commercial review of the swansea bay tidal lagoon ... › wp-content › ... · commercial review...

1

Commercial Review of the Swansea Bay Tidal Lagoon Pathfinder Project

Author:

Paul Marsh

CEO Holistic Capital Ltd

March 2018

Commercial review of the Swansea Bay Tidal Lagoon Pathfinder Project

Commissioned by Swansea University on behalf of the Swansea Bay City Region

Contents

1.0 Foreword 04

2.0 Terms of Reference 06

3.0 Executive Summary 07

4.0 Methodology 09

4.1 Revenue Analysis 10

4.2 Costs Analysis 11

4.3 Investment Analysis 12

5.0 Review and Analysis 14

6.0 Recommendations 16

Appendices 17

03

05 04

Commercial Review of the Swansea Bay Tidal Lagoon Pathfinder Project

1.0 Foreword

This review was commissioned by Swansea University, on behalf of the Swansea Bay City Region. The intention of which was to conduct an independent, impartial and objective commercial review, of the Swansea Bay Tidal Lagoon project.

Over the last 4 years Holistic Capital have conducted strategic due diligence on over 250 high value projects, throughout the UK, on behalf of HMG.

The scope of the review was determined by an agreed set of terms of reference, which are set out within the body of the review, and which were used to address certain specific aspects of the project on behalf of key stakeholders within the Local, Regional, and National Government.

The short timeframe for producing the output from this review, has necessitated a strategic level assessment, based on industry experience, typical financial benchmarks and project delivery processes.

As a principle, the key elements of research and review have been carried out upon evidence produced by the project developer, Tidal Lagoon PLC, which have been subject to analysis, review and where possible validation.

No warranty is offered, nor should it be implied, as to the accuracy of this third-party data, produced by TLP in support of this review.

The conclusions drawn, and commercial opinions expressed, rely upon the validity of the data, as presented. Should this be demonstrated to be incorrect at any time, we reserve the right to re-appraise the outputs from this review.

Paul Marsh 31st March 2018

Executive summary

07 06

Commercial Review of the Swansea Bay Tidal Lagoon Pathfinder Project

2.0 Terms of Reference

The terms of reference were agreed with the commissioning authority, and were as set out below:

This was not intended to be an exhaustive scope, and was subject to further definition between the parties as we progressed:

Scope of commercial review

• Commercial review of viability of the project development/investment proposals (current)

• Consider the alternative ‘Plan B’ proposals

• Consider, where possible, Government views, local and Central (UK &Wales) on project viability

• Commercially appraise the project in relation to other renewables options.

• Consider other relevant options to assist project delivery

• Produce report and recommendations

Conduct of the Review

This review could not have been conducted without the support of Swansea University, Swansea City Region and most specifically TLP.

TLP were open, honest and supportive of the objectives of the commercial review from the outset, and we would like to thank all those at the company who assisted the process in a timely and professional manner.

Whilst respecting the opinions developed by all parties, we have attempted to produce overall an objective review of the commercial aspects of this major project, which has been derived from a combination of our experience in conducting such reviews on over 250 projects in the recent past, but most significantly upon the factual evidence provided by all contributing parties.

3.0 Executive Summary

The Swansea Bay Tidal Lagoon project is fundamentally a strong and deliverable technical proposition.

The project represents the opportunity to harness clean energy, from a source that has existed for millennia, and is one of the few natural resources left to the UK.

We unequivocally recommend that the project should receive the full support of local, regional and national government stakeholders, to ensure this exceptional project is brought forward to generate clean power for future generations.

At its core, the project relies on a very simple form of electricity generation, consisting of a series of turbines, which are rotated by the tidal movement of the sea.

The conversion of this essentially ‘free’ dynamic energy into electricity is achieved by the simplest of technologies, but delivered at an industrial scale in a marine environment.

The technical solutions that have been developed by TLP have not been assessed within the scope of this review, but we understand that they have been developed by some of the largest, most credible multi-national players in the market, such as General Electric.

