Group 11: Tidal Lagoon Power Project Financial Appraisal and Investment Analysis MSc Innovation Management & Entrepreneurship

Tidal Lagoon Power
Project
Financial Appraisal
The Report describes the economics associated

with construction of a Tidal Lagoon power plant
and comments on its worthiness for an
Investment.
Group 11
Anil E.K. (7730222)
Arini Tayu (7737875)
Na Shen (Sienna) (7485769)
Mirziyod Khushanov (7741158)
Shao - Yu Chen (Bess) (7651255)
December 9th, 2010

Group 11: Tidal Lagoon Power Project
Financial Appraisal and Investment Economics [MSc Innovation Management & Entrepreneurship]
Responsibility Distribution of Group 11
• Finding related articles on tidal current

Arini Tayu • Phone interview and contacting expertise
• Categorizing figure for cost and income
• Presenting limitation, methodology, and summary
_______________ • Write report on introduction, cost, and SWOT analysis
• Finding related journals on tidal lagoon
Mirziyod Khusanov
• Creating Investment Model
• Implementing software
• Presenting financial analysis and comparison
• Writing report on data analysis data analysis and
_______________ comparison
Shao-Yu Chen • Finding related journals on tidal barrage

• Presenting introduction
• Write report on introduction and cost analysis
_______________
• Finding related reviews on Tidal Current Turbines
Anil E. K. • Construction Cost Analysis

• Investment data analysis
• Presenting financial analysis
• Write report on Income Analysis
_______________
• Collating and Proof Reading
Na Shen • Finding related reviews on tidal barrage

• Presenting comparison
• Write report on cost and comparison analysis
_______________
Page 2 of 46
Executive Summary
This investment project is about tidal energy which can be barrage, current turbine or
artificial lagoon. The artificial lagoon can be divided into two categories: offshore and
land- connected lagoon. We choose the offshore artificial lagoon for the reason that it has
some positive effect on the environment and the community.
The Location of the tidal is in Bristol Channel Bay. This particular location is chosen
because it caters what is needed in the development and working process of tidal lagoon.
The capital cost of tidal lagoon for the optimal case is estimated £3,941,483,089.The
operational cost for the optimal case is calculated as £14,816,272. The life time of this
project is 30 years, and the total income is £9,639,171,360.
In the situation of undiscounted payback period, it is estimated that in the year of 16

would be the payback year. However, in the situation of discounted payback period, it is
estimated that there is no profit within 30 years.
This report give the financial analysis which include six basic investment appraisal
techniques that are payback, discounted payback, ROCE, NPV and IRR and investment
weighted NPV.
Page 3 of 46
Table of Contents
1. Introduction to Tidal Energy.............................................................7
1.1. Tidal Energy Power Plant Types................................................................7
1.2. Environmental Impacts:.........................................................................9
1.3. Community Ownership:........................................................................10
1.4. Chosen Tidal Energy Plant.....................................................................10
1.5. Research Methodology.........................................................................11
1.6. Research Limitation............................................................................11
2. Costs.........................................................................................13
2.1. Total Capital Cost...............................................................................13
2.1.1. Construction of a Tidal Lagoon....................................................................15
2.1.2. Power House and Connection Cost...............................................................18
2.1.3. Tidal Turbines Cost.................................................................................18
2.1.4. Planning and Decommissioning Cost..............................................................18
2.2. Operational Cost................................................................................19
2.2.1. Routine Maintenance...............................................................................19
2.2.2. Renting land from state............................................................................20
2.2.3. Staffing costs........................................................................................20
2.2.4. Overhaul/Upgrades (incl. Shutdown)............................................................20
2.2.5. Other Operational Costs............................................................................21
2.2.6. National Grid Usage costs..........................................................................21
2.3. Regulatory Issues................................................................................22
2.3.1. Carbon Taxes........................................................................................22
2.3.2. Renewable Energy Obligations Certificates.....................................................22
2.3.3. Climate Change Levy...............................................................................22
Page 4 of 46
2.4. Discount Rate....................................................................................23
2.4.1. Real Rates of Return................................................................................23
2.4.2. Market Rates of Return.............................................................................23
2.5. Cost for generating electricity................................................................24
2.6. Electricity price (in pounds MW/h)...........................................................24
3. Revenue....................................................................................26
3.1. Electricity sales.................................................................................26
3.2. Renewable Energy Credits / Carbon offset.................................................27
3.3. Scrap value.......................................................................................27
4. SWOT ANALYSIS...........................................................................28
4.1. Strengths.........................................................................................28
4.2. Weaknesses......................................................................................28
4.3. Opportunities....................................................................................28
4.4. Threats............................................................................................29
5. Financial Analysis.........................................................................30
5.1. NPV................................................................................................30
5.2. Cash Flow.........................................................................................30
..........................................................................................................31
..........................................................................................................31
5.3. Payback period..................................................................................32
..........................................................................................................32
5.4. Internal Rate of Return........................................................................32
..........................................................................................................33
..........................................................................................................33
5.5. Return on Capital Employed...................................................................33
Page 5 of 46
..................................................................................................34
5.6. Sensitivity analysis..............................................................................34
..................................................................................................35
..................................................................................................36
..........................................................................................................37
..........................................................................................................37
..........................................................................................................38
.........................................................................................................38
..........................................................................................................39
6. Comparison with Gas powered power plant.........................................39
..................................................................................................40
..................................................................................................40
..................................................................................................41
..................................................................................................41
..................................................................................................42
..................................................................................................43
7. Recommendation for Project...........................................................44
8. Appendix...................................................................................45
9. REUK .co.UK. See http://www.reuk.co.uk/Renewable-Obligation-

Certificates.htm for further details......................................................46
10. Renewable Obligation Certificates. http://www.carbontrust.co.uk/policy-

legislation/Energy-Supply/renewable-energy/Pages/renewables-obligation.aspx
...................................................................................................46
11. Notice CCL1/4 Electricity from renewable sources. Electricity from

renewable sources...........................................................................46
Page 6 of 46
1. Introduction to Tidal Energy

