The £1.3bn Swansea tidal lagoon faces a major blow as the company behind the scheme braces for significant job cuts if UK and Welsh government talks on the project fail to yield a breakthrough.
Tidal Lagoon Power has waited for 15 months since an independent review backed the scheme as a “no regrets” source of clean and reliable energy.
In December, the Welsh government offered equity or a loan if Whitehall would support the plan with a subsidy. UK–Wales talks have since intensified, but are yet to yield a result.
The financial stress of waiting for government funding means the company may be forced to lay off staff within weeks, substantially reducing the size of its operations this month.
A source at Tidal Lagoon Power said: “It [the company] is being put in a difficult situation by the UK and Welsh governments.” They said it was crunch time for the project, and the headcount of 50 staff would have to be reduced if support from Whitehall does not materialise.
Running down to a skeleton operation would make it harder to later resuscitate the scheme by 2020, when planning permissions expire.
One of the potential large supply chain companies said: “A quick decision remains in everyone’s best interests.”
More than 50 Conservative MPs, Labour, the Liberal Democrats, the Green party and unions have urged the business secretary, Greg Clark, to back the project in principle.
But Clark has told Carwyn Jones, the Welsh first minister, that any public subsidy for the lagoon would have to protect consumers from high energy bills and consider the falling costs of alternatives.
In a letter to Jones in January, Clark described tidal lagoons as “an untried technology with high capital costs and significant uncertainties”.
Richard Graham, the Conservative MP in whose Gloucestershire constituency Tidal Lagoon Power is based, said last week that the company was looking at a subsidy deal no more expensive than the one awarded to EDF Energy for the Hinkley Point C nuclear power station. “It’s a clone of that contract,” he said.
However, the price the government has guaranteed to buy power from developers building offshore windfarms in the early 2020s has already undercut Hinkley by 38%. Similarly, nuclear developers have been told they must come in well under the Hinkley price for future atomic power stations.
The Swansea tidal scheme would harness the ebb and flow of tides in Swansea Bay, providing a predictable and low-carbon source of power for 120,000 homes. It is intended to be the first of six lagoons at sites on Britain’s west coast, including Cardiff.
Tidal Lagoon Power has spent more than £53m developing the lagoons. But the government has yet to issue a response to the review by the former energy minister Charles Hendry, which warmly backed the Swansea project in January 2017.
Last month, the energy minister, Claire Perry, said: “We want to reach the right decision on behalf of low-carbon technologies, but also British billpayers and taxpayers.”
Even after a government response, negotiations would be needed between the company and officials to agree a contract for difference, a guaranteed price of power for decades.
The offer of “substantial investment” from Wales could help bring down that price. One union on Monday urged the UK government to take a direct stake to further cut costs.
Sue Ferns, the senior deputy general secretary of Prospect, said: “The Treasury has a direct role in ending delays around major infrastructure and in helping to kickstart new projects, such as the tidal lagoon and new-build nuclear, to guarantee low-carbon energy supply.”
A spokesperson for Tidal Lagoon Power admitted the company “may have to accept a reduction in numbers in order to sustain the business”.
“The business has sufficient funds to take it through to a decision and the trigger of our next funding round. We understand that the talks between the UK and Welsh governments have been positive, and we look forward to their conclusion,” they said.