Manchester City Council
Finance Scrutiny Committee
Item 7
12 November 2012
Manchester City Council
Report for Resolution
Report to:
Finance Scrutiny Committee – 12 November 2012
Subject:
Street Lighting PFI Contract
Report of:
Joint report of City Treasurer and Deputy Chief Executive
(Neighbourhoods)
Summary
To update members on the Private Finance Initiative (PFI) contract for Street
Lighting, to specifically cover: current contract costs, the cost of replacing street
lights across the City with LED’s, to quantify the additional services delivered by the
service provider and to identify the mechanisms in place to challenge the extra costs
of these additional services.
Recommendations

The Committee is requested to note this report
Wards Affected:
All
Contact Officers:
Name:
Position:
Telephone:
E-mail:
Richard Paver
City Treasurer
0161 234 3564
r.paver@manchester.gov.uk
Name:
David Lea
Position:
Director of Commercial Services
Telephone: 0161 234 3926
E-mail:
david.lea@manchester.gov.uk
Name:
John Lorimer
Position:
Capital Programme Director
Telephone: 0161 219 6501
E-mail:
j.lorimer@manchester.gov.uk
Background documents (available for public inspection):
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Manchester City Council
Finance Scrutiny Committee
Item 7
12 November 2012
Previous Reports

January 2005, Physical Environment Overview and Scrutiny Committee.

July 2007, Resource and Governance Overview and Scrutiny Committee.

February 2010, Communities and Neighbourhoods Overview and Scrutiny
Committee.

March 2011, Communities and Neighbourhoods Overview and Scrutiny
Committee.

July 2012, Finance Scrutiny Committee
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Manchester City Council
Finance Scrutiny Committee
Item 7
12 November 2012
1.0
Introduction
1.1
The Council is in a Private Finance Initiative (PFI) contract with a Special
Purpose Company (SPC) called Amey Highways Lighting (Manchester)
Limited (“The Service Provider”). The Service Provider has subcontracted its
construction and operational obligations to Amey Local Government Limited.
1.2
The Project Agreement of the contract relates to the provision and
maintenance of public lighting in the City of Manchester from July 2004 to
June 2029 – a 25 year PFI.
1.3
The Project Agreement contains change provisions that allow the Council or
Amey to propose changes to the Project Agreement. However, neither party
may unilaterally impose a change on the project. To date several changes
have been agreed, but these have been accommodated within the existing
funding profile.
1.4
Considerable work was carried out in advance of the Project Agreement to
establish that value for money was going to be achieved. A measure of the
success of what was being proposed was that the Authority obtained
approximately £2.9M per year, in PFI Grant Credits necessary for the project
to proceed. Not all Local Authorities have been successful in securing a street
lighting PFI. The Project Agreement was also scrutinised by 4ps (Public
Private Partnerships Programme) and the Department for Transport, who,
together with the Authority’s Advisers (Pricewaterhouse Coopers and
Addleshaw Goddard) recommended that the Authority proceed with the
contract.
2.0
Background
2.1
The existing PFI contract is designed to replace and upgrade street lighting
within the City with Amey assuming responsibility for the management,
design, installation and ongoing repair and maintenance of the Council’s
entire lighting stock including; lighting columns, lit signs, lit bollards, subway
lighting, amenity lighting and associated feeder pillars.
2.2
The contract secures four major aspects of the street lighting service
provision ;
2.2.1 The Initial Apparatus Renewal Programme (IARP), or Capital Replacement
Programme, resulting in the replacement of 41,698 lighting columns within the
first 5 years. The replacement programme represented over 70% of the street
lighting in the City at the start of the contract. This phase has been
completed.
2.2.2 The Annual Apparatus Replacement Programme (AARP), this encompasses
the remaining 30% of the initial lighting inventory and will include the
identification of all equipment to be replaced on an annual basis.
2.2.3 Planned (lifecycle) maintenance of all the apparatus, relating to electrical and
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structural testing, inspection, cleaning and bulk lamp replacement.
