Ministers were swayed by calculations that showed that the capital cost per unit of electricity generated each year by the £1.3bn tidal barrage would be several times more expensive than new nuclear or offshore wind.
It was not won over by arguments that Swansea would be the first of a new generation of tidal energy projects around the UK coast, with capital costs likely to come down on future projects.
While construction of the Swansea Bay Tidal Lagoon it required governemnt subsidy to in the form of a guaranteed purchase price for the electicity it would generate, just like the Hinkley Point C nuclear power station now under construction.
Greg Clark, secretary of state of business, energy and industrial strategy, told the House of Commons: “The proposal for the Swansea tidal lagoon would cost £1.3bn to build. If successful to its maximum ambition, it would provide around 0.15% of the electricity we use each year. The same power generated by the lagoon, over 60 years, for £1.3bn, would cost around £400m for offshore wind even at today’s prices, which have fallen rapidly, and we expect to be cheaper still in future.”
A government-commissioned report by former energy minister Sir Charles Hendry last year came down in favour of tidal lagoons as a way to “deliver low carbon power in a way that is very competitive with other low carbon sources”. He said that a large scale project would costs each UK household 50p a year for 60 years. The government puts it much higher…
Greg Clark told the Commons: “If a full programme of six lagoons were constructed, the Hendry Review found that the cost would be more than £50bn, and be two and a half times the cost of Hinkley to generate a similar output of electricity. Enough offshore wind to provide the same generation as a programme of lagoons is estimated to cost at least £31.5bn less to build.”
He continued: “Taking all the costs together, I have been advised by analysts that, by 2050, the proposal that has been made – which would generate around 30 TWh per year of electricity - could cost up to £20bn more to produce compared to generating that same electricity through a mix of offshore wind and nuclear, once financing, operating, and system costs have been taken into account.
“That could cost the average British household consumer up to an additional £700 between 2031 and 2050, or the equivalent of £15,000 for every household in Wales.
“However, in recognition of the potential local economic benefits that might result from a lagoon in Swansea, I asked officials to go back and consider what additional benefit could be ascribed to a number of other factors, including a beneficial impact on the local economy.
“For £1.3bn a Swansea lagoon would support, according to the Hendry Review, only 28 jobs directly associated with operating and maintaining the lagoon in the long term.
“Officials were also asked to make an assessment of the potential for valuable innovation and cost reductions for later lagoons that might come from embarking on a programme of construction. Independent advice concluded that the civil engineering used in Swansea Bay offers limited scope for innovation and capital cost reduction – estimated at 5% - in the construction of subsequent facilities.”
The government’s financial analysis shows that the tidal lagoon proposed for Swansea Bay is estimated to have an annual electricity output of around 0.52 TeraWatt Hours (i.e. 0.52 billion units of energy). The developer’s estimated capital cost is £1.3bn. The annual power output of Hinkley Point C will be 26.1 TeraWatt Hours. The developer’s estimated capital cost is £19.6bn.
Using these figures, Swansea Bay’s cost, in terms of capital cost pounds per unit of electricity, is £1.3bn / 0.52 TeraWatt Hours. This gives a ratio of 2.5. The equivalent figure for Hinkley Point C using the same calculation would be £20bn / 26TWh, which gives a ratio of 0.8.
Secretary of state for Wales Alun Cairns said: “I realise the disappointment this decision may cause, but ultimately this project did not meet the threshold for taxpayer value.
“The reality is the consumer and industry would have been paying disproportionately high prices for electricity when cheaper alternatives are available. I was an early and consistent supporter of the scheme – and took it to Number 10 – but after months of hard work by officials - the conclusion when taking a responsible approach to taxpayers’ money – is it just did not stack up.
“It’s important to stress that the issue here is specifically with the tidal lagoon application, not the concept of marine energy itself. The office of the secretary of state for Wales and wider government is committed to renewable energy and we will remain open to different sources of that. However, the priority always has to be that renewable energy represents good value for the Welsh consumer.”
Keith Clarke, chair of the developer Tidal Lagoon (Swansea Bay) Plc, was not happy. “In light of today’s statement and having heard next to nothing from government for two years, the board will be meeting in two days’ time to consider its next steps. There has been no negotiation and it is not unreasonable to expect that government will now be willing to meet and discuss its position on Swansea Bay Tidal Lagoon in some detail. We have already requested that meeting.
“The lack of engagement with us during this process has been highly disturbing. Which shouldn’t be confused with the underlying strength and validity of a new homegrown and secure energy source already found to be very competitive with other low carbon options by government’s own independent review.
“Perversely, the unique longevity, commitment to employ British industry and the multi-functional role that tidal lagoons can play in deprived regional economies have been twisted to work against Swansea Bay Tidal Lagoon. Had just half the government time wasted on distraction and hollow excuses been applied to collaborative engagement, we could today be sending out a very different message to the world about Brexit Britain.
“Given the abject failure by government to so far implement any of the Hendry Review recommendations of January 2017, the Board will consider how to preserve value for shareholders, the communities of Wales, and the UK as a whole. We will require significantly more engagement with this government to be productive.
“Any new industry needs a pathfinder and that can only be Swansea Bay Tidal Lagoon. If government is serious about energy diversity and the potential of tidal lagoons and marine energy more generally, it needs to get serious about delivering Swansea Bay Tidal Lagoon. The entire industrial strategy of employing British manufacturing to harness British tides relies explicitly on delivery of a pathfinder at Swansea. Without it, we will again export jobs that could and should stay here.
“The treatment of the pathfinder tidal lagoon makes a mockery of a supposed new industrial strategy for the UK that pledges to back the disruptors and embrace new industries for a new future. The reality is that indecision sucks the life out of innovation and timid leadership will condemn Brexit Britain to the 20th Century.”
Ian Price, director of business lobby group Confederation of British Industry (CBI) in Wales, said: “It is disappointing that a financially viable model for the Swansea Bay Tidal Lagoon project has not been possible. We appreciate the effort and energy made by politicians from both governments who have worked tirelessly to try and make this project a reality. At the end of the day any project has to be affordable for consumers.”
He said: “The newly established National Infrastructure Commission for Wales should lead a cross-agency review into all stages of this project and identify ways both governments can speed up the process for future energy infrastructure projects and remove barriers to entry for other firms.”