The trend of renewable energy has increases due to the grow in energy consumption and
the raising awareness of global warming. One of the new form of renewable energy power
plant is by utilizing tidal power. This is a new and developing sector which hopefuly can
create a sustainable energy resources. In the tidal energy case, there are three different
type of plant; there are tidal barrages, tidal current turbines, or tidal lagoons. The
following paragraph has some brief introduction of the three kinds of technology and the
explanation of why we choose lagoon as our investment project.
1.1. Tidal Energy Power Plant Types
There are two types of extraction of tidal energy which are exploiting Tidal Range that is
the height difference between the high tide and low tide the other one is utilising the
displacement of water due to tides and using the flow of water to rotate the turbine.
Tidal barrage and Tidal Lagoon utilises the tidal range to generate energy and current
turbine uses the tidal stream for electricity generator.
Tidal Barrage
A tidal barrage is a dam which is built across a river estuary or a bay on the coast. The
dam contains turbines to produce electricity via the natural rise and fall of tidal waters
caused by the gravitational fields of the sun and moon (REF:
http://www.theiet.org/factfiles/energy/tidal-power.cfm)
Figure 1: Tidal Barrage
The operating cycle of electricity generation consists of these steps:
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1) The dam holds back the sea, making a difference in the levels of water on each side
during the flood tide.
2) Letting water come in through the opened lock gates thereby filling the basin through
turning the turbine.
3) Holding the impounded water until the ebb tide creates a suitable “head”.
4) As the tide goes out, the water turns the turbine again until the rising water reduces
the head to the minimum operating point.
5) Holding the water again until the tide rises sufficiently to repeat Step 1.
Tidal current turbine
Figure 2: Tidal Current Turbine
A tidal turbine acts underwater in a very similar way to how wind turbines operate in the
air. Water is some 800 times denser than air, and so even slow moving tides can exert
much greater forces than the wind on a turbine. Underwater turbines, by definition, are
out of sight and it is believed that their environmental impact is negligible thanks to their
slow rotation rates of just 10-30 revolutions per minute (10 times slower than that of ships
propellers) However, tidal turbines have much lower load factors and efficiency.
(Tidal turbines: http://www.reuk.co.uk/Tidal-Turbines.htm).
Tidal Lagoons
Page 8 of 46
Figure 3: Tidal Lagoon
Tidal lagoons are free standing structures which either can be built a completely artificial
offshore enclosure (offshore lagoons) or in a half-round type connected to the shoreline
(land-connected lagoons) at each end. They run on quite similar principles to barrages
(see above) because they exploit the difference in tidal height to produce electricity.
Unlike barrages, lagoons would not fully build across the estuary and as such may have a
smaller negative impact on migratory fish and the navigation activities.
Offshore Lagoons: Offshore tidal power generation copes with the environmental
problems of the barrages and puts tidal power generation back amongst the choices for
commercial-scale renewable power generation. Rather than blocking an estuary with a
barrage, offshore tidal power generators use an impoundment structure, making it
completely self-contained and independent of the shoreline, thereby solving the
environmental problems related to block off and change the shoreline. Migratory fish may
swim around the structure and ships and boats navigate past the structure. Offshore
lagoons might bring about the least loss of intertidal habitat if construct below the low-
water contour. However, their impact on the structure of the estuary and its wildlife and
the industries it supports is difficult to predict as scouring may occur as water passes
through narrower channels either side of the impoundment and affect water levels.
Land-connected Lagoons: A land-connected lagoon utilizes the shoreline to make the

enclosure. The original cost of energy for generic land-connected lagoons using
conventional wall construction techniques is much higher than the offshore lagoon and
above the economic thresholds. (Severn Tidal Power, 2009)
1.2. Environmental Impacts:
The WS Atkins study has confirmed that the proposed lagoon will have some potential
environmental impact. Only natural materials such as rock, slate, sand and gravel would
be used in the walls. Unlike a barrage, lagoon would not break in on shipping, fishing,
Page 9 of 46
leisure activities or sea-life. It is also possible that the rock walls could provide a new
wildlife habitat.
1.3. Community Ownership:
Another important aspect of this proposed lagoon is that it could lead to a community-
owned power-generation facility. Thanks to the terms of The Environment Trust’s
agreement with Tidal Electric, the proposed financing arrangements would enable the
technology to be belonging to the community. The direct and indirect benefits to local
communities are therefore considerable. (Jon Aldenton,
http://www.inference.phy.cam.ac.uk/sustainable/refs/tide/spring05_tidalenergy.p
df)
1.4. Chosen Tidal Energy Plant
Some investors also believed that the disadvantages of tidal barrages, such as the level of
impact they would have on the environment and local communities, and the high capital
cost, are more profound than tidal turbines and tidal lagoon technologies. Also, Tidal
Electric Limited (TEL) claimed that artificial lagoon has a number of cost and
environmental benefits against a comparable tidal barrage installation, such as: no
interference with migratory fish, no impact on inter-tidal habitat, no impact on estuary
and river flooding regime, and potential benefit for coastal protection. Therefore, we
decided to choose artificial lagoon as our investment project are because they provide a
major source of comparatively safer, cleaner, regionally generated renewable electricity.
In addition, there are some environmental advantages such as lagoon creates new habitats
and prevents coastal erosion.
The Plant Detail
The Location of the tidal is in Bristol Channel Bay. This particular location is chosen
because it caters what is needed in the development and working process of tidal lagoon.
The frequency of the tides matches what is needed and creates potential result of
electricity generated. The deep of the bay also matches the requirement where the
impounded area for lagoon itself is approximately 51 square miles with the length of the
wall estimated around 42 miles. This is mostly based in the assumption that there are
1000 turbines built in the lagoon. The total output of the lagoon is 2000 MW/H as each
turbine generates 2 MW/H.
Page 10 of 46
Figure 4: Lagoon Location
1.5. Research Methodology
In order to gain date for the project and the report, telephone interviews were done,
experts from strongly related organizations such as Tidal Energy UK and Marine Turbines
UK were contacted for deeper research. Furthermore, internet-based reports and journals
from organization such as Friend of the Earth, Department of Trade and Industry and the
Welsh Development Agency, Department of Energy and Climate Change, Council of Science
and Technology, and Llywodraeth Cynulliad Cymru Welsh Assembly Government were
reviewed.
1.6. Research Limitation
As also happens in report, this project also has its own limitation, the limitation of this
project report is mostly because the project is still under a development process.
Therefore the limitation are:
• The fact that there are no existing operating tidal lagoon power projects
• Limited data discussing the same type of projects and technology
• No clear policy available
• No real business report can be reviewed
• Contradictions in reports being reviewed whereas each organization has different

assumptions for the project of tidal lagoon
Page 11 of 46
Page 12 of 46
2. Costs
2.1. Total Capital Cost
The cost of capital plays an important part in making investment decision. In a project, it
is calculated only once, mainly during development and construction process. In this
projects there are 5 major aspects being calculated as capital cost which are the
construction, labour, power house, turbines, and connection cost.
Below is a table illustrating the capital cost breakdown in the project’s best case that has
in total 3 years of construction and planning period.
Total Capital cost £3,527,652,92

7
Construction costs (civil engineering) £1,652,489,276
Construction labour costs £304,384,225
Power house cost £46,000,000
Tidal turbines cost £1,000,000,000
Connection costs £333,485,294
Total Construction cost £3,336,358,79

5
Getting permission (System charges) and £191,294,132

planning
Decommissioning costs £0
Below is a table illustrating the capital cost breakdown in the project’s normal case that
has 4 years of construction and planning period.

