Government ready to sink tidal lagoon
The £1.3 billion Swansea Bay tidal lagoon project is expected to be rejected today by the UK Government.
After 18 months of analysis by officials, the UK Government’s Secretary for Business, Energy and Industrial Strategy, Greg Clark is expected to confirm that the project, which its backers said would be a pathfinder project leading to a series of larger lagoons off the UK coast – creating a new tidal energy industry – will not be getting green subsidy support.
Unless the company behind the project in Tidal Lagoon Power (TLP) can engineer a new funding model without UK Government support, the scheme will effectively be dead. It had further plans for larger lagoons, including three off the Welsh coast, at Newport, Cardiff and Colwyn Bay.
Last January the independent Hendry Review, chaired by former UK Energy Minister Sir Charles Hendry, recommended that the UK Government backed the project.
Like nuclear and renewable projects, the lagoon was seeking a subsidy on energy produced, through a so-called contract for difference which is paid for by consumers in their energy bills. Also known as a strike price the guaranteed price for energy from the UK Government gives confidence to investors to back projects.
Outlining a revised value for money assessment chief executive of TLP, Mark Shorrock, wrote to Mr Clark as late as last week saying the project was seeking the same strike price as that agreed for the new nuclear power station at Hinkley Point in Somerset at £92.50p per megawatt hour of energy produced, inflation linked, for the next 35 years. But that is based on the Welsh
Government committing £200 million in funding for the project. But while First Minister Carwyn Jones has made the headline offer, the Welsh Government has yet to work up a detailed business case for the UK Government to consider.
Last month in giving evidence on the lagoon to a Westminster select committee Mr Shorrock told MPs that the project would need a strike price of £150 per megawatt hour, although TLP later stressed that was before calculating the offer of £200 million from the Welsh Government.
The project, which TLP has been developing since 2011, has already raised and invested more than £50 million on the scheme and other initiatives, including the proposed second and larger lagoon off the coast of Cardiff.
Based on TLP’s late-hour, revised value-for-money assessment submission, it said that in actual money terms the strike price for the Swansea Bay lagoon would require between £302 million to £390 million over the 35-year period, equating to an extra 30p a year in household energy bills. The lagoon is projected to be able to generate energy from tidal power for 120 years, which TLP said would have a £2 billion economic impact over its lifetime.
But even at the now-92.50p position, the UK Government has already stated that the lagoon couldn’t be backed at that price. It has pointed to other renewable energy sectors like offshore wind, where subsidies have fallen dramatically over the past few years to below £60. And Mr Clark has also publicly stated that the lagoon could need a strike price double that of Hinkley.
The planned nuclear power station at Wylfa Newydd in north Wales will require a far lower strike price than Hinkley, although the UK Government is supporting that project by offering to take an up-front multi-billion equity stake in the Hitachi-driven scheme. TLP had initially invited the UK Government to invest in the project as a way of reducing the strike price
Speaking ahead of the decision in Swansea, Secretary of State for Wales Alun Cairns reaffirmed that the UK Government had already publicly stated that it couldn’t support the lagoon at a strike price of 92.50p.
While not commenting at the time on what Mr Clark’s decision could be, he stressed that he was passionate about major investment projects being realised in Wales, but that the lagoon, while creating nearly 2,000 construction jobs during its projected two-year construction period, would only provide 28 direct full-time jobs when operational.
He said the detailed analysis of the project carried out by officials had been shared with the Welsh Government and they have so far not questioned the findings.
Mr Cairns, speaking exclusively to the Western Mail, said: “We have over the past 18 months done everything and anything to try and make this fit. I am passionate about trying to bring significant landmark projects to Wales and to my home city [Swansea] in general, particularly with such a fantastic natural resource. Mr Shorrock said at the recent select committee himself that like-for-like it was a £150 strike price. We have already said that we think it is twice the price of nuclear, which gives you an indication of government thinking.
“So whatever the debate around £150 or £92.50p, the Government has got to consider how much does energy cost in the marketplace over a 35-year period. It was £92.50p for nuclear, but we are not going to go anywhere near that again.
