UK waves away $1.7bn tidal project citing ‘irresponsible’ costs

The proposed 320MW lagoon scheme in Wales had received up to $265m in commitments from InfraRed and Infracapital.

The UK government has pulled support for a 320MW tidal lagoon project backed by InfraRed and Infracapital following concerns about the costs of the scheme.

Developer Tidal Lagoon Power had been in negotiations with the government over being awarded a contract for difference since 2013, when it first proposed the Swansea project – beginning at £123 ($162.85; €139.60) per MWh and averaging out at £89.90 per MWh over the course of its lifetime. TLP had also argued it would act as a pioneering project for the industry.

UK insurer Prudential announced in October 2014 that it would invest up to £100 million in the lagoon development to be managed by Infracapital, its infrastructure equity investment arm. It was followed by InfraRed Capital Partners, which committed an equal amount in February 2015, thought to be via its $1.2 billion InfraRed Infrastructure Fund III.

Both declined to comment on the government’s decision and the impact on the funds committed, although Infrastructure Investor understands only an initial part of Prudential’s funding has been invested, with the majority planned to have been spent once the project had been approved.

Earlier this month, the Wales Pension Partnership, a consortium of eight local authority pension funds in Wales, said it would invest in the project should it receive government backing. They said the decision was not based on politics but rather “on sound professional financial advice by pension fund experts”.

Despite being featured in the Conservative Party’s 2015 manifesto, David Cameron, then prime minister, admitted in early 2016 his enthusiasm for the lagoon was “waning” given the costs of the project to both government and consumers. His government subsequently ordered the Hendry Review, which backed the development of the project. Despite this, Business and Energy Secretary Greg Clark said yesterday it would not be possible to take the “leap of faith” the Hendry Review had asked for from the government.

“The costs that would be incurred by consumers and taxpayers would be so much higher than alternative sources of low-carbon power, it would be irresponsible to enter into a contract with the provider,” he said. Clark added that the government had received proposals for other projects claiming to be lower than the Swansea scheme, although these are at earlier stages of development.

Tidal Lagoon Power said the government’s decision was “one of contradiction” and said Clark was “clearly misinformed”. It added that the board will meet and “consider how to preserve value for shareholders, the communities of Wales, and the UK as a whole”.