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UTILITY WEEK | 27Th March - 2nd aprIL 2015 | 19 Finance & Investment Analysis T idal lagoon power looks primed for take-off following chancellor George Osborne's pre-election Budget last week. Osborne confirmed that the govern- ment has opened talks on the provision of financial support for the Swansea Bay Tidal Lagoon project, at an eye-watering estimated strike price of £168/MWh. To put that into some sort of context, the strike price agreed with EDF to build the Hin- kley Point C nuclear plant is £92.50/MWh, itself regarded by many as very high. So with almost double the strike price, is Swansea Bay worth the money? Citizens Advice believes not. In response to a recent call for evidence, the consumer group pointed out that the price "exceeds every technology for which strike prices have been published by Decc [the Department of Energy and Climate Change]". It continued to call Swansea Bay "appalling value for money" for consumers. Energy secretary Ed Davey says the talks will establish whether a contract for differ- ence (CfD) for a potential tidal lagoon at Swansea Bay, which is expected to have a modest capacity of 320MW, is "affordable and value for money for consumers". The development will act as a scalable precursor to a project in Cardiff, which is expected to have a capacity of 2.8GW. The Crown Estate estimates that tidal lagoon power will contribute up to 25TWh of renewable electricity to the UK every year, equivalent to 8 per cent of the coun- try's electricity consumption, but, as of yet, the technology has failed to flourish. Perhaps this is because the first project is so expensive? Having assessed the levelised costs of power from tidal lagoons, consulting firm Poyry suggests the CfD strike price will fall to £130/MWh for lagoon two and £92/MWh for lagoon three. In a report, the firm also reveals the project will have to be supported to the tune of £50 million a year, a "small" amount compared with the government's total budget for low-carbon electricity sup- port, which is about £7.6 billion a year by 2020. A spokesperson for Renewable UK tells Utility Week: "The idea is that by the time you get to lagoon three, you've got level- ised costs that are around those of onshore wind and large-scale solar." Tidal Lagoon Power's Andy Field argues that there are also some "serious advantages" over those other renewable generation technologies, primar- ily predictability. "The great advantage is that we can say on any given day in any given year exactly how much power we're going to give to [National Grid] and when. It's also an advantage for investors because if you're assess- ing whether or not to back a renewable project, you want to know what your cash flows are going to be. That cer- tainty of generation gives you a certainty of cash flow." Bloomberg New Energy Finance said last year that the "investor fatigue" caused by previous project setbacks, was a major inhib- itor of full global tidal technology deploy- ment by 2020. The company's senior analyst, Angus McCrone, tells Utility Week he is "uncertain" about the likelihood of further tidal lagoons being built aer the initial project. He says the strike price is simply likely to be Tidal Lagoon Swansea Bay's initial bargaining position. "Tidal Lagoon Power argues the first such lagoon will be expensive and then subse- quent ones will be much cheaper because of the lessons learned," he claims. "This is a clever negotiating tactic, since it is by no means certain that there will be more than one of these built. I would expect any agreed CfD for Swansea to be signifi- cantly lower, at perhaps £110 for 35 years. This would still be more expensive than Hin- kley nuclear, and much more expensive than onshore wind projects." At almost twice the cost of Hinkley (£92.50/MWh), why is the Swansea Bay pro- ject so expensive? Field explains that the initial Swansea Bay project is about "cost discovery" and insists the average cost will come down "rad- ically" with the addition of further lagoons. He tells Utility Week that, although it will cost more per megawatt because it is smaller, the price is worth paying "given that you can see the future". "It is not conjecture. It is not how we could get down to this level by this date if we innovate. If you get the British supply chain mobilised and you get the investors ready to back it, then you move straight to bigger lagoons and cheaper power," he adds. "When you put the first project with a big project producing cheap power, overall the power you're getting from that fleet of two lagoons, our estimation is that it would be a lot cheaper than many other forms of low-carbon generation." The government included plans for the Swansea Bay Tidal Lagoon in its national infrastructure plan at the end of last year. At the time, energy secretary Ed Davey said it showed the government was "serious" about the potential for tidal power. Tidal Lagoon Power chief executive Mark Shorrock says the group is "already apply- ing the Swansea Bay blueprint to the devel- opment of larger projects, and working to ensure the British supply chain mobilised for the first lagoon can scale accordingly". "The government recognises that we can- not afford to overlook these opportunities," he adds. With government advocacy, tidal technol- ogy will surely prevail. However, having pre- viously failed to get off the ground, is the age of tidal power truly nigh? Field says: "Now there is a process of value engineering going on, which has never been done before, so we've proved that it can be done. Cost reduction is still happening, and it's not going to come from innovation, it's going to come from value engineering and cutting the best deal with the industrial supply chain. That template can then be taken through to the bigger projects – which naturally give you the cheaper power." Tidal power: worth the cost? Chancellor George Osborne gave the green light to the Swansea Bay Tidal Lagoon project in his pre-election Budget. Lois Vallely asks whether the costly project is worth the money. After Swansea Bay, the average cost will come down radically with the addition of further lagoons