Swansea Bay resurfaces

All but written off less than a year ago, the Swansea Bay tidal lagoon project is back, as its developers attempt to strike power purchase agreements with customers. David Blackman reports.

Last summer, it looked like the Swansea Bay tidal lagoon project was well and truly sunk.

After months of wrangling, which pitted the entre Welsh political establishment against the government in Westminster, business and energy secretary Greg Clark announced in June that he would not back Tidal Lagoon Power’s (TLP’s) plans.

But what seemed destined to become a footnote in UK renewable energy history spluttered back into life last week when it emerged that the project’s developer is pursuing plans that would avoid the need for public support.

According to a report in The Guardian, the company is exploring the establishment of power purchase agreements (PPAs) with companies to buy the electricity generated by the lagoon. By sealing these agreements, the idea is that the company would no longer need public support.

But the announcement has raised eyebrows among those who have kept a close eye on the project’s evolution.

Unlike many renewable energy projects, the tidal lagoon would have substantial capital costs that will take decades to pay back.

The concrete wall itself, which would create the lagoon and house the project’s 20 turbines, will be 9.5 km-long.

Mark Shorrock, chief executive of TLP, admitted under cross-examination by the House of Commons BEIS (business, energy and industrial strategy) select committee last year that the strike price for electricity generated by Swansea Bay project would have to be £150/MW hour.

This was on the basis that the project had no public support and received a 35-year contract for difference (CfD) similar to that secured by EDF for the Hinkley Point C nuclear plant.

Richard Howard, head of research at Aurora Energy, says: “They were looking for a long-term contract at a rate substantially above the wholesale price of power.”

TLP has been tight-lipped about the details of the package it is discussing with prospective customers.

But PPAs tend to be much shorter arrangements than CfDs, says Howard: “Typically PPAs are five to ten-year arrangements.” And financiers are generally reluctant to back a project that relies on a PPA that is any longer than this, he adds. “The amount you would pay is normally the wholesale price, which is quite a long way below the strike price that TLP was after from the government.”

Dr Jonathan Marshall, head of analysis at the Energy and Climate Intelligence Unit (ECIU), wonders whether the lagoon’s backers are anticipating much higher wholesale energy prices in the future.

What may help cut the cost of the project is using private wires to transmit the electricity to its customers, which would cut out the need for network charges, says Howard: “If you are providing through a private wire, you are competing against the retail cost which for major energy user may be double the wholesale price.”

But private wire will only be cost effective if the customer is within a relatively short distance, like Cardiff Airport, one of the lagoon’s prospective customers.

In a statement issued to Utility Week, TLP’s business development manager Chris Nutt says: “The combined effects of low cost of capital and long-term off-take agreements with attractive pricing mean that over the operating life of the lagoon, buyers can hedge against future shortfalls, be part of this iconic landmark and a low-carbon change to our infrastructure – something that their customers care deeply about.”

Also, the installation of floating solar panels on the 11.5 square-kilometre lagoon could also make the project easier to finance.

The mooted extra generation capacity of 200MW would make the lagoon one of the biggest solar farms in the UK.

Howard suggests the solar panels could also help to optimise the lagoon’s operation.

For starters, the extra capacity would make it more cost effective to provide grid connection infrastructure. “Solar will be generating at different times so you can optimise your grid connection.”

And excess solar electricity generated at times when wholesale prices are low could be stored in batteries and then released to pump water into the lagoon, boosting the flow through the turbines.

Meanwhile the bigger picture for renewable energy has changed since Clark’s announcement last summer. Plans for new nuclear plants at Moorside and Wylfa have collapsed. With just one new large-scale nuclear plant – Hinkley – likely to be generating by 2030, the widening gap in the UK’s power plans has given TLP the chance to make a fresh pitch.

Doug Parr, head of policy at Greenpeace, estimates that the UK will need more than 200 terawatt-hours of extra low-carbon power by 2030 to meet its greenhouse gas reduction targets.

“The suspicion is that the government has not internalised the combination of the failure of the nuclear programme and decarbonisation: they haven’t put two and two together. We know they are distracted by Brexit but there looks to be quite a big lacuna in the low-carbon delivery framework.”

But the jury remains out on whether Swansea Bay lagoon should be part of the solution. The ECIU’s Marshall believes it is “hard to see” how the lagoon can stack up. “If they can do it, brilliant, but it’s hard to see what the next step is. It still looks like a punt.”

And one environmentalist says he remains “deeply sceptical” about the most recent plans for the lagoon. He says: “If they can achieve this, it’s fantastic and would be genuinely good but we shouldn’t depend on unicorns.”