Southwark Council is poised to shelve its plans for a multi-utility services company (MUSCo) to provide heating, cooling, electricity and communications to developments constructed as part of the Elephant & Castle regeneration.
In 2006 the then Lib Dem-led Southwark Council announced plans to provide locally generated heat, cooling and electricity for the thousands of additional homes and businesses planned for the Elephant & Castle area.
Two years later a consortium led by Dalkia was selected as the council's commercial partner for the scheme.
The consortium planned to build a biomass combined heat and power plant (wood chip boiler and steam turbine) at Mandela Way and to draw a water supply from a chalk aquifer 100 metres below ground.
There was also a proposal for an open access fibre optic communications network to provide voice, data and television networks to residents.
Next week Southwark Council's Labour cabinet is expected to rubber-stamp a proposal to axe the MUSCo scheme.
"It is with disappointment I recommend that work should cease on the multi-utility services company (MUSCo) project," writes Cllr Fiona Colley, cabinet member for regeneration, in a paper prepared for next week's meeting.
"It is regrettable that we are unable to conclude this project with our preferred bidder, but we had to be absolutely certain that their proposal presented best value for the council, was a workable model with which to proceed, and that it presented no material risks to the regeneration projects going ahead. We were not satisfied that this was the case."
She added: "We retain our zero carbon growth strategy for the Elephant & Castle development and, in accordance with the London Plan, a major part of this must be through the use of renewable sources of energy and low-carbon technology."
The council says that there is a lack of certainty around the Dalkia consortium's financing arrangements and it is no longer willing to take on full commercial, build and load risks it had proposed in its original submission.
Under the terms of the regeneration agreement between the council and Lend Lease for the redevelopment of the Heygate Estate land, there is an obligation for the two parties to work together to to establish an alternative solution.
"This is bad news for local residents and bad news for the environment as the Musco could have provided cheaper, greener heating and hot water for local estates across Borough and Bankside," says Cllr Paul Noblet, Southwark Lib Dem spokesman on regeneration.
"Potentially commissioning Lend Lease and a new team of consultants to deliver what could be a less green solution would appear to eat further into the council's profits cutting the amount of cash that should be being invested in local facilities such as a new swimming pool.
"The council also needs to explain what the need for a bigger site for the power station will mean for local people. Will it mean giving away a piece of land for free, reducing the amount of affordable housing being built at the Elephant or potentially building on green space?"
Jenny Jones, Green Party member of the London Assembly, said: "This is all about cuts, not viability. Similar schemes have worked on a much bigger scale all across Europe. The council needs to urgently explain how it will meet its climate and energy targets without this flagship scheme.
"Elephant & Castle is losing one major regeneration plan after another following bungled Government cuts. We are supposed to be heading towards a quarter of London's energy being delivered through schemes like this by 2025. Instead, yet another major energy project is cut, our energy and climate targets are thrown into doubt and the people of Elephant lose out."