“We expect Wylfa to be far less [strike price] and we also buy wind for £57.50p. And we are also talking to other parties around potential marine energy projects off the coast of Wales that they believe will require less cost [strike price], so we have to consider that as well as.”
When asked at what level the UK Government would be happy to provide a strike price for the lagoon he said: “We have said we wouldn’t do it for £92.50p But if you then look at what Charles Hendry said, he thinks there should be a big partner for the project. He also said the export potential is limited because other nations don’t have the rise and fall of the tide as we have.
“The company [TLP] must come forward with a plan to demonstrate the viability of the scheme. They should also naturally come in with the price and what they think they could do it for. The Government then needs to assess the capacity and the viability of things at that price. We have also looked at the six [lagoons] that are being proposed to see the
cost savings you get each time and we still believe it is twice the price of nuclear, even when we get to that level.
“We have shared these numbers with the Welsh Government and they haven’t pushed back on the information.
“We also need to recognise the environmental challenges, with one being the There build-up have of been silt. problems in Korea and France, where those projects are alive already. So this is not a world first, as it has been in existence
in France for 46 years. I know how passionate Swansea is about its coastline. So with the potential complexity of a mud build-up, and also the fish stocks, could there be a challenge in that?”
While planning consent for the project is in place, it would still require a marine licence from Natural Resources Wales.
The minister also said the project would not provide the sort of economic boost that many people were being led to believe.
Mr Cairns added: “The 1,800 jobs in construction would be clearly welcome, but they would be gone in two years or so, leaving 28 jobs over the long-term. So, I am concerned about people’s misunderstanding of the scheme, because they feel it offers a long-term economic regeneration of an area. But 28 jobs over the longterm wouldn’t achieve that.
“Last week I visited Pembrokeshire and the LNG terminal at South Hook, which is a fantastic facility and is really important to the UK’s energy supply needs. Hundreds of millions of pounds would have been spent on the infrastructure of that site. This has created 250 long-term jobs and thousands during its construction period. But that has not given that massive economic uplift to the Pembrokeshire economy.
“So, I would translate that to ‘if you have a project that costs £1 billion in construction in any region, do you then get that uplift from just 28 jobs that are there longer term?’”
He also said he has concerns over energy costs in the UK for energy intensive industry users, including Tata Steel, which employs around 7,000 in Wales and 4,000 at its primary steel-making plant at Port Talbot. Mr Cairns said: “What really worries is the impact on energy, and it’s not just consumers, although that is of concern, but on industry users. I was in a meeting recently where the steel industry was pretty vocal about the impact of high energy costs. “So, the steel industry is telling us that in the UK energy is more expensive than other places that they operate. Germany has the lowest cost, France next and in the UK it is the highest.
“And when we are competing for investment from steel manufacturers, energy costs have a major impact on their decisions and they say themselves that a UK steel plant pays significantly more in energy costs than a plant elsewhere in Europe.
“Therefore there is a manifesto commitment to get UK energy prices down to be among the lowest in Europe, so we have to keep an eye on all costs.”
In a statement TLP said: “The likefor-like comparison is that both Swansea and Hinkley need a contract of £92.50p for 35 years, combined with other forms of government support. The difference is that one is a small bet on the future with a minimal impact on consumers (30p a year on bills for the lagoon), while the other is a massive gamble with energy security at huge cost to consumers (up to £15 a year on bills).
“Yes, there will be around 40 people employed long-term on site for lagoon operations and maintenance. However, there will also be many more jobs on site working in areas like tourism and sport, as well as the indirect employment the project will bring to the region.
“But the real driver of long-term employment is the supply chain. Andritz Hydro has committed to an on-site turbine manufacturing plant that will employ around 100 initially, scaling to 500 in the mid-term. The plant will also serve as Andritz’ global tidal HQ and a regional HQ for Tidal Lagoon Power and home to our R&D team”.
TLP is now expected to explore other funding models, in a bid to realise the project without UK Government support. This could potential see the Welsh Government increasing its offer of £200 million in return for an equity stake in the project.
We have over the past 18 months done everything and anything to try and make this fit. I am passionate about trying to bring significant landmark projects to Wales and to my home city [Swansea] in general, particularly with such a fantastic natural resourceand in here
ALUN CARINS MP