Will Swansea Bay Sneak In Through The Back Door?
By Paul Homewood
h/t Patsy Lacey
Dear little Emily reports in the Telegraph on the latest attempts to smuggle the Swansea Bay tidal lagoon in through the back door:
After filling out most of the page with no more than a puff piece, she gets to the nitty gritty:
So far, so good – and ministers too appeared to have been won over, granting Swansea Bay tidal lagoon planning consent last year and even mentioning it in the Conservative manifesto. But there’s one major hurdle standing in the way of making it a reality: and that’s convincing the Government to give it the financial support it needs. Shorrock began by seeking a conventional “contract for difference” subsidy contract, of the kind the Government is using to support offshore wind farms and new nuclear plants such as Hinkley Point. The idea is simple: a guaranteed, inflation-linked “strike” price for the electricity generated, with the difference between that and the market price topped up by – or paid back to – consumers.
But the price Swansea needed was simply too high to be palatable. At about £168 per megawatt hour (MWh) for 35 years, it was more than four times the market price of power, and almost double the £92.50 per MWh for Hinkley Point.
Citizens Advice called it “appalling value for money” and in January, the Prime Minister, David Cameron said his enthusiasm for the project was reduced because he had not seen any plans with a strike price that was “attractive”.
So now Shorrock is attempting to convince the Government to take on not only a novel technology, but also a novel funding model. He proposes an unprecedented 90-year contract with a price of £133 per MWh – but with the crucial distinction that it would not be indexed to inflation.
“In real terms, it goes down every year,” he says. That, Shorrock says, makes it “intellectually corrupt” to compare the £133 with the inflation-linked £92.50 for Hinkley Point. The correct comparison is the net present value of the contract, he says, which would be equivalent to a conventional strike price of £95.60.
What he doesn’t mention, but the company later confirms, is this offer is contingent on a short-term £150m loan from the Government to help to cut financing costs. Without that, the strike price equivalent soars back to £118.50.
Shorrock claims subsequent, larger projects will require significantly lower subsidies; the Cardiff lagoon would have a net present value equivalent to a conventional strike price of £68 per MWh. “Large-scale lagoons deliver the cheapest cost of power per megawatt-hour, we think, in this country, bar none.”
The 90-year proposal is so radical that the Government last month announced it was commissioning a wide-ranging review of the case for tidal technology, shelving any decision on Swansea subsidies until its conclusion. Shorrock protested, claiming the project would be lost without a decision in six weeks, but he has about-turned and is now chipper about the delay.
“We got a letter from the Secretary of State saying: ‘We are prepared to work on a 90-year structure with you’,” he says, “That’s everything that we needed.”
If a deal can be agreed in time to start building next spring, Shorrock says first power from Swansea – once pencilled in for 2018 – could be generated in 2021. He hopes to submit planning applications for the Cardiff and Newport lagoons in 2018, with first power by 2026. The much-delayed Hinkley Point nuclear plant is currently slated for 2025. “Our internal bet in the company is we will power on 2,700 megawatts at Cardiff before Hinkley Point,” he says.
It’s a bold plan – and one that’s entirely dependent on winning the Government’s support. What will Shorrock do if ministers say no?
“They won’t,” he says, and he breaks into a smile.
So it appears we have a choice of being scalded or burnt! Even with the £150 million loan, the NPV is still higher than Hinkley, which is as we know widely regarded as a monstrously expensive white elephant. Furthermore, we would be stuck with it for 90 years.
Based on the £118.50 figure, and assuming 2% pa inflation, it would take 45 years before it could break even with a current market wholesale price of £50/MWh.
And once again we need to remind ourselves just what a pitiful amount of power Swansea Bay would be able to supply.
According to the project specification, the capacity of 320 MW will only actually supply 495 GWh annually, meaning utilisation is only 17.6%. Just along the coast, the recently opened 2000 MW gas power station at Pembroke is capable of supplying 15000 GWh a a year, on demand and at a fraction of the cost.
Shorrock assures that, if only we pay him a huge subsidy for Swansea Bay, he will be able to use the experience to build bigger and cheaper lagoons at Cardiff and Newport. I have a better idea – let him use some other country as a guinea pig.
The UK is set to achieve its Paris target of a 40% cut in GHG within the next couple of years. There is therefore no need at all to be wasting further money subsidising expensive projects like this one until 2030 at the least.
However, it seems that Shorrock has inside information that the government will saddle future generations with this white elephant, just so that they can burnish their green credentials.