Investors warn tidal power project risks stalling

Investors warn tidal power project risks stalling


Backers led by Prudential say the government must give scheme a green light soon

Investors in a proposed £1.3bn tidal power scheme in Swansea Bay have put further funding on hold and warned that the project risks stalling unless the government gives a green light soon.

Over £200m has been provisionally committed by backers led by Prudential, the large UK insurer, with Macquarie and Investec, two other major financial institutions, ready to raise hundreds of millions more in debt and equity.

But investors are refusing to release further funds in the absence of a government go-ahead for what would be the biggest tidal power scheme of its kind in the world.

“If there’s no evidence that the government is committed then at some point the patience of investors will be exhausted,” said David Stevens, founder of Admiral Insurance, who has poured millions of pounds of personal wealth into the project. “An opportunity will have been lost and it will be very hard to piece together again in future.”

Investors have been awaiting a decision since January, when a government-commissioned review by Charles Hendry, former energy minister, recommended approval for the Swansea project “as soon as is reasonably practicable”.

Werner von Guionneau, chief executive of InfraRed Capital Partners, which has pledged £100m, said government indecision was undermining investor confidence. “We cannot hang around forever,” he added. “The government promised a decision and they are letting us down by not making it.”

The Swansea scheme provides another test of UK appetite for big infrastructure projects after years of debate and delays to new airport capacity in the south-east of England, the HS2 high-speed rail link between London and the north, and the Hinkley Point nuclear power station in Somerset.

“The credibility of independent reviews rests on the government making a decision on the back of Hendry,” said Keith Clarke, chairman of Tidal Lagoon Power, the company behind the Swansea scheme. “Otherwise it will look like more can-kicking as we’ve seen with [the proposed third runway at] Heathrow.”

Mr von Guionneau said he feared the delay reflected wider policy paralysis in government. “Day-to-day decision-making is being neglected because capacity is taken up by Brexit,” he added. “It is difficult making energy policy decisions with 30 or 40-year horizons and it is even harder in the current political circumstances. But that’s what they are paid for.”

The Hendry review gave support to Swansea as a first, experimental step towards what backers hope will be a chain of “tidal lagoons” around the UK coast, harnessing power from the ebb and flow of ocean tides to generate low-carbon electricity.

The 320 megawatt Swansea scheme, involving a 9.5km seawall embedded with turbines, was granted planning permission in 2015. But, like most new power projects, it is not commercially viable without a government agreement to guarantee a subsidised price of electricity from the facility.

Critics say tidal power is too expensive because of the heavy upfront cost of the sea walls. An initial proposal by Tidal Lagoon Power called for a guaranteed “strike price” of £160 per megawatt hour of electricity for 35 years, well above the £92.50/MWh promised to the Hinkley Point nuclear plant in Somerset, which has also been widely criticised as too expensive.

Advocates say the cost of the Swansea scheme should be measured over a longer period because tidal lagoons can operate for over 100 years — decades longer than nuclear plants or wind farms. The latest proposal by Tidal Lagoon Power involved a strike price of £89.90/MWh guaranteed for 90 years, with the prospect of lower prices for subsequent lagoons.

The Hendry review recommended a 60-year deal and said that, over that timescale, tidal power would be “less expensive than offshore wind and significantly less expensive than nuclear”.

Richard Howard, head of energy at Policy Exchange, the centre-right think-tank, questioned the wisdom of locking UK electricity consumers into such a long-term deal at a time when the cost of wind and solar power generation are falling rapidly.

He said the energy landscape might change significantly. “In 20 or 30 years we could have cheaper sources of energy than have even been invented yet,” he added.

Advocates for tidal power say its industrial benefits should also be considered. The Hendry review said construction of a wider programme of larger lagoons would create thousands of jobs and establish the UK as a global leader in the technology, with export potential. Engineering companies such as Sheffield Forgemasters and General Electric are lobbying in favour of the Swansea scheme and it has backing from over 100 MPs.

Mark Shorrock, chief executive of Tidal Lagoon Power, said a decision was needed this summer for work to start in 2019, with an aim for completion within four years. Staff at the company have been put on a four-day week to reduce cash burn while it awaits a decision.

The Department for Business, Energy and Industrial Strategy said it was still considering the Hendry review’s findings and would publish its response “in due course”. “We will require time to assess the merits of such a programme and determine what is in the best interest of the UK energy consumer and taxpayer in the long term,” said a spokesman.

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