Fourth time’s the charm for tidal stream CfD?

Studies say that tidal stream power could generate up to 11.5GW of the UK's electricity demand, but the sector has struggled to be deployed at scale. With the annual £20 million ringfence introduced, will this end the sector's bad luck with the UK's contract of difference (CfD) scheme?

Tidal stream has yet to reach maturity despite its long-attested energy potential. But the ringfencing introduced in the latest CfD round offers some hope that renewed political will can open the doors to wider private investment and a reignition of a downward trajectory in its levelised cost of energy (LCOE).

Tidal stream harnesses the power of tides typically through horizontal axis rotors to drive a generator. It can be deployed in either fixed or floating structures.

A Business, Energy, and Industrial Strategy (BEIS) report led by Vivid Economics estimates that the UK holds around 50% of Europe's tidal energy resource, mainly in the waters of Petland Firth and Orkney in Scotland (~6GW), and the Channel Islands (~2GW). There are approximately 1GW of sites currently leased in the UK However, only 18MW of tidal capacity has been installed in the UK. Circa 10.4MW is operational, the largest project (in the UK and globally) is MeyGen with a planned capacity of 398MW being developed in stages. The remaining 7.7MW has been decommissioned.

Installed UK tidal stream projects

Source: University of Plymouth 2021, inspiratia

These were originally supported through the UK's Renewable Obligation Certificates (ROC) between 2008 and 2015, when it ended to make way for the first round of CfD auctions.

What will be different in CfD round four?

The main difference is the £20 million ringfence which developers and political backers like energy minister Greg Hands and Orkney and Shetland MP Alistair Carmichael lobbied heavily for. Without the ringfence, it is unlikely that tidal stream will win any support in CfD 4 whilst competing against more competitive prices of £61/MWh for remote island wind and £122/MWh for floating wind.

"The ringfenced pot is very encouraging news and is no doubt the result of a relatively strong and cohesive industry lobbying effort, something tidal stream has been better at than tidal range in our observations." comments Matthew Taylor from Green Giraffe.

The ringfenced funding, although just over a third of the £71 million originally lobbied for, still ensures that at least one or a combination of three eligible tidal stream projects gets some support in round four. The 80MW of MeyGen (MeyGen 1C) being one, and the 30MW Perpetuus Tidal Energy Centre (PTEC) and 14MW Morlais project being developed by Orbital Marine Power after receiving development consents in December [2021] from the Welsh Government, being the others.

CfD is key to reducing LCOE

According to Taylor, in Green Giraffe's experience the biggest challenge – and presumably this is a strong argument that was made to government – is reducing cost of energy in tidal stream. "To reduce the costs developers and technology owners need to see government support on offtake so they can build the next wave of projects and the associated experience"

The sharp decline (about 65%) in fixed-bottom offshore wind's LCOE was achieved through the consistent subsidy support it received since its early adoption in the UK. But in the case of tidal stream, since the end of ROCs in 2015 and lack of success competing in the first three CfD rounds, tidal stream support and deployment has been stalled for close to seven years resulting in little movement in its LCOE. Industry proponents claim that if the same consistency was applied towards tidal stream, it would have experienced a similar downward LCOE trajectory to fixed-bottom offshore wind.

Should the ringfence unlock government contracts after a seven-year hiatus, then tidal stream could be put back on track towards achieving its 11.5GW installed capacity by 2050 goal.

According to a 2021 University of Plymouth study, 'A review of the UK and British Channel Islands practical tidal stream energy resource', tidal stream LCOE is intrinsically linked to installed capacity. It stated that support from ROCs helped the 18MW of installed tidal projects achieve a technology learning rate of 25%, a factor that LCOE is sensitive to. Therefore, should any combination of the three eligible projects be implemented, the development learning curve could see LCOE drop from £240/MWh to below £150/MWh based on their conservative technology learning rate of 17%. The result would make tidal stream cost competitive with other CfD technologies such as CCGT, biomass and anaerobic digestion.

The CfD is a pivotal scheme for tidal stream as there are limited alternative options for tidal to be deployed at scale in the UK. The only other alternatives for tidal stream developers, according to Taylor, is a CfD equivalent in a different jurisdiction.

"[Currently] tidal stream cannot compete with other more mature technologies in almost all grids, despite it having more predictable energy flows." Taylor says.

"The exception is in small island grids (or equivalent) where the power is very expensive, from diesel generators for example."

Some technologies can bypass the competitive CfD auction and go straight to BEIS for a bilateral contract. However, this option may not be possible for tidal stream just yet.

Tidal lagoons envision CfD future

Its sister technology tidal range has a much higher chance of achieving a bilateral CfD because each tidal range project represents a major infrastructure investment. As previously analysed, the capital expense of tidal range requires developers to go big from the very beginning because building capacity over time becomes too costly. 

Should tidal stream break its losing streak, it will make way for a number of projects dotted around the UK and British Islands.

Pipeline with lease plots currently under development

Source: University of Plymouth 2021, inspiratia

Outside of projects with plot leases, there are 30 speculative site/regions with approximately 600MW of capacity identified so far.