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Swansea Bay Tidal Scheme Examined By Select Committee

May 11, 2018

By Paul Homewood

From the Telegraph:

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Concern over the costs of a £1.3bn tidal lagoon project planned for Swansea have resurfaced after its developer admitted that they remain well above the price of other energy technologies.

Mark Shorrock, the boss of Tidal Lagoon Power, told a committee of MPs that he would need a deal offering financial support of £89.50 for every mega-watt of electricity produced to build the groundbreaking 320MW project.

But under questioning he admitted that this could only be achieved with extra financial help from the Welsh Government, and a contract almost double the length than what is typically offered to developers of new nuclear or renewable energy projects.

On a like-for-like basis the Swansea Tidal project would need a contract price of £150/MWh. The sum is well above the eye-watering price of the Hinkley Point C nuclear power project which will cost bill payers £92.50 for every megawatt produced over 35 years.

https://www.telegraph.co.uk/business/2018/05/09/swansea-tidals-cost-claims-crumble-questioning/

 

I have watched the full Committee session (available here), and can add a few more details and comments:

1) Shorrock, under questioning, was forced to admit that without help from the Welsh Govt the strike price would be £92.70/MWh, guaranteed for 60 years.

2) If it was spread over only 35 years, as is the case with Hinkley, the price would need to rise to £150/MWh, again without aid.

3) Shorrock refused to disclose the amount of aid he would need from the Welsh Govt, which would be in the form of low cost equity. He stated that this was the responsibility of the latter to reveal, although the Welsh First Minister, Carwyn Jones, has been equally reticent.

Pressed though, Shorrock was forced to admit that it would be in the region of £200m.

4) Output from Swansea Bay would be about 500 GWh a year, just 0.1% of UK total generation.

5) Income would be about £50m a year, and running costs would £16m, leaving £34m to service capital costs.

6) Charles Hendry, former Minister at DECC and the author of the official report which recommended that the tidal project go ahead, repeated the spin that Swansea would only cost 30p a year for everybody in the country.

But as one of the MPs reminded him, no matter how it was packaged it was still £1.3bn. He and Shorrock were also reminded that this was “Welsh Govt money”, but “taxpayers’ money”.

Unfortunately, the Committee failed to challenge certain aspects and claims.

1) For instance, on several occasions, both Hendry and Shorrock claimed that the project would boost both the local and UK economy via the supply chain. Their view was that £1.3bn was a small price to pay for this.

However, there is no magic money tree. That money could have been spent on something else, which may have offered better value.

To put Swansea Bay into perspective, it will produce about 500 GWh a year, worth £22m at market prices. Shorrock admits that running costs will be £16m a year, so there will be added value of just £6m. This hardly seems much of a return on a spend of £1.6bn!

Just supposing, for instance that this money was spent on local infrastructure, roads, rail etc. Would that generate a greater return?

2) The proposed strike price of £89.50 will not be fully index linked. (One of the complaints from another witness, Richard Howard, was that the exact terms of the deal were still a secret).

According to Shorrock, this meant that after 40 years, the price would drop below the market price, which would have inflated in the meantime.

While this may be good news for our descendants, it certainly is not for the current or next generation of taxpayers.

However, there is a more serious issue. Given that running costs of £16m would amount to £32/MWh, would the project actually be viable after 40 years, with the strike price falling in real terms.

On top of all this is the risk of silting. While it may be possible to keep this under control in the short term, it may be prohibitively costly to do so in the longer term, as margins are progressively squeezed.

Put simply, the scheme may not have an economic life beyond even 20 to 30 years, never mind 90. If costs become unsustainable, Tidal Lagoon Power may simply pack up shop, safe in the knowledge that they have already made a handsome project in the early years.

If that happens, holders of long term bonds, who will finance the bulk of the project, had better watch out. (Shorrock told us that the share capital is currently £25m)

3) This leads us nicely on to the question of Welsh Govt aid, which Shorrock says will be equity, to take advantage of low public borrowing costs.

As with the rest of this deal, little has been announced publically. But it seems reasonable to assume that the dividend payable on the Welsh equity will be much lower than to other shareholders. (Otherwise, why not simply raise funds on the market?)

If the project does end up closing earlier than projected, this could mean that much of the Welsh funding ends up being written off.

Governments can borrow relatively cheaper because they are a sound risk. To then use this money on an intrinsically risky enterprise would undermine the government’s credit rating, if taken to its logical extreme.

