The government is exploring ways of funding five tidal lagoon projects that would generate enough electricity to meet 10% of the UK’s electricity needs.
In his final budget before the election, the chancellor of the exchequer George Osborne confirmed that the government would open talks with the developers of the proposed Swansea tidal lagoon over potential taxpayer funding.
The 320MW tidal lagoon project would be a world’s first if constructed. The Guardian newspaper reports that the projects would require a subsidy of around £150/MWh in order to be viable, significantly higher than the £98/MWh strike price agreed for Hinkley C, and twice as expensive as new solar capacity under the CfD mechanism (or three times if you believe the £50/MWh PV projects will get built).
— HM Treasury (@hmtreasury) March 18, 2015
The project has yet to receive planning permission and, with negotiations set to start over subsidy levels, it could an extremely long time before construction begins on the project – if at all. The Department of Energy and Climate Change notes that, “any decision to offer a CfD would also be subject to strict value for money considerations, the funds available within the Levy Control Framework (LCF) at the time of a decision and be subject to State aid approval.”
Reacting to the proposals, RenewableUK’s wave and tidal development manager, Dee Nunn welcomed the move, stating: “This is a significant step forward towards building the first tidal lagoon of its kind in the world.” However, she wanred that “as the funding will come from the Levy Control Framework, which is a finite pot, the government should ensure that other renewable technologies such as wind, wave and tidal stream are also allocated sufficient financial support, through an application process appropriate to their stage of development, to continue to develop to their full potential”.
North Sea tax breaks
Not one to break tradition, George Osborne has unveiled his routine tax break for polluters. This time, the chancellor offered a generous cut in tax for the North Sea oil industry, which is struggling to compete in the wake of recent oil price falls.
The chancellor said that “bold and immediate action” was required to support the sector, introducing a petroleum revenue tax cut from 50% to 35%. Osborne also confirmed that the government will cut the North Sea supplementary charge from 30% down to 20%. The chancellor claims that the package of help for the North Sea oil industry represents £1.3 billion of new support.
However, a number of bodies have criticised the chancellor’s move to cushion the industry from low oil prices. Figures published by campaign groups Platform and Oil Change International argue that North Sea oil companies generated profits of £47.3 billion between April 2009 and March 2014, when the oil price was high.
The organisations argue that instead of investing their profits in preparation for a downturn, North Sea Oil companies are looking for “handouts” from the government. A spokesperson for Platform and Oil International explained: “Giving more tax breaks to the North Sea Oil industry, at a time when the world needs to move beyond fossil fuel reliance because of climate change, sends the wrong signal.
“The UK Chancellor should resist the lobbying from the powerful oil and gas companies. Countries, like Indonesia and Malaysia, are taking the opportunity of the low oil prices, to remove fossil fuel subsidies.
“For years, North Sea companies used low UK tax rates to subsidise drilling abroad. Now that they’ve hit a lean year, they’re demanding that the burden be transferred to the public. Calls for more subsidies and lower tax rates are an attempt to maintain eye-watering levels of profit, while the rest of the country is going through austerity. It is ironic that the UK is considering increasing its support to an industry which actually provides less than 1% of government revenue, and employs less than 0.1% of its workforce.”
Solar Power Portal will be publishing industry’s reactions to Osborne’s potentially final budget shortly.