World’s First Lagoon Power Plant May Get U.K. Subsidies

(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.”

Final Consent

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.

Second Project

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.

Swansea Bay

“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

ldowning4@bloomberg.net

To contact the editors responsible for this story:

Reed Landberg at

landberg@bloomberg.net

Tony Barrett, Randall Hackley

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