TORY council chiefs have severed ties with the company that failed to deliver a £50m district heating scheme in Southampton and called for an inquiry into why it swallowed around £2m of taxpayer cash.

Councillor Matt Dean, Cabinet member for environment, said the scheme to build a 50MW combined heat and power (CHP) plant at a dockland site to provide cheaper heat to 3,500 homes and schools in Millbrook was now dead as a council project.

As previously reported Tories turned off the funding tap earlier this year after it was revealed £1.97m - largely met from council tenants rent money - had been spent pursuing the scheme since 1999 and that a deal to find a firm to build and run the CHP plant looked unlikely. Seeda, the regional development agency, also pulled a £4.5m grant which it had already been extended.

Solent Sustainable Energy Ltd (SSEL), the not-for-profit company set up by the council in 2005 to progress the flagging scheme, were warned last year that the proposed fuel source for the CHP plant - palm oil - was too costly, had supply problems, and was not considered sustainable. They latterly turned their attention to alternative bios-mass such as waste wood.

However they failed in a last ditch attempt to find an interested operator after a tender this summer.

Cllr Dean said he was now withdrawing council representation on the board and said SSEL's future as a stand-alone energy company "was a matter for them".

Cllr Dean backed an inquiry into the waste of taxpayer cash: "Whenever you get a major project, you should have some form of review at the end of it. Why not?"

He said it was for councillors to request one and said he would fully to co-operate.

The chairman of the council's overview and scrutiny panel councillor Simon Letts said he would refer the matter to the audit committee if raised.

Most of the spending on the CHP project was overseen by the council's former Lib Dem administration.

SSEL, whose directors include Test MP Alan Whitehead, was unavailable for comment.