Tidal lagoon was seeking nearly £500m from Welsh Government
The proposed £1.3bn Swansea Bay tidal lagoon project was looking for nearly £500m in Welsh Government financial support.
Documents, previously subject to non-disclosure agreements, have now been released, showing the full scale of support sought by the firm behind the project, Tidal Lagoon Power (TLP).
In the summer the UK Government announced it would not back TLP’s request for a strike price (paid for by consumers’ energy bills) of £92.50p per megawatt hour of energy produced for 35 years. Secretary of State for Business, Energy and Industrial Strategy Greg Clark said the project’s direct job creation would be minimal and its export potential limited.
TLP rejected that analysis, maintaining that its pathfinder Swansea project, which would have powered up to 150,000 homes, would have led to a series of larger lagoons off the west coast of Britain – requiring lower strike prices and leading to the creation of a new renewable energy sector for the Welsh and UK economies.
Its strike price bid matched that approved by the UK Government for the new Hinkley Point nuclear power station in Somerset.
Now the cross-party Business, Energy and Industrial Strategy and Welsh Affairs committees in Westminster, who carried out a joint inquiry into the project, have released a series of previously non-disclosed documents.
These include a letter from TLP chief executive Mark Shorrock to Mr Clark and First Minister Carwyn Jones, dated before the UK Government confirmed its strike price rejection.
It has previously been disclosed that the Welsh Government was considering a £200m loan for the project if the UK Government signed off on a £92.50p strike price, although no formal agreement had been reached with TLP. However, Mr Shorrock’s letter now reveals TLP was also looking for the Welsh Government to make an equity investment of up to £261.1m.
It also shows that TLP were looking to draw down the proposed £200m loan over the four to five years to construct the lagoon. It would have carried an interest rate of just 2% and would not have been fully repaid until the 61st year of the lagoon’s operation.
With an up to £261.1m equity investemnt alongside the loan, TLP were seeking a finance support package of up to £461.1m from the Welsh Government. The Welsh Government’s equity backing, which could have been funded by issuing bonds, would have refinanced the lagoon’s initial equity backers over the first 35 years of the project. And it would have provided an 9% return for the private equity investors who were scheduled to provide investment of £195m.
After 35 years of “equity down payments”, Mr Shorrock proposed the Welsh Government acquire a 90% equity stake in the project, with £822.3m of debt outstanding, but with 85 years left of electricity generation.
As the majority equity holder, the Welsh Government could have been entitled to receive dividend payments from the project. And in theory it could have recouped the investment by selling the lagoon, providing it was sion.barry@walesonline.co.uk commercially viable to any buyer.
David Davies, chair of the Welsh Affairs Committee and Conservative MP for Monmouth, said: “There has been much controversy around the Swansea Bay tidal lagoon and the UK Government’s decision not to support the project. Our committees have been calling for the publication of papers about the background to the decision. I am pleased that this pressure has led to the non-disclosure agreement being waived so we can now put key documents into the public domain.
“When proposals involve large amounts of public money, it is important taxpayers can see what exactly is being proposed and how much it will cost them. Transparency around the project will allow the public to make up their own minds about the UK Government’s decision.”
Rachel Reeves, chair of the Business, Energy and Industrial Strategy Committee, said: “The decision-making process around the Swansea Bay Tidal Lagoon project has been glacial and lacking in transparency. The saga of the decision around the project offers little encouragement that the Government is equipped to take timely, clear action on future schemes. Investors and the public deserve clearer decision-making and better communication about government intentions on [such] projects.”
A Welsh Government spokesperson said: “It is a matter of public record that the Welsh Government was prepared to consider a loan or equity investment of £200m to support the Swansea Bay tidal lagoon project, if the UK Government had been prepared to offer a contract for difference.
“We continue to be open to considering ideas to find an alternative way to support the development of marine energy projects in Wales, including tidal lagoons.”
The Welsh Government was asked to comment on the fact that the released documents revealed that TLP was looking for it invest up to £461.1m in the project, through a combination of debt and equity. The Welsh Government provided a £2.5m loan to the project during its development phase.
Last month TLP agreed a company voluntary arrangement with its creditors, effectively giving it a year to come up with an alternative business and finance model without the support of a strike price. Swansea Council leader Rob Stewart has established a taskforce to support that process.
TLP has been contacted for comment.