thameswey energy limited -...

Appendix 2

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THAMESWEY ENERGY LIMITED

BUSINESS PLAN 2015-18

Address: 2nd Floor, Gloucester Chambers, Jubilee Square, Woking, Surrey GU21 6GA

Registered Address: The St Botolph Building, 138 Houndsditch, London, EC3A 7AR

Company Registration No.: 03772150

VAT Number: 742 6380 32

Thameswey Energy Ltd Business Plan 2015

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Table of Contents

TABLE OF CONTENTS 2

EXECUTIVE SUMMARY 4

Introduction 4

Mission 4

Business Concept 4

Financial Features 4

Financial Requirements 5

Current Business Position 5

Major Achievements 5

GENERAL COMPANY DESCRIPTION 6

Legal Entity 6

Ownership & Subsidiary Company 7

Board of Directors 7

Significant Assets 7

Goals and Objectives 7

History 8

THE OPPORTUNITY & INDUSTRY 9

The Opportunity 9

The Industry 10

THE BUSINESS MODEL 11

Sources of Revenue 11

Major Operational Costs 12

Operational Plan 12

Capital Investment 12

Assumptions and Critical Factors in Model 13

FINANCIAL PLAN 14

Finance Structure 14

Shareholder Return on Investment 14

Profit & Loss Account 14

Cash Flow 15

SCHEDULE 1: ORGANISATION CHART 16

SCHEDULE 2: SITES OPERATED BY TEL 17


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SCHEDULE 3: PROPOSED WBC WOKING TOWN CENTRE DISTRICT HEAT ZONE INFRASTRUCTURE 18

SCHEDULE 4: TEL FINANCE STRUCTURE 19

SCHEDULE 5: BENEFITS TO WBC 20

SCHEDULE 6: PROFIT & LOSS ACCOUNT TO 2035 21

SCHEDULE 7: FORECAST CASH FLOW TO 2035 22


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Executive Summary

Introduction

1.1. This business plan sets out the proposed strategies for delivering the Thameswey Group companies’ activities for the next year and seeks to define their strategic direction for the period up to 2018.

1.2. The strategic plan ensures that the focus of activity within each company is clearly aligned with those of Thameswey Limited, and ultimately with Woking Borough Council’s strategic objectives for the Thameswey Group. This plan reflects the Board’s views on the medium and long term objectives set out in the proposed strategic plans.

1.3. This business plan refreshes the 2014 to 2017 business plan (approved by Council on the 24th October 2013) and reflects the activity and challenges over the last year. The original business plan covered a four year period due to the long term nature of the business, inherent in the capital expenditure and time required to make new connections, and this update rolls that forward by one year. Results and forecasts are included for the entire thirty five year operational business plan period from 2000 up to 2035. The business plan period has been extended by 5 years.

Mission

1.4. It is Thameswey Energy Limited’s mission to provide low carbon energy in the Borough of Woking. Thameswey Energy Limited will serve the Woking community and reduce carbon dioxide equivalent emissions through providing cost effective solutions, customer support and renewable and sustainable energy generation.

Business Concept

1.5. Thameswey Energy Ltd (TEL) was established to provide for a long term strategy of infrastructure investment both within the borough of Woking and outside with the objective of securing reductions in carbon dioxide equivalent emissions. The company achieves this through its embedded generation facilities (i.e. the generation of electricity, heat and cooling) in the borough and in Milton Keynes via its subsidiary.

Financial Features

1.6. In establishing TEL, through the Thameswey Group, Woking Borough Council (WBC) set a long term financial target for the company of an 8% annual equivalent return on its investment within the Borough of Woking and 12% on investments outside the borough. These target returns were set in 2000/01. Due to the economic climate in the period since this return was set and the history of investment these target returns are no longer realistic, nor achievable in this business plan.

1.7. Through a combination of a strong management team, this comprehensive business plan to guide the business, and the support of WBC the company should have a long and successful future.

