The award-winning, woodchip-fuelled project was scheduled to start last September but it encountered delays and, eventually, Wick councillor Graeme Smith, chairman of the company behind the scheme, Caithness Heat and Power (CHaP), gave up making predictions.

Yesterday (Tuesday) he welcomed the takeover by the council which, he said, was certain to "finish the job".

His confidence was shared by Wick member Katrina MacNab, one of six Highland councillors appointed to the new board of the power company and charged with the task of getting it back on track. She said that the council had the necessary resources and expertise. It is thought, however, that the authority might involve the private sector in the scheme.

The decision to step in and take over the running of the innovative scheme, which is aimed at delivering cheap power to 500 homes in Pulteneytown, was taken by the council at a private meeting at the authority's headquarters in Glenurquhart Road, Inverness, on Friday.

The new cross-party board will be supported by senior council officials. It will replace the three-man board, chaired by Mr Smith.

His fellow directors were David Dunnet, representing Pulteneytown People's Project, and Derek Sinclair, a senior executive with Inver House Distillers Ltd. The heating plant is based at the Pulteney Distillery.

The plant's mission was to reduce domestic bills by supplying hot water and central heating to the Pulteneytown homes through a system which heated woodchips in a gasifier and fed the resulting gas into a generator to make electricity, some of which would be fed into the national grid.

In a statement after Friday's meeting, the Highland Council said that its intervention had been "necessary because of delays in commissioning the plant" which could, with the authority's support, now be "re-energised". Another factor, not mentioned in the statement, was that continuing delays could have resulted in a £4.4m guarantee given by the council being called in. The authority has already committed £1.6m to the scheme and, to date, 240 local homes benefit from cheap heat and hot water, using oil.

Council convener Sandy Park said that the decision to take over CHaP had been a unanimous one. He underlined the authority's commitment to the scheme and made it clear that its role would go further than assuming responsibility.

Mr Park said: "It will require the council to provide operational and development funding. Clearly, a priority is to ensure that we maintain a supply of heat and hot water to the neighbouring homes."

The convener said that everyone concerned had been consulted and agreed that the takeover was "the best way forward". He added: "The council is obviously keen to support sustainable approaches to energy production in the Highlands, particularly in areas vulnerable to fuel poverty."

Mr Smith, who has chaired CHaP since it was formed in December 2004, endorsed the decision taken – and not just because the council had decided it could no longer continue to be guarantor with the bank for further extensions of the company's overdraft.

He said: "My board felt that the council would be able to monitor things more closely and be more flexible with situations as they arose. The timing was appropriate as we had, despite technical difficulties, proved that the innovative scheme was capable of generating electricity, through woodchip-fuelled trials. We had built up some liability and were running well behind schedule so we are content to step aside and let others take the scheme forward."

Mr Smith said that his board had taken it as far as it could but "a fresh pair of eyes" was now needed to move the scheme forward to completion.

He went on: "I am disappointed that we fell behind schedule but very proud that we were able, with fairly minimal resources, to take the project to the point of generating electricity from wood fuel and pleased that the council is to take up the baton."

Mr Smith said that his board had budgeted for a four-month slippage in the schedule, not a 14-month one, and admitted: "In retrospect, I was slightly naive in some of my dealings with various people". However, he declined to give details.

He suggested that there might be an opening for the private sector to become involved – depending on the profitability of selling electricity to the national grid.

Wick councillor Katrina MacNab said it was clear that there were issues with the project that the old board was not going to resolve and this was putting the scheme under threat.

She said that cash-flow problems experienced by the board had been caused by the slide in its schedule and went on: "They had anticipated being in a position where they were to have been receiving income from the sale of electricity from the system, whereas it was continuing to run on oil."

Mrs MacNab said: "We can finish the job, not because there is any question of the new board being better than the old one, but because the council is a big organisation with the necessary expertise to carry it through."

She declined to give a personal prediction of when that might be in advance of a briefing on the up-to-date position at the first meeting of the new board in Wick on Friday.

Its directors, in addition to Mrs MacNab, are fellow councillors Jimmy Gray, provost of Inverness and leader of the Labour group; Jean Urquhart (SNP), chairwoman of the audit and scrutiny committee; David Henderson (Lib Dem), Inverness; John Laing (ind) Eilean a Cheo, chairman of the TEC services committee; and Ian Ross (Lib Dem), East Sutherland and Edderton, chairman of the planning, environment and development committee. The new board has yet to appoint a chairman.

When the ambitious, trailblazing scheme was first launched, it was reckoned that it had the potential for development to play a secondary role in cutting the fuel bills of big consumers, such as Caithness General Hospital and the Assembly Rooms.

When phase one of the project was inaugurated at the Pulteney Distillery two years ago – the switching-on of a boiler unit – Mr Smith predicted, it would "grow and grow" and as funding became available, enhance CHaP's goal to provide cheap heat for "as much of Wick as possible".

It was claimed that water and central heating would cost the Pulteneytown residents between £8.50 and £9.50 a week, depending on the size of their homes, and it was estimated their bills would rise by no more than the retail price index over the next five years when utility charges were expected to increase by 40 per cent.

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