The recent unveiling of a full-scale tidal power generator in Ramsey Sound, Wales, is being heralded as an important milestone in the development of tidal power as an alternative renewable energy resource in the UK.

The underwater turbine in Ramsey Sound will run for a 12-month trial, with energy produced powering homes in St David’s. The project has been developed by Tidal Energy Ltd and supported with £8 million of EU funding, matched by majority shareholder Eco2 Ltd.

The underwater turbine is a 150-tonne, 400kW demonstration device, built by Mustang Marine, and will generate energy from tidal currents on the sea bed. It has been credited as representing “the birth of the tidal industry in Wales” by Managing Director of Tidal Energy Ltd, Martin Murphy.

Tidal Energy Ltd are hoping that the success of the demonstration device will encourage support for a much more ambitious project – constructing nine 10MW turbines off St David’s Head, which would generate power for 10,000 homes. The birth of tidal energy schemes will soon be followed by other tidal energy projects, including a £70 million project off the coast of Anglesey due to open in 2016, and a tidal lagoon proposed for Swansea Bay costing between £650 – 850 million according to estimates.

The Swansea Bay lagoon project being proposed by Tidal Lagoon Power is a six-mile-long U-shaped seawall which would capture four square miles of water which would be funnelled through 16 turbines at both high and low tide. The project (which is yet to receive planning permission), is planned to be the first of five such lagoons around the UK, which are projected to provide nearly a tenth of UK’s electricity needs.

A study by the Centre of Economics and Business Research, carried out on behalf of Tidal Lagoon Power, projected that construction of the six lagoon projects could generate £27 billion for the economy by 2027 just by the construction alone. The lagoons could provide 8% of the UK’s electricity and would contribute £3.1 billion a year to the UK economy over their life-span of 120 years.

With the second highest tidal range in the world (after Canada), tidal power in the UK could offer a reliable source of renewable energy. Projects are broadly divided into two types – those which use the ebb and flow of the tide to turn turbines, and those which involve planting turbines underwater in fast flowing streams. The turbines used are similar to those used in wind farms above the water, but the main advantage of using flows and general water movement to turn the blades is that the environmental impact is much reduced compared to the problems experienced by barrages, as the system allows water (and its sediment load) to be free-flowing up and down the area where the turbines are located.

From an insurer’s point of view there are many challenges associated with underwriting tidal power projects. Firstly, insuring new technology brings with it the potential for inherent design, materials and workmanship problems. In particular, the reliability of moving parts underwater remains in question, and the potential for corrosion is one of many issues which operational insurers will want to consider. In addition, the locations of many tidal power sites, means that the potential for installation losses is great (e.g. losses associated with offshore cable laying). Finally, repair is made extremely difficult on tidal power projects where there are limited time frames within which to carry out repairs before the next tide and current, and the surge may be so strong that it is almost impossible to use divers.

Although many questions remain regarding the viability of tidal power as an economical alternative, (the first tidal lagoon envisages producing power for £168 per megawatt hour, in comparison with £90 per hour for onshore wind, although costs for tidal power will reduce with larger and more numerous projects), it has the potential to become a significant player in the UK energy market.

The growing renewable energy market offers a source of new business that should be explored by traditional energy insurers as well as a possible new avenue of business for other insurers.