1.8. TEL has the use of intellectual property owned by Thameswey Limited (TL) and is obliged to pay an annual licence fee of £1,000. At its discretion TL also charges a project fee for capital work of up to 4% of the value of the works. TEL is currently paying a fee of 2% on the Honeywell Project. These fees are used to benefit the residents of the borough as TL contributes towards environmental, social and carbon dioxide equivalent emission reduction projects. For further information on the projects that have benefited from these funds please refer to the TL or Group business plan.


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Financial Requirements

1.9. This business plan proposes re-financing of the business. Further details are in paragraphs 5.2 and 5.3. It is proposed that the current outstanding loans are repaid and a new loan is drawn down.

1.10. This business plan sets out possible capital projects that TEL may assist WBC in achieving, when further developments occur in Woking town centre as indicated by the Council Infrastructure Delivery Plan (IDP). Due to the uncertainties on the timing and extent of capital works that will be required this business plan is not requesting approval for funding for these projects. Any capital projects would require WBC, TEL and TL Board approval before commencement of works and when the company is able to estimate both the project cost and expected revenues.

Current Business Position

1.11. During 2013, the Woking Town Centre Energy Station provided over 6,150 MWh of electricity, 5,250 MWh heat and 1,000 MWh cooling from heat to its’ customers; this produced revenue of £1,036k. In addition its solar installations generated approximately 250 MWh of renewable electricity. It has saved over 820 tonnes of carbon dioxide (CO2) equivalent emissions (as compared to the emissions emitted in the production of the same amount of grid energy). This is equivalent to the typical annual emissions of approximately 305 three bedroom homes.

1.12. TEL works to optimise the efficient operation of the Group’s energy stations, improve terms on energy supply contracts and monitors and manages consumption and production.

1.13. The company keeps abreast of developments in Woking through communication with developers, building owners and WBC. This should enable TEL to consider potential opportunities for new connections to the existing energy stations.

Major Achievements

New Connections

1.14. TEL completed the connection of two major new corporate customers to the town centre HV private wire network; the Peacocks shopping centre and WWF-UK Limited’s HQ the “Living Planet Centre”. As stated in the last business plan The Living Planet Centre is an important connection for TEL, as other potential customers may be more open to the concept of CHP (combined heat and power) energy if it is known that a company that supports and protects the environment is using energy provided by CHP.

1.15. In addition, Brewery Road and the red, blue and yellow shoppers’ car parks were connected to the town centre HV network. Honeywell Project

1.16. During 2012 Honeywell Building Services (Honeywell) commenced work on a project aimed at reducing demand side energy consumption, CO2 equivalent emissions and associated operating and maintenance costs, while concurrently modernising existing mechanical and electrical service provisions. Savings have already been seen in the sites Honeywell completed during 2012 and 2013 with the energy consumption of the shoppers car parks reduced by approximately 43% during 2013. Broadway House and Woodlands House imported 20% less electricity in July to December 2013 compared to the previous three years average, this saving was higher than expected at the beginning of the Honeywell Project.


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1.17. TEL identified the priority sites for equipment replacement and those sites where a range of energy efficiency measures could be introduced quickly to achieve both cost savings and carbon savings. Those initial sites were addressed in Phase A.

1.18. Phase A sites completed to the end of June 2014 under the Honeywell contract are below:

Multi Storey Car Park Lighting (red, blue, yellow & Victoria Way Car Parks);

Broadway and the Vyne;

Brockhill*;

Civic Offices;

HG Wells (Big Apple);

Leisure Centre;

Parkview House (aka The Woodlands); and

Pool in the Park.

*Brockhill was included for baseline monitoring, concept design and boiler retrofit work. The work was carried out under a separate JCT building contract (in 2010), but then included in the Phase A financing scope with some further energy saving measures for the site.

1.19. The Honeywell Phase A contract has now been closed by mutual agreement. The Woking Park Energy Centre works will not be contracted under the project but will be incorporated into a new expanded programme taking a holistic view of the requirements of the whole of the Woking Park site. These additional works will improve the site energy resilience and efficiency and may include the addition of improved thermal storage capability. These works are due to commence in early 2015.

