Is the tide turning in favour of tidal lagoons?

Tidal lagoons have received a boost with the positive endorsement of Hendry’s review. Mathew Beech and Tom Grimwood report.

Tidal lagoons are the renewables flavour of the month. The promise of relatively low-cost, predictable generation that would boost the UK economy has won plenty of fans. But is it too good to be true?

An independent review conducted by former energy minister Charles Hendry was published last week and it is overwhelmingly positive. It said tidal projects could represent “considerable value” when compared with other low-carbon technologies and the UK should “seize the opportunity”.

Others have also spoken in glowing terms both of the technology and the review, saying tidal technology – in particular the six projects planned by Tidal Lagoon Power (see box) – can play a “major role” in Britain’s low-carbon future energy mix. Proponents claim there is a “strong case” for the developments to be pursued.

The government’s role in backing the £1.3 billion Swansea Bay project – which was granted a development consent order in July 2015 – will be essential for the industry. It is a critical “pathfinder” project.

Business and energy secretary Greg Clark kept his cards close to his chest when responding to the review, saying only that he was “grateful to Hendry and his team”. He did say that “the issues are particularly complex as they relate to untried technology in the marine environment” and that the Department for Business, Environment and Industrial Strategy (BEIS) would consider the recommendations and determine what decision should be made.

A significant element of this decision will revolve around the industrial strategy element. The potential project pipeline – £15 billion of investment in six lagoons – would see more than 2,000 jobs created and 100,000 tonnes of mostly British steel used in the construction. It would be a lifeline for an ailing steel sector and something that would save jobs in the long term, according to UK Steel director Gareth Stace.

The good news continues when the carbon reduction is factored in. Tidal lagoon Power claims the Swansea Bay project would save 236,000 tonnes of carbon during each year of operation. This, and the subsequent projects, would take a significant step towards helping the UK hit its climate change obligations.

However, the £90/MWh that Tidal Lagoon Power estimates the Swansea Bay project would require from a strike price is close to that agreed for  the new nuclear power stations at Hinkley Point C and Sizewell (£89.50/MWh if both go ahead). And that strike price, agreed with EDF, has been criticised in many quarters as exorbitant.

The follow-up and full-size lagoons could make do with a lower contract for difference (CfD) strike price, estimated at £65/MWh. Those praising the technology call this “very competitive” with other sources of renewable and low-carbon generation – such as onshore wind, which currently costs around £70/MWh. However, this is still some way above the current wholesale energy price of £45/MWh, with wholesale prices are at two-year highs.

This has raised concerns with consumer groups. Citizens Advice chief executive Gillian Guy says the initial project, which will be funded via consumer bills for 90 years, is an “expensive option”.

She says: “While building tidal lagoons could bring benefits to the area, such as by creating new jobs and boosting tourism, we question whether it is fair for energy bill payers to pick up these costs where many of the benefits do not relate to the electricity being produced.”

These are the things Clark will have to consider during his deliberations on the future of tidal lagoons, and in particular the Swansea Bay project. Supporting tidal power may not be the cheapest option, but it would provide low-carbon generation, as well as a much-needed boost to the country’s steel industry and jobs for the local economy.

Clark’s decision will show how much the industrial strategy moniker that adorns the door of his department is central to its decisions.

Q&A: Charles Hendry – Review author and former energy minister

Q: What do you think would be a fair strike price for Swansea Bay?

A: “I can’t get involved in a commercial negotiation. Those negotiations are ongoing… We’ve seen headline figures in the past of very high CfD strike prices. That doesn’t take account of the digression over time because they are not fully linked to inflation. The CfD will be agreed at the time of the final investment decision. By the time the plant is operating a few years later it will already have come down. So, for the larger lagoons the expectation is that they will be below the cost of new nuclear from the time they start operating, and then it goes on digressing further for years after that.”

Q: How would the strike price for large lagoons compare to offshore wind?

A: “It depends where you look at them in the cycle. The price is going to be coming down for CfDs for tidal lagoons. So, if you look at it from the outset they are broadly comparable, but if you look at it over time, particularly over the lifetime of the project, then they are significantly better than any other technology.”

Q: The cost estimates in the report are based on the current assumptions of Tidal Lagoon Power. How confident are you in the estimates? Do you think they might be overly optimistic?

A: “They clearly have an interest in seeing to their own interests, but they have also done more work on this than any other organisation and the process of negotiation with the government is to bottom out exactly the accuracy of those figures. What I’ve sought not to do is to compromise the government’s ability to carry out those negotiations, which I hope will now continue apace, but say in the review where I think the costs are likely to come down over time.”

Q: You said it would be beneficial for Tidal Lagoon Power to have a partner. Who can you see taking on that role?

A: “I’m not going to list names, but there are names which we would recognise. If they’re involved, if they’re prepared to come in as an equity partner and put their own money into this, then it makes it more serious… We’d perhaps be looking for a company that has been doing very significant infrastructure projects before. Then there are other very big international organisations which perhaps haven’t done infrastructure projects in the UK but have a track record.”

Reaction:

Renewable UK chief executive Hugh McNeal

“It’s great to have this ­ringing endorsement of innovative technology and modern industry. The world’s first tidal lagoon in Swansea Bay can provide power for our national energy needs and create local jobs for decades to come.”

Good Energy chief executive and founder Juliet Davenport

“By kicking off a British tidal lagoon industry we are presenting the world with another awesome low-carbon option, and its British know-how that will be called upon should other countries look to take up that option.”

EY head of environment and energy finance Ben Warren

“Any support for the Swansea Bay tidal lagoon project appears, on the face of it, to be a rare piece of positive news for the UK’s renewables sector…

Currently, truly affordable clean energy from offshore wind and solar is being left to fend for itself while the benefits of subsidy are enjoyed by new nuclear and even fossil fuels.”

Citizens Advice chief executive Gillian Guy

“While building tidal lagoons could bring benefits to the area, such as by creating new jobs and boosting ­tourism, we question whether it is fair for energy bill payers to pick up these costs where many of the benefits do not relate to the electricity being produced.”

Business and energy secretary Greg Clark

“The issues are particularly complex as they relate to untried technology in the marine environment.”

Tidal Lagoon Power chief executive Mark Shorrock 

“With the publication of the Hendry Review we’ve hit ‘peak consensus’… Home-grown power from the tides, starting at Swansea Bay, is something we can all agree on: communities and ­investors, conservationists and industrialists, politicians of all persuasions and now an independent ­government review, all singing from the same hymn sheet.”