Tidal Lagoons and UK Energy Strategy

Stephen Crabb 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.

[Craig Williams (Cardiff North) (Con)]

I commend my right hon. Friend for securing this important and timely debate in the light of the Hendry review. Does he share my hope that the Minister will outline when he will share the Hendry review with Parliament? The review will provide great context for our future debates.

[Stephen Crabb]

I agree with my hon. Friend, and I look forward to the Minister addressing that point later this afternoon.

A key feature of UK energy policy, whatever else might be said, it that it is not neutral. It does not rely solely on market choices to drive new investment. To that extent, we have an activist energy policy that demands big, difficult and timely choices from Ministers. A core objective of recent UK energy strategy, as the last Secretary of State for Energy and Climate Change, my right hon. Friend the Member for Hastings and Rye (Amber Rudd), said last year, is to ensure

“enough electricity generation to power the nation.”

As ageing and dirty power plants are retired from use, delivering on that objective becomes more challenging. National Grid now projects that, without emergency measures, the UK’s winter electricity margin stands at just 0.1%.

The vision we are discussing today speaks directly to that energy challenge. How do we harness the phenomenal tidal range that surrounds our country to replace many of the ageing power plants that are being decommissioned?

[Kevin Brennan (Cardiff West) (Lab)]

It is encouraging that the right hon. Gentleman is a former Secretary of State for Wales and for Work and Pensions, and he has support from the hon. Member for Cardiff North (Craig Williams), a Treasury Parliamentary Private Secretary, which gives me hope that perhaps there is something in the wind to suggest that we might get the early decision for which he is calling—we would support such a decision. Will he support me in asking the Minister to give us a decision before the end of this year?

[Stephen Crabb]

It would be fabulous to have a sense of the timeframe in which the Minister will be making his decision, but it might be unfair to ask him to provide one today, given that he probably has not yet seen the contents of the review. I do not even know the length of the report, and it might take a bit of time to digest. The key point raised by the hon. Member for Cardiff West (Kevin Brennan) is essential: we need a timely decision in the shortest possible timeframe.

The vision of harnessing tidal energy is exactly why Tidal Lagoon Power was started five years ago with the aim of providing home-grown, secure power from a fleet of tidal lagoons around the British coast that could provide low-cost, zero-carbon power for the next five generations, thereby building a new British industry of turbines, generators and turbine housing, with all the manufacturing and engineering jobs, skills and investment that comes with it. That is a compelling and exciting vision of energy and industrial policy coming together in the national interest.

[Neil Carmichael (Stroud) (Con)]

Does my right hon. Friend, and hopefully the Minister, agree that the key point about this and other projects is that they represent long-term investment? The strike price that this project will achieve underlines that this is a cost-effective way of producing energy.

[Stephen Crabb]

I agree with my hon. Friend, and I will address that point later. It is with a long-term view and an appropriate framework of support for the right projects that the prospect of a new UK tidal energy industry is within reach, and with it a source capable of providing 10% or more of the UK’s total electricity requirements.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

The right hon. Gentleman is making a fine speech. The strike price over 90 years is £96.50, which compares with the Hinkley Point strike price of £92.50 over 30 years, both at 2012 prices. Of course, it is often forgotten that nuclear has had 60 years of support, and 44% of the budget of the former Department of Energy and Climate Change was spent on addressing the legacy of old nuclear. Putting all that together, Swansea bay and other tidal lagoons represent very good value for money.

[Stephen Crabb]

The point about comparability is well made. Although the purpose of this debate is not to do down any other energy source, I recognise that drawing such comparisons is right and proper in this context.

A tidal lagoon industry would mean multi-billion-pound infrastructure investments in two areas of the United Kingdom with ideal conditions for tidal lagoon infrastructure: the Severn estuary and the Liverpool bay and Irish sea area. I understand that about a dozen viable sites have been flagged to Charles Hendry as part of his investigations, and that Tidal Lagoon Power is working on specific projects for five of those sites, starting with a pathfinder project in Swansea bay and moving shortly afterward to the first full-scale lagoon in Cardiff.

New manufacturing facilities to serve the various lagoon sites across England and Wales will be served by a UK-wide supply chain. Original manufacturing will be spread throughout the UK; particularly important components will come from a number of regional centres of excellence, mirroring the UK’s historic manufacturing heartlands, including South Yorkshire, south and west Wales, the west midlands, western Scotland, Tyneside and Teesside.

A UK tidal lagoon industry would represent a world first. The wide body of bespoke maintenance and engineering expertise it would build up could lead to the export of skills, knowledge and human resource to projects in the first phase of international tidal lagoon deployment, potentially securing up to 80% of global market value in that space. That is absolutely what UK industrial strategy should be all about: renewing and enlarging world-class manufacturing and engineering skills right across the United Kingdom.