1.20. Through assisting WBC in energy conservation measures at sites connected to the Town Centre Energy station (HG Wells, Civic Offices & Car Parks) TEL will benefit in the long term as the energy demand on the station will be reduced therefore releasing capacity for new customers. In effect for a utility company the more their customers conserve energy, the greater the reduction in spend required on infrastructure improvements and replacements in the future. Improved Energy Contracts

1.21. TEL has negotiated improved contracts for the import of top up grid electricity and sale of electricity exported to the grid, with an anticipated saving of over £20,000 per annum. Featured in The Guardian

1.22. In December 2013 local authorities that are pioneering community energy were reported in The

Guardian, with Thameswey’s energy stations in Woking and Milton Keynes quoted as leading examples of local authority investment in low carbon energy networks.

General Company Description

Legal Entity

2.1. Thameswey Energy Ltd is a private Limited Company registered in the United Kingdom.


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Ownership & Subsidiary Company

2.2. Thameswey Energy Ltd is a 100% subsidiary of Thameswey Ltd. TL is the holding company of the Thameswey Group and is a 100% subsidiary of Woking Borough Council.

2.3. TEL has established one wholly owned subsidiary company, Thameswey Central Milton Keynes Limited (TCMK) which provides embedded generation facilities in the Central Milton Keynes area. TCMK has a separate business plan and its results are not incorporated into the results of TEL.

Schedule 1 shows the Group Organisation Chart.

Board of Directors

2.4. Since the last business plan there has been a change in Directorship. Steve Bonsor retired from the Board in April 2014 and Mark Rolt was appointed in May 2014.

2.5. The current board of Directors is set out below:

Barry Maunders Independent Director (Chairman)

Cllr. John Kingsbury Councillor Director

William Prescott Independent Director

Mark Rolt Officer Director

Douglas Spinks Officer Director

John Thorp Group Managing Director

2.6. The above board composition meets the requirements of the Thameswey Group Protocols as approved by the Council on 8th December 2011. In order to be quorate a board meeting must have at least one independent, one Councillor and one officer Director in attendance.

Significant Assets

2.7. The Woking Town Centre Energy Station located in Victoria Way Car Park has been operational since 2001. The energy station consists of a 1.3 MWe Deutz gas fired Combined Heat & Power (CHP) engine with two 1.5MW gas boilers and a thermal store to provide security of heat supply. This energy station provides heat, cooling and power to a number of buildings within the town centre.

2.8. TEL also owns and operates a number of sites previously developed by WBC. The largest of these installations is at Woking Park and includes a 0.84 MWe Jenbacher engine. Other sites include a number of domestic sites with small scale CHP installations. The Honeywell project is nearing completion to improve operational efficiency of some of these assets with a view to optimising the savings of carbon dioxide equivalent emissions and operational costs. These upgrades are using a combination of gas fired CHPs, high efficiency gas boilers and other technologies.

2.9. TEL has over 700kWp of solar photovoltaic installations in the Borough.

Schedule 2 shows a full list of the sites operated by TEL.

Goals and Objectives

2.10. TEL aims to build, finance and operate small-scale combined heat and power stations (energy stations), and other renewable and low carbon energy generation equipment providing energy services to the Council, institutional, business and residential customers.

2.11. TEL was established to assist WBC in meeting the Councils’ Climate Change Strategy. The key principles of the Climate Change Strategy for Woking are as follows:


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Reduction of Borough wide CO2 equivalent emissions;

Adaptation to climate change; and

Promotion of sustainable development.

2.12. TEL will continue to support WBC in achievement of the Climate Change Strategy, which adopted the Government’s Climate Change Act (2008) targets for carbon emission reductions i.e. to reduce greenhouse gas emissions by 80% by 2050. As per the Government’s targets, WBC uses a 1990 baseline.

