A £1.3bn tidal power project in Wales that was last year refused subsidies by the UK government is now racing to firm up private funding so as to begin construction before its planning permission expires in 2020.
The project’s developer said it was still “do-able” to construct a lagoon in Swansea Bay that would generate electricity from the natural rise and fall of the tide, funded by a combination of bank loans, equity from the private sector and commitments from the Welsh government.
Tidal Lagoon Power, the company behind the scheme, said it was in talks with potential backers including a Middle East sovereign wealth fund, a utility company and London-based pension funds to meet the £1.3bn construction cost of the project, and hopes to make a final investment decision by October.
The company believes it can secure up to £900m of bank debt while the Welsh government last year offered £200m to try to ensure the scheme went ahead.
Mark Shorrock, chief executive of Tidal Lagoon Power, said equity from the private sector would cover the remainder of the construction cost.
“That equity is coming from . . . either a sovereign wealth fund in the Middle East or it’s going to come from a strategic utility or it’s going to come from the London market in terms of pension fund money,” he added, declining to name any of the parties involved in discussions.
Building a new power plant in the UK without state financial support would be a rarity.
Tidal Lagoon Power last year failed to persuade the government to award it a so-called “contract for difference” subsidy agreement, which would have guaranteed a minimum price for the project’s electricity, after ministers deemed the plan too expensive.
However, Mr Shorrock said banks and private backers were willing to support the project without a subsidy regime because Tidal Lagoon Power had signed memoranda of understanding with public sector bodies and companies under which they would buy electricity from the scheme.
The agreements would provide guaranteed revenues for Tidal Lagoon Power, which it would seek to top up through services to help National Grid, which operates Britain’s power transmission network, to balance electricity supply and demand.
However, Mr Shorrock accepted he now faced a “race against time” to start construction of the project before its planning permission expires in June next year.
The company is hoping Swansea Bay will be a “pathfinder” project that will lead to a series of other much larger tidal power schemes in the UK once the technology has been proved.
Such lagoons typically involve a U-shaped breakwater with built-in hydro turbines. As the tide rises and falls, and the artificial lagoon fills up and empties, electricity is generated.
RenewableUK, a trade organisation, said that if the government wanted to hit its target to reduce net carbon emissions to zero by 2050, Britain’s energy system would have to be based on renewable technologies, including newer ones such as tidal power schemes, to supplement existing forms such as offshore wind.
“The really big hole in government energy policy is how these innovative technologies will be funded,” said Emma Pinchbeck, RenewableUK’s deputy chief executive director.
“Government has a key role to play here in replicating the success of our world-leading offshore wind sector with other clean power sources in our future energy mix.”