As part of Regen’s regional scenarios analysis, Grace Millman, lead analyst on Regen’s 2021 Distribution Future Energy Scenarios for Western Power Distribution, examines the ebbs and flows of tidal energy over the last few years, as well as the future of tidal energy in light of the latest government announcement.
Contrasting outlooks for offshore technologies
Tidal energy is one of the most reliable and predictable sources of renewable energy. Taken together with wave energy and floating wind, tidal energy offers the UK the opportunity to diversify its generation of renewable power both geographically and technologically, helping build system resilience[i].
The location of marine energy projects is highly dependent on available energy resources, seabed depths and conditions, marine designations and port availability. Therefore, only a few areas of Great Britain and Ireland are likely to see deployment, namely Wales, north and western Scotland, the Severn Estuary, the western and northern parts of Ireland and the south west of England.
Floating offshore wind has seen rapid development in the past five years, and is now expected to move from demonstration projects to full commercial-scale deployment, as evidenced by The Crown Estate’s recently announced ambition to develop 4 GW of floating wind in the Celtic Sea[ii].
On the other hand, wave and tidal energy has faced a tumultuous few years which has put the future of the marine energy sector in the balance. From a high point in 2015, when tidal energy seemed to be on the cusp of commercial success with the deployment of the 6 MW MeyGen[iii] pilot project, a combination of subsidy policy changes and a number of high-profile business failures have set the industry back.
However, Regen’s most recent DFES analysis, supported by engagement with marine stakeholders, suggests that tidal stream power is making a slow but steady come back, with a number of projects again ready to scale up deployment.
What has happened so far?
While there has been significant funding in the marine sector, most of this has come from private investors and via grant funding, rather than through government revenue subsidy support. This is partially due to the (perhaps unintentional) withdrawal of specific subsidy support for wave and tidal energy in the Contracts for Difference (CfD) mechanism in 2016, which has affected industry confidence and led to the withdrawal and delay of pre-commercial projects[iv].
In the CfD Allocation Round 1 (AR1) running from October 2014 to March 2015, wave and tidal projects had a ring-fence minima (reserve allocation) of 100 MW with a pre-set strike price of £305/MWh[v] if projects were deployed by 2019. This level of support created huge interest from UK and overseas developers; however, existing projects were not developed enough, at that time, to bid into the auction. By the time of the next allocation round in 2017, the government had already announced that the levy control budget was overspent and that new projects would only be supported for deployment from 2020 onwards, meaning that the ring-fenced minima and strike price for marine energy were no longer applicable. Although many companies continued to test marine technologies, this marked a difficult period for the sector as many projects struggled to obtain early-stage funding and were subsequently abandoned.
Organisations such as the Marine Energy Council (MEC) have campaigned for the return of a ring-fence minima CfD for wave and tidal energy since 2018. In their response to BEIS’ 2020 consultation on Allocation Round 4 (AR4)[vi], they noted that “there is an urgent need for policy support via CfD reform and introduction of an Innovation Power Purchase Agreement”. The MEC emphasised that “this policy support will enable a realistic deployment target of 4 GW in the UK by the end of the 2030s”.
The MEC had three asks from AR4:
- Guarantee a high strike price (marine technologies were guaranteed £305/MWh in AR1)
- Reinstate a ring-fence minima CfD for wave and tidal projects in AR4 and future rounds
- Enforce a project capacity cap, ensuring that the ring-fenced capacity is distributed across multiple projects, providing the best chance for innovation and development.
In late 2020, UK energy minister Kwasi Kwarteng gave hope to the sector when he confirmed that the government was considering a ‘pot within a pot’ CfD auction[vii] for marine energy in the 2021 AR4 auction. This would have effectively reinstated the previous ring-fence minima CfD where, while wave and tidal energy would occupy the same pot as floating offshore wind, they would have capacity specifically set aside for them. This would allow them a route to market which did not require them to compete with more mature marine technologies, and ensure that a number of projects were supported through development.