2.13. TEL will consider the opportunities to achieve the Council’s vision for Woking in 2050 within the new WBC Climate Change Strategy which is expected to be in place for March 2015.

2.14. By recognising the potential impacts of Climate Change on the Borough and preparing in advance, it will mean that the Borough is better protected against negative impacts such as extreme flooding. By embracing and planning for adaptation, the less it will cost and the better prepared/more resilient the Borough will be.

2.15. During 2015 to 2018 TEL will actively seek to continue securing additional customer base for its Woking Town Centre Energy Station. TEL will also focus on those areas specified in the Climate Change Decentralised, Renewable and Low Carbon Energy Evidence Base Study as set out in paragraph 3.3.

History

2.16. The company was originally formed as a joint venture between TL and Xergi Limited (formerly DDH Contractors).

2.17. Woking Town Centre Energy Station became operational in 2001. The company operated successfully and traded at a profit until additional investment of £2.64m was made in 2005 to 2007. This investment was made to support WBC in its work with Surrey County Council (SCC) in their shared ambition of relocating the SCC corporate headquarters to Woking. The investment was for extending the heat distribution network across Victoria Way to the canal bridge, in anticipation of connection to the Brewery Road site and securing SCC as a customer. SCC later abandoned the proposals; consequently with interest costs incurred since 2006 of £1.6m (with a further £268k expected in 2014) the company began to make a net loss in 2006 which increased each year for a further 3 years as the interest has compounded to a loss of £658k in 2009. Since then trading has improved, and losses have steadily reduced to £361k in 2012 and £270k in 2013 as shown in Schedule 5.

2.18. In December 2011 WBC approved the purchase of the shares previously owned by Xergi Ltd (10% of the ordinary shares; 355,045) in Thameswey Energy Ltd by Thameswey Ltd. The shares were purchased at the original discounted cost of £305,635 on 31st December 2011.

2.19. Concurrently Thameswey Ltd also purchased the remaining 80% of shares in Xergi Limited’s subsidiary company, Xergi Services Ltd (XSL), the company that maintains the generation facilities owned by the Group. XSL was renamed Thameswey Maintenance Services Ltd (TMSL) on acquisition. TMSL continues to provide operation and maintenance services for the energy stations.


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The Opportunity & Industry

The Opportunity

3.1. The adaptation by the Council of its Local Development Framework (LDF) Core Strategy and Supplementary and Planning Guidance documents on 25th October 2012 has provided strong opportunities for the company. The LDF states: “All new development should consider the integration of Combined Heat and Power (CHP) or other forms of low carbon district heating in the development. All new development in proximity of an existing or proposed CHP station or district heating network will be required to be connected to it unless it can be demonstrated that a better alternative for reducing carbon emissions from the development can be achieved.”

3.2. The LDF is supported by the Climate Change and Decentralised, Renewable and Low Carbon Energy Evidence Base study (December 2010). The study identified areas in Woking town centre where there is opportunity to reduce the carbon footprint of new developments through provision of distributed low carbon energy supplies in the form of heat, power and cooling. The evidence base has proposed that the strategy for increasing the supply and use of low carbon energy in the town centre be based on a combination of existing and new infrastructure in three broad locations within the centre:

3.3. Schedule 3 shows a map of the WBC proposed Woking town centre district heat zone infrastructure.

ZONE 1: Extending the reach of supply from the Victoria Way energy centre to serve new development in the north and east sectors of the town centre.

ZONE 2: New generating capacity and distribution networks serving development to the east and west of Victoria Way, including the town centre Bandstand Square development project, and new high density developments in the Goldsworth Road/Church Street West/Victoria Way triangle.

ZONE 3: New generating capacity and distribution networks serving major new development sites south of the railway.

3.4. It should be noted that the above zones are not TELs proposals or suggestions but WBC Zones under the LDF. TEL is not requesting approval for further energy stations. The above details and Schedule 3 are provided as a guide as to where opportunities could be for TEL in the future if any of the projects are suitable for TEL to invest in and are forecast to provide an acceptable return on investment.