The critical success factor to this project, like many other large scale infrastructure projects, rests not solely with the ability to construct the proposed tidal lagoon, but with the ability to secure the necessary level of capital to deliver the project.

The strategic direction of travel of the TLP to date has been developed in conjunction with HMG to structure the project financing along the lines of other UK renewable energy projects, which have consisted of an element of government underwritten subsidy. In this case via a contract for difference (CfD).

It is important to note that whilst the technology is fundamentally straightforward, this specific solution has not been delivered yet in the UK, and as such the project should be considered a pathfinder project, not to establish the technology, but to develop the commercial and contract delivery elements of a new project.

When considered objectively, it does not appear commercially appropriate to consider comparisons with the existing CfD renewables solutions (Solar/Wind/Nuclear), which have been established for many years in the market, to test VFM for this project.

A more appropriate method of evaluation could be to ensure the project is delivered in the most efficient method possible, then construct appropriate commercial structures to deliver future larger scale projects, following on from this pathfinder, to maximize public sector benefit.

In terms of the basic metric, the CfD acts as a top up to subsidize the rate earned for electricity generated, to a guaranteed level, which is utilized together with the wholesale rate earned from energy sold into the wholesale market, under a power purchase contract with one of the large energy companies.

This structure has evolved by HMG over the last 24-36 months into an auction based market, where developers ‘bid’ for the right to receive a CfD to support their project. This competitive tension has had the affect desired by government to drive down the actual rates of CfD which are being contracted in today’s market.

There are now examples in the established technologies of solar and wind of projects being delivered without subsidy, however this has only evolved after progressive improvements to the supply chain in these sectors.

This context is essential to appreciate, in relation to the TLP proposal to negotiate a CfD directly with BEIS/HMT. The ability of government to justify a level of CfD, on a value for money (VFM) basis, without the competitive tension of the auction environment, is severely impaired.

When considered objectively, it would appear to be the VFM issues which are the greatest hurdle to agreeing a CfD in the current format with UK Government, particularly in the context of current CfD auction levels.

If we take the view that this project is a pathfinder, and therefore not appropriate for comparison on this basis, then this method appears flawed in principle.

There have also been various reported levels of CfD reported as applicable to the SBTL project, and these have not always been interpreted correctly.

09 08

Commercial Review of the Swansea Bay Tidal Lagoon Pathfinder Project

3.0 Executive Summary continued We were asked to consider whether the SBTL project could be financed on the same terms as the Hinkley Point CfD agreed by HMG in September 2016.

The Hinkley Point C CfD provides a Strike Price for the developer of £92.50/MWh (2012 prices), for a 35-year term from the date of commissioning.

The TLP best and final offer letter (BAFO) of 30 June 2016 has produced a CfD ‘equivalent’ at a rate of £89.90/MWh (2012 prices), for a 90-year term from the date of commissioning, with a model including a non-repayable HMG grant of £180m.

In terms of whether TLP could deliver the project based on the same CfD contract awarded at Hinkley Point, we do not consider this model is the best method to deliver the SBTL project.

Whilst a response from HMG to the best and final offer (BAFO) was not expected until after the Hendry Review, it is now over 12 months since Charles Hendry published his review, which in conclusion was very supportive of the technology.

The apparent lack of formal response or direct engagement by HMG over the year since Hendry, would appear to be based on the VFM considerations noted above, and particularly in the context of the current renewables market.

We do not consider the CfD metric as an appropriate measure of VFM on this type of pathfinder project.

We do not consider it appropriate to compare the developed markets of Solar and Wind in comparison to the tidal lagoon pathfinder, for the reasons noted previously.

The natural conclusion to be drawn from this situation is that if the project is to move forward, then some form of improved financing solution needs to be adopted.

In accordance with the terms of reference noted above, a number of significant areas have been identified within this review that may be able to deliver a more attractive solution to both the developer and to all the public-sector stakeholders, to achieve the economic benefits of this major capital project for the region.

