With ever increasing global focus on shifting energy production away from non-renewable energy sources to sustainable and renewable energy production, tidal lagoon systems have the potential to revolutionize the UK renewable energy sector. In essence, the Swansea project will be the world’s first ever tidal lagoon system, functioning through the utilization of incoming and outgoing tides in order to rotate a bank of 16 hydro turbines, a process that will generate enough electricity for 150000 homes (The Guardian, 2017). Harnessing the potential energy provided through abundant tidal resources could prove particularly beneficial for the British economy in the long run with employment creation, exports and economic growth all likely economic benefits arising from the development of the technology. However, critics argue that the short term cost of producing electricity through a tidal lagoon system places the average consumer at a disadvantage by virtue of increased unit costs of electricity in the short term that will arise because of the initial capital investment. Additionally, the elevated price of electricity will considerably expand costs of production for firms, providing a major disincentive for business growth in a UK economy already struggling for private sector investment (Telegraph, 2013), a scenario that could be detrimental for the long run welfare of the British economy. Tidal lagoon systems also have their own undesirable effects on wildlife and coastal habitats (Messenger, 2016) which may hurt industries that rely on the raw materials provided by the coastal ecosystem, including fishing and tourism, a negative externality that the U.K simply cannot afford in the current economic scenario. The potential government investment in this project therefore must require a careful analysis of the true social benefit and social cost of tidal lagoon systems to the domestic economy, as well as a definite focus on whether to prioritize the long term gain over the short run costs.
One of the key judgements in favor of investment in tidal lagoon systems is the external benefit of job creation in the renewable energy sector. The initial investment in the development of six tidal lagoon systems is expected to contribute an average of 12700 direct full time equivalent (FTE) jobs over the 12-year construction period, while operating these lagoons would create up to 240 direct FTE jobs in operations and maintenance per site (Cebr, 2014). Furthermore, the raw materials are expected to be locally sourced and the supply chain will be domestically orientated, meaning that the economic benefits generated from the construction will be felt within the Welsh economy. The advantages of this job creation for the economic welfare of the UK are apparent, with growing consumer incomes and higher levels of discretionary spending in the economy providing a major boost to flagging UK aggregate demand in the form of increased consumption of goods and services. An exponential increase in consumption can lead to the development of a multiplier effect, enhancing the productivity and profitability of many sectors within the British economy.
A point of contention is that boosting the level of aggregate demand in the UK through enlarging consumption levels may have a negative long term impact for a British economy that seeks to place more emphasis on private sector investment due to the fact that increased private sector spending on capital goods and labour retraining schemes in the short run is balanced out in the long run by an increase in aggregate supply because of an increase in the quality of factors of production, whereas developing consumer expenditure is not accompanied by the same direct growth of the economy’s potential output. Nonetheless, it is increasingly obvious that the UK requires additional government spending and consumption in the short run to boost economic welfare in a flagging economy, especially when taking into account that the relatively high average Marginal Propensity to Consume of U.K. citizens at 0.43 (Bunn, 2012), a value greater than the majority of the UK’s European Union neighbors (D.Carroll, 2014), means that there is high possibility of both an increased multiplier and accelerator effect in the nation, factors that will lead to both short run and long run net economic growth
Careful management of the investment in tidal lagoon systems can benefit the macro-economy through a dual increase in aggregate demand and long run aggregate supply for the UK, therefore this policy can be seen as both a supply side initiative and as a fiscal stimulus. Despite this, the key assumption in the scenario is that the spare labor capacity in the UK economy is suited to employment in the newly created jobs. The benefits are clearly felt if the assumption is correct, however if the local labor supply for these jobs is not enough to meet the requirement there will be excess demand which may prove detrimental for both the project itself and the UK economy. A reduction in quality and efficiency are both possible outcomes because individuals may be shoehorned into jobs that they do not possess the required level of specialization for and trained workers may be forced to work longer hours to allow the success of the project. Furthermore, there is the additional macro-economic effect of inflation which is not accompanied by an increase in the productive potential of a country, which may lead to potential stagflation, as rising price levels can lead to a negative multiplier because a consumer’s marginal propensity to save increases during periods of high inflation, and the resulting stagnant aggregate demand will have its own long term effect on the aggregate supply of the UK economy, exacerbating the negative effect.
The U.K has faced a consistent trade deficit since 1994 and currently faces a deficit of around £3.7 billion (Trading Economics, 2017). Imports of fuels for the production of energy accounts for a large proportion of the UK’s imports, with around 47% of the UK’s energy supply made up of imports (Office for National Statistics, 2016) and as the demand for electricity begins to increase after a period of decline the UK’s reliance on fossil fuels such as coal and gas to produce their energy will cause their trade deficit to worsen. Therefore, an argument for tidal lagoon systems is that they provide the UK a critical chance to become increasingly self-supporting in terms of energy production. It is estimated that the renewable energy produced by the tidal lagoon systems could reduce fossil fuel imports by as much as £0.5 billion per year by 2030 (Cebr, 2014) and the increased self-reliance on energy is a clear positive for the UK. Energy security, especially in the face of current geo-political situations within Europe and the Americas, can lead to substantial benefits for the United Kingdom in terms of sustainable economic growth and inflation, meaning that the government will be able to exercise more control over their macroeconomic objectives, which have historically been dependent on the economic conditions of the European Union and other energy exporting nations.
