

• Northern Area Clearance - £9m

  • Site preparation pre-ERF construction at the northern area of site previously occupied by the in-vessel composting plant and the ash bay.
  • The clearance works included:
    • removal of above ground and underground structures
    • remediation for the cleared area, provision of a temporary drainage system, design of temporary cover system
    • incinerator bottom ash off-site treatment costs to mitigate the temporary loss of the ash bay. 

   

• Site wide utilities works  - £10m

  • This involves a series of utility works to provide services across site for the new facilities. Works include:
    • surveying existing underground and overground utilities for re-positioning to ensure safety and functionality of the site and new facilities during and after construction
    • installation of high voltage power lines, street lighting infrastructure, IT telecoms and drainage across the site
    • essential gas supply infrastructure.

   

• Energy from Waste facility decommissioning and demolition - £49m

  • Following the successful transition of waste treatment operations, the old plant will be decommissioned and demolished and restored to an open area of land which can be used for future waste-related infrastructure. This will involve:
    • the removal of all plant, equipment, and residual waste
    • removal of all above ground structures including stack and ancillary structure removal and ground remediation if required
    • earth works to facilitate removal of below ground structures (waste bunkers, boiler house basement and turbine hall basement)

   

• Southern Access Widening and Bridge remediation works - £7m

  • This group of works focuses on the improvements required to the main entrance to the EcoPark, including:
    • widening the existing bridge over Enfield Ditch
    • adjoining road widening, new fencing, gates and security huts. 

   

• Business continuity requirements as construction works progress -£94m

  • In addition to the temporary bulky waste facility, other costs to avoid disruption to the waste disposal service including:
    • provision of temporary facilities
    • contribution towards the lease costs of a waste transfer site at Wembley to provide wider service resilience during the construction of the RRF
    • the purchase of the EcoPark site from LondonEnergy Ltd
    • staffing to support the delivery and transport costs for staff. 

   

• Programme wide spend - £193

  • For complex projects which require significant management by the client these can typically be 10-20% of the total project cost. For the North London Heat and Power Project the costs include:
    • site wide programme and project management, including management of procurements and ensuring effective delivery by contractors
    • design
    • technical advisers
    • office costs
    • IT including Building Information Management (BIM) systems
    • promoting a proactive approach to health and safety
    • securing social value such as apprenticeships, training and expenditure in the local community
    • planning and communication
    • financial and legal advisers. 

   

• Risk allowance/contingency - £84m
  • As is usual with large complex projects, a risk allowance is required to enable the work and allow for unexpected costs. As would be expected, some of the initial risk allowance has been used as the project has moved forward.  This is the remaining risk allowance within the project budget. 

Response 4: 

The budget outturn cost given inflation remains within the range of £1.42bn to £1.52bn. As noted above, the issues listed below have not caused the project to exceed its budget but have involved using some of the risk allowance. Many of these are factors outside the control of the Authority, and which have also affected other economic activity in the UK.

• The COVID 19 pandemic: The project had to be paused and all construction arrangements reviewed to ensure they could be safely carried out. Construction plans were changed to allow for social distancing and a rigorous COVID testing regime was put in place. Following the pandemic there was major disruption to supply chains as many activities in the economy had been paused, which affected the cost and availability of materials for several years.
• Period of extremely high inflation: This was attributed particularly to high energy prices which followed the beginning of the Ukraine war but caused a range of costs in the economy to rise. Inflation hit a 9.1% peak in the year, affecting all construction projects. The extent to which inflation varied from bank of England estimates is show in the graph below

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• Economic turbulence affecting confidence in the supply chain: The Government's fiscal event on 23 September 2022 caused considerable turbulence in the gilts market.  The uncertainty affected business confidence and increased company costs. Major projects depend on a supply chain of subcontractors with specialist skills, but smooth contracting through supply chains was disrupted.
• Unforeseen complications from working on an old industrial site:  The site has been in industrial use for many years but with few records of what is underground. The site exploration and subsequent construction work uncovered large amounts of asbestos which needed to be removed safely and carefully.  Unmapped water pipes were found, and the sewer diversion work proved to be more complex than planned.
• Maintenance of high environmental standards: The Authority set high environmental standards, for example relating to odour control systems and the BREEAM rating of environmental performance of buildings. As the contractor developed detailed plans to translate these into construction in the EcoPark South facilities, it became clear that they would require increased time and cost compared with assumptions. The Authority determined that it was better to accept the increased costs on those elements and not dilute the quality of the new assets.
• Rate risks: The project had to manage exchange rate risks by securing a Euro bank account to meet funding obligations in Euros.
• Borrowing costs: The project is funded through borrowing, with over £1bn already secured at an average interest rate of just over 3%. Future borrowing costs are expected to be higher.

Response 5:   

The ACCIONA contract has a target date for takeover of the energy recovery facility of October 2026. As reported at Authority meetings, ACCIONA have faced continued delays in securing and mobilising subcontractors for the mechanical, electrical and piping (MEP) sections of the ERF build – these were scheduled to commence in November 2023 but did not start until December 2024. Sub-contractors are delivering well once procured and mobilised, but critical path delays to milestones are leading to programme slippage which cannot be recovered. Slow progress completing civil works which consist of the foundations, concrete tipping hall and turbine table construction and the structural steel work which will house the boilers has pushed out the critical path by several months.  The project team have continued to press the contractor for a revised schedule and delivery plan, and the impact on completion date will be reported and updated to the public Authority meetings. Further works, for example to demolish the existing energy from waste plant after the new facility is operational, will be affected by the completion date of the ERF.