3.5. The major opportunities for TEL as a result of the LDF comprise:

New developments – potential areas of development to the east of the town centre in Chertsey Road;

Connection of existing buildings through refurbishment; and

New networks to serve major new developments e.g. Victoria Square Development and Sheerwater regeneration.

3.6. TEL will seek to support both WBC and developers in meeting the LDF requirements. In order to

achieve this there may be the opportunity for the construction of additional energy stations in support of the economic development of the Borough and policies, including WBC’s CS22 Sustainable Construction Policy. Each investment would be required to target the desired 8% rate of return for shareholder investment or such other rate as may be considered acceptable by WBC and may require additional loan finance from WBC or appropriate support from WBC in respect of


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any third party finance. Any requirement for WBC support and any projects requiring TEL to make a large capital investment would be subject to both TEL and TL Board approval and applications to the WBC Executive and Full Council for final approval.

3.7. It should be noted that TEL and its subsidiary will not seek to provide or tender for new energy stations outside the Borough but will respond positively to invitations to participate in partnership business opportunities to develop new energy stations where the capital for the design, build and operation of the energy station is secured from third parties and a project fee for TL is secured.

3.8. Two maps are being produced for TEL; a public map which will be available on the company website showing the location of the pipes and cables in the Town Centre and the buildings nearby. Further detail will be put on an internal version of the map which will show further information on the buildings located in the Town Centre including details of owners, tenants, agents, periods of leases, ages of properties and expected dates of refurbishment to ensure that no potential opportunities for connection to the network are overlooked. These maps will be used as a prompt to keep in contact with all relevant parties and to be in a much stronger position to pitch and quote for connection at the appropriate times. It is expected that this activity will accelerate and improve connections and profitability in future years.

3.9. There could be other opportunities for TEL in the future providing other forms of low carbon energy for example by providing hydro-electricity production facilities within the Borough.

3.10. The company has worked closely with the project team responsible for the proposed Woking town centre redevelopment (‘Victoria Square‘) and has assisted in the preparation of an energy strategy in support of the scheme’s planning submission. TEL has also undertaken the preparation of a major funding bid by the council to the Department of Energy and Climate Change Heat Network Delivery Unit (HNDU). The application seeks grant funding of £160,000 for detailed technical and financial appraisal and design of a Geocoupled District Energy Network (GDEN) to serve the Victoria Square development (with a further £80,000 funding to be provided by the council). The use of a GDEN to meet the heating and cooling needs of the development has the potential to offer greater efficiencies and carbon reductions than a conventional gas CHP district heating scheme, and is starting to attract interest as a long term alternative to CHP-based networks. However, the application of GDEN technologies at this scale is new to the UK and presents a number of technical and commercial uncertainties that require detailed investigation. If successful, the award of funding by HNDU will provide the opportunity for the council and TEL to be at the forefront of the application of new technologies that have the potential to set a new benchmark for district energy. A decision on the grant application is expected in September 2014.

3.11. The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is designed to improve energy efficiency and cut emissions in large public and private sector organisations. Organisations that fall within the qualifying threshold are required to buy allowances for every tonne of carbon emitted. There may be further opportunities for TEL to support the Council in reducing the costs of the CRC Scheme by improving energy efficiency of Council buildings and increasing the amount of low carbon energy consumed in proportion to grid energy (through projects like the Honeywell Phase A project).

The Industry

3.12. TEL operates in a complex market. It is an industry that requires large investments in infrastructure and requires long term business plans.


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3.13. Potential barriers for new connections include the cost of the installations for customers. TEL may be required to assess potential income from new customers and to part subsidise the cost of connections.

3.14. Another issue faced in the industry is the UK wide political pressure to reduce prices for customers and keep margins low. TELs prices are based on the gas price index for commercial customers and on a percentage of other supplier prices for domestic customers (to keep the prices below the average of the big six suppliers).

3.15. The company is however hopeful that the pressure to use green energy and the strategies put in place by WBC to reduce CO2 equivalent emissions in the Borough will promote connection to TEL’s network.