2.2.4 Reactive maintenance of all apparatus, dealing with faults and rapid
attendance (emergency) requirements.
2.3
All risk in the apparatus is the responsibility of Amey. This includes vehicle
accident collision and cost recovery, vandalism, premature failure of
equipment, graffiti and fly poster removal and emergency attendance
requirements.
2.4
The performance of Amey is controlled by six performance standards, actual
performance is monitored by the Council. These include; assessment, design
and renewal or refurbishment and accruals, apparatus performance and
planned maintenance, operational response, customer interface and contract
management, best value and working practices.
2.5
At the end of the contract, all apparatus will be handed back to the Council
with a minimum of 5 years residual life.
2.6
The Council retains the responsibility for the management, procurement and
payment of the electrical energy and carbon emissions associated with the
apparatus.
2.7
It is the projected increases in energy costs and carbon reduction targets that
have led to a review of the technology available. During the life of the contract
to date, there have been significant advances in LED technology and the
performance of LED lanterns.
2.8
The current street lighting electrical energy cost is circa £3M pa.
3
LED Retrofit Proposal
3.1
During the life of the contract to date there have been significant advances in
low carbon technology, particularly LEDs (light emitting diodes) and the
performance of LED lanterns. Given the projected increases in energy costs
and these technological advances, it has become increasingly viable to
investigate the installation of LED lanterns across all of Manchester. This
would require substantial capital investment, and take several years.
However, it would deliver various long-term benefits to the city:-
3.1.1 To significantly reduce the carbon emissions associated with street lighting
apparatus.
3.1.2 To deliver substantial savings in the long term running costs of the PFI.
3.1.3 To reduce the Council’s financial exposure to increases in energy prices and
CRC taxation through substantial energy consumption reduction.
3.2
The reason to re-examine the LED solution now is threefold. Firstly, many
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12 November 2012
local authorities are re-examining their PFI contracts for long-term
efficiencies, given the need for savings in all areas. Secondly, the pace of
change in LED technology has now reached a level where it is a good time to
employ these devices. The third reason is the governments Carbon
Reduction Commitment Energy Efficiency Scheme (CRC) and our climate
change action plan ‘Manchester – A Certain Future, Manchester City Council
Delivery Plan 2010 – 2020’. At the current (CRC) rate, the financial impact
would be circa £200k pa.
3.3
In addition to the use of LED lanterns the application of a Central
Management System (CMS) would give the capability to implement adaptive
lighting control. This flexibility allows the direct control of the switch on /
switch off times, the option to operate reduced lighting levels during times of
low vehicle / pedestrian activity and the facility to increase light levels if
required for example in responding to a request from the emergency services.
It is a feature of LED technology that enables any switch on / off or change in
light output to be instantly applied.
4
Cost of LED Retrofit Proposal
4.1
Following initial discussions with Amey the Authority has received a high
level proposal offering a range of ‘invest to save’ options based on predicted
energy and carbon tax levels for the installation of LED lanterns to the
existing street lighting columns.
4.2
The assumed costs and savings are based around interlinked elements
4.2.1 Replace lanterns in residential situations only, estimated at 42,000 lighting
points. At an estimated cost of £18.44M. An average of £439 per lamp
standard
4.2.2 Replace lanterns on traffic routes only, estimated at 12,700 lighting points. At
a cost of £11.2M equivalent to £881 per lamp standard. This is an increase
over the residential routes as some standards have multiple lights
4.3
To give total control and flexibility of an LED solution it is recommended that
the Provision of a Central Management System (CMS) to control the street
lights across the Authority, enabling full functional flexibility to dynamically
manage lighting levels and switching of individual or group control from the
desk top. This will also enable real time management of all the street lights to
be aware of any lighting issues or lighting intervention required at immediate
notice. At an estimated cost of £8.8M. We believe that this would give the
Authority more flexibility and control and is likely to lead to greater savings
and would form part of the in-depth analysis and negotiation of any LED
solution.