9
Page 13 of 46

7

planning
Decommissioning costs £200,000,000
Below is a table illustrating the capital cost breakdown in the project’s worse case that
has 4 years of construction and planning period.

6

7

planning
Decommissioning costs £200,000,000
Further discussion about the capital cost is focusing on the normal case of forecasting. As
it is strongly based on the data gathered from paper and journals, reviews, and
interviews, whereas the best and the worse are referring to the normal case and is based
on assumption.
The cost estimation of the project is based on the review of reports mentioned in the
methodology. Mostly are extracted from the comparison with Swansea Bay tidal lagoon
with report and data extracted from two different research units which are Tidal Electric
Page 14 of 46
Limited (TEL) and in the association between Department of Trade and Industry (DTI) also
the Welsh Development Agency (WAC), due to the fact that Swansea Bay tidal lagoon has
the most report about and is similar to what is trying to be built in this project in terms of
demographic and social aspects.
2.1.1. Construction of a Tidal Lagoon
The main factor associated with the construction of a tidal lagoon is the location, the
ideal location would be in shallows where there is enough difference in tidal range which
will reduce the construction cost of embankment and rock armour.
The cost of the lagoon is dominated by material cost. Principal factors affecting the design
of embankment are as follows:
• Steepness of the sloping faces for stability
• The design wave height
• Maximum water level for the design
• The height of water retaining core
• Size and thickness of wave armouring
• The height of impoundment and its crest width
• Factors of safety against failure
• The assumed degree of settlement
The construction of the embankment, power house and its associated structures, includes
construction equipments, machinery and concrete required. The other factors that affect
the construction are delays caused due to natural phenomena like bad weather, rough sea.
Construction Intricacies
The embankment height relies mainly on the tidal range and spring tide height. Prediction
of future sea level height due to climate change should also be considered while
construction because the ideal life span of a Tidal Lagoon is around 120 years. The Lagoon
should not become obsolete due to increased sea level. The design consideration of the
safety critical embankment should minimise overtopping and that the height of the core
should be high enough for it to retain water at all states of the tide.
Page 15 of 46
Figure 5: Embankment cross section
The design of the embankment has a relatively impermeable core, protected by layers of
rock armour increasing in particle size from the innermost layer outwards. The use of
builder’s rubble is strongly discouraged due to its instability and content ambiguity.
Analysis of the seabed for any settlement should be done thoroughly before construction
commences. The data collected can be utilised for further estimation of the construction
and dredging cost. The analysis can further list out the sea bed composition and decision
on appropriate construction material to be used can be finalised.
Planning and Cost
The construction planning is very intensive and the success of the whole project depends
on the proper construction of every structure.
The Mean High Water Springs that is considered during our analysis is 9.5 meters, hence
to avoid over spilling the embankment wall crest height should be at least 10.3 meters.
This is an assumption made considering the fact that there are no working Tidal lagoons
for approximation.
The Crest width is approximated at 3 meters for safety and ease of maintenance and
repairs. Depending upon whether the power plant will be used as a tourist spot the crest
width can be changed.
Slope of embankment is also an important factor for the stability of the structure as it is
constantly battered by waves and tides. Here in our model as suggested by experts we are
considering 1V:2.5H (1 vertical unit to 2.5 horizontal units) on both sides minimum.
Depending upon future study the seaward facing slope may change for stability and safety.
Rock armour chosen should be able to withstand, with repairable damage but without
failure, the impact of the maximum wave that could occur during the life of the scheme.
The choice of wave height that the embankment has to withstand greatly affects the size
and cost of armour stone required.
Summary
Page 16 of 46
Crest height 10.3 meters
Crest Width 3 meters
Slope Inward 1V:2.5H
Slope seaward 1V:2.5H
Construction cost assumptions for a 2000 MW Tidal Lagoon Project with an impounded area
of 51 Sq. Miles and length of wall to be around 42 Miles
Construction Breakup chart for the normal case of the Tidal Lagoon is given below
Total Civil Construction cost £2,02,92,28,168
Breakup
Dredging £20,29,22,817
Rock Armour £1,01,46,14,084
Construction Material transport £30,43,84,225
Sheet piling £20,29,22,817
Labour + Insurance £30,43,84,225
Figure 6: Construction Cost Breakup
As seen from the above illustration above roughly 50% of the total construction goes in the
construction of embankment wall and rock armour, transportation and labour takes up
around 30% of the cost and the remaining is shared between dredging and sheep piling.
The ideal time for planning and construction is 4 years after which the system can start
working in its full potential.
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2.1.2. Power House and Connection Cost
The power house is where the electricity which is generated transferred to. From the
power house, then the electricity is supplied to a particular destination. In the tidal
lagoon plant, it is most likely that the power house is located on the land. In this project,
the estimated Power House cost is £95.882.353.
In that sense, the tidal lagoon which is built in this project is an off-shore tidal lagoon,
therefore a connection is needed. So, the connection cost is the cost of building a
connection between the off-shore tidal to the land in order to transport the electricity
generated to the main power house. In this project it is forecasted to be as much as
£444.647.059.
2.1.3. Tidal Turbines Cost
1000 turbines is needed to be built in this plant in order to reach the target output which
is 2000 Mw/h, so each turbines generates electricity at 2 Mw/h. The combined cost of the
tidal turbines is approximately £1,116,666,667 which indicates that each it costs around
£1,116,000 per one turbine.
2.1.4. Planning and Decommissioning Cost
The planning phase on this project takes 2 years to be done. In this project the System
charges cost is forecasted to be around £255.058.842. This mostly includes the designing
and researching process and is done before constructing the plant.
The decommissioning cost is the cost of having the plant revoke or brought down once it is
not operating anymore. It can consumes approximately £200.000.000 once the plant is
decided to be decommissioned. The decommissioning is usually taken if there is a new
technology which is far more efficient and effective which can generates more profit, or
when the lifetime of the project is finished, in some cases it can also be done for another
reason such as environmental reasons.
The cost calculation of the project’s Capital Costs is based on the review of reports
mentioned in the methodology which mostly are extracted from the comparison with
Swansea Bay tidal lagoon. Where in total, the cost for this project is estimated to be
£3.941.483.089 in the normal case, this is considered as a high capital cost compared to
the other renewable energy capital cost for the same life time. This is mostly because
this project is the first of its kind which means that it is early in the learning curve so it is
not as efficient as it can be; more efficient project can be reached by lesson learned.
Also because based on its size, this can be classified as a big plant considering it creates
2000 Mw/h which is high in terms of renewable energy plants.
Page 18 of 46
2.2. Operational Cost
Operational cost is the day-to-day expenses incurred in running a tidal lagoon. Operating
costs do not include capital outlays or the costs incurred in design and implementation
phases of a new process, such as routine maintenance cost, the staff salary, land renting
fees.
Best case Normal case Worst case
Routine
Maintenance £1,150,000 £2,000,000 £2,750,000
Renting land from

