Requests for costs relating to Energy Recovery Facility Contract

Thank you for your request for information received on 5 September 2023. Your request has been allocated the reference number 2023-214.

You have asked for a response to be dealt with under the terms of the Environmental Information Regulations (EiR) 2004, however reflecting on the information requested below we do not believe this is covered by the clauses set out in 2.7 of the EiR 2004. As a public authority, we do want to ensure we are providing open and transparent information to all enquiries and have therefore responded to your requests under the terms of the Freedom of Information (FOI) Act 2000.

You requested information on the following areas:

• ‘what is the current prediction for the final cost of Acciona’s incinerator, broken down according to the breakdown in the contract and NLWA costs and identifying interest and other fees such as contingencies?’
• ‘how much of this has not yet been committed to contractually and what would cancellation cost at different stages according to the terms of the contract?’
• ‘how often are the cost assessments reviewed?’

North London Waste Authority (NLWA) continuously monitors and reports cost performance for the North London Heat and Power Project and spend to date. These reports are publicly available and are presented at Authority meetings held in public. The project continues to be forecast to complete within the budget of £1.2bn at 2019 prices.

NLWA let a number of different contracts to achieve the required works to redevelop the site at Edmonton EcoPark. This is consistent with the nature of nationally significant infrastructure projects in the United Kingdom. These contracts cover construction works, programme management activities and allowances for appropriate risk contingencies.

More than 80% of the work contracts have been committed to date, including the contract with ACCIONA for the Energy Recovery Facility (ERF) which was let at £799,339,566 GBP in January 2022. In signing the contract with ACCIONA, NLWA made a contractual commitment for the full value of this contract.

The contract has been awarded with approximately 50% of the prices fixed at the time of the contract award and the remainder having appropriate risk sharing between the contractor and the Authority against index pricing.

This means inflation is carefully managed for the contract cost with inflation risks increasingly diminishing at the point subcontracts are awarded. The Authority has contractual mechanisms and close dialogue with ACCIONA to manage this across the project and safeguard the successful delivery of the Energy Recovery Facility, whilst achieving best value for money and protecting the interests of all parties.

Under the contract the cancellation costs for the ACCIONA contract include:

• the amount due for works undertaken to date which includes substantial costs for enabling works, piling and concrete forming which has already developed on the site, and the associated workforce and ancillary services to support this development.
• amount due to third parties to date for orders which have been placed including systems for emissions treatment, turbines, heat exchangers and other key pipework already in manufacture. Key suppliers have been agreed by ACCIONA for world class technical systems which need to be reimbursed for their involvement to date. A list of the 33 procurements and suppliers already awarded as part of the contract is attached in Appendix 1.
• cost incurred by the contractor in connection with terminating the contract which would include the demobilisation of a workforce of 400 people and the safe remediation of the site that has already been redeveloped.

The costs of the above are continually variable throughout the construction period depending on the progression and stage of the works.

In addition to the ACCIONA cancellation cost, the Authority would no longer have a solution in the pipeline to treat hundreds of thousands of tonnes of waste for north London. When the current facility reaches the end of its life, north London’s residual waste would need to be sent to third party facilities where it would cost the north London Boroughs more to dispose of than in a publicly owned asset.

Council taxpayers would have to cover the cost of more expensive waste disposal at older, dirtier sites, which only profit the private sector and do not have the best available environmental controls specified at the new energy recovery facility.

In December 2021, when NLWA Members decided to award the contract to ACCIONA, the Authority set out how disposing of north London’s waste in private facilities would cost boroughs £ 20 million more per year; and the market price for third party waste disposal is currently increasing substantially. More on the outline business case can be found in Appendix D of the ERF Procurement Paper: https://www.nlwa.gov.uk/sites/default/files/2021-12/03%20ERF%20Procurement.pdf

Not only will stopping the project cost NLWA more for waste disposal but there is also a technical accounting reason why it would lead to an immediate financial issue for councils. When an Authority is creating a new asset, it is possible to capitalise the costs over the life of the asset. This means the energy recovery facility costs are spread over many years. However, if a decision is taken to cancel the facility then there is no capital asset and the cancellation costs described above have to be immediately funded. This would mean adding hundreds of millions of pounds in a single year to NLWA’s charges to boroughs, at a time when council finances are already seriously stretched. This would be irresponsible, bad value for money and contrary to the careful cost planning that underpins NLWA’s approach.

The Authority has successfully mitigated its exposure to exceptional levels of inflation, unlike many other major infrastructure projects which have been more adversely affected. As reported in Authority papers and on the NLWA website, the outturn cost of the entire project is expected to be in the region of £1.42bn-£1.52bn. We are continuing to work closely with our constituent borough council finance directors to ensure the costs and associated risks of a project of this nature are being appropriately reviewed and considered over the life of the project.

We hope this response sets out more of the context and position of the Authority in relation to the questions you raised on the project costs and situation should the Energy Recovery Facility contract be terminated.

If you are dissatisfied with the handling of your request, you may ask for an internal review, which should be submitted within two months of when you received our response to either informationrequests@nlwa.gov.uk or our enquiry form quoting the above reference.

If you are not content with the outcome of the review, you may complain to the Information Commissioner, Wycliffe House, Water Lane, Wilmslow, Cheshire, SK9 5AF, or via their online portal. The Information Commissioner will not usually accept complaints before a review has been completed.

Appendix 1