Swansea Bay tidal lagoon ‘must be value for money’
The proposed £1.2bn Swansea Bay Tidal Lagoon project has to prove value for money for the taxpayer, said Secretary of State for Wales Alun Cairns – but he stressed he still wants to see what could be the first in a series of lagoons off the UK coast happen.
And Mr Cairns said the UK Government’s new industrial strategy could not treat Wales as an “annexe” and that working with the Welsh Government getting Wales off the bottom of the UK league table for productivity was the biggest challenge facing the economy.
Back in January an independent panel commissioned by the UK Government, and chaired by Sir Charles Hendry, concluded that the Swansea Bay Tidal Lagoon should be supported as a pathfinder scheme, which could lead to a series of larger lagoons around the coast of the UK, including those off Newport, Cardiff and Colwyn Bay.
However, the project is still awaiting a decision from the UK Government as to whether it will provide the necessary support to make it commercially viable for its investors.
The project from Tidal Lagoon Power is seeking a contract for difference – which is effectively a subsidy for producing green energy – from the UK Government for 90 years. It is forecasting that the structure could generate electricity from tidal power for at least 120 years.
The project is seeking an average strike price of £89.90p per megawatt hour. Although this would be £123 in year one, after 20 years it would drop to below that for the new nuclear power station at Hinckley Point – and at the end of the 90-year period it would be just £43.
Mr Cairns said: “Between the various government departments, active consideration is still being given to the project. We have got to take into account the cost of renewable energy in the recent auction, where they plummeted to a strike price of £57.50 [although some of the projects approved will receive higher strike prices].
“I would really like to see this happen, but none of us would want it to happen if it’s not good value for money for the taxpayer.”
He cited the Welsh Government’s decision not to underwrite the proposed Circuit of Wales project for Blaenau Gwent as an example where this test had proven to be too onerous.
He said: “Lots of people wanted that to happen passionately, but in the end it was not good value for money, and as taxpayers we have all got to say that was the right thing [not to back the project].”
He added: “But we are trying to do everything we can to make it [the lagoon project] work, and we are taking time to do that.”
He didn’t comment when asked if Tidal Lagoon Power had been asked to come back with a lower strike price or a reduced subsidy time period. However, the company said it had not received any indication from the UK Government to do so.
In a statement it said: “We are still waiting for feedback on our offer that was submitted to [the] Government in June 2016, along with a response to the Hendry Review that was published 11 months ago. Obviously, we are keen to progress negotiations.”
One of the concerns is that without a deal soon, the business could run out of cash. Investors in the project have confirmed they will not release any more funding until the UK Government confirms its position.
While the Hendry Review concluded that lagoons would create a new industry in the UK – creating thousands of new jobs – it added there wasn’t significant potential for the technology to be exported for other tidal lagoon projects globally.
Mr Cairns said that improving productivity in the Welsh economy was vital.
He said: “The productivity challenge is the biggest one that the economy faces and the [UK Government’s] industrial strategy will set out plans to help ensure there is growth and productivity across the whole of the UK. Wales is sadly at the bottom of the productivity league table and there are a whole host of reasons why that is the case.
“If you map productivity output
across the country [UK] on top of education standard output, there is a strong correlation.
“Therefore, there will also be responsibility for fiscal levers to encourage investment in capital into research and development and innovation, but there is no one magic bullet for productivity. There are whole host of reasons and the industrial strategy will seek to answer many of those.
“However, clearly education is a responsibility that is devolved and we would hope that the Welsh Government would work with us in order to help raise productivity in Wales.”
The Welsh Government under its new economic strategy, which is currently being finalised, said it would look to work alongside the UK’s industrial strategy.
Mr Cairns said it was important that plans in the industrial strategy represented “the whole of the UK”, rather than having Wales as “an annexe.”
He added: “If it is to be a UK strategy, it needs to recognise the value and strengths of the sectors and clusters, and develop corridors, I would say, between say Deeside, Manchester and Merseyside and between Swansea, Newport, Cardiff and Bristol. And the removal, of course, of the Severn Bridge tolls offers a great opportunity to create an new economic region on the western side of the UK.”
Mr Cairns said he also wanted to see a Growth Deal for north Wales agreed, but one in which the region looked to work more closely economically with the North-West of England.
The Welsh Secretary said: “The previous Budget highlighted our desire to agree a Growth Deal for north Wales and an awful lot of work has been going on with the local authorities from Gwynedd right away across to the Chester border.
“We are keen for it to have a crossborder approach and we are pleased that the Welsh Government has responded positively on that basis.
“We also need to ensure that north Wales is in a position to react to the new Metro mayors in Manchester and Merseyside, so on that basis we have to be alive to the changing dynamic across the rest of the UK. So I want to see local authorities empowered in order to respond.”
He said he had been encouraged by progress on governance for the £1.3bn City Deal for the four local authorities that make up the Swansea Bay City region.
Last month the local authorities of both Neath and Port Talbot and Pembrokeshire rasied concerns over City Deal governance arrangements and funding commitments for their own borrowings within the deal.
However, Mr Cairns said that over the past few weeks, these legitimate concerns had been addressed.
Mr Cairns said: “I am quite excited about the Swansea Bay City Region City Deal. There are 11 projects that are included across a range of areas, including a marine technology and wave test bed in Pembrokeshire, right the way through to the UK national steel research institute [at Port Talbot].
“There are tangible projects ready to go. I think it is fair to say that challenges have been raised by some authorities and that is a good way to look at things in terms of what the risks are.
“But I also think they way in which the four authorities have come together since those issues were highlighted demonstrates a positive will for the region to work together and I am encouraged by the positive steps over recent weeks”.
Each of the projects are now working up detailed business plans before seeking final sign-off. The Welsh Government will be responsible for projects deemed to be a devolved matter, such as health and education. Mr Cairns will be personally responsible for signing off projects that fall under what are determined to be reserved matters.
Mr Cairns said he would like to see more funding sources made available for Welsh businesses seeking growth finance. And he said he would welcome any new entrants into the marketplace, including equity investors, to be based in Wales following the launch of the Welsh Government’s wholly-owned Development Bank of Wales, which has a starting investment portfolio from debt to equity of £440m.
Mr Cairns said: “Generally, the more sources of capital available, the better, and the Green Paper on the industrial strategy recognised that raising capital outside of London and the South-East is a lot more challenging.
“Therefore, the more options that are available to companies and innovators, the better. That in itself provides a challenge in terms of messaging, but that is something we have to work through.
“If you looked at London and the South-East, there is a myriad of capital sources, but very few complaints that the chances [of securing funding] are too great. So on that basis, the logic says the more choices that exist in Wales, the better – because that then means there is a better chance of finding one that suits your project.”
Mr Cairns said the UK Government was still opposed to air passenger duty being devolved to the Welsh Government.
Last week an independent report commissioned by the Welsh Government said that its devolution to Wales, for the purpose of being abolished on long-haul flights and possible reductions on the other bands of short-haul and domestic, would not have any detrimental impact on Bristol Airport and the wider economy of the South-West of England.
However, a report carried out for Bristol Airport by aviation consultants York Aviation in 2015 concluded that devolving APD to Wales, for the purpose of its abolition and reduction, could cost the region 1,500 jobs and over £800m in GVA.
Mr Cairns said: “There is no plan to change it as the Treasury has done the analysis and there would be damage to the number of flights that would be available to the south-east Wales economy, but taxes are always kept under review on an ongoing basis.”