Tidal lagoons have become more prominent since Tidal Lagoon Power received planning permission for a Swansea Bay site in 2015, and a media campaign focused on the wider economic benefits of the lagoon including job-creation in manufacturing and potential sports and tourism opportunities. Initially predicted to cost £0.9bn, the Swansea Bay project’s capital costs are now estimated at £1.3bn.
But on the basis of this week’s review, the Government hasn’t presented a wholly convincing case for investment in tidal lagoons.
Wider economic benefits have often been cited by political proponents as reasons for advancing with the scheme. Wider benefits to the community are of course important, but they should not be used to mask the real issue at stake: whether or not the proposal represents good value for consumers.
The claim that Swansea Bay will cost ‘30p per household for the next 30 years […] less than a pint of milk’ at best overly-simplifies, and at worst obfuscates, comparisons between different options. The Government’s own analysis of cost per household – tucked away in the final appendix of the report – suggests that similar-scale nuclear and offshore wind projects would cost less on this 30-year-per-household basis.
Four reasons why we don’t know if tidal lagoons are cost-effective
It is difficult to establish whether tidal lagoons are good value both in terms of the ‘strike price’– the government-guaranteed price the taxpayer agrees to buy the electricity – and cost per MwH compared to other low-carbon energy options. Here are four reasons why:
1. Given that energy prices are subject to volatility, the tidal lagoon poses significantly more risk to the taxpayer than Hinkley Point C. This risk is not factored into the comparisons. The most optimistic strike price of £89.60 in the Government review – which is lower than the £92.50 strike price for Hinkley – must be considered in the context of the varying contract lengths. For Hinkley, the strike price is guaranteed over a 35-year contract. The most recent proposal for Swansea Bay was 90 years.
2. The review’s comparison of lifetime costs with other low-carbon options forecasts that lagoons will be less expensive than offshore wind and nuclear over their total project lifetime. However, this depends on highly optimistic cost reductions in proposed future lagoons at Bridgwater and Cardiff Bay. Again, this posies an additional risk to the taxpayer.
3. The review also argues that tidal lagoons provide greater energy security because, unlike solar and wind, tides are reliable and constant. A similar claim about consistent power generation was made for Hinkley, although one particular issue in the Government’s Hinkley value-for-money (VFM) case was the refusal to provide a monetary estimate for the impact of reliable power generation, despite the availability of tools which can do this. Like Hinkley, the review did not attempt to do this, for reasons which are unclear.
4. The review dedicates two chapters to the wider economic benefits in creating a supply chain and export opportunities. These opportunities have been subject to extensive media attention but there are numerous alternative investments which the Government might use to spur job-creation in coastal regions. Although not explicitly within the report remit, any claims about wider benefits require comparison to the wider benefits of other low-carbon projects to demonstrate they are an effective use of Government funds – which the review did not cover.
We’ve previously argued that transparent decision making is important to judge whether governments’ decision making is sound. The three-page Hinkley VFM assessment did not meet the transparency standards one would expect for a major investment decision. But the tidal review stacks up well. It publishes major modelling assumptions, allowing the public to scrutinise the assumptions and analysis, though it is questionable that the review relied on data provided by the project’s developer.
Like solar, wind and nuclear, tidal lagoons provide a source of energy that would help the UK lower its carbon outputs and meet its emission targets. So, it’s right for the Government to consider it as wide a range of options as possible to meet the ‘energy trilemma’ of security, decarbonisation, and affordability. But we need a more detailed assessment focused explicitly on the consumer costs of tidal energy, and comparing the wider benefits of different projects on a fair basis, before we proceed with tidal lagoons.