However, in the draft allocation framework for AR4[viii], published in September 2021, there was a distinct lack of specific wave and tidal regulation. While floating offshore wind was provisionally allocated £24m (at a strike price of £122/MWh), wave and tidal did not have any guaranteed capacity for the upcoming auction. This was disappointing news for a lot of the marine energy sector, particularly given the lobbying many organisations have undertaken over the last three years.
Positive news for the industry at last
After the disappointment of the draft AR4 allocation, the tidal sector continued to lobby the UK government, sending letters to the prime minister and energy minister, while supportive backbenchers regularly raised the question of a tidal minima during Prime Minister’s Questions. The MEC called for parity with floating offshore wind, requesting c. £24m of specific tidal CfD support. Despite positive words from senior government ministers, no changes were made to the AR4 auction allocation framework, which has a deadline for amendments of Friday 26 November. It looked as though wave and tidal energy projects would be made to directly compete with other innovation projects within the ‘less-established technologies’ pot.
With no guarantee of funding for tidal projects, there was a real worry that important international developers would overlook the UK and instead focus on France or Canada, where more supportive policies are in place.
However, on Tuesday 23 November, three days before the amendment deadline, BEIS announced that tidal stream would be awarded a £20m ring-fenced minima within AR4, at a strike price of £211/MWh. This is a significant win for the marine energy sector, and is largely down to the consistent work of tidal energy developers, trade associations and supporting organisations over the last three years. The minima has been described by the government as the “biggest investment in a generation” in tidal power, and is likely to bolster investor confidence to help secure project finance for later CfD rounds and send a positive signal to technology developers.
What next for the tidal sector?
Full details of AR4 are expected this week, before the CfD auction opens on 13 December. According to the MEC, there are three projects, totalling over 100 MW, that could be ready to bid for a CfD in AR4:
- Perpetuus Tidal Energy Centre has gained offshore consents to place 15 MW of Orbital Marine Power tidal turbines off the south coast of the Isle of Wight[ix].
- Atlantis has full consent, all necessary permissions and grid capacity to build an additional 49 turbines (73.5 MW) at the MeyGen site off the North Scotland coastiii.
- Menter Môn has received a letter from Welsh Government indicating that they are ‘minded’ to grant planning permission for their Morlais project. The Morlais tidal stream energy project is looking to connect up to 240 MW[x] of generating capacity over time.
Wave energy projects are not currently developed to the point where they could be eligible for a CfD; however, an influx of new funding in the marine sector could help to secure the future of marine energy and allow wave technology the time and resources needed to develop.
It is no exaggeration to say that this decision is the result of a monumental effort from the tidal energy sector. In the UK government’s press release the chair of the MEC, Sue Barr, said “the impact of this support cannot be overstated”, calling the CfD the “missing piece of the puzzle”.
Regional energy scenarios – insight series
Alongside Regen’s Distribution Future Energy Scenarios (DFES) analysis for Western Power Distribution and Scottish and Southern Electricity Networks, we are able to research and engage with individual energy sectors and discuss the latest changes with project developers, asset owners and operators, local planners and other key stakeholders. Our regional scenarios analysis covers:
- Distributed renewable generation, such as solar, wind, hydropower and bioenergy
- Distributed non-renewable generation, including fossil gas, diesel and waste incineration
- Distributed energy storage technologies, such as conventional batteries, liquid air energy storage and thermal storage
- Sources of future electricity demand, such as heat pumps, electric vehicles and chargers, and distributed hydrogen.
In this series, members of Regen’s future energy scenarios team will be highlighting some of the key insights, trends and potential outcomes we are seeing across the UK, from the development of marine energy generation, the ever-increasing scale of the solar and battery storage project pipelines, a street-level view of the uptake of EV charging and the potential regional roles for bioenergy.
You can keep up to date with Regen’s regional energy scenarios insight series here.