state £0 £2,500,000 £2,500,000
Staffing costs £569,280 £1,366,272 £2,456,640
Overhaul/Upgrades £200,000 £1,000,000 £2,000,000
Other Operational
Costs £500,000 £750,000 £1,000,000
National Grid
Usage costs £7,200,000 £7,200,000 £7,200,000
Total Operational
£9,619,280 £14,816,272 £17,906,640
cost
2.2.1. Routine Maintenance
Best case: It is found that routine maintenance makes up 0.03% － 0.06% of the total
capital construction cost per year (REF: Clive Baker, 2006). This common figure comes
from two different research units which are Tidal Electric Limited (TEL) and in the
association between Department of Trade and Industry (DTI) and the Welsh Development
Agency (WAC). The total construction cost in the best case is £3,527,652,927;
£3,527,652,927*0.0326%=£1150000per year.
Normal case: The finding of the routine maintenance is the same above. Therefore, the
total construction cost in the optimal case is £3,941,483,089;
£3,941,483,089*0.005%=£2000000per year.
Worst case: The finding of the routine maintenance is the same above. Therefore, the
total capital construction cost in the worst case is £4,623,211,306;
£4,623,211,306**0.06%=£2750000per year.
Page 19 of 46
2.2.2. Renting land from state
Best case: In this scenario, we assumed that the renting land cost would be at zero cost.
Normal case: Since there is no official data available. We prepare £2,500,000 in case; this
fund will be needed for renting the land.
Worst case: Since there is no official data available. We prepare £2,500,000 in worst case;
this fund will be needed for renting the land.
2.2.3. Staffing costs
Best case: The minimum wage is ￡ 5.93 (REF: The National Minimum Wage, 2010). If
working per day is 8 hours, and 20 days per month. We have 1280 people in the
operational period, so the best case is 5.93*8*20*1280*12= £569,280 (per year wage). The
human power we need in the operation period is estimated based on the tidal technology
review which was written in October 2007. It calculated that in the construction
employment, there is quite a large range of people from 600 to 2000 people needed for a
lagoon. Also, it mentioned that there is at ‘medium’ level of people needed in the period
of operational employment. Therefore, we may need approximately 1280 employees.
Normal case: The minimum wage is ￡ 7.116, with an assumption that there is 20%
increase from the minimum wage in the best case: 5.93*(1+20%)=7.116; If working per day
is 8 hours, and 20 days per month. It is assumed to have 1280 people in the capital period,
so the optimal case is 7.116*8*20*1280*12= £1,366,272 (per year wage)
Worst case: The minimum wage is ￡8.53, with an assumption that there is 20% increase
from the optimal wage in normal case: 7.117*(1+20%)=8.53:; If working per day is 8 hours,
and 20 days per month. It is assumed to have 1280 people in the capital period,
8.53*8*20*1280*12= £2,456,640 (per year wage)
2.2.4. Overhaul/Upgrades (incl. Shutdown)
Other than maintenance cost, there is also overhaul cost which is the process of fixing
equipment when it is needed.
Best case: In this case, the amount of overhaul cost is £200,000 which is an assumption
based on the maintenance cost where overhaul cost is estimated around 20% of the
maintenance cost.
Page 20 of 46
Normal case : In this case, the amount of overhaul cost is £1,000,000 which is an
assumption based on the maintenance cost where overhaul is estimated as much as
around 50% of the maintenance cost.
Worst case: In this case the amount of overhaul cost is £2,000,000 which is an assumption
based in the maintenance cost where overhaul is estimated as much as 10-70% of the
maintenance cost.
These assumptions can be considerably high because we also prepare to include the
calculation of the shutdown.
2.2.5. Other Operational Costs
Other operational Costs are prepared in case there are emergency or extra fun media in
the process or in the working flow. Most of the time, it can be in a form of damage due to
uninsured losses, accident, sabotage.
Best case: In this case, we assumed that the other operational costs would be £500,000.
Normal case: In this case, we assumed that the other operational costs would be an
increase of 50% of the best case, and it comes out to be £750,000.
Worst case: In this case, we assumed that the other operational costs would be an
increase of 100% of the best case, and it comes out to be £1,000,000.
2.2.6. National Grid Usage costs
This charge recovers the cost of Installing and maintaining the National Electricity
Transmission System required to allow the bulk transfer of power between connection
sites and to provide transmission system security.
Best case: In the case of offshore lagoon grid connection cost, it is found that the grid
connection is £7,200,000. (REF: Parsons Brinckerhoff Ltd & Black & Veatch Ltd, 2008)
Normal case: It is ruled by regulation, so in this case, it is the same in the best case as
£7,200,000.
Worst case: It is ruled by regulation, so in this case, it is the same in the best case as
£7,200,000.
Page 21 of 46
2.3. Regulatory Issues
The construction of tidal lagoon might meet UK regulatory standards, there are many
regulatory issues should be considered, such as carbon taxes, renewable obligations and
clime change levy on supplies of energy.
Carbon Taxes 0 0 0
Renewable Energy
Obligations £40 for 1000MW/h £40 for 1000MW/h £40 for 1000MW/h
Certificates
Clime Change 0 0 0
Levy
2.3.1. Carbon Taxes
A carbon tax is a tax on the carbon content of fossil fuels (coal, oil, gas). There is no fossil
fuels were used in the whole process of electricity generation by tidal lagoon, so carbon
tax is zero. (REF：Carbon Tax Centre)
2.3.2. Renewable Energy Obligations Certificates
The Renewable Obligation (RO) scheme was introduce in 2002 in order to provide
incentives for the construction of more renewable generation.
For every 1,000 units (1MWh) of green electricity that an energy company generates, they
can receive one ROC (Renewable Obligation Certificates). Currently ROCs are selling at
around £40 each (REF: REUK .co.UK). Tidal lagoons (<1GW) receive 2.0 supports
ROCs/MWh (REF: BERR Renewable Obligation Consultation).
2.3.3. Climate Change Levy
Clime Change Levy (CCL) is a tax on some supplies of energy, which are described as
“taxable commodities”, such as electricity, gas, coal. However, the levy is not subject to
electricity which is generated from green sources. The electricity which is generated by
tidal lagoon is total green, so climate change levy is zero. (REF: Notice CCL1/4
Electricity from renewable sources)
Page 22 of 46
2.4. Discount Rate
Discount rate is the interest rate which used in determining the present value of future
cash flows. The present value is very sensitive to the choice of discount rate — a small
change in the discount rate will cause a large change in the value. Discount rate which is
chosen will affect payback year of Tidal lagoon project.
Discount Rate Best case Normal case Worst case
Real Rate of 15.00% 10.00% 7.00%