The areas of commercial strategy that have been identified in detail later within this review consist in principal of potential methods to either reduce capital cost, improve projected revenue, or reduce cost of capital.

This approach, together with a recognition by all parties that this project is a pathfinder, and as such should not be merely compared commercially using solely the CfD metric, and particularly when being compared with technologies much further along their path of commercial evolution, is considered fundamental to finding a suitable compromise, which delivers this valuable renewable energy resource to Wales and the wider UK.

4.0 Methodology

Planned Activity/Output

• Review the existing project data room.

• Review the Hendry Review and comment if it justifies the STL.

• Review and report on the due diligence performed by the public sector and others to date.

• Meet the exec team of the TLC and review project viability particulars together.

• Meet (unofficially) relevant officials with an interest in the project, to canvas commercial views/opinions.

• Meet City institutions to test the financial modelling principles as market credible.

• Meet representatives of the WG Pension Fund to consider potential investment into the project.

• Consider whether the project is economically viable, and represents good VFM at the equivalent strike price of Hinckley.

• Determine the levels of financial commitment, risk and reward to the constituent Public (HMG) and Private partners (investors/developer).

• Collate the input data, and combine into a coherent Report which summarises the commercial credibility and robustness of the key elements of the project.

• Provide an executive summary of the report outputs.

The foregoing represents the outline methodology utilized to determine the general overview required by the commissioning authority of the project.

The detailed analysis, including the detailed due diligence queries and responses, are contained within the schedule contained in appendix 1.

The summary points from this analysis are detailed in the following sections.

11 10

Commercial Review of the Swansea Bay Tidal Lagoon Pathfinder Project

4.2 Costs Analysis

The capital cost for the project have evolved over a period of some 3/4 years, and have consisted of input from various parties, in various potential contracting arrangements.

This process has been used as the basis for deriving the project costs, but we consider that there is significant potential to improve (reduce) the projected capital costs.

The original strategy adopted was to develop the project costs after a tender process, in association with two main ‘preferred contractors’. These were the Chinese state owned entity (SOE), China Harbour Engineering Company (CHEC), for the marine works package, along with Laing O’Rourke for the Civils/Turbine Structures.

These packages were reported to be c.£300m and £200m respectively.

In addition to this were the turbine manufacture, install and maintenance works, developed with GE, and also some on-shore building works to be carried out by a local contractor.

We understand that the progression of negotiations with the two main packages of Marine and Civil works did not progress to a successful conclusion.

The strategy of splitting these two packages was considered likely to increase costs in the form of potential claims against the developer, relating to interface issues.

We understand that TLP now consider the amalgamation of these elements to be more appropriate.

In terms of how the project costs have been concluded, to be built up into the BAFO proposal letter, this has been the combination of the best available tender data, which has then been subject to commercial review by the TLP team to derive their ‘best estimate’ of the cost stack.

The process adopted is set out in the report to board of June 2016, which is contained within appendix 3, along with the target price breakdown.

The subsequent commercial strategy has evolved to consider a solution that does actually combine the marine and civil works into one contract, with a suitably experienced contractor, several of whom have been identified by the new TLP construction team.

This has not been brought to market yet, awaiting a clear direction on the CfD negotiations from HMG.

For the purposes of this review though, it has been necessary to consider the position as presented, which understandably is that the majority of the costs produced to date are over two years old, and may not reflect the optimum commercial strategy.

The current TLP team appear to be well experienced in the field, and capable of procuring a sufficient level of cost certainty, once a financing solution has been confirmed.

Whilst this situation does not give cost certainty on the project, it does in our view, provide a significant opportunity to improve on the current cost stack.

There would also appear to be a degree of ‘tender fatigue’ in the marketplace surrounding the project, which has resulted from the approach adopted and the continued delays to the CfD decision-making process.

This in itself can prove to be the most significant commercial factor in terms of being able to secure the most competitive bids from all parties.

