Tidal Lagoons and UK Energy Strategy

Geraint Davies Excerpts

Tuesday 6th December 2016 Westminster Hall

[Stephen Crabb (Preseli Pembrokeshire) (Con)]

I beg to move,

That this House has considered tidal lagoons and UK energy strategy.

It is a pleasure to serve under your chairmanship, Mr Paisley. This is a timely moment for the House to return to the subject of tidal lagoons as a future energy source, and specifically the projects of Tidal Lagoon Power Ltd, starting in Swansea bay, for which it has already received a development consent order.

My hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart), my constituency neighbour, led the previous Westminster Hall debate on Swansea tidal lagoon on 8 March 2016, which underlines the keen interest in this project from people in west Wales. It is encouraging to see colleagues here from across the United Kingdom, which demonstrates that what we are discussing is of strategic importance to the whole UK’s energy policy, economic policy and industrial policy.

The previous debate was essentially held under a different Government, when energy and climate change belonged in a stand-alone Department under a different team of Ministers led overall by a different Prime Minister. I welcome the new ministerial team at the Department for Business, Energy and Industrial Strategy. The team is experienced and well equipped to take on the challenges before us. I also welcome what the new Business Secretary said to the Institute of Directors on 27 September in his speech on industrial strategy:

“Many of the policies and decisions that form our industrial strategy will not be about particular industries or sectors, but will be cross-cutting.”

I welcome the departmental integration of industry with energy to make that happen, and tidal lagoons are a good example of the kind of opportunity that such integration is intended to foster.

The last general election feels like ancient history, but it is worth reminding ourselves that Conservative colleagues stood on a manifesto that:

“All parts of the UK will soon be helping to deliver secure, affordable and low-carbon energy, from the Hinkley Point nuclear power station, to offshore wind turbine manufacturing at the new Green Port in Hull, the next generation of pipelines West of Shetland and the Swansea tidal lagoon.”

I am proud of that manifesto commitment, and I would like to see it delivered.

Ten months ago the Government announced an independent review of the feasibility and practicality of tidal lagoon energy in the UK, recognising that tidal lagoons have the potential to provide the country with clean and secure energy but saying that more work needs to be done to determine whether it provides value for money. The Government therefore commissioned a review of the technology to improve our understanding of how tidal lagoons could contribute to the UK’s future energy mix in the most cost-effective way. The purpose of the review, led by the widely respected former Energy Minister Charles Hendry, was to help to establish an evidence base to ensure that all decisions on tidal lagoon energy are in the UK’s best interest, to better understand whether tidal lagoons can be cost-effective and to consider the impact on consumer bills both today and in the longer term.

[Geraint Davies (Swansea West) (Lab/Co-op)]

Does the right hon. Gentleman agree—perhaps the Minister will reflect on this too—that, given that 75% of identified fossil fuels cannot be exploited if we are to fulfil our Paris and COP 22 climate change obligations, the spot price of oil, which is often deflated by Saudi excess production to attack frackers, should not be the point at which we identify value for money? We should get sustainable green power at the lowest cost possible, even if the cost of oil is down.

[Stephen Crabb]

The hon. Gentleman makes his point well. The purpose of the Hendry review is to help to provide clarity so that the Government can determine the role that tidal lagoons could have as part of a long-term strategy to provide secure, clean and affordable energy for families and businesses across the country. The review is now complete and will be presented to the Government this afternoon. I, and I suspect the Minister, have no idea what the review says and what it concludes, but given the strength of support for a tidal lagoon industry across such a wide spread of business and political opinion, I imagine that Mr Hendry has heard some powerful and compelling arguments that cannot be dismissed lightly.

It would be absurd to ask the Minister to address his remarks this afternoon to the contents of the review—he will rightly need time to digest and assess it—but my one request is that he commits today that a decision will be made, along with a full response to the review, in as short a timeframe as possible. Even as I say “as short a timeframe as possible,” I sense the scope that that allows for foot dragging, so I seek assurance that the Government will respond in a timely and purposeful way, with no foot dragging. This cannot become another third runway decision, where industry makes repeated calls for a Government decision only for it to be kicked further down the road. There is too much at stake.