There is also a valid possibility of increased exports from the U.K, especially from the manufacture of steel and machining components, in fact it is predicted that efficient energy production could even lead to export revenue generation of around £0.28 billion by 2030 (Cebr, 2014). Investing in the system now can ensure that the UK becomes a pioneer in a burgeoning industry, just as Germany was able to become a leader in wind energy production. Current energy exports from the UK amount to approximately $33.4 billion (OEC, 2015), however the majority of these exports are refined petroleum, crude petroleum and petroleum gas extracted from the North Sea, and the production of these sources of energy will decrease in the long term as easily accessible crude oil sources deplete. The development of renewable energy resources, such as tidal lagoon power, that are available for export are a key source of economic growth and have long term upside, as the developed world continues to seek more renewable energy production (Bapna, 2016) to quell the risk of an environmental crisis.
However, while it is apparent that the investment in the tidal lagoon systems may provide an opportunity for a balance of trade on the current account in the long term, focus must be placed on the short term cost in order to allow this to happen. At present the projected statistics from the Swansea Bay project show a cost of approximately £22 million per Megawatt of energy (Mearns, 2017). In comparison, Hinkley C, a notoriously expensive nuclear power station, has a projected per unit cost of £6.6 million (Mearns, 2017). The difference in costs highlights a potential problem for the U.K, in the short run the price of the energy produced from the tidal lagoon systems will be far higher than other alternatives, including other renewable energy sources, and in the current drive for efficiency firms will not choose to purchase sources of energy with such a high price, whatever the long term gain as they aim to compete with other firms for increased market share in the short run to ensure survival and growth. As firms are uncertain about the motives and actions of their competitors within the market, it is highly unlikely firms will take a heavy risk through purchasing energy produced from tidal lagoon systems. Hypothetically the government could mitigate the effects of this analysis by applying certain regulations, for example forcing firms to purchase tidal lagoon energy, however this in itself will be disadvantageous as it provides a disincentive for business growth in the U.K and as per the law of unintended consequences may lead to a drop in U.K exports as firms working in the already marginalized secondary sector look to shift production away from the U.K, creating job losses and worsening the trade deficit, hence harming the U.K’s global competitiveness.
As with most infrastructure development projects, an assessment of the environmental impact of the tidal lagoon systems is key in coming to a conclusion on the utility of the system. The Swansea lagoon system is predicted to generate enough clean energy to satisfy 11% of the electricity consumption in Wales, while it is claimed that around 236000 tonnes of carbon emissions would be saved each year (Messenger, 2016). Reduced carbon emissions in particular are a key advantage of the tidal lagoon system, in particular as the U.K struggles to meet its emissions objectives as set out by the Paris Agreement signed in December 2015 (University College London Energy Institute, 2017). In particular, the U.K can use the technology to become a leader in the ongoing drive for net carbon neutrality, and consistent development and innovation within the construction methods of the lagoon systems will ideally lead to a cheaper and more environmentally friendly energy production system. Moreover, taking an environmentally friendly political stance is bound to increase the political capital of the current government, enabling it to look towards other long terms solutions for sustainable energy security, whilst firms that are reliant on environmental resources will also be more secure in the long run, provided that they operate sustainably. Unfortunately, the tidal lagoon system is projected to have a negative impact on the local habitat during its initial construction, meaning that its construction will harm the flora and fauna in local regions. This can potentially lead to regional economic issues for industries that rely on the plants and animals within the area. Problems highlighted around the Swansea project itself are based around the fact that the technology could lead to lower populations of salmon and sea trout in the area, which will be detrimental to the fishing industry operating around the rivers in Swansea and Neath (Messenger, 2016). Developers have argued that the chances of major impact on the Swansea fishing industry is negligible, yet it is fairly clear that expansion of the tidal lagoon system throughout Britain will have a clear impact on the overall marine ecosystem. This effect is only exacerbated when it is considered that the tidal lagoon systems will need to be fairly large in order to produce meaningful levels of electricity, indeed the breakwater wall itself is built out from the shore in a six-mile-long loop.
The development of tidal lagoon systems as a feasible technology is still in process, with construction of the Swansea Bay project estimated to become operational by 2019 (Cebr, 2014). A recurring theme within the analysis of the system as a sustainable alternative to fossil fuels is that the majority of benefits will be felt in the long term, especially for consumers and the domestic economy, whereas the costs will be experienced in the short term. It remains to be seen as to whether the Conservative Government will consider the long term benefits as a suitable incentive to cover up their short term loss of political capital, especially with the current lack of funding to primary needs including the education and healthcare systems. However, in terms of long term energy security and the move away from a carbon fueled economy, a combination of renewable resources must be utilized efficiently, and tidal lagoon systems certainly have the potential to be cost effective and sustainable providers of energy to power the UK economy. In terms of the impacts of the Swansea project itself, the system will ensure greater prominence for a struggling and marginalized Welsh economy, whilst also leading to a more developed and innovative energy sector within Wales that will be able to utilize the considerable levels of all renewable energy sources within the nation. Critics are correct to assume that their will initially be a larger unit cost of electricity for businesses and households, while the provision of government subsidies will take up a sizeable portion of the federal budget, however the potential in harnessing and leading an innovative industry is well worth the risk.
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