(Bloomberg) — The U.K. will start talks to support the
world’s first tidal-lagoon power plant, a 1 billion-pound ($1.5
billion) development that may need to charge about double the
rate of nuclear or onshore wind for electricity it produces.
The government is opening negotiations with Tidal Lagoon
Power Ltd. on its planned 320-megawatt power project in Swansea
Bay, Wales, Chancellor of the Exchequer George Osborne said in
his budget on Wednesday. It will assess whether the plant is
affordable and offers value for money, and whether it will drive
down costs for similar facilities in the future.
A subsidy of 168 pounds a megawatt-hour will be needed for
35 years, according to a report by Poyry Oyj. In comparison, the
U.K. agreed on a rate of 89.5 pounds to 92.5 pounds for
Electricite de France SA’s planned Hinkley Point C nuclear
station. Onshore wind projects have won deals at about 82.5
pounds for 15 years.
“Swansea Bay will generate the confidence needed to
attract investors into those future schemes in the U.K.,” said
Dee Nunn, wave and tidal development manager for lobby
RenewableUK. “So a negotiated strike price is needed for this
first project as it’s the trailblazer, which will generate
momentum to kick-start the full commercialization of this part
of the marine energy sector.”
Tidal Lagoon is awaiting final consent for the project,
which if approved will have a 120-year life, supplying enough
power for more than 155,000 homes. If it’s granted, construction
should start this year and the plant begin working in 2018.
InfraRed Capital Partners Ltd. and Prudential Plc are both
equity investors in the facility. Good Energy Plc, a British
renewable power supplier, invested 500,400 pounds in the venture
last year and has an option to buy 10 percent of its output.
“It’s a game-changer; in a single step it presents the
option to harness indigenous, renewable electricity at a low
cost and a nuclear scale,” Tidal Lagoon Chief Executive Officer
Mark Shorrock said by e-mail. “These projects can now be
developed relatively quickly and will outlive all of us.”
The company is seeking premium power payments under the
government’s contracts-for-difference system that guarantees the
amount generators are paid for each megawatt-hour of power
produced, regardless of prevailing market prices.
Clean energy developers on Feb. 26 won 315 million pounds
of contracts for projects that rival the cost of power from
fossil fuels. Onshore wind projects won deals at a so-called
strike price of about 82.5 pounds. Solar developers were awarded
payments of as little as 50 pounds, close to the 43 pounds power
is currently trading at. Power from coal costs about $90.70 a
megawatt-hour (61.8 pounds), according to Bloomberg estimates.
Tidal Lagoon already has started planning its second
project, a 2.8-gigawatt power plant that will generate enough
electricity for every home in Wales. It’s also begun early
feasibility work on four other tidal-lagoon projects in the
U.K., at Newport, West Cumbria, Colwyn Bay and Bridgewater Bay.
If all six planned facilities are built, they could supply as
much as 8 percent of the country’s electricity.
The second plant would need a subsidy of about 130 pounds a
megawatt-hour, declining to 92 pounds a megawatt-hour for the
third plant, which would put it on par with that currently
offered to nuclear, which also receives contracts for 35 years.
“We’re 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,” Shorrock said. “The government recognizes that
we cannot afford to overlook these opportunities.”
Tidal lagoons are areas of water separated from the rest of
the sea. In a tidal-power plant, water is trapped and released
from the lagoon through turbines, a design considered to be less
damaging to the environment than tidal barrages, which are
similar to dams. The U.K. in 2013 rejected plans for a barrage
across the Severn River in the southwest of the country.
Installing tidal-lagoon plants at six sites across Britain
may add as much as 27 billion pounds to the country’s economy
over a 12-year span starting in 2015, according to a report last
year from the Centre for Economics and Business Research.
To contact the reporter on this story:
Louise Downing in London at
To contact the editors responsible for this story:
Reed Landberg at
Tony Barrett, Randall Hackley