Return
Market Rates of 15.63% 12.06% 11.85%

Return
2.4.1. Real Rates of Return
Best case: There has been no lagoon built in the world up to date, it is still in the period
of proposals. Therefore, the real rate of return assumed by the consultants of
Environmental and Engineering Consultancy (ENTEC) is 15% (REF: Marinet).
Normal case: Based on the figure estimated by the consultants in the best case, we
assumed that the real rate of return in the optimal case would be 10%.
Worst case: Based on the figure estimated by the consultants in the best case, we
assumed that the real rate of return in the worst case would be 7%.
2.4.2. Market Rates of Return
Market Rates of Return= Real Rates of Return +Inflation Rate
Best case: Real Rates of Return is 15%. According to the historical inflation rates in 2000-
2010 for UK, the lowest recorded inflation rate is 0.6322% in June, 2002 as stated, so the
market rates of return for best case is 15% plus 0.6322%, it will be 15.63%.
Normal case: Real Rates of Return is 10%. According to the historical inflation rates in
2000-2010 for UK, the average recorded inflation rate is 2.06% as stated, so the market
rates of return for optimal case is 12.06%.
Page 23 of 46
Worst case: Real Rates of Return is 7%. According to the historical inflation rates in 2000-
2010 for UK, the highest recorded inflation rate is 4.85% in September, 2008 as stated, so
the market rates of return for worst case is to round off that will be 11.85%.
2.5. Cost for generating electricity
Cost for generating 2- 2.5-3p/kWh 3-3.5p/kWh

electricity 2.5p/kWh
Best case: Based on the estimation of the figure in the worst case, as for larger schemes,
like our proposal would be in a range of 2-2.5p/kWh.
Normal case: Based on the estimation of the figure in the worst case, we assumed that
the normal case would be 2.5-3p/kWh.
Worst case: According to the Ninth Report from Environment, Food and Rural Affairs
Committee of House of Commons, Parliament, Great Britain (REF), a small (60MW) scheme
such as Swansea Bay is being estimated with a generation cost at about 3-3.5 p/kWh,
which is the most expensive one.
2.6. Electricity price (in pounds MW/h)
Electricity price (in £46 MW/h £43 MW/h £39 MW/h

pounds MW/h)
Since there has no lagoon had been built, there is no accurate source of electricity price
available. We assumed that the electricity price base on the cost for generating electricity
which will be higher to make profit.
Best case: The cost for generating electricity of best case is in a range of 2-2.5 p/ kWh,
which can be converted from 2p/kW to £22 MW/h, 2.5p/kWh to £25 MW/h. In order to let
our investment for profit and consider electricity price s trend of Graphical Report UK
Wholesale Electricity and Gas, the electricity price is assumed: £46 MW/h
Page 24 of 46
Normal case: The cost for generating electricity of optimal case is in a range of £25-30
MW/h, the electricity price is assumed: £43 MW/h.
Worst case: The cost for generating electricity of worst case is in a range of £30-35 MW/h,
the electricity price is assumed: £39 MW/h.
Page 25 of 46
3. Revenue
3.1. Electricity sales
Electricity sale is the main income generator for a power plant. As the need for electricity
grows over the coming years, this parameter will play an important role in achieving
profits for the power plant, which will help in funding of similar projects in future and
research in this field. The various options available are: selling electricity to national grid,
selling/providing electricity to industries and other heavy electricity consumption users in
the nearby areas like airport, harbours and high energy intake industries like cement,
steel and fertilizer.
Factors that substantially affect the income of a tidal power plant are Capacity Factor and
system uptime. Capacity factor is the ratio of the actual output of the power plant to its
output had it worked in its full capacity for the given time. Typically renewable energy
has an additional setback of unpredictability of its main source. Tides are more
predictable than its counterparts like solar or wind still there are different types of tide
like diurnal, semi diurnal and mixed with varying tidal ranges during spring and neap tide.
System Uptime is the amount of time the generators were up and working in the desired
capacity, usually a system has to be halted for any break down, maintenance work or
overhauling. Precious revenue generating hours is lost during the down time but mostly
these are unavoidable for better performance of the complete system.
The electricity generation time with the capacity factor for best case scenario that is
being considered is 8664 hours at 61% efficiency, 8568 hours at 50% efficiency for normal
case and 8472 hours at 36% efficiency for the worst case.
For the best case scenario in our project we are considering the electricity sale price at
46£/MWH, for the normal case scenario we are considering the price at 43£/MWH, and for
the worst case scenario we are considering the price at 39£/MWH.
The above mentioned details can be summarised in a tabular format as given below
Best Case Normal Case Worst case

Capacity Factor 61% 50% 36%
Uptime (Hours) 8664 8568 8472
Electricity price (£) 46 43 39
Income generated (£) 488,549,098 370,737,360 239,296,723
Table 1: Income Overview
For our 2000 MW tidal power plant, in normal scenario an income of £370,737,360 annually
through electricity sale at 43.19£/MWH is desired.
Page 26 of 46
3.2. Renewable Energy Credits / Carbon offset
There are many schemes given out by different government organisations to benefit from
energy produced through renewable source. Carbon offset is a reduction in green house
gas emission by compensating for emission made in other industries.
The United Kingdom government has its own scheme for

