Severn Tidal Power Subsidy Below Offshore Wind, Close to Nuclear

The Severn Barrage project probably will require subsidies at about the same level as nuclear power stations and less than what’s offered for offshore wind plants, the developer of the British tidal energy project said.

“We expect that the price we will be able to negotiate will fall below offshore wind, and we hope close to or perhaps at the price nuclear power is currently negotiating,” Gregory Shenkman, chairman of Hafren Power Ltd., said at a hearing in the House of Commons in London today. That would make the project economically viable, he said.

The comments are aimed at answering the criticism that the technology that’s not working at a commercial scale anywhere in Britain would cost too much. Estimates for what the dam-like structure spanning the river at the southern end of Wales ran up to 25 billion pounds ($39 billion).

The Hafren plans, put to Prime Minister David Cameron in July, involve an 11-mile (18 kilometer) barrage from Cardiff in South Wales to Weston-super-Mare in Somerset. Its 1,026 turbines would generate power on tides as the sea rises and falls. The project may create about 20,000 construction jobs and 30,000 manufacturing and service jobs.

“We plan to finance this project entirely from private sources, and it’s taken five to six years to get here so far. So far 18 million pounds has been spent, so there is money out there and it has been invested,” said Shenkman.

Energy Bill

Government support for the barrage would likely be through so-called contracts for difference, which guarantee a price for power in a way that supports generators. The structure of those contracts is sketched out in energy legislation proposed by the government and working its way through Parliament.

If wholesale power prices drop below a government- established level known as the “strike price,” investors in nuclear power and renewable projects will be compensated by suppliers up to that level. If prices are higher, suppliers and consumers will be reimbursed by investors. Strike prices will be set at the end of the year.

The next stage is an environmental impact assessment, public consultation and the preparation of a “hybrid bill” for Parliament to approve authorizing construction.

Hafren is now raising funds for the next 18 months of work. After that, the company would need to pursue another fundraising, which would be “very much larger” and finance nine years of construction.

Project Setback

An earlier blueprint for the development was scrapped in 2010 because it relied too much on taxpayer money. The government said in May 2011 the Severn was open for privately- financed projects that support the U.K.’s goal of getting 15 percent of its power from renewables by 2020. The barrage could fulfil 16 percent of that target and be capable of generating as much as 5 percent of the U.K.’s power, the government estimates.

The project would need 30 years of support through subsidies. Thereafter, it would run for at least 90 years without support, generating electricity that’s 75 percent cheaper than all other forms of generation, Shenkman said.

Across its 120 year life span, the project could produce power at about 48 pounds-a-megawatt-hour, less than the 88 pounds nuclear power costs, he said.

To contact the reporter on this story: Louise Downing in London at ldowning4@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.