## Wednesday, 11 March 2015

### Renewable UK W&T 2015 - Routes to market

The main question I wanted answered at the 2015 Renewable UK's Wave & Tidal Conference was 'what routes to market are available to wave energy?'. For this reason I noted not only the tenor of political support for wave energy, but also progress in the tidal sector. Throughout the conference, there were plentiful references to the recent market failure, with growing consensus about the sticking points. There was also lively debate about alternative market models that might overcome these barriers to commercialisation.

### ‘It’s important everyone understands these are pilot plants’

Rob Stevenson’s (Alstom) remark summed up the attitudes of four developers reporting on pilot projects. It was interesting to note they all overcame the barrier to funding pilot plant in similar ways. None have followed the most incentivised financial model, where most of the risk is borne by private companies, particularly those paying for O&M or due income from generation. Instead, the main financial risk is borne by the public purse, via capital grants, equity or debt. This has allowed developers to get machines in the water. The project goals are technology learning rather than low cost of energy, so the projects are not hampered by unrealistic goals.

• Meygen: construction has started on a demonstration array of 3xHammerfest &1xAtlantis turbines. Funding split: £13m in grants (MEAD, HIE); £20.5m equity (Atlantis, Scottish Enterprise); £17.5m debt (Crown estate, REIF).
• Carnegie: the third of the 3x240kW CETO5s is to be installed in March at Garden Island, Australia. The first two have been generating since their installation in November 2014 and January 2015. Funding split (in Aus $):$20m debt (CEFC), $9.5 capital (stock market floatation),$11 grant. Project focus: 'learning as much as you can'.
• Alstom: In December was awarded the contract to supply 4x1.4MW turbines and a subsea hub for the Raz Blanchard tidal project. Rob didn't specify the exact funding split, but noted that France awards bigger capital grants (€103m for two projects) and smaller generation tariffs (€173/MWh as opposed to £305/MWh in the UK) than the UK. Rob argued that the UK public support can be a hindrance: the high tariff places a pressure on production, and so to get customers to sign up to a first array requires performance guarantees. Project focus: 'you only start learning once you get your feet wet'.
• Open Hydro: Contracts for two projects. In Cape Sharp (Fundy, Canada) they deployed a 1MW prototype and plan 2x2MW turbines at the end of this year. In the Paimpol-Brehat project (France) they have already tested and retrieved their 2MW prototype and plan to go back and install 2 turbines. Project focus: 'Like the IKEA chair: prove how much you can bend it before it breaks'.

I asked the panel: "There is a tension between the technical and commercial goals of first arrays: the technical goal is to find out how it breaks; the commercial goal is to prove that it doesn't. Others have hit a funding gap because of this tension, but Alstom, Meygen, Carnegie and Open Hydro have not. How did you get around this tension - what can the rest of the community, particularly WES, learn from you?"

Sue Barr (Open Hydro) confirmed that this was one of the biggest challenges facing developers, and can be a stumbling block. She said that development must be an iterative process, building on experience and evidence. Tim Sawyer (Carnegie) expressed similar sentiments. He said development was a long term process. First arrays help prove survivability and improve resolution on assumptions. It is important to bring lessons back into the design process before moving to the next stage.

Tom Clark (Ocean Array Systems) coaxed out more details on this subject. He asked whether the tidal industry could give site-specific warrantees. This struck a chord with Rob Stevenson (Alstom), who confirmed that this was an issue. Customers wanted turbines certified for a specific site. However the industry does not yet know how to do this. Finding out how to do this is one of the purposes of the pilot array. Dan Pearson (Meygen) said the purpose of a pilot plant is to make ‘aggressive steps’ towards meeting customer requirements.

### Growing consensus on sticking points

Several speakers discussed the problems with the most incentivised route to market. Both Simon Robertson (Carbon Trust) and Joao Cruz (Wavepower Limited) warned against the use of Technology Readiness Levels (TRLs) alone as a metric. Simon noted that funding expectations were framed around progressing a particular technology solution up the TRL scale. He did not believe this to be the most effective pathway for developers, and observed it had not lead to the most robust engineering solutions. Joao offered Siemens and MCT as an example of how development focussed on improving TRL alone had not lead to commercial success. He noted that sunk costs were irrelevant to a startup’s market value.

