Letter Richard Black: Lex is surely correct in backing the Hendry Review’s conclusion that the Swansea Bay tidal lagoon project should go ahead. The cost of its electricity looks steep in the immediate term; but unlike the Hinkley C nuclear power station the price paid will not rise in step with inflation, and as a first-of-its-kind project it will naturally be costlier than mature technologies. Costs will fall through learning and competition. However, both the government and the Hendry Review are missing a big trick in assuming that tidal lagoons should be financed through contracts for difference. These pay a fixed price per unit of electricity generated. In doing so, they fail to incentivise a key property of tidal lagoons – the ability to store water for a few hours and use it to generate at times of high demand. The logical contract for Swansea Bay would incentivise delivery of power at the time it is needed, as a smart rather than a blunt instrument. It presents an ideal opportunity to pilot the flexibility market that will need to sit alongside the existing markets for power, capacity and ancillary services if the smart-grid vision is to bec ome reality. There is still time for ministers to turn the blades and make it happen.
FT 17th Jan 2017 read more »