carbon offsetting. The Department of Energy and Climate
change has come up with a Government’s Quality
Assurance Scheme for Carbon Offsetting
(http://offsetting.decc.gov.uk/cms/). Renewable energy
projects like Tidal Energy can reap huge benefits from
these schemes.
The tidal power plant, apart from helping to stem the climate change and greenhouse gas
emission has the potential generate revenue by trading Renewable Energy Certificates and
other similar offset schemes. A tidal lagoon has no specific certificate as of now, but new
rules and regulations are being put in place which will help in planning and better revenue
estimation of tidal energy projects.
3.3. Scrap value
The project life span is little more than a century which will make it a legacy structure,
without proper maintenance the system will disintegrate. Upon the completion of the
useful lifetime of the lagoon the powerhouse and generator equipments can be sold at
scrap value. We are optimistically considering return of 5-10% of the equipment cost
retrieved at discounted rate during decommissioning.
The lagoon on the other hand can have a better prospects, it can be left to become an
artificial reef which will benefit numerous marine biological living things and corals. The
area can then be used as reef diving area which can constitute to revenues from eco
tourism.
The lagoon can also be silted up to an island which can be used for any purpose, or if the
structure has to make way for a transport channel the embankment can be completely
dismantled.
Page 27 of 46
4. SWOT ANALYSIS
In doing strategic planning, it is also important to be able to evaluate both internal and
external factors that can affect a project. In this case, analysis of strengths, weaknesses,
opportunities, and threats or the SWOT analysis can be used to do the evaluation of the
tidal lagoon project and by implementing it, clearer situation and sharper strategy can be
construct to achieve target.
Below mentioned is the SWOT analysis for tidal lagoon project.
4.1. Strengths
• Contributes to sustainable energy supply and renewable energy systems
• Not toxic and environmental friendly
• Friendlier to animal ecosystem
• Prevents the chance of more land degradation
• Highest load factor compared to other tidal energy type
4.2. Weaknesses
• No operating tidal lagoon plant; no benchmark
• No lesson learned; possibly has low level of efficiency and effectiveness
• Limited number of research
• Considerably huge investment
• Projected no returns due to very high capital investments
• Not attractive to private investors and venture capitalists
4.3. Opportunities
• The increasing awareness of global warming and green energy
• Potential government subsidies due to renewable and green energy
• Potential tax reduction due to renewable green energy policies
• Can become very attractive for investors if government provides subsidies
Page 28 of 46
4.4. Threats
• Relatively new market of tidal energy and especially for tidal lagoons
• Unclear governmental policy
• Changes in climate; tidal lagoon rely heavily on the movements of tides
• Possibility to fail to be successful project
Page 29 of 46
5. Financial Analysis
This part is considered to be the most important and interesting part of the report for
investors and venture capitalists, since it will focus on financial indicators of Tidal Lagoon
power plant.
5.1. NPV
The most important indicator in financial analysis is Net Present Value, which shows the
present value of future income from an investment, less the related costs. The Figure 7
shows the NPV of Tidal Lagoon power plant in all 3 examined cases.
Figure 7: NPV of Tidal Lagoon power plant
As it can be seen from the graph, the project does not bring any returns in any case during
30 years lifetime. In the best case scenario total loss will be £635 304 986, which makes
the project financially not attractive. In normal and in worst cases the losses are even
more: £1 037 731 639 and £2 097 016 616 respectively.
5.2. Cash Flow
Next indicator to analyse is cash flow. The Figure 8 shows the differences between 3 cases
in undiscounted cash flows.
Page 30 of 46
Figure 8: Cash flow comparison of 3 cases.
As it is illustrated on the graph, without applying discount rate the project looks very
good, as it brings high returns, and goes above the breakeven line starting from 11 th year
in best case, 16th year in normal case and on 26th year in worst case. However, it is not
correct to consider undiscounted cash flow as a valid indicator, thus, discounted cash flow
should be analysed.
Figure 9: Cumulative Discounted cash flow comparison
The Figure 9 shows discounted cash flows with the comparison between 3 cases. So,
applying market rate of return, none of the project cases is financially feasible, since they
don’t bring any returns in 30 years. There is a slight trend in cash flow rise over years, but
it is hardly objective that it will go over breakeven line in next 30-50 years in best and
Page 31 of 46
normal cases. Whereas in worst case, there are no chances to bring in positive cash flow
almost at any time, without significant changes in inputs.
Generally, all inputs remain the same, the project is not feasable. To get positive NPV and
cash flow, either electricity prices should rise dramatically, or the power plant should
work on its maximum load capacity, which is highly improbable.
5.3. Payback period
Payback period is time needed to repay initial investment. This section is closely
connected to previous one, and as it was mentioned during cash flow discussion, there is
payback in undiscounted cash flow and no payback applying discount rate. Figure 10 shows
payback periods for all 3 cases with and without discount rate.
Figure 10: Undiscounted and discounted Payback periods.
5.4. Internal Rate of Return
Internal Rate of Return (IRR) is the discount rate that results in a net present value of zero
for a series of future cash flows (VBM, 2010). In other words, it is the point, when income
is equal to costs, and after this point project start to earn money.
Page 32 of 46
Figure 11: Internal Rate of Return.
The Figure 11 illustrates IRR for all 3 identified cases for Tidal Lagoon power station.
However, comparing these rates with the discount rate applied, it can be seen that these
rates are not sufficient and will not bring enough returns for the project.
IRR Discount rate

Best case 12.09% 15.63%
Normal case 7.14% 12.06%
Worst case 1.09% 11.85%
Table 2: IRR and discount rate comparison
Table 3 shows the difference between IRR and discount rate, and the results are negative
in all 3 cases, which mean the project is unprofitable.
5.5. Return on Capital Employed
Return on Capital Employed (ROCE) shows how efficiently company uses it assets and
money, the ratio that indicates the efficiency and profitability of a company’s capital
investments. The Figure 12 shows ROCE for Tidal Lagoon power station.
Page 33 of 46
Figure 12: ROCE indicator
Normally, 20% of ROCE considered being good indicator, but Tidal lagoon power plant
cannot reach that rate. The project earns very little from its assets: in the best case it
manages to “squeeze” only 12.09%, in normal case 7.14% and nothing in worst case.
Whereas Return on Average Capital Employed (ROACE) shows variation of this ratio, it
takes average of opening and closing capital employed for the time period. For Tidal
Lagoon these indicators are terrible, as it is shown on Figure 12. The project utilizes its
assets very ineffectively, highly due to massive construction capital costs.
5.6. Sensitivity analysis
In order to identify some key indicators, the sensitivity analysis was run with 100 000
trials. As it was mentioned above, the report examines 3 different cases but for sensitivity
analysis, it is more appropriate to look at the most possible – Normal case scenario. The
rationale for that choice is shown in Figure 13.
Page 34 of 46
Figure 13: NPV Monte Carlo analysis
Figure 13 shows the probability of NPV indicator. Thus, the most probable NPV is around -
£1 billion, which is close to real calculations of -£1 037 731 639. Sensitivity analysis proves
accuracy of previous calculations and for further analysis Normal case will be taken.
We have already discussed costs and income of the project, so know we would like to look
at which of them affects the project the most. Figure 14 is best to illustrate what affects
NPV.
Page 35 of 46
Figure 14: NPV sensitivity analysis
According to analysis, Total construction costs are crucial to the project, since they affect
the project in the most negative way, at 53.9%. Extremely high capital costs cannot be
recovered at any time with current inputs.
Second indicator influencing NPV is Total income per year. If income will grow, due to
possible rise in electricity prices, or increasing efficiency of power plant, that may
positively affect the NPV and profitability of the power plant.
Another indicator currently making negative influence is Interest rate. Since it was
decided to take Market rate of return which is a bit higher than average rates, but that is
due to inflation rate inclusion, this rate affects negatively. In case if discount rate will
decrease, the project also can turn to profitability.
As the Capital cost is the crucial one for the project, it is important to make analysis of
Total Capital costs.
Page 36 of 46
Figure 15: Total Capital cost Monte Carlo analysis.
Figure 15 shows the the probability of Total Capital cost, and as it can be seen, most
probably, it will around £3.9 - 4 billion.
Figure 16: Sensitivity analysis of Capital costs.
The vast majority of Capital cost is Construction cost of Tidal lagoons. As there will be
needed enormous amounts of concrete, rock and armour that cost occupies most of the
investment money, and what is worse, will be needed at the very beginning of the
project. Coming to figures, 65.8% of costs are civil engineering costs, adding 1.9% of
construction labour costs bring to almost 70% of total amount. Second important thing is
Page 37 of 46
tidal turbines cost. As there will be needed large amount of turbines this position is also
important as it contributes to 26.3% of the project cost.
Tidal Lagoon power plant is low operational cost project, however, it is also important to
analyse its operational costs.
Figure 17: Operational costs Monte Carlo analysis.
Running Monte Carlo analysis for Operational cost shows that most probably it will be
around £14.8 million per year. Out of which 80% will be National Grid usage costs, as it is
shown in the Figure 17.
Page 38 of 46
Figure 18: Operational costs sensitivity.
Next cost, contributing to operational cost the most is Renting land from state, which
might not even occur, if governmental exemption will be received, however it is
important to consider it at the moment, due to lack of previous evidence.
6. Comparison with Gas powered power plant

