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The developer of the world’s first tidal lagoon has defended a proposed deal to finance the project with a 90-year government contract.
The contract proposed by Swansea Tidal Lagoon will last almost three times longer than similar contract for difference (CfD) agreements made for other projects, such as Hinkley Point C and windfarms, and has drawn criticism for its longevity.
The proposed £1 billion Swansea Tidal Lagoon will have a capacity of 320MW and generate around 500GWh of electricity a year.
CfD agreements are the financial mechanism through which the government is financing the construction of new power generation capacity in the UK. The developers agree a “strike price” with the government for the future value of electricity the plant generates to guarantee a return to investors. Hinkley Point C has agreed a 35-year strike price indexed to inflation of £92.50/MWh and an expected lifetime of 60 years.
A report published last month by Swansea Tidal Lagoon on the costs of new power generation suggests the strike price for the lagoon would be the same as Hinkley Point C, when spread over a 90-year agreement.
Mike Edge, analyst at Swansea Tidal Lagoon and author of the report, said: “It’s a unique proposal because the tidal lagoon will last for 120 years. The contract is structured differently and is partially delinked from inflation. The price will decrease year on year and eventually it will pay back to government.
“It’s important to realise it’s not a 90-year subsidy, it’s a 90-year contract.”
An independent review of Swansea Tidal Lagoon’s plans is expected to be concluded in November, enabling the CfD agreement to be made. Construction is planned to start in March 2018. The project has financial backing and the developer plans to build five more lagoons after Swansea.
Despite the project being the first tidal lagoon of this scale, Edge said the company is confident there would be minimal delays and no cost increases. The lagoon will use 16 bi-directional turbines supplied by GE and Andritz Hydro.
Edge said: “We have a detailed schedule and plan, we’re using standard construction techniques, concrete structures, and the turbines we are using have been around for 100 years.
“We plan to supply 8-10% of the UK’s electricity demand from six locations.
“When you have more than one lagoon the different locations mean you can smooth out the power generation – you remove the intermittency.”