3.16. The electricity generated by CHP plants is used locally and therefore it reduces losses that arise when electricity is transmitted and distributed long distances to the end user. These losses are normally around 7%. CHP plants can be over twice as efficient as fossil fuel-fired power plants for electricity production as the heat produced is utilised and not wasted.

3.17. There is increased support within national government for the distributed heat industry. The adoption of a national heat strategy by the Department of Energy and Climate Change (DECC) in 2013 has provided the strongest policy support yet and the establishment of the Heat Networks Delivery Unit (HNDU) to encourage local authorities to take a lead in developing heat networks, along with the availability of £7m funding for feasibility studies, is stimulating considerable interest.

The Business Model

Sources of Revenue

4.1. One of the main sources of revenue for TEL is from the customers of the Town Centre Energy Station. A table showing the buildings connected to the energy station is below:

Building Type of Customer Date of Connection

Civic Offices (WBC) Commercial 2001

Victoria Way Car Park Commercial 2001

Big Apple Leisure Complex Commercial 2001

Holiday Inn Hotel Commercial 2001

YPOD (YMCA Building) Commercial 2006

The Lightbox Commercial 2007

Enterprise Place Flats Domestic 2009

Hollywood House Commercial 2011 (Heat) 2012 (Electricity)

Living Planet Centre (WWF-UK Ltd) Commercial 2013

Peacocks Shopping Centre Commercial 2013

Red, Blue & Yellow Shoppers Car Parks Commercial 2013

HG Wells Conference Centre Cooling Connection

Commercial 2014

4.2. The commercial sales for the town centre energy station currently comprise 43% WBC and 57%

other customers. There was a significant increase in the supply to non WBC commercial customers with the new connections in 2012 and 2013.


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4.3. TEL will continue to seek new connections for the Energy Station.

Major Operational Costs

4.4. The most significant costs that the company incurs are gas, electricity import and operation and maintenance (O&M) costs. In an effort to reduce the costs the company has now contracted an energy management company to assist in the energy management of both TEL and TCMK. The company is providing assistance in invoice checking, renewing contracts and cost reduction and income maximisation. The electricity import and export contracts have recently been renewed and the company was successful in significantly reducing our supplier’s fees and charges, compared to the previous contracts and is expected to save around £20k per annum.

4.5. During 2013 there was a significant improvement in the gas contract terms.

4.6. TEL is working alongside Thameswey Maintenance Services Ltd (TMSL) to reduce the O&M cost of the CHPs. After TMSL was purchased there was a reduction in the cost plus percentage mark up on parts.

4.7. Major engine services are completed based on the running hours of the engine. These are capitalised and written off based on the running hours. Services have been forecast to the end of the plan.

4.8. TEL and TMSL are also working together to schedule the major services for the engines and

reduce down time during peak periods.

4.9. The Energy Management Company has been able to provide TEL with information on comparative O&M contracts for similar sized and age CHP’s. Standard comparable O&M contracts for CHP engines exclude the distribution network and other ancillary assets for example pumps and boilers. Having TMSL employees based close to site and also responsible for the distribution network provides additional benefits which would not otherwise necessarily be achieved if the service was to be outsourced.

4.10. As a result of the analysis and similar analysis of TMSL’s profit margins on the fixed costs to cover labour charges TMSL will reduce the fixed charges for both the Town Centre CHP and Woking Park for 2015 onwards.

Operational Plan

4.11. TEL is working closely with TMSL and the energy management company to improve and optimize operation of the engines and reduce running costs. This involves considering the hours that the engines are run and the output level that the engines are running at with the aim of ensuring that the engines generate energy at times of peak demand on the National Grid which consequently provides additional income for export at peak times.

4.12. The company is also working with TMSL to plan servicing of the engines in order to ensure that the engines are operational during the winter which is the peak generation period.