In order to properly evaluate each project, comparison with alternative should be done. In
this case, Gas powered plant over same life time of 30 years was chosen. Generally, Gas
power plant is considerably low capital, but high operational cost project. Therefore, it is
important to compare its financial indicators, to identify which project is more financially
feasible.
Page 39 of 46
Figure 19: NPV comparison Gas vs. Tidal.
Figure 19 shows NPV comparison between two projects. It is clear that gas power plant
project is more financially attractive, since it generetes returns of around £2.6 billion,
whereas tidal power station has no return in any case in 30 years and makes only losses.
Figure 20: Undiscounted payback comparison Gas vs.Tidal.
Comparing undiscounted payback period between two projects on the Figure 20, it may
seem that they are almost equal, as Tidal project brings even faster payback than Gas in
best case, and several periods later in normal case, but all differences can be seen on
next graph, which shows discounted payback periods.
Page 40 of 46
Figure 21: Discounted payback period comparison Gas vs.Tidal.
Applying discount rates payback periods go up, in case of Gas station it becomes 22 years,
while Tidal station loses its profitability and never pays back its initial investments.
ROCE comparison is also not in favour of Tidal station as it is lower than in Gas station.
Figure 22: ROCE comparison Gas vs.Tidal.
Gas power station utilizes its capital investments not very effectively, as it is only 4.14%,
but in any case it is higher than in Tidal power plant.
Page 41 of 46
Figure 23: IRR comparison Gas vs.Tidal.
The last financial indicator to be analyzed in this section is IRR. Figure 23 shows IRR for
two projects. The Tidal lagoons IRR seems to be higher in best case, but it is still lower
than discount rate appied. At the same time discount rate’s difference between two
projects (tidal 11.85-15.63% vs. 7.5 gas) makes Gas project more attractive, since IRR is
over discount rate.
And final comparison between the projects to be done is named “Maximum risk and loss in
3 years period”, which analyses what is the risk and associated costs of the project if it
will be closed in 3 years since the beginning. At this point it is important to explain why
exaclty this period was taken. The reason is that 3 years is the period during which some
major changes in legislation, strategy or policies can be made. For example, if government
realizes economical useless of the Tidal project, or better alternative will be found, it
may stop any kind of support and project may be closed. Or, alternatively, if there will be
very strict policies in carbon emissions employed, and construction of new Gas plant will
be stopped, what kind of risks it brings?
Page 42 of 46
Figure 24: Maximum risk and losses in 3 years Gas vs.Tidal.
The Figure 24 shows total losses to be suffered, should the projects be stopped after 3
years. So in best case, Tidal plant will suffer very high losses as it will be already
constructed, the same is with Gas plant, but losses are lower due to generally lower
capital costs.
In Normal case, risks are again higher in Tidal plant. At that time, full planning and 1/2 of
construction will be finished, whereas gas plant will be finished fully.
Only in worst case scenario Tidal project has less risks, because it will finish it planning
period only, and will not involve in civil engineering.
Page 43 of 46
7. Recommendation for Project

It is clear to see that tidal lagoon is a renewable energy which is very environmental
friendly and predicted to have higher production of electricity compared to other tidal
energy plant based on its higher load factor.
It is also still under a development phase where no actual tidal lagoon is currently
working, this caused limited research data for the project and therefore no exact
benchmarking can be done.
However due to the increasing awareness of green renewable energy and global warming,
this type of plant might catch a lot of future interest from the government, venture
capitalists, and general public interest. All of these can result in receiving subsidies from
the government.
So, considering all inputs and financial indicators which were produced in this report, it is
pretty clear, that for 30 years project life time, this power plant will not be financially
feasible and therefore not attractive for any investors.
Longer project lifetime is definitely has to be taken in order to start making profit and to
make it interesting to venture capitalist.
Other crucial things that may affect the projects and turn it into profitability are
electricity price increase and load factor. If the electricity prices will rise in next several
years, due to decrease in number of old coal or gas stations, or some other reasons, then
the Tidal power plant project can generate more income, thus becoming feasible. Increase
in load factor is less probable, but still can occur if the technologies will advance
dramatically.
In doing such a massive project, there are also risks to be considered which can come from
different sectors and aspects, for example is the legislation change, where the
government might create new regulations that can affect the project. Another risk is that
there is a possibility where worldwide trend can change, as of right now global warming is
the environmental focus but there is also a possibility of it to change in the future. New
destructive technology created is also another form of risk because there is a tendency
where new technology can eliminate older technology and although this can be predicted
but in this fast growing technology era it is quite complicated to predict when. Political
aspects can also become a potential risk due to the increase in the number of competition
and policies made both localy and globally.
However, the very essential aspect in this plant development is that in order for this
project to work, massive governmental support is needed and further researches have to
be done.
Page 44 of 46
8. Appendix
1. http://offsetting.defra.gov.uk/cms/approved-offsets/ UK Government DEFRA, 9th Dec
2010
2. “Tidal Lagoon Power Generation Scheme in Swansea Bay”. A report on behalf of

