By Paul Homewood
The BEIS Select Committee has now published a series of documents relating to the Swansea Bay Tidal Lagoon, which the government finally rejected a couple of months ago.
In particular they have published the final offer made by Mark Shorrock in February this year. The documents reveal just what a poor deal it would have been for the taxpayer.
Just to recap, Shorrock announced at the Select Committee hearing in May that he had submitted an offer of £92.50/MWh for electricity from Swansea Bay, based on a standard 35-year CfD. This offer was designed to match the price agreed with Hinkley Point. (Reading the transcript carefully, it was apparent how Shorrock wriggled under questioning, and attempted to avoid actually stating this).
At the time, I was very dubious how this offer could be viable, given that Hinkley will have 50 times the output of Swansea Bay, but only about 15 times the cost. Shorrock also confirmed that his running costs would be substantial at £16m/yr, or £33/MWh.
The offer documents show that this price relies on large taxpayer subsidies, without which the price would need to be much higher.
Below is Shorrock’s letter outlining the structure of the deal, and the Offer Document:
These are the key points:
- The Welsh Govt has to provide £200m at 2% interest. As this is subordinated to bank debt, it would be high risk.
- The Welsh Govt would also have to provide top up revenue support of £281m, to allow equity investors to earn 9% return on capital.
- In return for this revenue support, the Welsh Govt would own the equity (estimated value – £195m) outright after 35 years, but crucially also take on liability for outstanding debt of £822m. Hardly a bargain!
You will note that there are actually two scenarios for the top up support. Appendix D, which I have not shown, reduces the cost to £134m. However, this involves the Welsh Govt itself borrowing the money, which would therefore be at a lower rate of interest.
This would effectively put the Welsh taxpayer on the rack if the scheme ran into problems. it would of course also raise the question whether such borrowing could have been put to better use, given that there is no magic money tree.
Even if the project was still worth something in 35 years time, Welsh taxpayers would have had to stump up to £281m for no benefit at all in the interim.
In comparison, the standard 35 year CfD, without Welsh Govt subsidies and cheap loans, as offered by Shorrock in 2015, would have needed a strike price of £174.50/MWh:
I have long suspected that Shorrock and co would milk Swansea Bay in the early days of CfD, but when their contract ended, there might not be the cash flow available to keep the show on the road. Particularly if major expenditure was required to deal with silting problems, or major refurbishment of turbines and other equipment.
Under this offer, all of these problems would be the responsibility of the Welsh Govt. Meanwhile, Shorrock and his equity investors would have earnt their 9% and had their capital paid back to boot.
Nice one Cyril!
At the moment, Swansea Bay is with the rest of the Living Dead, to all intents bankrupt. Shorrock however is hoping that Jeremy Corbyn might appear over the horizon, with his magic money tree under his arm.
Welsh taxpayers have been warned!
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October 29, 2018 at 09:19AM