Both Simon and Joao’s presentations included a diagram (see below) from a recent report by the Australian Renewable Energy Agency (ARENA): Commercial readiness index for renewable energy sectors (2014). Commercial readiness is a new index introduced by ARENA, and it can be used to describe the challenges of commercialising marine energy. In particular it shows that reaching TRL 9 is not enough to make a technology commercially attractive.

Meanwhile, Andrew Smith (Head of the Renewable Energy Investment Fund) attributed the recent setbacks suffered by the wave and tidal sector to a mismatch between ‘investors and real opportunities’. He noted that this mismatch was 'driven by need'.

### Update on Wavepower Ltd

One company that I believe has the potential to address this mismatch is Wavepower Limited. Joao Cruz gave a snapshot of Wavepower: they are private, long term investors, with experienced commercial and technical teams. Their strategy is ‘co-creation’ of a market, which circumvents the difficulties of getting competitors to co-operate. Joao described Wavepower’s role as accompanying technology developers to commercialisation.

His presentation did not give any clues about the type of wave energy converter (WEC) technology they would be developing. In fairness, I had expected an announcement because a recent article referred to a ‘new concept of WEC classes’. I had misread that as ‘a new class of WEC concept’. However, Joao is indeed working on the concept of engineering classes: this is a standard classification describing the degree of engineering challenge, and until now it has not been applied to wave energy. Speaking to Joao at the impromptu INORE networking event, he said the ratio of mean to peak loads is an important consideration. Wavepower will consider favourable sites in the first instance, before considering suitable concepts. This approach allows them to remain flexible about the specifics of device design for a little longer. Wave Energy Scotland’s funding call for concept development will no doubt be of interest to Wavepower Ltd.

In Joao’s presentation, he noted that Catapult’s description of the investor landscape allowed only one path to commercialisation. His somewhat rhetorical question ‘are there any investors missing from this picture?’ highlighted that Wavepower Ltd had not been considered. This was not just a matter of seeking recognition - some of the recommendations of the Catapult’s recent watershed report on financing seem to be (ad)dressing the wounds of painful blows to Pelamis, Aquamarine and MCT, rather than considering how to engage other types of investor. Joao offered the following questions in response to the report’s recommendations:
• Benchmarking of projects and technologies: But who benchmarks the benchmarkers?
• Co-ordination/syndication of public and private funding: Is this realistic for private investors who want to take technologies up to commercialisation?
• Access to enabling technologies: Who owns the licence and will the licence fees be affordable?
• Co-ordination and standardisation of due diligence: By whom? Would an investor not want to do its own due diligence anyway?
The session chair Andrew Smith (REIF) responded to Joao’s query about due diligence by noting that the Meygen project had suffered from non-coordination of due diligence, which had driven up costs. Lloyd James (Burges Salmon), the commercial lawyer for Meygen, suggested that due diligence should be made available to other project investors.

### Where to next for marine energy?

Joao was not the only one to observe that the installation site is a key cost driver. Adrian de Andres (University of Edinburgh) presented his research on this topic. He used real sea data to assess how the time spent waiting for a weather window impacted availability and O&M costs. Assuming standard UK-wide costs for vessel mobilisation, waiting, and carrying out repairs, Orkney did not fare well, and the most attractive seas were the most sheltered; the English Channel. Nevertheless, attractiveness was sensitive to vessel costs, and he showed this could override the difference in costs due to waiting time.

Tim Hurst (WES) said that Wave Energy Scotland would focus on the following topics:
• Sub-system development
• Knowledge capture from wave energy and other fields
• Development of technology to the level that the private sector will invest

Paddy O’Kaine (Aquamarine) listed future work on the Oyster. This seemed aligned with WES’s objectives, and there was no mention of further prototype tests:
• WavePOD: the collaborative development of a hydraulic power take off system
• Knowledge capture: adjust numerical models to correlate with sea trial data
• Design of the next iteration of Oyster technology
Colin Cornish (Marine Energy Matters) summarised the options for crowd funding of community scale renewables. He noted that there was funding available to develop projects, but not to develop technology. He did not believe that the market models that had proved successful for more the mature technologies of wind and solar would be suitable for funding pilot plants for wave and tidal. Michele Grassi (40South Energy) however has sold 2x50kW wave energy machines to a developer who is planning a crowdfunding campaign to fund installation in Marina di Pisa, Italy.