Should there be a secured form of project funding be in place, then the supply chain will undoubtedly engage much more actively than they appear to have done to date.

We consider that this is likely to drive the project capital costs down significantly, leading to increased VFM and easing project viability.

4.1 Revenue Analysis

As with all investments, there needs to be a return to the investor to justify the investment in the first place.

In this case, the return to the investor has been modelled on a guaranteed revenue provided by a combination of electricity revenue generated by the plant, and a top up subsidy provided from HMG via a contract for difference (CfD) mechanism.

The CfD figure gives a guaranteed revenue rate to the project, whilst the actual energy outputs and corresponding revenue will vary and fluctuate below this level.

The revenue has been modelled in conjunction with the TLP advisory group Macquarie, who are major players in the global infrastructure, finance and banking markets, over a total investment period of 131 years.

The detailed financial model is contained within appendix 2.

The financial model takes its revenue figures from a combination of the predicted revenue generated by the plant, which has been derived from technical projections, and then extended this out by the relevant wholesale electricity factor to generate a financial revenue stream. This rate is pre-determined by BEIS via a predicted cost curve that is index linked and is known as the Electricity Market Price (EMP). This is a price index derived from the two UK day ahead half hourly auctions (N2EX and APX).

Under the CfD mechanism, the amount of subsidy eligible is calculated as the delta between the intermittent market reference price and the project’s strike price. This varies each half hour.

This mechanism effectively determines the rate to be applied to the amount of energy generated by the plant, over the period of the CfD.

In terms of the power output from the plant, Andritz Hydro, TLP's preferred turbine manufacturer, have developed their own independent detailed modelling, upon which their commercial offer is based. The TLP model has been reconciled to this model within acceptable tolerances.

The model gives an Annual Electricity Production ("AEP") figure for a given year. This is then adjusted in the financial model to adjust for the 18.6-year tidal cycle - the formula for which has been derived from 40 years of historic tidal data.

Various external electricity loss factors are then applied to take account of transmission, maintenance outages, etc.

The output from the plant has not currently been guaranteed by the turbine installer, but there are some commercial protections in place to cover underperformance of these projections.

The final details of these provisions have not yet been concluded, but TLP would expect the final position to reflect a capped financial penalty of 10% of the contract value to be in place with the turbine supplier.

In the context of the overall scale of the revenue to be generated, a higher level of protection to underpin the projected level of income would be desirable.

This area would need more detailed review and risk analysis to understand the sensitivity of the revenue projections to potential variations in output.

13 12

Commercial Review of the Swansea Bay Tidal Lagoon Pathfinder Project

4.3 Investment Analysis

The investment solution adopted has been derived following historic engagement with HMG, and has attempted to follow the same model as other emerging alternative energy solutions.

This commercial solution is predicated on the assumption that new renewables solutions involve such a significant level of capital expenditure that they cannot be financed via typical commercial funding structures.

This presumption is now being challenged by some of the early adopted forms, such as solar, which are now capable of being delivered without subsidy.

The typical structure that has been utilized over recent years has been to secure a Contract for Difference (CfD) from HMG which effectively underwrites the rate paid for the power supplied by the respective technology.

HMG have developed this model, which consists of a variable subsidy component, to be added to the actual revenue generated by the energy generator, to produce a combined total revenue stream sufficient to fit the standard funding criteria of established infrastructure investors.

The advantage to HMG of adopting this standard mechanism is that it enables a very clear comparison between different projects, in different sectors, and helps to clearly identify the respective trends in levels of cost/subsidy associated with various projects.

The level of CfD is fixed against a benchmark date (2012) and is then indexed accordingly through the life of the project to take account of inflationary factors.

It is this mechanism which has been utilized to inform HMG officials of the relevant levels of subsidy demanded across different projects, and allows a simple comparison.

The CfD level proposed by TLP in their best and final offer (BAFO) to HMG is a level of CfD (equivalent) at £89.90/MWh.

