The Future of Marine Renewables in the UK - Energy and Climate Change Contents

3 Attracting investment

17.  Private sector investment in wave and tidal energy will be crucial to the future of these technologies. According to the Carbon Trust, demonstrating a full-scale prototype at sea costs around £10m-£30m. Deploying the first wave and tidal farms will cost £30m-£100m for each project.[21] Not all technologies can be expected to be successful at the demonstration stage, so there is still a high level of risk attached to investing in the marine renewables sector.

Types of investor

18.  Different types of investor have different types of expectation in terms of risk:reward ratios and the timescale over which they would like to see returns. As a result, different types of investor can be expected to invest at different points in the journey from an idea on the drawing board to a fully commercial wave or tidal farm. In general, venture capital and angel investors tend to provide finance earlier in the development process, whereas large corporates and debt investors are more risk averse and prefer to invest only once a technology has been proven to work and there is an assured level of return.

19.  To date, most investment in marine devices has been from venture capital and angel investors. However, as the first full-scale, grid-connected prototypes have begun to be tested, investment from large corporates has started to come forward, including investment from both large utilities and Original Equipment Manufacturers (OEMs).[22] We are also aware of one project that has secured bank debt finance.[23]

Increasing investor confidence

20.  The wave and tidal sector will only be able to attract investment if the sector compares favourably with other investment options. Witnesses highlighted four key factors that could help tip investors' decisions in favour of the marine renewables sector:

  • Policy certainty - investors want stable and consistent policies so that they can plan confidently for the future.[24] Several witnesses highlighted the recent unexpected changes to solar PV feed-in tariffs as an example of how policy changes had created uncertainty, which makes private investment more difficult to secure.[25] Plans to reform the electricity market were seen as an opportunity to create policy certainty.[26]
  • Risk sharing - the costs and risks involved with developing wave and tidal technologies are currently too high for private investment to bear alone. Governments can help to reduce the risk by agreeing to take on some of the costs involved, for example through the provision of capital grants or infrastructure such as testing sites.[27] This approach has worked successfully in the past for marine renewables; trade body RenewableUK estimated that every £1 spent by the public sector on marine renewables leverages a further £6 of private sector investment.[28]
  • Confidence that there will be a future market - investors want to know that there is a long-term, viable market for the technology they are backing.[29] One way governments can provide such a market signal is through a market support mechanism.[30] The Government currently runs the Renewables Obligation (RO) for this purpose, although it is due to be replaced with a Feed-in Tariff in 2017.
  • Removal of other barriers - investors want to be sure that there are no other practical or regulatory obstructions to the development of a long-term market. These might include inconsistencies in the planning system, lack of grid connections, lack of manufacturing sites, lack of installation support infrastructures and lack of technology development support.[31]

21.  The rest of this report will look at these four aspects in greater detail. The next Chapter, focusing on the Government's overall strategy and policy direction, will investigate the question of whether DECC is providing sufficient policy certainty. Chapter 5 looks at financial support programmes—both "risk sharing" capital grant schemes and revenue support schemes that provide a long-term market signal. Finally, Chapter 6 will explore progress in removing other barriers.

21   Carbon Trust, Accelerating marine energy, July 2011 Back

22   Ev 99, w45, w97, w102, w107, Q 57  Back

23   Ev 62 Back

24   Ev 58 , 67, 71, 78, 88, 103, w29, w39, w83, w85, w91, w102, w119 Back

25   Ev 58, w85, w91, w102 Back

26   Ev w91, w102 Back

27   Ev 62, 71, 82, w32, w49, w54, w58, w61, w85, w91, w97, w107 Back

28   Ev 53  Back

29   Ev 91, w29 , w32, w52, w61; Q 67 [Mr Stevenson] Back

30   Ev 67, w29, w61  Back

31   Ev 67, w29, w102  Back

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© Parliamentary copyright 2012
Prepared 19 February 2012