### The big debate: starting small?

The biggest theme running through all the discussions of future options was that of size: at what scale should innovative learning be done? Simon Robertson (Carbon Trust) captured the conundrum using Jochem Weber’s readiness-performance matrix (see below) to describe the progression from concept to market entry. Innovation at large scale [yellow line] is expensive. The other extreme is to innovate at small scale and then scale up [green line]. Of course innovation requirements are informed by field trials, so a balance is required.

Several companies advocated market routes to competitive utility-scale generation by using 'stepping stones': initially commercialising smaller machines that were competitive only in niche markets or with publicly funded incentives:
• Albatern: David Campbell said Albatern are developing hybrid wave power systems for offshore and remote communities with higher existing energy costs. They are presently working on a wave/diesel hybrid for aquaculture. There is a large international market, and presently they are installing a pilot plant in collaboration with Marine Harvest Scotland Ltd. Fergus Ewing (Scottish Gov) announced a £400K REIF loan to trial this concept.
• Tocardo: have already installed several small turbines and are currently manufacturing 12 more. Their tidal turbines can be retrofitted to storm barriers across tidal estuaries and this has been trialed at canal outlets in Holland.
• Seatricity: David Stoddart-Scott described the market route for this wave technology developer. Their priority was to learn from failures as cheaply as possible. They believe they can do this by building a MW scale project using many small wave absorbers connected to a central generation system.
• Sustainable Marine Energy Ltd: are developing a moored buoyant trimaran supporting multiple tidal turbines. Although Jason Hayman did not explicitly say that SME planned to enter the market with a small machine, he headed the debate in favour of ‘early adopter markets’. (A niche market is fixed whereas an early adopter market expands)

Jason Hayman (SME) put forward the following arguments for starting (TRL 9) small, and only scaling up after operational experience (commercial readiness 4-5). For context, it is worth noting that SME is following this market route and has field tested one 100kW prototype:
• Early engineering problems are inevitable. It is cheaper to make mistakes with small prototypes. (The underlying assumption being that some problems exist at both big and small scale)
• The quickest cost reductions come from mass production. Learning rates are usually plotted against cumulative installed capacity, but the drivers of technology learning actually apply to the cumulative number of machines.
• Scaling laws for tidal turbines give the cost per kW a bath tub shape when plotted against rated power (Note: presumably this applies to the turbine only, not the total capital cost).  David (Seatricity) added that the scaling laws for wave energy likewise favoured smaller devices: considering sites where three quarters of the time waves are no more than 2.6m high, an economic capacity factor demands a smaller machine.
• More development spend remains in-house: rather than hiring big vessels, money is spent on technology learning.
• In response to Stephen Salter’s question about the importance of knowing how array interactions would impact the extractable resource, Jason answered that the best way to investigate fundamental uncertainties about the resource would be to test large arrays of small turbines.

In the other corner, Peter Fraenkel (Fraenkel-Wright) argued that a first prototype should be the size most economic for utility-scale tidal parks, which is multi-MW. For context, it is worth noting that he has field trialed four prototype turbines of different design and increasing size: 5kW (1980), 15kW (1995), 300kW (2003), 1.2MW (2008).   He showcased a new tidal turbine designed to meet these requirements: a moored buoyant catamaran that supports four 1MW rotors, each of which can be levered above sea-level for maintenance. Peter explained the economic basis of this design:
• For a 1MW machine, ~50% of the capital costs are overheads, whereas for a 4MW machine this drops to ~20%. This puts a pressure on making each machine as large as possible.
• However the scaling law for the turbine (Power ~ D2; Torque ~ D3) limits the rotor diameter.
• These two scaling laws suggest the need for a big machine with multiple rotors.
• There are diminishing returns in upscaling. However, a project built from 1MW machines will be several times more expensive than one built from 4MW units.