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[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.

[Geraint Davies]

Does the right hon. Gentleman accept that because the value of the pound plummeted by something like 20% after the news of Brexit—I think it is now down by around 14%—the lagoon will be much greater value for money, because it obviously costs more to import oil and energy if sterling has a low value?

[Stephen Crabb]

I genuinely do not know about that. We are discussing the long-term view. I do not know what oil and gas prices, or the value of sterling, will be in six months, let alone in 35 years.

The Swansea bay project does have strong credentials as a stand-alone project, but think about a Cardiff tidal lagoon as the first full-scale project. That would see the cost of electricity drop markedly, with a potential contract that could, I am told, take around £5 off the average household electricity bill. That is why it is so important to talk about a tidal lagoon industry, not just about doing Swansea as a one-off. It is the fleet of full-scale lagoons that will unlock the full energy opportunity for the UK. If we get it right, the country will win with low-cost, reliable and clean power and the emergence of a new globally significant industry here in the UK. Tidal power is reliable, as well as clean, and it is not subject to the vagaries of the weather. It is predictable—we know exactly when every high tide will be for years ahead—and tidal lagoon systems will be built to last for at least 120 years, making them all the more worthy of investment.

We have a unique and historic industrial opportunity before us, and we absolutely should seize it. We have the natural resource on our coastline, and we need new sources of low-carbon power. We have a rich industrial heritage that has bequeathed us the skills, the capabilities and the ambition to take on the challenge. After five years and expenditure of more than £50 million, the pathfinder project at Swansea bay is almost ready to start construction. The project has planning consent, strong funders, strong industrial partners, political and public support, and a delivery team and supply chain ready to kick into action. It has also proved to the international marketplace that the successful commercial development of tidal lagoon infrastructure can be achieved.

I urge the Minister not to delay in his consideration of the Hendry review. I urge him to seize the moment, to give the go-ahead to Swansea bay, and to launch this affordable, sustainable, first new post-Brexit British industry, which will serve our energy needs into the 22nd century.

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[Geraint Davies (Swansea West) (Lab/Co-op)]

It is great to have you in the Chair, Mr Paisley. I have been a supporter of tidal lagoons since I was elected in 2010. At that time, I asked searching questions about flood mismanagement, possible contamination and suchlike. Those have been looked at and, essentially, this project is good for jobs, for the environment and for the economy, so we should go forward. The hon. Member for Eddisbury (Antoinette Sandbach) shakes her heard. I should mention what she said about nuclear power.

Nuclear power is good, but if we look at global uranium supplies, at the current rate of consumption, which is 2.5% of global consumption, we will run out in 50 years. If that goes up to 12.5%, we will run out within 10 years. So we need a diverse portfolio that does not exclusively rely on nuclear.

As I mentioned earlier, 75% of fossil fuels cannot be exploited, so we need to look carefully at the tidal lagoon project. There is no excuse for further delay. The previous Chancellor came to Swansea with the former Prime Minister and in the autumn statement of 2013 mentioned the Swansea bay lagoon, but we are still waiting. We now have the Hendry review, which has found that the project is technically sound, is value for money and will deliver economies of scale and falling marginal costs as the portfolio is spread around. So, as hon. Members have said, let us get on with it and let us have a target date. Let us say by June next year. I do not think by Christmas is realistic, but let us have a target date and let us get on with it.

The only thing that has dragged on is the issue of cost. As I have mentioned already, the oil cost is not a proper indicator, because we cannot exploit all the oil and, also, we cannot really go down the road of fracking. People may have read the recent Council of Europe report on hydraulic fracturing. It concluded that, given that methane is 86 times worse for global warming than carbon dioxide and fracking has fugitive emissions of 5%, fracking is twice as bad as coal for global warming, so we need to have very tight controls on fracking. Perhaps the Minister will respond to that. Will he undertake to ensure that fugitive emissions are below 1% for the whole process and below 0.1% at the well head? If we can get that out of the way, it opens the door for Swansea bay lagoon and other lagoons like it as pathfinders. We should not mess around when we know that strategically other options are not open to us.