the Department of Trade and Industry and the Welsh Development, Clive Baker and
Peter Leech (ess Consulting)
3. VBM, 2010 Internal rate of return IRR

http://www.valuebasedmanagement.net/methods_irr.html
4. Bake, C. (2006). Tidal Lagoon Power Generation Scheme in Swansea Bay. Available
online at:
http://www.inference.phy.cam.ac.uk/sustainable/refs/tide/file30617.pdf
5. The National Minimum Wage 2010. Availabe online at:

http://www.direct.gov.uk/en/Employment/Employees/TheNationalMinimumWage
/DG_10027201
6. Sustainable Development Commission Homepage: Tidal Power in the UK. (2007).

Availabe online at: http://www.sd-
commission.org.uk/publications/downloads/TidalPowerUK2-
Tidal_technologies_overview.pdf
7. ANALYSIS OF OPTIONS FOR TIDAL POWER DEVELOPMENT IN THE SEVERN ESTUARY

-INTERIM OPTIONS ANALYSIS REPORT (VOLUME 1). December 2008
Prepared by Parsons Brinckerhoff Ltd in association with Black & Veatch Ltd
Prepared for DECC (Department of Energy and Climate Change) Availabe online at:
http://www.decc.gov.uk/assets/decc/what%20we%20do/uk%20energy
%20supply/energy%20mix/renewable%20energy/severn%20tidal%20power
%20feasibility
%20study/1_20090715085042_e_@@_optionsfortidalpowerdevelopmentintheseverne
stuartyanalysisreportvolume1.pdf
8. Carbon Tax Centre. See http://www.carbontax.org/ for further details.
Page 45 of 46
9. REUK .co.UK. See http://www.reuk.co.uk/Renewable-Obligation-Certificates.htm

for further details.
10. Renewable Obligation Certificates. http://www.carbontrust.co.uk/policy-

legislation/Energy-Supply/renewable-energy/Pages/renewables-obligation.aspx
11. Notice CCL1/4 Electricity from renewable sources. Electricity from

renewable sources
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal
?
_nfpb=true&_pageLabel=pageContactUs_ShowContent&id=HMCE_CL_000281&prope
rtyType=document
12. Marinet: Tidal power for the UK — the Severn Estuary debate.
http://www.marinet.org.uk/refts/7estuarydebate.html
13. Environment, Food and Rural Affairs Committee. Parliament. House of Commons.
Great Britain. Climate change: looking forward: volume II: oral and written
evidence
http://books.google.com/books?
id=xVwko8X8FFMC&pg=PA229&dq=lagoon+electricity+generation+cost&hl=zh-
TW&ei=CrPRTO-
OG8PrOer8oYwM&sa=X&oi=book_result&ct=result&resnum=7&ved=0CEkQ6AEwBg#v
=onepage&q=lagoon%20electricity%20generation%20cost&f=false
14. Historical Inflation Rates for UK. http://www.rateinflation.com/inflation-rate/uk-

historical-inflation-rate.php?form=ukir
15. Graphical Report UK Wholesale Electricity and Gas

http://www.busl.co.uk/energy.pdf
Page 46 of 46

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Tidal Lagoon Power

The Report describes the economics associated

December 9th, 2010

Responsibility Distribution of Group 11

• Finding related articles on tidal current

Shao-Yu Chen • Finding related journals on tidal barrage

Anil E. K. • Construction Cost Analysis

Na Shen • Finding related reviews on tidal barrage

In the situation of undiscounted payback period, it is estimated that in the year of 16

1. Introduction to Tidal Energy.............................................................7

1.1. Tidal Energy Power Plant Types................................................................7

1.2. Environmental Impacts:.........................................................................9

1.3. Community Ownership:........................................................................10

1.4. Chosen Tidal Energy Plant.....................................................................10

1.5. Research Methodology.........................................................................11

1.6. Research Limitation............................................................................11

2.1. Total Capital Cost...............................................................................13

2.1.1. Construction of a Tidal Lagoon....................................................................15

2.1.2. Power House and Connection Cost...............................................................18

2.1.3. Tidal Turbines Cost.................................................................................18

2.1.4. Planning and Decommissioning Cost..............................................................18

2.2. Operational Cost................................................................................19

2.2.1. Routine Maintenance...............................................................................19

2.2.2. Renting land from state............................................................................20

2.2.3. Staffing costs........................................................................................20

2.2.4. Overhaul/Upgrades (incl. Shutdown)............................................................20

2.2.5. Other Operational Costs............................................................................21

2.2.6. National Grid Usage costs..........................................................................21

2.3. Regulatory Issues................................................................................22

2.3.1. Carbon Taxes........................................................................................22

2.3.2. Renewable Energy Obligations Certificates.....................................................22

2.3.3. Climate Change Levy...............................................................................22

2.4. Discount Rate....................................................................................23

2.4.1. Real Rates of Return................................................................................23

2.4.2. Market Rates of Return.............................................................................23

2.5. Cost for generating electricity................................................................24

2.6. Electricity price (in pounds MW/h)...........................................................24

3.1. Electricity sales.................................................................................26

3.2. Renewable Energy Credits / Carbon offset.................................................27

3.3. Scrap value.......................................................................................27

5.2. Cash Flow.........................................................................................30

5.3. Payback period..................................................................................32

5.4. Internal Rate of Return........................................................................32

5.5. Return on Capital Employed...................................................................33

5.6. Sensitivity analysis..............................................................................34

6. Comparison with Gas powered power plant.........................................39

7. Recommendation for Project...........................................................44

9. REUK .co.UK. See http://www.reuk.co.uk/Renewable-Obligation-

10. Renewable Obligation Certificates. http://www.carbontrust.co.uk/policy-

11. Notice CCL1/4 Electricity from renewable sources. Electricity from

1. Introduction to Tidal Energy

1.1. Tidal Energy Power Plant Types

Figure 1: Tidal Barrage

The operating cycle of electricity generation consists of these steps:

Tidal current turbine

Figure 2: Tidal Current Turbine

(Tidal turbines: http://www.reuk.co.uk/Tidal-Turbines.htm).

Figure 3: Tidal Lagoon

Land-connected Lagoons: A land-connected lagoon utilizes the shoreline to make the

1.2. Environmental Impacts:

1.3. Community Ownership:

1.4. Chosen Tidal Energy Plant