4) Just to confuse matters further, Shorrock’s arch eco rival, Dale Vince, has entered the fray, claiming that his Solway scheme would be much cheaper, and asking that the government hold an open competitive process.

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18 Comments
  1. malcolm bell permalink
    May 11, 2018 1:45 pm

    This is even less financially viable than Musk’s schemes. Even he wouldn’t touch it.

  2. HotScot permalink
    May 11, 2018 1:45 pm

    An open, competitive process for two equally insane projects.

    Why not have an open, competitive process with a gas fired power station included? Or under the terms proposed, a fleet of the damn things!

    • Ian Magness permalink
      May 11, 2018 2:10 pm

      ….. especially if such were sited near to known shale gas reserves ripe for fracking.

  3. A C Osborn permalink
    May 11, 2018 2:15 pm

    Plus of course this is “Intermittent” electricity we are talking about, backup required as usual.

  4. May 11, 2018 2:23 pm

    Dale Vince’s Ecotricity finally barred me (and others) from commenting on their Facebook page yesterday. The bloke is dangerous because too many STEM uneducated fools swallow his crap, including no doubt those in the Civil Service and Government.

  5. May 11, 2018 2:46 pm

    It stinks.

    Next!

  6. roger permalink
    May 11, 2018 3:06 pm

    Before any thoughts are put forward on the subject of a Solway barrage, the alarming erosions and relocations of sand and gravel caused by the Robin Rigg off shore wind array need to be assessed and addressed to the satisfaction of locals who are just waking up to the fact that their land and property are in increasing danger from the disturbed twice daily flows of one of the highest tide ranges in the world.
    Not that any assessor is likely to finger the turbine towers as the cause until sufficient time has passed for profits to have been gathered in from levy payers and the whole scam can be put into receivership with no assets and without liability.
    Sadly we have seen it all before, but it is a tried and tested scheme from across the ages and our current lot of robber barons are much practiced in it’s operation.

  7. May 11, 2018 3:09 pm

    Shorrock versus Vince. Which has the bigger trough?

  8. Coeur de Lion permalink
    May 11, 2018 3:19 pm

    Silt? Marine fouling?

  9. May 11, 2018 3:32 pm

    For instance, on several occasions, both Hendry and Shorrock claimed that the project would boost both the local and UK economy via the supply chain. Their view was that £1.3bn was a small price to pay for this.

    Why should the whole UK subsidise unnecessary job creation in a small part of Wales? Makes no sense.

    • It doesn't add up... permalink
      May 12, 2018 11:19 am

      They plan to buy the turbines from Austrian firm Andritz, and doubtless the electrical ancillaries will probably come from German or Swedish companies. The breakwater construction will probably employ Dutch or Norwegian companies, although at one stage there was a rumour that TLP had promised the construction contract to a Chinese firm. Some local supply chain!

  10. mikewaite permalink
    May 11, 2018 4:05 pm

    Was there not at one point a suggestion that the stone for the lagoon embankment would be sourced from a previously abandoned quarry in Cornwall purchased by the tidal lagoon co and situated in England’s first marine conservation area.
    Why do Greens so delight in trashing the environment that should belong to all of us ?
    Money I suppose.

    • It doesn't add up... permalink
      May 12, 2018 11:20 am

      Make a profit from the quarry and they won’t care two hoots about the project being unviable.

  11. May 11, 2018 4:55 pm

    Anyone with a bit of common sense would have trashed this project with a few calcs on the back of an envelope. So why this expensive ritual dance?

  12. Bitter@twisted permalink
    May 11, 2018 5:13 pm

    Like most green energy scams, it’s fuelled by other people’s money.

  13. May 11, 2018 5:16 pm

    The annual amount of generated electricity from the project would only run the full UK grid requirements for just under 9 hours.

    • nigel permalink
      May 11, 2018 7:27 pm

      “…silting…”

      The general rule is that the diameter of the particles which can be carried by a stream varies as the SIXTH POWER of the velocity. In other words, a stream which carries big pebbles naturally will barely carry grains of sand, once the velocity is halved. Silting will happen.

  14. Paul Hewitson permalink
    May 11, 2018 7:39 pm

    Why not build 20 large wind turbines if you want renewables, at £1million per MW output about £8.5 X20 =£170 millions. A bargain compared to this fraudulent scheme.

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