CfD prices could lead to questions about tidal contracts, analyst warns

Low prices for offshore wind could put the government under "increased pressure to explain how the deal will offer value"

An energy analyst has warned low prices for offshore wind are “likely to lead to questions” around future contracts for projects such as the Swansea Bay Tidal Lagoon.

Speaking to Utility Week, Dr Jonathan Marshall from the Energy Climate Intelligence Unit said ministers could face “increased pressure to explain how the deal will offer value for bill payers” following the latest Contracts for Difference (CfD) auction round.

The auction results took many by surprise, with three offshore wind projects clearing the round at just £58/MWh from 2022-23.

“The low offshore wind prices we saw last week are likely to lead to questions around the potential of bilateral contracts – such as those suggested for tidal in the Hendry review – as a successful means of delivering new low carbon capacity at the lowest cost,’ said Marshall.

“However, the CfD results show what can be achieved if a nascent industry is supported and allowed to develop, and ministers may be eyeing the potential economy-wide benefits of a burgeoning tidal power industry that are now being seen with offshore wind,” he added.

“The UK has some of the best tidal reserves in the world, and is therefore poised to become a major player if the industry does take off.”

Giles Hundleby, a director at BVG Associates, said the recent CfD results “show that the government needs to be convinced of the place and value of wave and tidal in the UK energy mix”.

“There are some lessons to be learnt from the offshore wind sector,” added Hundleby. “Firstly, present a clear and documented cost reduction pathway. Secondly, look at the impact of domestic projects, but also exports potential to give a robust value of the full economic impact of wave and tidal developments.

Last week, the chief executive office of Atlantis, which was unsuccessful in its own CfD bid, Tim Cornelius, warned it would be a “travesty” if the UK “were to lose out on another emerging industry” like tidal energy.

“We’ve made great strides in reducing our cost of generation so that we can slash our requirement for revenue support, and I am incredibly proud of the work the Atlantis team has done in this respect,” said Cornelius.

“However, I must acknowledge the difficulties of competing on a level playing field with established technologies like offshore wind, which has been operating at commercial scale in the UK for over a decade.”

Last month, the founder of Ecotricity, Dale Vince, warned the government against giving the Swansea Bay Tidal Lagoon a “sweetheart deal” and claimed it was too expensive.