South Somerset Opium Trip
There is some good news at last from South Somerset District Council (SSDC) regarding its investment in battery storage. The first part of the site in Fareham is up and running and making profits. According to papers presented to SSDC’s Executive yesterday, £900k for the first half of the year to 31 March 2023.
To recap, SSDC set up a joint Venture with Opium Power Limited to operate a battery park near Taunton. This business is controlled by SSDC but the shares are spilt 50 (SSDC) to 50 (Opium Power Limited). SSDC Opium owns 100% of two other battery park companies based in Hampshire: Fareham Energy no 1 and Fareham Energy no2. All the funds (£42m) to pay for the project have been provided by SSDC. They are to be repaid under loan agreements which give SSDC an income in the form of interest on the loans.
The investment in battery storage facilities has been dogged with misfortune and missteps. Errors with VAT payments, delays, not realising there was a ransom strip between the Taunton battery park and the substation it needed to connect to, and then the misfortune of a lightening strike on the facility.
SSDC have admitted that this is a complex investment. £4m was written off the value of the investment recorded in the accounts for 2020/21. The question is whether it is too complex for a public authority to operate.
All that said, there is little doubt the concept is a good one. The business case appears to be sound and it looks as if it is now generating a decent return. Battery parks take energy from the grid at times of surplus and return it in times of need. With green energy becoming a bigger part of the generating mix, batteries are becoming more important. Power from solar and wind energy is more variable by its nature. Having battery storage to iron out the peaks and troughs is essential. This is all good news for South Somerset taxpayers. But it is a complex operation and SSDC have struggled to understand the accounting required for it.
That financial naivete has been demonstrated again in the paper before the Executive. They are being asked to approve a £900k dividend to the shareholders of SSDC Opium. Although Fareham has made £900k profit, there is no mention of the trading position of SSDC Opium. Fareham is a 100% subsidiary of SSDC Opium. No sensible business would pay a dividend based on the results of one subsidiary company, without looking at the performance of the group as a whole.
A separate assessment of the financial position of SSDC Opium should be undertaken. That would determine whether it is appropriate for SSDC Opium to pay a dividend to its own shareholders. None of this work has been included in the presentation to the executive.
In theory, if SSDC Opium were losing more than £900k, it is possible that the proposed dividend would be illegal. It is probably not the case. The important thing here, is that the Executive do not know this as the information is not included in the papers.
There is one other significant omission in the paper. It arises because the paper focuses on Fareham Energy No1 and not the whole group. The Executive have been told “To date, the loan repayments, including interest, have been made in accordance with the agreements.” It is important for the Executive to consider the risk of loan repayments not being made. That should determine whether any surplus is better deployed paying a dividend or repaying SSDC’s loans.
Back to the statement that all loan repayments have been made on time. This is true for Fareham Energy No 1. It is not true for SSDC Opium, where all the loan agreements had to be rescheduled. This was precisely because the company could not make repayments on time because of the delays to the project. The Executive have not been given this information which is surely relevant in making the decision on paying a dividend.
Why is this request raised in one of the last meetings before SSDC becomes subsumed in the new Unitary Council? The request to pay a dividend was made in November 2022. That perhaps is a question best left hanging….
Someone needs to remind the directors of SSDC Opium of their duties under Company law and the deal under which SSDC lent all the money to pay for the assets for only half the shares needs to be investigated. What were SSDC’s investment committee thinking when they decided to take such big risks with public money?