Tidal lagoon power: worth the cost?

Tidal lagoon power looks primed for take-off, after confirmation from chancellor George Osborne, in his pre-election Budget last week, that the government has opened talks on the provision of financial support for the Swansea Bay Tidal Lagoon project. Yet, with an eye-watering estimated strike price of £168/MWh, is the project worth the money?

Citizens Advice believes not. In response to a recent call for evidence, the consumer group points out that the price “exceeds every technology for which strike prices have been published by Decc” and expresses concern at the “appalling value for money” for consumers.

Energy secretary Ed Davey says the talks will establish whether a Contract for Difference (CfD) for a potential tidal lagoon at Swansea Bay, which is expected to have a rather modest 320MW capacity, is “affordable and value for money for consumers”. The development will act as a scalable precursor to a project in Cardiff, which anticipates a 2.8GW capacity.

The Crown Estate estimates that tidal lagoon power will contribute up to 25TWh of renewable electricity to the UK every year, equivalent to 8 per cent of the country’s electricity consumption but, as of yet, the technology has failed to flourish. Perhaps this is down to the high cost of the first project?

Having assessed the levelised costs of power from tidal lagoons, consulting firm Poyry suggests the CfD strike price would fall to £130/MWh for lagoon two and £92/MWh for lagoon three. In a report, the firm also reveals the project will need support of £50 million a year, a “small” amount in comparison with the government’s budget for total low-carbon electricity support which is around £7.6 billion a year by 2020.

A spokesperson for RenewableUK tells Utility Week: “The idea is that by the time you get to lagoon three, you’ve got levelised costs which are around those of onshore wind and large-scale solar.”

“With some serious advantages”, argues Tidal Lagoon Power’s Andy Field. “Primarily, predictability,” he says.

“The great advantage is that we can say on any given day in any given year exactly how much power we’re going to give to [National Grid] and when. It’s also an advantage for investors because if you’re assessing whether or not to back a renewable project, you want to know what your cash flows are going to be. That certainty of generation gives you a certainty of cash flow.”

Bloomberg New Energy Finance said last year, that ‘investor fatigue’, owing to previous project setbacks, was a major inhibitor of full global tidal technology deployment by 2020.

The company’s senior analyst Angus McCrone tells Utility Week he is “uncertain” of the likelihood of further tidal lagoons being built after the initial project. He says the strike price is likely to just be Tidal Lagoon Swansea Bay’s initial bargaining position.

“Tidal Lagoon Power argues the first such lagoon will be expensive and then subsequent ones will be much cheaper because of the lessons learned,” he points out.

“This is a clever negotiating tactic, since it is by no means certain that there will be more than one of these built. I would expect any agreed CfD for Swansea to be significantly lower, at perhaps £110 for 35 years. This would still be more expensive than Hinckley nuclear, and much more expensive than onshore wind projects.”

At almost double the cost of Hinckley, which has a strike price of £92.50/MWh, why is the Swansea Bay project so expensive?

Field explains the initial Swansea Bay project is about “cost discovery” and insists the average cost will come down “radically” amid the addition of further lagoons. He tells Utility Week that, although it will cost more because it’s smaller, the price is worth paying “given that you can see the future”.

“It is not conjecture. It is not how we could get down to this level by this date if we innovate. If you get the British supply chain mobilised and you get the investors ready to back it, then you move straight to bigger lagoons and cheaper power,” he adds.

“When you put the first project with a big project producing cheap power, overall the power you’re getting from that fleet of two lagoons, our estimation is that it would be a lot cheaper than many other forms of low carbon generation.”

The government included plans for the Swansea Bay Tidal Lagoon in its National Infrastructure Plan (NIP) at the end of last year. At the time, energy secretary Ed Davey said it showed the government is “serious” about the potential for tidal power.

In a statement, Tidal Lagoon Power chief executive Mark Shorrock says the group is “already applying the Swansea Bay blueprint to the development of larger projects and working to ensure that the British supply chain mobilised for the first lagoon can scale accordingly”.

“The government recognises that we cannot afford to overlook these opportunities,” he adds. With government advocacy, tidal technology will surely prevail. However, having previously failed to get off the ground, is the age of tidal power truly nigh?

Field explains: “Now there is a process of value engineering going on which has never been done before, so we’ve proved that it can be done. Cost reduction is still happening, and it’s not going to come from innovation, it’s going to come from value engineering and cutting the best deal with the industrial supply chain. That template can then be taken through to the bigger projects which naturally give you the cheaper power.”