The council says it was forced to pull out of the deal, designed to supply heating to 3,000 homes, because it was let down by its private partner, Utilicom.
The company argues it was not happy with the proposed penalty Camden was proposing if the combined heat and power system broke down.
Camden's losses stem from preliminary work done to upgrade the existing systems.
Camden began work on the scheme with another company, Citigen, in the early 1990s. It pulled out of the deal after a takeover and Camden asked Utilicom, Citigen's former parent company, to take on the deal.
Utilicom then changed the terms of the deal. This, according to a council report, 'made the package less attractive to the council'. The council says attempts to overcome differences were then 'hampered by Utilicom's unwillingness/inability to resolve them'.
Camden says there were several sticking points, including suspension of contractual rights in the first six months of the scheme, a cap on liabilities and an extension of the period under which the council should pay a fixed fee for heat supply from five to 10 years.
The council report points to a credit rating study by Dunn & Bradstreet which showed Utilicom to be a 'significant risk'. In addition, the council cites the uncertainty surrounding partnerships with the private sector thrown-up by the Allerdale judgment.
But Utilicom chief executive Simon Woodward said the problem boiled down to the company's proposal to put a cap on liquidated damages.
Under the proposals, Utilicom would lose revenue and also face a penalty if the heating system failed.
The company said the cap was a six-figure sum and was 'in excess of the largest failure the council had experienced'.
Mr Woodward said the cap was so high that if it had been reached the council would have been entitled to take court proceedings to terminate the contract.
He maintained that the company was 'financially robust' and pointed to a 10-year-old deal with Southampton City Council as proof of its ability to make projects work.