Shares in SIMEC Atlantis Energy Ltd (AIM:SAE, OTC:SMAYF) have risen 81% today after it won a contract to deliver tidal power at what it expects will be the largest site of its kind in the world.
The UK Department for Business, Energy and Industrial Strategy announced winners from the fourth ‘contracts-for-difference' auction today.
Four tidal power projects were awarded contracts that guarantee producers a price floor and provides them with a stable price for their output for over a decade.
Chief executive Graham Reid said the contract for Simec's MeyGen tidal project gives the company a pathway to develop the full tidal stream array, which has been in planning for more than a decade.
"The significance of today's announcement cannot be downplayed,” he said.
“We are going to be delivering the world's first commercial-scale tidal array and we now have a clear runaway, with future CfD rounds, to deliver the full c400MW of tidal power generation at MeyGen.”
Simec has secured a floor price, known as a ‘strike’ price, for part of the output of the MeyGen tidal energy project off the coast of Scotland priced at £178.54 per megawatt-hour.
This price is guaranteed for a period of 15 years from 2027, meaning if the wholesale cost of power falls below this price in that time then the government will pay the producer an amount to top up its earnings to that amount.
On the flipside, MeyGen will be liable to pay back money if wholesale prices rise.
The company said it will now work "to achieve financial close for this next phase of the project by 2024 with the operation starting in 2027".
Tidal power is one of the most stable forms of renewable power as it is generated by predictable changes in the tide, but the technology is still very nascent.
At full capacity, the MeyGen project would have 398 MW of installed capacity, making it the largest commercial power station of its kind.
Simec has secured enough grid capacity to service nearly a third of that potential, installing a subsea hub that will transmit power through a single export cable.
According to its website, the company has leased enough land between the northernmost coast of Scotland and Stroma island to install a tidal stream project of that size, which will be delivered in three phases.
The first phase of the project is already operational and the second phase is expected to reach 80 MW, according to its website.