Comparable renewables CfDs are currently being bid for within auctions at levels between £40-50/MWh.

This commercial environment clearly presents significant challenges to the progression of the proposed project under the current CfD financing mechanism.

In terms of the other key elements of the investment proposals, these consist of different financing solutions, depending on the respective stages within the delivery process.

To date, project expenditure has been covered from equity providers in terms of cash and/or loan notes.

This capital is provided at risk up until financial close.

Under the proposed model, at financial close, these equity providers will recover a market rate financial return, commensurate with the investment risk.

Similarly, at financial close, TLP will be paid a developer fee.

The next stage of the project will require construction financing throughout the five/six-year build period.

The construction finance has been structured on the basis of a typical project finance development loan, which consists of a combination of equity and senior debt.

The TLC have been advised that there is a strong market appetite to provide this debt to the project, based on the CfD secured income stream being in place from HMG.

The levels of equity and debt have been structured at 75% Senior Debt to 25% equity.

The coupon on the senior debt has been budgeted at 4%, whilst the equity component has been structured to return an IRR of 11.65% to the Institutional equity providers.

Both these elements have been tested with alternative parties active in the infrastructure marketplace, and would seem to represent a typical market level of return, whilst being towards the high end for construction equity.

This phase of the project financing is the highest risk, because of the relatively high-risk nature of delivering large scale infrastructure projects.

Once the construction phase has been delivered, and the plant is generating a stabilized power output, typically 3-5 years’ post completion, it is the intention of TLP to re-finance the project on better terms than are available for the construction phase.

At this point TLP have included a £50m payment to equity providers, post re-financing. Should this benefit exceed £100m, then it is proposed to share a proportion of these savings with HMG.

The current proposal provides both the developer and the equity providers with significant levels of return from the project.

These levels of return may be an area where it is also possible to reduce project costs, in return for reduced project risk.

The summary of overall returns is as set out in the table below, provided by TLP:

The summary total returns of £2.5bn are clearly very significant additional costs to the project, in the context of net costs that are currently projected at £1.3bn.

There may be the opportunity for local/regional/central government stakeholders to work in partnership with TLP and their institutional investors, to help derive a less expensive solution to delivering this project.

Table in respect to Q4.7: £m  Proportion  Cash equity provided 

Equity sub-debt repayments 

Dividends received 

Total return 

InfraRed  35%  (71,735)  207,267  650,806  858,073 

Infracapital  65%  (133,223)  384,924  1,208,641  1,593,564 

Existing shareholders  TBC  -  -  -  - 

Tidal Lagoon Plc  TBC  -  -  -  - 

  204,958  592,190 1,859,447 2,451,637

15 14

Commercial Review of the Swansea Bay Tidal Lagoon Pathfinder Project

5.0 Project Review and Analysis

Review

The Swansea Bay Tidal Lagoon project provides a credible opportunity for government to support the development of the Tidal Energy sector within Wales, and through the clear economic benefits to the supply chain, throughout the wider UK.

This conclusion was supported in unequivocal terms by the Hendry Review of 2016.

Charles Hendry actually concluded that the support for Tidal Lagoon technology was a ‘No-Regrets’ policy, which could actually start a ‘New Industry’1.

Rarely is there an opportunity to introduce a major new industry sector into the established UK market that responds so strongly to so many of the aspects of the UK Government’s Industrial Strategy.

Taking a holistic view of this project, and the wider socio-economic benefits to the region through the distributions to the supply chain, is essential to understand the combined benefits available.

At its core, this project is a significant energy/infrastructure project, which has the potential to deliver a real and direct economic benefit, as well as stimulating a new industrial sector in an area of the UK that has seen a consistent decline in many areas of large industry.

There do appear to have been several views formed regarding the technology involved, suggesting that it is untried, however we do not support this view, considering that there are several examples of successful tidal energy schemes globally referred to by Hendry.2

Perhaps of more significance in forming this view has been the fact that the technology being utilized is a series of standard bi-rotational turbines, housed in reinforced concrete structures, which are rotated by tidal range in the lagoon, and which in turn generate the electricity supply.

