APPENDIX 35
Supplementary memorandum submitted by
Ocean Power Delivery Ltd
PREDICTED GENERATING COSTS FOR THE PELAMIS
WEC SYSTEM
This document detailing the predicted price
of energy from the Pelamis WEC system is issued as a supplement
to the written evidence submitted by OPD to the above inquiry.
SUMMARY OF
PREDICTED ENERGY
PRICES
Initial and onward energyprice for the Pelamis
system are predicted to be as follows:
Table 1—Energy Price Summary
System  Anticipated
date
 Energy sale
price (p/kWh)
 Scheme life
(years)
 Discount rate
assumed (%)

1.Scottish Renewables Order system
(2x400kW)
 2002  6.9
 15  —

2.First~7.5MW demonstration scheme
(12x650kW)
 2003  6.5
 15  8%

3.First~25 MW wavefarm installation
(39x650kW)
 200405  4.7
5.9
 15
15  8%
15%

4.Costs for 25MW installation by 2010  2010
 2.43.4
3.04.3 
20
20  8%
15%

5.Longterm cost of 25MW installation  201520
 1.52.5
2.03.5 
20
20  8%
15%

SUMMARY OF
METHODOLOGY AND
ASSUMPTIONS
The assumptions used for the five cases given above are summarised
below:
1. SRO3 system
— economics and technology passed tender scrutiny.
2. First 7.5MW demonstration scheme
— devices provisionally costed using data from prototype
costing, with sensible economies of scale included. Costing methodology
independently assessed by WS Atkins Ltd;
— cabling and grid connection cost estimated using
data supplied by Econnect Ltd;
— installation/commissioning costed using input
from OPD's offshore advisers;
— annual O&M estimated using input from OPD's
offshore advisers;
— other costs assumed: planning/approvals, insurance,
Crown Estates charges, reactive power charges;
— annual power prediction from experimentally validated
numerical simulation for representative annual data for ~50kW/m
site. Power capture independently assessed by WS Atkins Ltd; and
— 15 year project at a discount rate of 8 per cent.
3. First 25MW wave farm
— 15 year project at discount rate of 8 per cent
and 15 per cent;
— full sensitivity analysis also conducted; and
— results independently assessed by WS Atkins Ltd.
4. Costs for 25MW installation by 2010
A commonly used "learningbydoing" economic analysis
(using a term known as the "Technology Factor") was
used to predict expected cost reductions as installed capacity
rises according to the following expression:
 C_{m} 
=  C_{l} x m^{(lnTf/ln2)}

Where:
 C_{m}  =  Cost of mth unit

 C_{l} 
=  Cost of first unit 
 T_{f} 
=  Technology Factor 
Typically, T_{f} for industrially processed systems
is 0.850.95. A low technology factor (~0.85) represents fast
learning with a resulting rapid fall in costs, a high T_{f}
(~0.95) represents a slower rate of cost reduction. Experience
has shown that over 20 years the wind energy industry has achieved
a T_{f} of 0.90.95. Wind is currently predicted to maintain
a T_{f} of ~0.95 with ~18GW of installed capacity to date
(the cost of energy has been falling steadily at 89 per cent
per annum over the last 10 years, and is predicted to continue
to fall at ~48 per cent per annum over the next decade).
For this analysis we have assumed the cost of the first unit
(C_{l}) is the first 25MW installation as described in
Section 3. We have assumed a total worldwide capacity of 2.5GW
(~15 per cent of current installed wind capacity) by 2010 installed
to the profile shown in Figure 1 (below) with major installation
commencing from 200708 once the technology gains credibility.
Upper and lower values for T_{f} of 0.90 and 0.95 and
discount rates of 8 per cent and 15 per cent were assumed. The
results are shown in Figure 2 (below) for installation to 2010.
A T_{f} of 0.90 to 0.95 is seen as conservative but
realistic. Wave energy has the potential for larger gains in power
capture efficiency through improvements in control strategies
than all other energy technologies. This is because of the fundamental
physics of waves and the harmonic nature of the input allowing
the dynamic response to be optimised. Conservatively, OPD have
estimated that this may lead to an increase in annual energy capture
of ~50 per cent in the long term.
6. Longterm cost of a 25MW installation
The analysis presented above was extended to a worldwide
installed capacity of 20GW (ie similar to current installed wind
capacity) by 2015 and 40GW (predicted installed wind by 2010)
by 2020, assuming a similar range of T_{f} and discount
rates, the results are as shown in Table 1 (above).
As a cross check a study was carried out to identify likely
longterm cost reductions and performance improvements on the
first 25MW wavefarm installation.
Cost reductions assumed were as follows:
— structure: 33 per cent reduction mainly due to
anticipated move to concrete;
— power systems: 25 per cent reduction due to design
optimisation and economies of scale;
— finishing/corrosion protection: 50 per cent reduction
due to move to concrete for structure;
— cabling costs: 33 per cent reduction due to design
optimisation, use of DC systems and specialist installation equipment;
— grid connection costs: no reduction assumed as
early systems will occupy best sites;
— installation costs: 33 per cent reduction due
to specialist equipment and techniques;
— insurance: significant reductions (5075 per cent)
as confidence in the technology rises;
— O&M: 50 per cent reduction due to improving
reliability design optimisation and specialist equipment;
— reactive power: effectively eliminate due to probable
use of DC transmission systems; and
— Crown Estates charges: likely to be reduced if
large capacity installed, will be negligible if more than 12 miles
offshore.
Improvements in performance:
— improved power system efficiency: from ~80 per
cent to ~90 per cent through design optimisation; and
— improved control algorithms: ~50 per cent increase
in annual energy capture.
The results of this are shown in the table below with and
without 50 per cent increase in annual energy due to improved
controlalgorithms, as this is the most contentious assumption.
Case  Including
improved control
 Excluding
improved control

8% discount rate  1.5 p/kWh
 2.2p/kWh 
15% discount rate  2.0 p/kWh
 3.0p/kWh 
These results generally agree well with the technologyfactor
based analysis presented in Figure 3 (below) which shows costs
out to 40GW installed capacity.