Capital Investment

4.13. Up to the end of 2013 TEL had incurred £17.6m in cumulative capital expenditure. During 2013 the following expenditure was incurred:


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£2.6m for the Honeywell project out of a total budget of £5.5m.

4.14. Further to paragraph 1.19 an indicative budget has been set for the Woking Park Energy Centre works which will include optimisation of the primary energy systems, the management and overview of the process to identify and deliver an energy management, monitoring and control philosophy for all the buildings in the Woking Park complex, integration of the pool in the park cooling systems, and supply of a new 300m3 heat store to be located at the Leisure Centre. The works are expected to cost approximately £970k and be completed in 2015.

4.15. As well as working with TMSL on the optimization of the engine running levels it is the intention of

TEL to carry out a review to forecast future demand and options for renewal/replacement of assets. The potential to utilise the existing plant at Victoria Way Energy Station to provide increased output to meet new demand will also be assessed.

4.16. Possible new connections to the Town Centre Energy Station are being considered including:

Extension of heat, cooling and power supplies to connect to existing offices in Chertsey Road and new office and residential developments that have planning consent also in Chertsey Road; and

Existing buildings elsewhere within the vicinity of the energy centre that have expressed a desire to connect to the community energy network.

4.17. The potential demand that could arise from these connections may leave minimal spare

generating capacity for electricity, heat and cooling within the existing energy centre. Therefore, further expansion of the network to serve new developments in the northern and eastern parts of the town centre may require additional investment in both generating capacity and infrastructure.

Assumptions and Critical Factors in Model

4.18. TEL has a financial model which has been used to make the financial projections in the Business Plan (show in Schedules 4 to 6). The model is updated each year to reflect the previous year’s activity and any updates on market forecasts.

4.19. The model also takes into account the engine running strategies and capacity of the engines.

4.20. The model assumes that inflation will run at 2.0% per annum for the business plan period. In practice short term inflation rates will vary. Increased inflation will provide an improvement in the return for the company due to increasing revenues and margins. As referred to in paragraph 5.8 commercial customer prices are based on the gas index price and inflation, thereby reducing risk to the business.

4.21. TEL has not forecast any further connections to the energy station in the current model used for this business plan. There may be opportunities for TEL to expand the District Heat network in the future including those listed in paragraph 4.16 above; however these cannot currently be quantified due the uncertainties both in relation to the cost and size of connections. When new connections materialise the connections will be modelled to assess their feasibility and return on investment, and TEL and TL Board (and if necessary WBC) approval sought before TEL commits to them.


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4.22. Increasing revenue shown in the model in 2015 and beyond is due to inflationary increases only. 2014 will be the first year TEL receives a full 12 months of revenue for the recent connections of the WWF-UK Ltd (the Living Planet Centre) and the Peacocks Centre.

Financial Plan

Finance Structure

Schedule 4 shows the Finance Structure of TEL

5.1. TEL is financed by both share capital and loans. TL (ultimately WBC) has a nominal total of £5,050,450 in share capital finance in TEL which was issued at a discount of £494,100 as per Schedule 4. £1,110,000 of this share capital was used by TEL to invest in its subsidiary TCMK.

5.2. This business plan requests refinancing of the business. It is proposed that the outstanding loans at 6.25% and 5.00% are repaid to the Council in full on 31st December 2014 and an annuity loan of £15.85m is drawn down at an interest rate of 5.50% with repayment over 20 years.

5.3. The £15.85m requirement is made up of the following:

£9.38m (out of the original £12m of finance) for the original TEL investments;

£5.50m of the original Honeywell finance; and

£0.97m additional finance for works at the Woking Park Energy Station – see 4.14.

5.4. The balance of the loans (all provided by WBC) at the end of 2013 was £14.6m. During 2014 TEL will be drawing down £0.77m from the remaining approved WBC loan facility for the Honeywell Project.

5.5. WBC charges TEL a margin on its loan rates which is used for the benefit of the Council. In 2015 if

the loan is re-scheduled TEL will contribute approximately £245,000 to WBC in the form of loan margin; the Council uses this to help reduce Council tax charges to residents of the Borough. This is equivalent to £6.34 for Band D Council Tax for 2014/15 based on a tax base of 38,614.

