No, we really shouldn't build the Swansea tidal lagoon


It's possible that we really should think about tidal power. There's a lot of it about and around our islands, so why not ponder whether we could capture some of it? The real point to ponder of course being whether it makes us all collectively richer. And there we find that there's a slight problem:

Plans to build the world’s first ‘tidal lagoon’ in Swansea Bay have suffered a setback after influential consumer charity Citizens Advice said the project was “appalling value for money” and should not receive subsidies.

Ministers are preparing to begin formal bilateral negotiations with developers over the proposed green energy scheme – a £1bn, six-mile sea wall with turbines to harness the power of the tide, which has already been included in the National Infrastructure Plan.

Tidal Lagoon Swansea Bay is thought to be seeking a guaranteed subsidised price of about £168 for every megawatt-hour (MWh) of electricity it generates over a 35-year period – almost four times the current market price of power.

And there is the problem. All of us having to pay, through our electricity bills, four times the current price for electricity does not make us collectively richer. It makes us, significantly, collectively poorer. Further, sorry about this, no you cannot add in all sorts of greenery arguments and no CO2 emissions and future high gas prices and all that malarkey. This has been comprehensively studied in great detail:

What they've done in the report is look at all of the different variations of the proposal. A great big dam across the whole estuary, the various partial ones, lagoons with turbines and so on. And they've looked at all of the various different costs and benefits of them. Environmental costs, emissions, the cost of gas fired plants which would be the alternative, everything up to and including the kitchen sinks in which the workmen will wash their hands. And what we find is that the more we spend on it, the bigger we make the project, the more it makes us poorer.

For what we're looking for is a positive net present value. That is, all the costs, properly discounted into the future, are a lower number than all of the benefits properly discounted into the future. When we get more benefits than there are costs, we become richer. For the Cardiff Weston Barrage, similar to what Hain is currently proposing, we have a net present value of -£27.1 billion. Yes, that is minus £27.1 billion. The costs of this plan are £27.1 billion, which even in government circles is something that can be described as real money, higher than the benefits that we all get from this scheme. Building it will make us all, collectively, £27.1 billion poorer.

That these plans (and all variations studied have exactly the same result) have a negative net present value is simply the flip side of their needing a high fixed price for the electricity they produce. One is simply the capitalisation of the other, the point that they are just not economically sane projects.

If this project does get off the ground, if some fool does issue a contract for differences at such prices, then we can take that as a marker that the inmates really have taken over the asylum. This is simply a terrible deal that should be immediately rejected.