It looks as though we will be heading towards the disaster called “Brexit”. Let us assume for a moment that the Government do not delay triggering article 50 beyond the French and German elections and do not give the people a final say on the deal, in which case they would reject it. Let us assume we go for Brexit. Obviously, fuel prices will be much higher because sterling will be devalued owing to a lack of confidence in the economy outside the European market, with tariffs. That makes the Swansea bay lagoon better value for money. In the short term, of course, some of the component parts to build it will increase in price. However, overall, it is a great project. We have been waiting long enough. Let us get on with it. In the interests of the environment, of the economy and of Britain, let us do it.

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[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Jesse Norman)]

Thank you very much, Mr Paisley. Members have already widely noted the honour it is to serve under your chairmanship, and I add my support to that sentiment. I congratulate my right hon. Friend the Member for Preseli Pembrokeshire (Stephen Crabb) on securing this important debate. It is testimony to him and the importance of the issue that he has generated such cross-party support and so many interesting speeches. The sentiment in the room has been so evident.

My right hon. Friend has long been a proponent of the economic benefits that tidal lagoons could bring to his constituency and to south Wales as a whole. Naturally, he and other Members here today are keen to understand better how the development of a tidal lagoon at Swansea specifically and a fleet of tidal lagoons around the UK coastline—were they to go ahead—would benefit their local economies. However, as he acknowledged, this is a difficult and complex question. The technology is new and untried, and the development warrants due care and consideration before decisions are taken. That is why in May the Government commissioned Charles Hendry to undertake an independent review of the strategic value of tidal lagoons in the UK. Among other things, the review was intended to consider whether and in what circumstances tidal lagoons could play a cost-effective role as part of the UK energy mix, to examine the potential scale of the opportunity, including in the supply chain, and to consider different sizes of projects as the first of a kind.

Contrary to what some Members have said, building a tidal lagoon in Swansea is not a manifesto commitment of the Conservative party, but it is mentioned in the manifesto. There is a commitment to explore the lagoon as a source of affordable energy, and that is exactly what Charles Hendry is being asked to do in his review. We are expecting him to deliver his report to Government very shortly. Colleagues may know better than me how shortly, but whenever that is, this debate is a timely opportunity to discuss the issues. Apparently, drafts have been sent to or discussed with officials—certainly in one case—but it is important to note that the review is not about Swansea as such. Rather, it is a general review of the costs and benefits of tidal energy. As it has not reported, it is irrelevant that the autumn statement has occurred, contrary to what some colleagues have tried to insist. It would be wrong for Government to announce anything while a review we had commissioned was under way. We look forward to receiving it and reading it with great interest.

The question has been raised as to whether, as my right hon. Friend said, there will be a timely and purposeful decision. Members asked when the Hendry review would be published and whether there would be a decision before the end of the year. Colleagues will understand that any decision before the end of the year would be unrealistic at this late stage, and my right hon. Friend acknowledged that. We will give this matter thorough and careful consideration. There will be no dragging of heels.

[Geraint Davies]

Is the Minister willing to set a target deadline that he will not go past? Will he say, “By June next year, we will try to do better,” or will he set no deadline at all?

[Jesse Norman]

The fairest thing to do is to see what the report says before we come to a view about an appropriate timetable. It would be quite wrong to prejudge the report and its conclusions.

For all the enthusiasm of my right hon. Friend the Member for Preseli Pembrokeshire for tidal lagoons, I note that he has taken a measured approach, respecting the complex issues that are being raised, for which I thank him. As he said to the House when he was Secretary of State for Wales,

“The Swansea tidal lagoon proposition is very exciting and commands wide support across the business community in Wales, but we also need to recognise that the project is asking for a very significant level of public subsidy and intervention. It is absolutely right that”

the Government

“should conduct very robust due diligence in making sure that such projects will deliver value for the taxpayer.”—[Official Report, 13 January 2016; Vol. 604, c. 842.]