Whilst there are the normal significant risks associated with any large-scale infrastructure project, the underlying technology upon which the project is based is a large-scale

version of technology that has been generating electricity in various forms for nearly 200 years, since its invention in the 1820s.

We recommend that a common narrative be developed, in conjunction with all stakeholders, that clearly sets out the basic technology that is being employed, within a large-scale environment, in order to address the historic mixed messages.

In terms of moving forward with a final stage negotiation, in whatever format this should take, we also support the Hendry recommendation that recognizes that whilst TPL have progressed the project through the initial stages, that a strategic alliance with a delivery partner with the associated corporate balance sheet and track record, would provide the right level of assurances to government to progress any final agreement.3

In terms of the remaining strategic project risks that currently remain unresolved, these are recognized by the TLP team, with mitigation strategies in place, and are summarized below:

• Finalize the fixed price costs for the delivery of the Marine, Civils and M&E works.

• Secure the necessary project funding.

• Negotiate final power supply guarantee provisions with turbine contractor.

• Secure the grant of the Marine license required to commence works.

• Conclude the necessary lease agreements with Crown Estates and St. Modwen.

AnalysisAs was stated in the foregoing executive summary section, whilst significant in scale, we consider that the technical components of the project are sub-critical to the financing solutions, in terms of achieving the ultimate goal of project delivery.

When we consider the commercial backdrop of the historic CfD negotiations with HMG, we are left to conclude that this has been an exercise in attempting to back-fit a ‘one size fits all’ solution to the funding of a new industrial resource, via pathfinder project.

The principle of comparison to existing forms of developed renewables technologies does not seem to be in any sense valid or objective.

The opportunity to harness one of the few natural resources available to the UK, seems in principle something that should be highly desirable from multiple perspectives.

Whilst we have noted various areas that could lead to a more efficient working of the existing CfD model, via potential to increases to revenue and/or decreases in costs, this is fundamentally predicated on the ability of TLP to negotiate a suitable level of CfD with HMG, which does not appear to be a route that HMG are prepared to commit to any time soon.

There is clearly a strong case for TLP and the public-sector stakeholders to press strongly for some form of formal ‘statement of position’ from HMG, to inform the next stages of the progression of the project. There is of course no guarantee that this will be forthcoming.

In the face of the apparent intransigence of HMG, it may be that TLP and the public-sector stakeholders may be forced to develop other solutions to deliver this new energy source in some independent form.

16

Commercial Review of the Swansea Bay Tidal Lagoon Pathfinder Project

6.0 Recommendations

The Swansea Bay Tidal Lagoon project is fundamentally a strong and deliverable technical proposition.

The project represents the opportunity to harness clean energy, from a source that has existed for millennia, and is one of the few natural resources left to the UK.

We recommend that the project should continue to receive the full support of local, regional and national government stakeholders, to ensure this exceptional project is brought forward to generate clean power for future generations.

We further recommend that the suggestions covered within this review are considered by the relevant public and private sector project stakeholders, to develop solutions in partnership that will deliver an alternative financing solution that delivers value for money.

We recommend that the following factors be considered to provide potential for substantial improvements to both the viability and ultimate deliverability of the project:

Project Costs

1) Re-activate supply chain engagement to align the project with substantial and credible supply chain partners.

2) Consider alternate methods such as the Inverted Bid Model, to secure VFM requirements (currently under review by the World Bank).

3) Consider the options to include the supply chain partners as co-investors in the project.

4) Combine the elements of Marine works and Civil structures to reduce project interface risks (and costs).

5) Clearly any reduction in Capital Costs would reduce the level of CfD required to support the project.

Project Revenue

1) Consider the impact of securing a power purchase agreement with a public-sector group to derive revenue at a discount to retail rates, but at an improvement to the wholesale rates currently used in the financing model.

