3.4        Economic Implications

Tidal barrage energy projects require very high capital expenditure at the outset, and have relatively long construction periods and low load factors, leading to long payback periods. As a consequence, the unit cost of generation is highly sensitive to the discount rate used. Access to suitable funding is therefore a serious problem, and is unlikely without public intervention. The cost of tidal energy per kWh is too high for the market to bear, even in the centralised electricity market of France. Within a deregulated, highly competitive electricity supply market such as the UK, coupled with the need for private sector investment, tidal energy is unlikely to be commercially developed.

The predicted generating costs of wave energy have been historically high but decreased significantly in recent years. Wave energy is now predicted to be economic in niche markets, with potential for improved economics in the future. In addition, non-polluting sources of energy such as wave power have to compete against energy from cheap fossil fuels, where the external costs of environmental damage are not internalised in the price paid for electricity. At present there is only limited private sector investment in wave energy (almost all in the OSPREY and the McCabe Wave Pump) and relatively small public investment. Significant capital expenditure will be required at the outset of wave energy projects, hence a secure market for electricity sales is key to gaining the confidence of investors (as well as proof that the project is technically and economically viable).

3.5        Political Implications

European legislation, covering environmentally sensitive areas, could preclude development if barrage operation significantly changes the ecology of protected areas. In addition, there are strong environmental regulations in France concerning the implementation of equipment in rivers. In particular, work undertaken in the bed of a river must permanently allow life, movement and reproduction of the species living in the river at the time of the equipment installation. Current regulations which govern navigation rights and some environmental requirements may require specific change particularly if large scale schemes come forward.

On the other hand, an extensive and expensive consultation process is needed before a nearshore or shoreline wave energy device can be deployed. This is because of a plethora of statutory bodies that can have an involvement in coastline and surrounding waters. The costs and delays involved cannot easily be accommodated by small companies building wave energy devices. The legal and statutory requirements need to be streamlined, rather as in Ireland, where fewer bodies and one regulatory act (the Foreshore Act) encompass nearly all the procedural steps.