LONDON (Reuters) - Britain should go ahead with "cost effective" plans to build what would be the world's first tidal lagoon renewable power project, a government commissioned review said on Thursday.
Britain needs to invest in major new infrastructure to replace aging coal and nuclear plants set to close in the 2020s, and also needs to reduce is greenhouse gas emissions to meet its climate targets.
"The evidence is clear that tidal lagoons can play a cost effective role in the UK's energy mix and there is considerable value in a small (less than 500 megawatts) pathfinder project," the report by former energy minister Charles Hendry said.
Tidal Lagoon Power has proposed starting building the 1.3 billion pound ($1.59 billion) project in South Wales in 2018. It said it would take four years to complete.
The government asked Hendry last year to carry out the review to see whether the technology could be economically viable in Britain. It must still decided whether to give the project financial backing.
"We will now consider recommendations and determine what decision is in the best interests of the UK energy in the long term," Business and Energy Secretary Greg Clark said.
The project would involve building a 9.5 km (6 mile) horseshoe-shaped sea wall in Swansea Bay, about 170 miles west of London, to capture tidal power.
When the tide drops, the difference between water levels inside and outside the lagoon causes water to pass through turbines to produce electricity. Similarly, when the tide rises, power would be generated as water fills the lagoon.
While tidal changes have been harnessed before to generate power, mostly deploying a barrage across a stretch of water, this would be the first to enclose it, effectively creating a man-made lagoon.
Hendry said that as tidal projects were expected to last around 120 years, it was difficult to compare their cost with other sources of power generation such as nuclear plants, which typically last around 45 years.
However, he said the average cost per household of a small project such as Swansea Bay would be around 31 pence (38 cents) per year per household over the first 30 years compared with 24 pence per household for nuclear.
"That's less than a pint of milk," Hendry told the BBC. "I think we can start a new industry and we can do it at an affordable cost to consumers."
For large scale projects, over 500 megawatts, the cost over 30 years would be 1.41 pounds per household per year, around 40 percent cheaper than the equivalent cost for nuclear.
Hendry's review said this 320 megawatt project could act as a template for six much larger projects around the country.
If all seven projects were built they could have a total capacity of 17.6 gigawatts, equivalent to around 30 percent of the country's current electricity capacity.
Tidal Lagoon Power chief executive Mark Shorrock called the review a "watershed moment for British energy", and said he looked forward to working with ministers "to bring this new industry to life".
($1 = 0.8157 pounds)
Reporting by Susanna Twidale; Editing by Alison Williams