Swansea tidal lagoon: What is a fair price?

The Swansea Bay tidal lagoon was granted development consent in May. While we’re still some way off seeing building works begin, let alone any power generated, this is the surest sign yet that the UK will see the world’s first commercial-scale tidal lagoon energy scheme.

Swansea Bay tidal lagoon would provide enough power for 155,000 homes
Swansea Bay tidal lagoon would provide enough power for 155,000 homes
  • Updated: 28 July, 2015
  • Author: Gavin Miller, ICE Policy Manager

The decision by Secretary of State for Energy Amber Rudd, on recommendation of the Planning Inspectorate, approves the layout and design of the scheme. It is also a step towards seeing similar proposed developments at Cardiff and Newport.

The £1bn Swansea scheme will have 16 hydro-turbines with a total capacity of 320 MW capable of producing around 500 GWh of electricity annually.

While there are other hoops to jump through before construction, such as marine licence consent and an agreement for foreshore lease from the Crown Estate, it is the Contract for Difference (CfD) funding support negotiations that will prove make or break.

Strike price

The company behind the project, Tidal Lagoon (Swansea Bay) plc’s starting position is seeking a ‘strike price’ of £168 per MWh hour, possibly for up to 35 years. A strike price is the amount that the Government guarantees the generator will receive for its electricity.

Alongside some media commentary, Citizens Advice – which has taken over the role of statutory consumer body for Energy from Consumer Futures – branded the lagoon funding proposals as ‘appalling value for money’ for a ‘relatively mature technology’. This is based on a comparison with recent CfD contracts. For example, the planned nuclear power station at Hinkley, Somerset recently secured £92.5 per MWh, large-scale solar PV receives around £100 per MWh and new offshore wind averages £140 per MWh.

Leaving aside the likelihood the Swansea developers initial bid is likely to be deliberately high as they realise it will be negotiated down, this is a rather simplistic argument, like comparing apples to oranges.

First of its kind

It is true that the individual bits of technology such as breakwater walls, sluices and hydro-turbines are not new but the project as a whole is the first-of-a-kind. Just as first offshore wind farms were more than a pole bolted to the seabed with a turbine on top, such new developments are more than the sum of their parts. They present significant site-specific engineering challenges, both in design and in construction.

Artist's impression of the lagoon being used for sailing
The lagoon would also be a venue for sports, arts and education

As such, there is a high initial cost but not only would this decrease for subsequent projects, it also represents a significant opportunity for developing skills and technologies, exportable around the world.

On the grid

In addition to capital costs, in deciding strike prices the ‘sort’ of power generated must be considered. The advantage of nuclear power is it provides continuous generation, ideal for base load. But this is also a disadvantage – it is inflexible and cannot be easily adjusted to meet fluctuating demand. Renewables like wind and solar while clean and efficient are also variable and unpredictable, often producing power at the ‘wrong’ time.

Tidal lagoons don’t provide continuous power but can generate for up to 14 – entirely predictable – hours a day. In addition, they can offer some flexibility by holding back flow for a limited period or by reducing the number of turbines generating.

This predictability has the obvious advantage of allowing the long-term grid-balancing calculations not possible with other renewables. In addition, Government will also have a clear maximum CfD cost, something it hasn’t achieved for offshore wind where it estimated a 38% load factor but is now seeing upwards of 45% adding significantly to payments.

Swansea tidal lagoon expects CfD negotiations to be completed in autumn 2015, with pre-construction works beginning in 2016. If all goes according to plan it should be able to connect to the grid in 2019.