2) Consider the introduction of a SBTL electric supply company at a local/regional or national level.

3) Develop a risk mitigation strategy to confirm power supply levels from the completed plant.

Commercial/Finance solution

1) Consider any/all alternative funding solutions that may not require the UK Government granting of a CfD/subsidy.

2) Consider establishing a joint public/private sector delivery entity.

3) Consider the inclusion of the project within the existing energy strand of the City Deal.

4) Develop the wider business case for investment into the project based on standard VFM outputs of Jobs and GVA, against the capital required.

5) Consider the adoption of a standalone Welsh Government bond issuance to raise the necessary capital to finance the project. This may also require Welsh Government to agree with HMG an increased level of borrowing beyond current levels, to accommodate a bond on the WG balance sheet.

6) Consider utilizing Welsh Government grant capital as project equity, to sit alongside existing Institutional investment within the construction phase.

7) Review the commercial alignment of all parties to ensure project delivery success.

Stakeholder engagement

1) We recommend that a common narrative be developed, in conjunction with all stakeholders, that clearly sets out the basic technology that is being employed, within a large-scale environment, in order to address the historic mixed messages.

2) Consider the construction of a very simple model to illustrate the simple technology employed.

3) TLP and the public-sector stakeholders to press for a formal response to the BAFO from HMG.

4) HMG to consider adopting target CFD approach, where an acceptable level is set by HMG for SBTL, which is then used construct a hybrid financing solution against.

5) TLP and the public-sector stakeholders to consider further combined public affairs support to manage a consistent public message going forward.

6) Consider the adoption of a Wales SWF model to continue to derive benefits from the assets in perpetuity.

Reference Sources

Ref 1 Charles Hendry December 2016 – page 89

Moving ahead with a pathfinder lagoon is, I believe, a no-regrets policy. The Secretary of State for Business, Energy and Industrial Strategy, Greg Clark, has rightly spoken about the obligation on policy makers to plan for the longer-term.

I don’t believe there would be any debate in decades to come about whether this was the right thing to do, even if it ended up as the only lagoon constructed – but I would expect it is much more likely to be seen as the decision which started a new industry, and all done at the cost of a small number of pence to consumers each year.

Ref 2 Charles Hendry December 2016 – page 13

There is a long history of proposals to harness marine energy at scale in the UK, in particular with proposals for a Severn Barrage dating back to 1849. The tide mills at Eling and Woodbridge date back to the 17th/18th centuries with evidence of tidal power being used on site for centuries before that.

To date, there are no tidal lagoons in operation in the world and currently the only tidal range technology in operation is tidal barrages. The largest of these are in La Rance in France, Annapolis in Canada and most recently Sihwa in South Korea.

Ref 3 Charles Hendry December 2016 – page 4 and page 93

Page 4. The proposed first of a kind project Swansea Bay Tidal Lagoon would be a billion-pound national infrastructure project. I make a number of recommendations with a bearing on its future, including that it would be very beneficial for TLP to secure a delivery partner with a track record in building major energy or infrastructure projects.

Page 93. TLP has created a very professional project development organisation, but the construction of a billion-pound national infrastructure project is a different and formidable challenge, and projects of this magnitude have almost always been undertaken with a delivery partner with a proven track record. To assure the taxpayer, the electricity consumer and the Government, it would be very beneficial for TLP to secure such a delivery partner with a corporate track record in major energy or infrastructure projects. Such a partner should be in-place for the conclusion of a final phase negotiation with the Government.

Appendices

Appendix 1

Due Diligence Queries And Responses Schedule (P1-20)

Appendix 2

Detailed Financial Model For Sbtl

Appendix 3

Cost Build Up

Target Price Build Up

Capex Bridge

Appendix 4

Inverted Bid Model Paper

Appendix 5

Bond Finance Option Summary

17

Contact:

Paul Marsh

paul.marsh@holisticcapital.co.uk