Shareholder Return on Investment

5.6. This business plan forecasts that the company will achieve shareholder distributions of £4.9m for the £5.0m net cost of shareholder investment; equivalent to an annual return of 1.35%. This is an improvement of 0.35% on the last business plan. TEL is not currently likely to meet the ultimate owners’ original ambition of an 8% annualised equivalent return on investment due to the current economic climate.

5.7. Dividends are first payable in 2028, which is 3 years sooner than the previous business plan forecast. Schedule 5 shows the other benefits to WBC.

Profit & Loss Account

5.8. The budget has been based on historical costs, expected inflation and modelled revenue and costs. TEL has a good level of confidence in the budget. It should be noted that increases in the gas price index lead to increases in the prices charged to commercial customers with prices calculated on a monthly basis, this helps to reduce financial risk to TEL.


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5.9. One of the main revenue streams for TEL is from the Town Centre Energy Station. Other sources of revenue include the following:

Feed-in tariff income from PV panels;

Energy Service Charges;

Administration charge of 3% on recharges of energy.

5.10. In the last business plan TEL was forecast to make a profit before depreciation of £214k in 2013 and profits were forecast as continuing until the end of the business planning period (2030). Profits before depreciation and amortisation are in effect cash profits. Profit before depreciation in 2013 achieved was £277k, exceeding expectations by 29%. The profit after depreciation is forecast as breaking even in 2024.

Schedule 6 shows the forecast Profit & Loss until 2030

Cash Flow

Schedule 7 shows the forecast Cash Flow

Appendix 2

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Schedule 1: Organisation Chart

Appendix 2

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Schedule 2: Sites operated by TEL

Location Facilities

Victoria Way Energy Station CHP Woking Leisure Centre * CHP / Photovoltaics Brockhill * CHP / Photovoltaics Bunyard Drive * CHP Woodlands House (Parkview) * CHP / Photovoltaics Priors Croft * CHP / Photovoltaics Stream Close (St. Marys) * CHP / Photovoltaics Broadway House / The Vyne * CHP / Photovoltaics Wesco Court * Photovoltaics Sunnyside * Photovoltaics Nightingale Court * Photovoltaics Malloy Court * CHP Rokeby Court * CHP Nottingham Court Photovoltaics Ferney Court Photovoltaics

* WBC Sites with plant rooms operated by TEL

Appendix 2

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Schedule 3: Proposed WBC Woking town centre district heat zone infrastructure

Please note these are not TELs proposals but may be opportunities for TEL in the future.

Appendix 2

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Schedule 4: TEL Finance Structure

Share Capital Summary Total Share Capital

Date £ 01.06.2000 720,000 01.02.2002 920,000 01.10.2003 800,450 31.12.2005* 1,110,000 Nominal Value 3,550,450 31.12.2004 Discount -494,100 Net Purchase Price As At 01.01.2006 3,056,350 30.12.2011 500,000 30.07.2012 500,000 24.12.2012 500,000 Total Share Capital As At 31.12.2015 4,556,350

* Invested in TCMK

Loan Finance Summary Interest Rate Loan Value Maturity Date

% £

01.01.2005 WBC Loan 6.25 7,000,000 31.12.2030

01.01.2006 WBC Loan for Network Extension 6.25 5,000,000 31.12.2030

05.03.2012 WBC Loan for Honeywell Project 5.00 1,175,000 31.12.2028

14.09.2012 WBC Loan for Honeywell Project 5.00 450,000 31.12.2028












2014 Balance WBC Honeywell Loan - Approved 5.00 620,000 31.12.2028

Total Loans at 31.12.2015 17,500,000

Appendix 2

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Schedule 5: Benefits to WBC

Appendix 2

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Schedule 6: Profit & Loss Account to 2035


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Schedule 7: Forecast Cash Flow to 2035

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