Thursday, 15 January 2015

In a nutshell: Watershed Catapult report

I believe that in the future we will look back on the latest (27 November 2014) Offshore Renewable Energy Catapult report, 'Financing Solutions for Wave and Tidal Energy', as a watershed. It clearly captures the financing problems facing wave and tidal. Although it does not say so directly, it seems that the implied inescapable conclusion is: wave energy is not presently commercialisable, and tidal energy will follow unless the first round of tidal arrays meet their promises. The report is a watershed in that the views expressed are probably shared by decision makers in both industry and government; indeed the report aims to reflect these views; and it is likely that such views have been the main reason that 4 leading marine energy developers were shed (bad pun intended) by their supporters in late November 2014. 

Given the magnitude of the implied conclusion, it is worthy of further discussion. However, in this post I will simply summarise the main statements regarding wave, to show why they seem to me to point to this conclusion. For completeness, the recommended interventions are also summarised. I believe the recommendations emphasise the implied conclusion, because do not offer any mechanism for keeping the leading wave developers intact, and instead offer solutions that follow a very different development model.

Background assumptions:

  • Tidal has progressed further than wave due to better understanding by, and investment from, OEMs (Original Equipment Manufacturers, such as Siemens and Alstom). [pg 6, 11]
  • There should be a concerted effort to develop wave energy with the same business model and market as tidal energy. [ pg 8]
  • £200 million additional investment (~£50 million per company [pg 8]) is needed to bring wave to commercial readiness, and more to fund first arrays [pg 3] (Implied assumptions: development with large prototypes; utility scale grid supply).
  • Wave 'requires the backing of large OEMs'. [pg 11]


An impass for wave energy technologies:

  • Wave energy will not attract new VC (venture capital) funding as there is no clear route to market. [pg 12] 
  • OEMs have stepped back from wave: the route to market is unclear. [pg 11]
  • Utilities have withdrawn due to strategic priorities and development delays. [pg 6]
  • There is 'no clear line of sight on future public support which would work to bolster the private sector's confidence'. [pg 10]

Reasons for this impass:

  • Timescales and costs of wave energy development are presently incompatible with VC (venture capital) funding models. Existing VCs have not realised required returns and are growing frustrated. [pg 8, 12]
  • OEMs have exited from the market frustrated by lack of progress and returns [pg 8], and because tidal offers a less risky alternative. [pg 11]
  • Additional VC requires support from government, OEMs and utilities, which has not materialised. [pg 8]
  • Some public funding depended on continued OEM and utility support. [pg 11]
  • Technology development is more expensive than anticipated. [pg 12]
  • Wave developers have been burdened with developing bespoke enabling technologies. [pg 8, 15] Oil and gas supply chain products are not cheap or robust enough. [pg 4]
  • Sporadic funding 'has driven R&D in a start-stop manner' and 'left gaps'. [pg 10]
  • Wave energy is difficult for investors to understand. [pg 8]
  • Chasing pockets of funding can act as a disincentive to engineering robustness. [pg 17]

Suggested solutions that the ORE Catapult is working towards:

  1. Standardised benchmarking/stage-gating of projects and technologies, which will result in better informed investment decisions and improve understanding of commercial requirements.
  2. Co-ordinated public funding and syndicated private funding linked to stage-gating (particularly for wave).
  3. Purchasing enabling technology innovations previously developed by wave energy developers for the use of the rest of the industry. 
  4. Co-ordination of due diligence, which will improve informed investments and engineering robustness.
  5. Contingency funding for first arrays (particularly tidal). [pg 3, 16]

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