SOUTHAMPTON'S flagship combined heat and power scheme could be under threat.

City bosses are drawing up a £100,000 rescue package for the troubled project after it was revealed that original plans to provide the power for the scheme using gas turbines are no longer financially viable due to rocketing gas prices.

They plan to form a "not for profit" company which will provide a cheaper generator than that which was originally to have been supplied by Nursling Generating Ltd - the firm originally charged with building the gas generator for the plant.

The rescue package will involve the plant - which was due to provide cheap heat and unlimited hot water to thousands of homes in the city within the next two years - being powered with bio-ethanol, a fuel which is made from sugar.

In an emergency report presented to city bosses, environment chiefs revealed that the council could lose a £6.9m grant from the Energy Savings Trust which would have helped pay for the scheme if the "not for profit" scheme wasn't set up.

Now the council has until March to approve the revised plan - or risk losing the chance of building the £40m plant.

The new financial deal must come back before the Cabinet for final approval next year.

Cabinet member for housing and homes Councillor Paul Russell said: "This CHP district heating scheme development is an exciting and innovative project that has the potential to benefit thousands of local people in Millbrook, the surrounding area and the environment. The council has always been behind the idea.

"Although another hurdle has been placed in the way, we are still as committed as ever to delivering this project, albeit with a different energy form and new company arrangements."

But Tory group leader Councillor Alec Samuels said the council was "risking public money" by stumping up cash for the project.

He said: "It gives me no pleasure to say 'I told you so' and I did not expect to say it so soon.

"The risk is to be carried by the council and public money. The first step in this project was a failure and the second step looks to be very speculative indeed."

The controversial project first surfaced in 2001 when energy chiefs tried to build a plant at Nursling but it was thrown out by Test Valley planners at a public enquiry.

Construction work on the complex, which was set to be built on land at Redbridge Lane next to the M271, was due to begin in September and be completed by 2006.

Residents were also due to receive unlimited supplies of hot water from the plant from early 2007.

It would provide cheap power for nine schools, nine social services buildings and 3,440 homes in Millbrook and Maybush.

The revised scheme was referred to the office of the Deputy Prime Minister because it contravened the council's local plan drawn up in 1995, which stated the council should not build on so-called "greenfield" sites.