4.4
The figures below indicates the projected levels of savings, based on the 23
year life of the LED equipment, and capital expenditure for the range of
investment options in LED lighting. The indicative model provided by Amey
identifies a number of projected savings:-
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12 November 2012
4.4.1 Energy savings based on two scenarios (1) the existing un-metered energy
rate of £0.0955 kWh plus a 23 year average uplift of 4% and (2) the existing
un-metered rate of £0.0955 kWh plus a 23 year average uplift of 7%
4.4.2 Carbon Saving figures are based on an annual saving of 10,000 tonnes of
CO2 and an assumption that CRC tax will increase over the 23 year life of the
equipment to an average of £20 / tonne. This saving is an avoidance of
potential future costs as street lighting is currently exempt from CRC until
2014.
4.4.3 The maintenance savings identified come principally from the removal of the
bulk lamp change requirement, elimination of Night Inspections and
significant reduction in reactive maintenance volumes
4.4.4 The potential savings indicated are dependent on detailed investigation of
both the high level savings plan put forward by Amey and further detailed
negotiations and the projected uplift in the cost of electricity supply are
between £22.6 and £45.3M
4.5
This model can only provide a general indication of the potential savings from
the project. It combines genuine cashable savings against current
expenditure with future savings through cost avoidance, which will mitigate
future budget pressures.
4.6
The model will require considerable analysis and refinement in order to
generate a definitive forecast of the actual savings that can be generated
from the proposal.
5
Financial Mechanism
5.1
The financial principle underlying the Project Agreement is the payment to
Amey of a contractual annual payment. This payment is payable in equal
monthly payments, the Monthly Unitary Payment (MUP), subject to
fluctuations within the financial model. This payment includes both the
repayment of the Initial Investment (circa £4M pa) and ongoing maintenance
(circa £3.1M pa).
5.2
Mechanisms exist to make deductions for any under performance to
compensate the Authority and to incentivise Amey. The Project Agreement
details the performance required and the Payment Mechanism details the
costs in relation to any deduction for poor performance.
5.3
It is proposed that the LED retrofit project is monitored and invoiced similarly to
the Initial Apparatus Replacement Programme ‘IARP’ period of the PFI
contract . This was the replacement of 41,698 columns within the first 5 years
of the contract In essence, a fixed total cost is agreed and proportioned
against the total number of units identified and agreed between the Authority
and Amey. The fixed unit fee will then be paid monthly (within the Monthly
Monitoring Report (MMR)) by the Authority to Amey based on the number of
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units completed and submitted in the MMR. The risk of any missed or omitted
units and associated additional cost to apply and fit an LED lantern shall lie
with Amey.
5.4
The Electricity Costs Adjustment (ECA) clause (and associated payments)
shall be removed from the PFI through negotiation with Amey. The ECA
relates to electrical energy consumption forecast against actual electrical
energy consumed, when the actual consumption is lower than the forecast
consumption the Authority shall pay the difference to Amey as an ECA
payment in accordance with contractual clauses. The implementation of the
LED proposal would include the removal of this clause from the contract.
6
Other Services
6.1
In addition to the Street Lighting PFI Contract, Amey also undertake a number
of other works outside the main PFI contract. These include: the installation of
festive lighting in local District Centres - Christmas tree lights and column
mounted motifs (funded by a combination of the Authority including Cash
Grants and Community Groups, circa £40k pa); the design of lighting /
highway electrical schemes as required and the installation / removal of
highway electrical equipment in conjunction with highway improvement
schemes (funded by various capital / revenue streams, circa £260k pa).
6.2
Up until four years ago, Cash Grants were occasionally used to fund the
installation of additional lighting units in identified Crime and Disorder areas.
These units were subsequently accrued into the PFI contract.
6.3
The design service is provided as part of the partnering approach to the
contract. Amey provide the service in the absence of an in house design team.
There is additional benefit in this process as it negates the additional cost of
the contractual right for Amey to check and approve any third party designs for
schemes that will be accrued into the contract. This check and approve
process is chargeable to the applicant, for which the scale of charges are
included in the contractual clauses.