That is precisely what we will do. We will take the time necessary to look at the review’s findings in relation to tidal lagoons, particularly in the context of a wider assessment of the nature of the UK’s future energy mix and our plans to reduce carbon emissions.

Last month, the Secretary of State set out his vision for how the energy sector should develop, in the context of our new UK industrial strategy. He recognises that the Government’s role must be to create the right framework for growth, harnessing both existing and new technologies, to deliver more secure, cleaner energy at a lower cost. That is our goal: a reliable, clean and inexpensive energy system.

Of course, new technologies such as tidal lagoons may have a role to play, but not at any cost. My hon. Friend the Member for Eddisbury (Antoinette Sandbach) rightly raised several issues, and we look to the energy review and other discussions to resolve them. She raised not merely the issue of cost, but her concerns about the lack of intellectual property, planning uncertainty and delays. The Government should properly consider those issues as part of a wider decision-making process.

As colleagues know, the contract for difference allocation round, which we announced last month, is under way. Overall, our energy policies and priorities have not changed. It is worth saying, in relation to the remarks of the hon. Member for Aberdeen South (Callum McCaig), that it is not true that CfDs do not include tidal stream technologies, although it is true that there is no ring-fenced allocation for them within the auction. That is because our responsibility is to bill payers. Tidal stream, which is not a technology that we are specifically discussing in the context of tidal lagoons—it is a different technology—has a strike price about three times higher than that of offshore wind. Until those prices fall, it may be difficult for it to compete. When they do, it will come within the policy horizon.

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[Jesse Norman]

I am sorry to have given up time for that intervention, because I was coming to that point. SeaGen, as the hon. Gentleman recognises, was a research test bed, and it is being decommissioned now. It received a £10 million grant from the Department, and those conclusions are being carefully assessed. It is a project in which there has already been public investment. [Official Report, 14 December 2016, Vol. 618, c. 6MC.]

It is clear that we cannot allocate subsidies to every technology that asks for them. We have said that our focus will be on key technologies that have the potential to scale and deliver long-term cost savings, in which the UK has a comparative advantage and whose costs to consumers are acceptable.

[Geraint Davies]

Will the Minister give way?

[Jesse Norman]

I am very short of time. I am so sorry. I have taken an awful lot of interventions, and I want to make progress.

I note the enthusiasm of my right hon. Friend the Member for Preseli Pembrokeshire for the proposed Swansea bay project, but it is the Government’s job to consider the advantages and disadvantages and to scrutinise the evidence to ensure that decisions are taken in the longer-term interests of the UK and consumers. It is worth focusing on the significant uncertainties associated with the project—in particular, the use of a new and untried technology in a marine environment, the length of time over which the commitment would be made, and the planning issues, which have already been mentioned.

Since the debate on the economic impact of tidal lagoons in March, the Department has continued to have discussions with the developer of the Swansea bay lagoon. I cannot comment on those discussions, given their commercial nature, but the most recent proposal put forward by the developer would be a very significant deviation from current Government policy. It would not be impossible, but it would require careful consideration. We have always been clear that we will consider the findings of the independent review of tidal lagoons and all other relevant factors in deciding whether to proceed with negotiating a CfD on this project. The developer is aware of that.

The issue of value for money quite properly remains at the forefront. I mentioned the concerns about consents and leases, decommissioning and the supply chain. I note that the China Harbour Engineering Company is no longer working with the developer. There is also an issue of state aid approval. The point is that, even under ideal circumstances, it will take some time to resolve those issues, and the Government will need to take our time to consider the review and make a judgment in a proper and effective way.

As this important debate draws to a close, let me say that I expect a copy of the review’s report to be on my desk and those of colleagues very soon, and we will give it careful consideration. I assure hon. Members that the Government will strike the right balance between responding in a swift and timely way and taking the time required to consider this complex issue in the detail it deserves.