[John Penrose (Weston-super-Mare) (Con)]

Does my right hon. Friend have any views, or evidence of any views, about how the cost per unit, or per bay created, might drop as the industry gets under way? I am thinking of the solar photovoltaic industry, where the cost per unit has decreased dramatically over many years. It is important that we have some sense of how much cheaper tidal lagoon energy might become, because the costs will ultimately be borne by consumers through their energy bills. Many people are struggling for cash these days, and we are trying to drive up the productivity of the UK economy, so lower long-term cost to the consumer if we can make it work will be an important prize to gain.

[Stephen Crabb]

That question goes absolutely to the heart of the matter, and I will address it in a bit more detail later. The figures that I have seen from Tidal Lagoon Power demonstrate that as we move from the pathfinder project in Swansea to the larger full-scale fleet of lagoons starting in Cardiff, the costs of energy generation decrease markedly. That does not even assume any of what economists call project learnings, which help to drive efficiencies in future projects.

[Neil Carmichael]

I thank my right hon. Friend for giving way a second time. The key point here is that one project will help to start the next project, and therefore another and another. That is the central reason why this project as a whole is important: it will create more opportunities still.

[Stephen Crabb]

Again, my hon. Friend demonstrates his knowledge of the potential industry that we are discussing. His point is well made.

It is envisaged that the machining and pre-assembly of the turbines will take place at a new purpose-built facility in the Swansea bay city region. Heavy fabrication of steel components will take place at a new purpose-built facility, also in the region. Final full assembly of the turbines will take place on site in the turbine housing itself. The turbines’ control systems and generators, which connect to the turbines and generate renewable electricity, will be manufactured in Rugby, also from a majority of British-made parts. Meanwhile, a Stafford facility will provide high-voltage switch gear and control and protection systems, all of which demonstrates the UK-wide potential for the supply chain to serve a new tidal lagoon industry.

Quite simply, the development of a fleet of tidal lagoons, starting with Swansea, would provide an enormous boost to UK civil and electrical engineering, our manufacturing sector and our domestic steel industry. According to Graham Honeyman, chief executive of Sheffield Forgemasters:

“Being part of the Tidal Lagoon project would be an important win for this business. The prospect of working on a new power generation concept is an exciting one and is inspiring to our team. The possibilities for this concept, which could play a huge part in addressing the global power deficit, are vast. For such a project to be delivered through British designs and implementation would also be a great boost to the UK economy.”

[Mr MacNeil]

I am grateful to the right hon. Gentleman for giving way again; he is making a fine speech. What he and other Government Members have been talking about is first mover advantage. We could make a strong case for first mover advantage. I hope that the Department for Business, Energy and Industrial Strategy is listening to that point. It should not be seen in any way as a cost to consumers. The previous Department was obsessed with snapshots of the cost to consumers in the present, whereas we should be looking towards long-term savings to consumers that will eventually be achieved through this work and the first mover advantage.

[Stephen Crabb]

The hon. Gentleman makes an excellent point. If we are serious about rebalancing the economy, revitalising our industrial sector and creating new high-quality manufacturing jobs and apprenticeships, we need real and substantial projects to enable that to happen. The proposals for a tidal lagoon industry comprising five or more lagoon projects around the UK represent exactly the kind of new thinking that we need for our industrial strategy.

Tidal lagoons would mean new jobs, requiring new skills for a new industry. To give one example, there is currently no UK facility of sufficient size to serve the tidal lagoon sector with caissons, the large watertight chambers in which construction work may be carried out underwater. Tidal Lagoon Power and its partners have identified a number of potential sites for such a purpose-built facility around the Welsh and Scottish coastlines. The construction of such a facility would further enhance the UK’s civil engineering capability and upskill our industrial workforce.

In a report to Tidal Lagoon Power extending its earlier work for the Welsh Government, Miller Research and SEMTA found that the development of four tidal lagoons in Welsh waters would support 22,000 jobs in manufacturing and assembling the main component parts of the turbines, generators and sluices, which equates to 15% of the total number of people working in manufacturing in Wales in 2014.

[Albert Owen (Ynys Môn) (Lab)]

The right hon. Gentleman and I agree on the importance of low-carbon technology, particularly to port communities in west Wales such as the ones that he and I represent. They have natural deep water and the facilities and skills from previous industries. Rather than reinventing the purposes of those ports, we should continue their excellent record of serving the energy sector.

[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.

[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.

[Several hon. Members rose—]

--- Later in debate ---

[Stephen Crabb]

I will do that. First, thank you for your excellent chairmanship, Mr Paisley, which has facilitated this very good debate about not just the Swansea project—it was never about just the Swansea project—but the potential for a tidal lagoon industry for the whole of the United Kingdom. The sheer number of colleagues who participated from all parts of United Kingdom and all parties demonstrates the overwhelming support for the Government to take forward a new tidal lagoon industry. I am reassured by the fact that the Minister said there will be no dragging of heels. He said that the Government will not support this project at any cost, but nobody was asking for them to support it at any cost. We have discussed some very reasonable figures and comparisons between different energy types.

This debate will carry on in other forums over the coming months. I hope we get a full, positive response and a decision from the Government, if not by the end of the year—perhaps it would be unreasonable to expect that—then certainly by the spring or summer.

Question put and agreed to.

Resolved,

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