Tidal Lagoons and UK Energy Strategy

Christina Rees Excerpts

Tuesday 6th December 2016 Westminster Hall

[Stephen Crabb]

The hon. Gentleman makes an excellent point that is well understood in Government. The Government recognise the particular importance of ports as linchpins in their local economies.

If Ministers choose to harness our abundant natural resources and, in doing so, launch a new industry here in Britain, just as the Danes did with wind, we will secure a considerable competitive advantage over new market entrants from day one. Britain’s first post-Brexit industry will not only underwrite a strong domestic order book but help to put us at the front of the queue in future technology export markets. If we seize the moment now, wherever a new tidal power project is commissioned in future—from Garorim bay in South Korea to the Gulf of Kutch in India—there is every chance that the people, the parts and the components that build it will contain the words “Made in Britain”.

[Christina Rees (Neath) (Lab/Co-op)]

The Hendry report is good news for the Swansea bay tidal lagoon, after five years spent raising £48 million. The right hon. Gentleman is making a valid point about the jobs that it would create, but it would also create apprenticeships, which we in Wales need at the moment. What are his views on that?

[Stephen Crabb]

Perhaps we need another occasion to talk more fully about the role that apprenticeships play in rebalancing the economy, but the hon. Lady makes a vital point. If we are to have a new tidal lagoon industry, there is a lot of training to be done. A lot of new skills need to be brought into the workforce, so one can readily see that apprenticeships will play a key role.

I will draw my remarks to a close by drawing attention to the elephant in the room, which a number of hon. Members have already mentioned: money and affordability. I was discussing the Swansea tidal lagoon project with one Minister recently who described it to me as “eye-wateringly expensive”. When I pressed him on that, it became embarrassingly clear that he did not understand the project at all and was merely repeating what he had heard someone else say about it. A myth of unaffordability has grown up around the vision of tidal lagoons as it has developed over the last five years.

Let us be clear: the projected investment costs should not deter us. We know that investors are ready to support the Swansea bay project, whose overall project cost is about £1 billion to achieve construction and connection to the national grid. Tidal Lagoon Power has already spent around £50 million on the development work, and another tranche of money is ready to be used to bring the project to financial close, as long as the Government give the green light. Of the total capital investment of around £1.3 billion, we know that around 84p of every £1 will be spent here in the UK, and at least 50% of that will be spent in Wales. For the Welsh economy, a project of that scale would certainly help to move the dial in terms of gross value added.

We have still have not addressed the crucial point on which this whole thing hangs: value for money. I am interested to see what the Hendry review says about it, but after seeing the figures that crossed my desk when I was a Minister, and again more recently, I have been greatly encouraged that the project does represent value for money. By taking a long-term view of the asset—for that is what it is: a long-term source of power generation—and using established modelling that will be familiar to Treasury officials, the current net value of subsidy for Swansea could amount to a contract for difference equivalent of £89.90 per megawatt-hour. We would be talking about a 90-year contract with a diminishing subsidy each year for 35 years—because it is de-linked from inflation—which then starts to pay money back to the Government for the rest of the life of the contract. That compares favourably with Hinkley C, which locks in an escalating strike price with a contract for difference of £92.50 per megawatt-hour.

The point is that it is affordable: Swansea bay tidal lagoon would put an additional 18p on to household bills, and would require only 0.41% of the 2020-21 levy control framework budget in its first year. By its 35th year, Swansea bay would require just 0.15%—effectively a rounding error—of the levy control framework budget. To put that into context, Hinkley C will add around £12 to household bills.