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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