Last week the former energy minister Charles Hendry published his review on tidal lagoons (https://hendryreview.wordpress.com/) I am a consultant to Tidal Lagoon Power (TLP), so not disinterested. But I think that anyone reading the report will recognise it as an extensive, evidence-based and therefore serious review. Hendry was in my view a good energy minister (2010-12), so this outcome is not surprising.
Hendry’s key conclusions are:
- “I am persuaded that power from tidal lagoons could make a strong contribution to UK energy security, as an indigenous and completely predictable form of supply.”
- “I have also concluded that they could play a competitive role as part of the UK’s energy mix alongside low carbon energy from nuclear and offshore wind.”
Hendry recommends that the Government restarts negotiations with TLP for a Contract for Difference. He says that Swansea should be a pathfinder, so that it can be monitored once built and lessons learnt:
- “Should tidal lagoons be built, the Government should require a high level of on-going monitoring of environmental impacts to ensure that mitigation can be put in place where impacts are judged to require it.”
This is in line with the recommendation of leading environmental campaigner Mark Avery. The day before publication, Mark wrote in a blog:
- “We need more renewable energy and this location seems a good place to start (and the company involved have put a lot of effort into addressing the environmental issues). But one of the reasons for saying ‘yes’ to Swansea Bay would be to learn, and although future projects, almost certainly in more controversial locations, will have to stand or fall on their own merits, it is also the case that lessons would have to be learnt from Swansea Bay, and that can’t be done until a lagoon is built.”
Not everyone supports Swansea tidal lagoon, of course. One influential voice speaking out against is Richard Howard of the centre-right think tank Policy Exchange. The day before Hendry was published Richard posted a blog on ‘The folly of Swansea bay tidal lagoon’ (https://policyexchange.org.uk/the-folly-of-swansea-bay-tidal-lagoon/), and after publication he asked on Twitter why no one was questioning the opportunity cost of supporting Swansea.
In his blog, Richard said:
- “However the developers try and dress it up, the Swansea Bay project is considerably more expensive than other low carbon technologies. If the Government chooses to back this project, then it will have a job to explain why this represents good value for money.”
The Hendry review gives the Government ample evidence to explain why it has chosen to back Swansea (if it does): the key point being that tidal lagoons would help the UK meet its legally binding carbon budgets, alongside nuclear energy and offshore wind.
What about Richard’s opportunity cost question? In his blog he says that:
- “it is worth considering even cheaper ways to cut carbon emissions, such as improving energy efficiency. It would be far better to spend the £1.3 billion insulating our homes properly.”
I agree that energy efficiency would provide cheaper carbon savings than tidal lagoons would – indeed cheaper than any low-carbon energy source. There is certainly scope for the UK to become much more energy efficiency; a national programme on energy efficiency and fuel poverty would help. But energy efficiency alone will not be enough to meet the carbon budgets, as reports from the Committee on Climate Change – the statutory adviser on the carbon budgets – make clear. So money has to be spent on low-carbon supply options as well.
Richard’s next point is that “Backing an expensive technology such as tidal lagoons would leave less space within the Levy Control Framework funding envelope to spend on other, cheaper technologies.”
The Swansea lagoon would indeed require a high price per unit of electricity generated (strike price); higher than the strike price for the new Hinkley power station (£92.50). But, under TLP’s proposal, this would only be partially linked to inflation, so over time it would reduce in real terms (falling below the level of Hinkley and others). TLP had proposed a CfD for 90 years – the back end of which would be paying money to rather than receiving money from the bill payer. Hendry recommends that this should be reduced to 60 years. That is a long contract. But a lagoon would be operational for 120 years, so the contract would be for only half the operational life. As Hendry notes, other technologies get financial support for more than half their operational life: offshore wind gets a contract for 15 years and operates for 22 years; nuclear power stations get a contract for 35 years and operate for 60.
Hendry also points out that a lagoon would operate for 60 years without subsidy:
- “During a 60-year period, a large scale tidal lagoon is less expensive than offshore wind and significantly less expensive than nuclear. This measure does not take into account the potential for periods of low bills costs for tidal lagoons after Year 60 and “subsidy free” generation thereafter, which is one of the most substantial benefits in favour of tidal lagoons.”
The Levy Control Framework (LCF) sets a limit on the amount of money that can be raised through consumer bills. Richard is right to say that if some goes on lagoons, it is not available for anything else. However, the Swansea project would require less than half a percent of the LCF as it currently stands – hardly a blocker on all others. And the envelope for the Levy Control Framework after 2020 has yet to be set: it is promised for the March budget. So, in response to Hendry, the Government could sensibly decide to increase the envelope by enough to support Swansea. As Hendry points out, this would equate to a pint of milk per household per year, which doesn’t sound an unreasonable amount to support a new industrial sector. Under this approach, there would be no opportunity cost of supporting Swansea.
Richard Howard also question whether larger projects after Swansea would be cheaper:
- “The project developers (and other proponents of tidal range) claim that subsequent tidal lagoons in Cardiff and Newport will be considerably cheaper than Swansea Bay – potentially cheaper than offshore wind or nuclear. This is due to the larger size of the subsequent projects and resulting economies of scale. In reality this claim is totally untested and purely based on desk-based analysis by the project developer.”
OK, it is desk-based. Quite hard to obtain hard evidence when you’re seeking to construct a global first of a kind. Hendry concludes, having examined TLP’s and others’ modelling, that:
- “There is potential for large scale tidal lagoons to significantly decrease generation costs relative to a pathfinder project, due to site location and design, including in a scenario where cumulative impacts on energy yields are significant. Whilst it is inevitably very difficult to quantify this potential precisely at this stage, it should be noted that generation costs (and therefore subsidy costs) are very sensitive to improvements in these areas. However, all the methods used show the same trends of reducing costs for projects built at scale.”
- There is a moderate potential for project cost reductions as the industry establishes itself following a pathfinder. And there is a high potential for cost of capital reductions (due to the role of a pathfinder).
There is potential cost reduction. Where that is determined by economies of scale and the laws of physics, it can be considered with relative certainty. Where it relates to technical and project learning, it is not. But nothing in energy policy, or indeed investment, is certain. Sensible policy making on innovation involves weighing up potential risks and benefits. With tidal lagoons, as the Hendry review concludes, the potential benefits substantially outweigh the potential risks.
I am a strong supporter of offshore wind, having been involved in getting the UK’s first offshore wind farm built in 2003 (see http://climateanswers.info/2014/04/16-april-2014-making-britain-a-real-low-carbon-leader/). I’m also, now, a strong supporter of new nuclear – 2 days a week I work for the Weinberg Next Nuclear think tank (http://www.the-weinberg-foundation.org/). Tidal lagoons are needed alongside, not instead of, offshore wind and new nuclear. But since the discussion post-Hendry will focus on cost, it is worth remembering that wind and nuclear have, like other technologies, received a lot of subsidy as the technology develops. For wind, this has made possible cost reductions. Nuclear has yet to deliver cost reductions – but one lives in hope (see http://green.brightblue.org.uk/blog/2016/10/28/nuclear-innovation-must-be-part-of-the-climate-and-energy-solution).
Lagoons would be operational for 120 years. For the first 60 years, Hendry concludes that:
- “During a 60-year period, a large scale tidal lagoon is less expensive than offshore wind and significantly less expensive than nuclear.”
This would be followed by 60 years of subsidy-free, predictable low-carbon electricity.
The Government should now move quickly to give the green light to Swansea, by restarting CfD negotiations with the company. As Charles Hendry says:
- “I consider an amber signal to be the same as red, as we all recognise that the projects being explored cannot survive endless delays and debate.”