6.4
The installation / removal of highway electrical equipment is delivered through
an agreed schedule of rates which has been subject to benchmarking through
Manchester Contracts.
7
Recommendations
7.1
The Committee is requested to note this report
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Manchester City Council
Finance Scrutiny Committee
Appendix – Item 7
12 November 2012
LED LIGHTING REPLACEMENT
FREQUENTLY ASKED QUESTIONS
WHY IS THE COUNCIL DOING THIS?
The Council is looking at ways to reduce future expenditure. It currently spends about
£3M a year on energy for street lighting. It is anticipated that moving to an LED
solution will save in excess £1.5M a year at current prices and minimise the impact of
future rises in energy prices.
WHAT ARE OTHER COUNCIL’S DOING?
As well as looking at LED solutions, a number of other Council’s have undertaken a
variety of initiatives designed to reduce energy costs / carbon consumption. These
range from implementing Part Night switching, installation of control systems to
reduce light levels and switching lights off altogether.
WHY IS AN LED SOLUTION BEING PROPOSED?
The current technology allows the use of LED’s to deliver savings in energy and
reductions in carbon consumption as well as reduced maintenance costs which will
provide significant savings..
HOW LONG WILL THE LED’S LAST?
The predicted life of LED street lights is now around 25 years. During that time they
also need less maintenance, with a cyclic maintenance visit only every 6 years as
opposed to every 2 to 3 years for the current lighting equipment.
WILL THE LIGHTING LEVELS CHANGE?
The new lighting will be designed in compliance with the British and European
Standard for street lighting. The latest edition does allow some reduction of lighting
levels on traffic routes and the use of adaptive lighting levels on residential roads.
WHAT IS ADAPTIVE LIGHTING?
The system of adaptive lighting allows the direct control of street lights from a central
point. This enables a controller to raise or reduce levels on any given street or area
as required. This could mean raising levels in an area in response to a request from
the emergency services or reducing the levels on residential street during the early
hours of the morning. The use of LED’s makes this technology far more adaptable
and responsive.
HOW MANY LIGHTS ARE AFFECTED?
In total 42,000 street lights on residential streets and 16,700 street lights on the main
roads will be fitted with new LED luminaires.
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Manchester City Council
Finance Scrutiny Committee
Appendix – Item 7
12 November 2012
WHO WILL DO THE WORKS?
The work will be carried out by Amey Highways Lighting (Manchester) Ltd, the
Council’s Street Lighting Provider as they currently maintain all the existing street
lighting assets for the Council.
WHAT BENEFITS WILL THE PROJECT BRING TO MY AREA?
The new lighting will be state-of-the-art and will include the ability to adapt the level of
lighting, reduce energy costs and reduce CO2 emissions across the City.
The use of LED’s on main roads could assist in the reduction of crime and night-time
traffic accidents, and will also make CCTV images clearer, improve visibility, and help
to ensure that pedestrians, cyclists and drivers feel safer.
The new lighting will also help to automatically identify faults.
WILL THE NEW LIGHTS BE BRIGHTER / DIMMER / A DIFFERENT COLOUR TO
THE ONES THEY’RE REPLACING?
All the replacement lighting will be ‘white’ light. On residential streets around half of
the existing lights are currently ’white’ so there will be little difference in the
appearance. On the remainder and on the main road network the new ‘white’ lights
will appear brighter than the existing lights.
WILL THE LIGHTS SHINE IN MY WINDOWS?
The new lights will be a direct replacement for the existing units. They are designed
to reduce light pollution and avoid the intrusion of light into people’s homes and
gardens.
WILL THERE BE DISRUPTION WHILST THE WORK IS BEING CARRIED OUT?
The scheme has been designed so that the new lights will fit directly onto the existing
columns this avoiding the need to carry out any excavations.
We will carry out work in residential areas from Monday to Friday, between 8am and
approximately 6pm
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