Tidal Lagoons Are Uneconomic
Mr Hendry’s report implicitly recommending that the UK government support the £1.3 billion Swansea Tidal Lagoon project presumably moves the scheme one step closer to realisation. However, the headline facts show that there is no justification for compelling UK consumers to de-risk the scheme for its projectors.
The principal and overwhelming disadvantage of most renewable electricity technologies is that they are of low energy productivity in themselves and reduce the productivity of the electricity system of which they are a part. Therefore, when assessing a project such as the Swansea Tidal Lagoon the first question to ask is whether the present scheme overcomes this productivity failing, and if it does not whether the technology shows any promise of significant improvements in productivity in the future.
The Swansea Tidal Lagoon’s load factor, the measure of the energy productivity of this 320 MW scheme, will be about 19%, yielding roughly 533,000 MWh per year, equivalent to about 0.2% of UK annual electricity consumption.
The capital cost would be about £1.3 billion, and will, it seems, require a guaranteed price of £89.90/MWh, roughly double the current market rate, for 90 years in order to recover this capital. (Even Mr Hendry thinks this is too long a contract, and recommends limiting the contract to a still staggering 60 years.) At this price, the annual income would be about £48m, with a 90 year total lifetime income of about £4.3 billion at current prices (the tariff will of course be index-linked). Somewhat over half of this lifetime income will be subsidy.
No amount of cheerful optimism from Charles Hendry can conceal the fact that this is very expensive indeed, and that the opportunity cost, the highly efficient and highly productive Combined Cycle Gas Turbines that we will not build and run because the money has been spent on the Swansea Lagoon, is large.
It is worth noting that the BBC, following Tidal Lagoon Power’s own press statements, is reporting the lagoon’s strike price as comparing favourably with the £92.50/MWh awarded to Hinkley C nuclear power station. However, not all megawatt hours of electricity are of equivalent value, and the fluctuating output of the lagoon is of less utility to the system than the firm generation of Hinkley C. There is no justification of subsidies to either of these proposals, but no one can be in any doubt that those to the lagoon are the more wasteful per unit generated.
The costs do not end with the subsidies. The Swansea lagoon will contribute very little to security of supply, and its output will fluctuate from zero to max at its own convenience, with only modest dispatchability. In fact, it will add to system costs, because of extra grid, and the cost of balancing services. These are unlikely to be anywhere near as high as those for wind, but they will certainly exceed those of a conventional generator.
Perhaps, the technology has promise and might improve its productivity. Unfortunately, this is unlikely. The load factor is principally determined by the character of tidal flows, and the optimal balance of generator size to lagoon capacity, which will not change significantly if at all. Improvements in the longevity and reliability of the materials, and thus reductions in lost output due to maintenance, are conceivable, but are not likely to be major considerations. Consequently, the load factor of future projects is unlikely to differ more than a few percentage points from the current figure of 19%. Furthermore, there is no likelihood that the capital cost of construction can be greatly reduced. While the concept of lagoon is novel, or at least untried, the major elements of the scheme, the turbines, and the impoundment are not. Indeed, the vast majority of the cost is in standard marine civil engineering to build the impoundment, a field several thousand years old, where major cost reductions are not to be expected.
Even a brief review shows that this project is of low productivity and will degrade the productivity of the system of which it is a part. Furthermore, the technology has no realistic prospect of significantly improved productivity. If private investors wish to take the risk, by all means let them, but government should not gamble with consumer bills when the odds are so unfavourable.