Generation cost measure labelled ‘blunt instrument’

The government’s key measure of electricity generation costs has been described as a “blunt instrument” by an MP who is championing plans to use the Mersey for a pilot tidal power project.

Mick Whitley, Labour MP for Birkenhead, called for a rethink of the levelised cost of energy (LCOE) mechanism, which he claims hinders technologies such as tidal.

Whitley issued the plea during a Commons’ debate in which he backed Liverpool metro mayor Steve Rotheram’s proposals for a tidal range pilot.

He cited previous failed attempts to get tidal projects off the ground as reason to reconsider the LCOE mechanism.

In particular, Whitley pointed to the failed Swansea Bay scheme which was ruled out by ex-energy secretary Greg Clark in 2018 on the grounds that the project’s LCOE would be higher than low-carbon alternatives.

The LCOE is the formula used by the government to work out the costs of projects per MwH of electricity they generate over their lifetime.

In his statement outlining the decision, Clark told MPs that offshore windfarms could generate the same amount of electricity for a third of the estimated £1.3bn construction cost of the proposed tidal lagoon.

However, Whitley said that the “fundamental question” of different types of energy projects’ value for money “needs revisiting”.

“Principally, that means adopting a whole-systems approach when assessing cost-effectiveness,” Whitley said.

“The levelised cost of energy can be a useful tool, but it can also be a blunt instrument when it comes to gauging the comparative costs of renewable and low-carbon energy sources that fails to take into consideration the additional costs of solar and wind generation caused by grid transmission constraints, rebalancing and storage.”

He said that while Contracts for Difference could be used for the development of smaller tidal range projects, they are “clearly not suitable” for supporting larger GW scale schemes.

Whitley added that a regulated asset base (RAB) type of arrangement, like that adapted by the government for nuclear plants, should be extended to tidal power projects.

The RAB, best known for its use in the Thames Tideway ‘super sewer’, enables investors to recoup income while a project is being developed rather than have to wait until it is complete and generating revenue.

The MP said the Mersey’s “relatively short estuary with shallow waters” makes the area the “ideal location” for a commercial pilot tidal range project, which would generate enough electricity for a million homes.

By assigning the Mersey project as a pilot, the government could begin to resolve issues around regulation, planning restrictions and environmental impact before focusing on larger schemes, such as the 7.8GW tidal barrage being proposed in Morecambe Bay, Whitley said.

There is potential capacity along Britain’s west coast for up to 20GW of tidal generation, which would be enough to meet approximately 12% of the country’s electricity needs, he said, while offering a more reliable source of power than intermittent solar and wind.

Whitley added that the UK is “uniquely positioned” in the world to harness the power of its tides, citing figures that 100% of the world’s tidal resources, and half of Europe’s, are found in Britain.

Junior energy minister Amanda Solloway, responding on behalf of the government, said tidal shows promise as a “large-scale, fully predictable and non-weather-dependent source of power”.

The technology could also yield energy-system benefits by balancing the grid against variable renewable sources such as wind and solar, she said.

And with suitable sites being close to centres of high demand, such as Liverpool, tidal range could “circumvent” the need for extensive grid connections, Solloway added.