Holding back the tide?

By Dr Jonathan Marshall, ECIU Head of Analysis

With 15 months gone since the publication of the Hendry Review – which suggested that the UK should crack on with tidal power – the discussion of how to power the country from the sea continues apace. Green groups, lobbyists and MPs with projects or supply chains in their regions both continue to push the Government for more commitment, while supporters of other technologies continue to point to the cost of tidal schemes.

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Ministers are still to decide whether or not to back tidal power in the UK. Image: Swansea Bay, Tidal Lagoon Power

There is no denying that currently mooted projects are on the expensive side. At nigh-on £90 per megawatt hour for 90 years, the fixed-price deal that the developers of Swansea Bay are pushing for is not only on-par with the widely-derided Hinkley deal, but lasts more than 2.5 times as long. 

It is around twice the cost of contracts needed to deliver new onshore wind, with a deal six times as long, and has a price tag multiple times that of new flexible gas capacity currently being delivered through the capacity market.

Developers quickly point to other upsides of tidal to justify the cost – local effects and export opportunities, to name two – but this remains a huge deal to lock generations of UK bill payers into.

The right policy?

Another benefit touted by supporters is the ability of tidal power to meet the UK’s peak electricity demand. However, if funded by the contract-for-difference (CfD) that both developers want and the Hendry Review recommends, there will be no incentive for power to be delivered at peak, the time it is needed the most (something the Hendry Review admits).

By guaranteeing the same price for power whether it is delivered at 2 am or 6 pm, the CfD removes the economic incentive to ‘hold back the tide’ and release it at the most valuable time for the grid. As making the most of this built in storage system incurs extra costs above running with tidal flows, it would not make sense for the owners to run the plant in this way, despite the benefits it would offer to the electricity system as a whole.

Should a tide fire up the plant at the same time as a gust of wind boosts UK wind output - or vice versa - having a tidal project on the system could require flexible gas plants or storage units to ramp up even faster to take the strain. Therefore, rather than easing renewable integration, tidal could raise the overall cost of running and balancing the system, a cost ultimately felt in household and business bills.

On top of working to meet peak demand, running water through the turbines bit-by-bit could help to smooth out fluctuations in wind and solar output, or to step in when a thermal power plant fails. This would likely reduce overall balancing market costs, and would allow a tidal project to capture the highest power prices possible – akin to the modus operandi of the UK’s pumped storage fleet.

Without exposure to the market price – bypassed as the CfD tops up wholesale revenue to a pre-agreed amount – tidal projects will not run in their most optimal way. And since the renewables obligation (RO) scheme – which exposed developers to the market price by adding a fixed top-up onto wholesale income – closed to new entrants in 2017, the UK government finds itself without a suitable policy instrument to get the most from our tidal resources.

Bespoke deals, post-Hinkley

800Px Sheringham Shoal Wind Farm 2012

The falling cost of other forms of low carbon technology is casting doubts over the affordability of tidal power. Image: Sheridan Shoal wind farm, Harald Pettersen, CCL

Another sticking point is the likely public unacceptability of bespoke, bilateral deals, as recommended in the Hendry Review. 

The widely-cited cheap offshore wind contracts inked for just £57.50/MWh at the end of 2017, and a panoply of headlines on plummeting costs of renewables across Europe, mean it would take a politician with the brassiest of necks to defend signing the UK public up to a multi-billion-pound deal in the wake of the Hinkley Point C furore.

There may be a way through, though. 

The current crop of BEIS ministers make no secret of their fondness for competition in delivering new capacity, allowing the market to find the best price for a technology and ensuring that consumers are not exposed to higher prices than needed. With tidal proponents seemingly not concerned about calling for special consideration, a request to re-open the RO and pit projects against each other in an auction (thereby mirroring the system for new onshore wind in Germany and Denmark) shouldn’t be out of the question.

This route could pit projects dotted around the UK against each other, ensuring that the lowest cost (and therefore lowest risk) scheme gets the go-ahead. If the auction cleared low enough, the Government could then provide a schedule of further rounds, which would allow developers to press on with projects knowing that steady demand will exist in years to come.

And why limit this new mechanism to tidal alone? Recent statements from the Minsters suggest that the government’s position on onshore wind may be softening; and recent rule changes to remove impediments to the co-location of batteries on wind farms could be another boost to the technology. It could also be rolled out to solar installations that have batteries involved. 

Re-introducing exposure to the wholesale market could ensure that these hybrid projects store up juice for when it is needed the most, delivering power when the price is highest and allowing renewables to begin to shake off the ‘variable’ label.