Cost and Revenue
The current capital cost estimate, including 15% contingency, is £8,500M at 2019 prices and the estimated construction period is 5 years to first power and 6 years to full power.
The required Contract for Difference (CfD) payment, calculated from a private sector financed financial model to give an IRR of 12.5% with a CfD contract duration of 35 years, would be around £100 per MWh. Clearly this is not competitive with recent offshore wind bids at around £40 to £50 per MWh. However, it is similar to the CfD for the new nuclear power station Hinkley Point C.
The majority of revenue for WSL will come from electricity sales. Other sources of income, not included in a CfD calculation, could include:
- Energy generated by floating solar panels in the lagoon.
- Potential for a firm power payment from National Grid.
- An all tide floating marina and associated commercial developments at Minehead.
- Benefits from improvements to Watchet Harbour.
- Increased tourism.
- Credit for a reduction in flood risk and coastal erosion.
Tidal range power schemes are expected to have a life of 100 years or more, as is the case for hydro-power schemes. For tidal power long-life has been demonstrated by La Rance in France which has now been operating for more than 50 years and is expected to continue for many more years. Unfortunately existing methods of financing investment in the private sector provide no credit for an operating life beyond about 30 years, because of the use of private sector rates of return with discounted cash flow.
A method used to finance major long life infrastructure is called Regulated Asset Base (RAB). Government are currently considering RAB for nuclear power stations, which have a design life of 60 years. Tidal range power has similar features except that its design life is over 100 years. Thus, it seems reasonable to consider RAB for tidal power.