Peter did not discuss the economic drivers behind the change from a pile-driven to moored concept, apart from references to the advantages of a movable machine, and the higher than expected installation costs of the SeaGen turbine. However, the fact that the speakers on both sides of this debate were suggesting moored buoyant support structures for tidal turbines did not go unnoticed by Bluewater’s Allard van Hoeken, who seemed pleased that floating support structures were gaining popularity.

Peter put forward the following arguments for moving from a small (~300kW) pilot plant straight to a 4MW (commercial readiness 2) prototype, rather than testing an intermediate scale prototype, or upscaling after deploying many smaller machines (commercial readiness 4):
• The government and utilities want utility-scale offshore renewables. Wave and tidal will only attract investors if the technology meets the needs of a grid-connected utility market.
• Wave and tidal need to be competitive with offshore wind.
• There is only a small niche market for small scale devices.
• Many of technical challenges of a big device (structural and installation issues) cannot be reliably modelled with a smaller device.

The last point may have been an argument that the learning gained by installing many small niche-market-commercial turbines would not be applicable to up-scaled devices. It may also have been intended to make the case for Peter's proposal to minimise the number of small prototypes in the run up to building the first 4MW turbine.

Peter dealt with several questions about the risks of doing all the technology learning with large machines. He pre-empted the comparison to unsuccessful attempts to build MW-scale wind turbines in the early years, by noting that those who took the funding offered had no interest in immediate commercialisation. Gordon Edge (Renewable UK) asked how the risk of the technological leap would be offset. Peter’s answer, that there was no market for small machines, suggested that he saw this leap as a necessity. However, he had touched on risk mitigation in his presentation, by advocating the use of engineering standards to learn from the experience of others.

The discussion about future options was somewhat hindered by an undercurrent of conflicting opinions about the cause of past problems. Peter felt that tidal energy had lost support because effort had been wasted on turbines too small to be economic. Jason however felt that investment capital had dried up because ‘big bits of kit had not produced’, in terms of proving reliability and costs. Someone from the ORE Catapult noted that unknowns guarantee early failures, and asked Peter what the acceptable cost of failure was in terms of the device (development costs) and the industry (loss of investor confidence). This sounded more like an accusation than a question, and indeed Peter answered by referring to SeaGen. He listed the unexpected problems and lessons learnt, perhaps to highlight that some unknowns can only be identified with large scale trials.

Barry Carruthers (Scottish Power Renewables) sat uncomfortably on the fence. He confirmed that SPR’s interest had been in big devices. He explained that this was because the end point had been sold as big; the seabed leases were big. For utility-scale generation, he believed Peter’s views on scale needed to be considered. However, if the goal was jobs and an evolutionary market, then Jason’s argument had merit. When Gordon (Renewable UK) pressed him to comment on which approach fit better with the available investors, he answered from SPR's perspective. He said that it was a matter of matching the right investors. Initially utility investment appetite had been quite high, and SPR had bought into approach of jumping from a 300kW prototype to a 1-2MW project. He confirmed that SPR were not the right investor for this approach, or for a MW-scale pilot plant consisting of many small machines.

Image credits:

'Duck pool but no ducks in pool' by Mike and Molly: http://mikeandmollyshouse.com/growing/here-duckie-duckie/
Commercial readiness index, from Australian Renewable Energy Agency (2014), ‘Commercial readiness index for renewable energy sectors
Readiness-Performance Matrix, from Weber (2012), 'WEC Technology Readiness and Performance Matrix - finding the best research technology development strategy', 4th International Conference on Ocean Energy, 17 October, Dublin

Acknowledgements:

I would like to thank Renewable UK for the complementary ticket that enabled me to attend and write up the highlights. I am also grateful to Joao Cruz and Peter Fraenkel for discussions that helped me to accurately convey their contributions. I did not have the resources to contact all the speakers, so I would like to invite speakers to contact me in case of any concerns, or leave a clarifying comment.