HC 1624 Energy and Climate Change CommitteeMemorandum submitted by the Carbon Trust

What are the potential benefits that marine renewables could bring to the UK and should Government be supporting the development of these particular technologies?

1. Yes, we believe the UK Government should be supporting the development of marine energy technologies and projects in the UK. The Carbon Trust has been supporting wave and tidal-stream technology since 2003 and has a unique understanding of the technical and financial challenges the industry faces.

2. We also have a unique understanding of the industry’s potential in terms of renewable energy generation capacity: our assessment shows that some 70 TWh could practically and economically be generated from wave and tidal stream energy in the future (about 20% of current UK electricity demand), around 20 TWh per year from tidal and around 50 TWh from wave.

3. The UK is a world leader in these technologies and is well placed to remain at the forefront of technology innovation. We believe that if the industry is supported the UK could capture around 22% of the global market for these technologies. We estimate the total addressable market for marine energy at £340 billion, which suggests the UK could enjoy a market share worth £76 billion. (Reference: Carbon Trust Green Growth Paper published 2011, and Accelerating Marine Energy (2011)).

How effective have existing Government policies and initiatives on marine renewables been in supporting the development and deployment of these technologies?

4. The combination of a strong academic research base, high levels of resource and relatively good support from government have combined to make the UK world the leader in both wave and tidal stream technology. Of the eight full-scale prototype devices that will be installed worldwide by the end of 2011, seven are in the UK and the majority of the companies that developed them are UK-based. Equally, a large proportion of the earlier-stage technology development companies are also in the UK.

5. The industry has now gained considerable momentum, thanks largely to the DECC-funded £22.5 million Marine Renewables Proving Fund which funded six of the eight full-scale prototypes. This scheme has proved that marine energy generators can be installed and function at full scale. UK Government support has been vital to this success, and has underpinned the sector for several years—there is probably no device development company operating at any scale in the UK that has not received support of some kind.

6. Government support needs to be appropriate for the stage of technology development. The support ranges from grant funding for academic research, through innovation funding for component and early-stage technology development, to capital and infrastructure support for deployment of full-scale devices. The Carbon Trust has been the key body in the delivery of this support in the UK: we have managed the Marine Energy Challenge, the Marine Energy Accelerator and most recently the Marine Renewables Proving Fund, and we are a founding funder of the European Marine Energy Centre in Orkney. Support to date has consisted mostly of capital support (mostly grants), and has been most successful where the funding body had a good understanding of the industry and where support is targeted at particular goals. The MRPF and MEA are good examples at different scales, as is the provision of infrastructure at EMEC.

7. Companies are now looking to develop their first multi megawatt arrays in UK waters. Early arrays will require a combination of capital and revenue support although in due course arrays will be funded entirely from revenues (with a ROC multiplier or Feed In Tariff to build the business case over and above wholesale price of energy). Getting the right balance of revenue and capital support for large scale projects is vital; long term clarity over the level of support is equally important to allow developers to raise private sector finance for their business plans.

8. It is also important to continue to innovate within the industry, and the focus at all times should remain on reducing the levelised cost of wave and tidal energy. We believe further innovation funding is required: to bring forward the next generation of devices with the potential for step change cost of energy, and to reduce costs of components, assembly, installation and operation of the existing front-runner devices. This thinking is developed in depth in Accelerating Marine Energy, which we published in July 2011.

What lessons can be learnt from experiences within the UK and from other countries to date in supporting the development and deployment of marine renewables?

9. Successful marine energy technology programmes have tended to be focussed on specific goals. This may not always suit all participants in the industry (for example numerous marine energy companies were too early-stage to participate in the MRPF), but it allows the programmes to be outcome-led which in turn leads to viable milestones and tangible results with demonstrable progress in the sector. Making additional technical expertise available to programme participants has also proved vital in the MRPF. This scheme put a “technical service team” in place to assist projects with the new challenges of scaling up to full scale prototype devices, bringing a comprehensive set of engineering and project management expertise to the supported projects.

10. Other lessons the Carbon Trust has learnt from its marine energy engagement include:

The MRPF has shown that supply chain pinch points will develop in a complex technology, even for early-stage demonstration projects, and measures to address this need to be considered early on.

Investment will be required at all stages of technology development in order to develop a domestic industry. The UK’s strong position in marine energy reflects this.

Is publicly provided innovation funding necessary for the development of marine technologies and if so, why?

11. Yes, we believe it is. We explain our thinking in depth in Accelerating Marine Energy (July 2011), but in brief, marine energy will be too expensive to deploy at any meaningful scale if focussed innovation does not continue to drive down costs, and due to the risk/cost tradeoff of the marine sector, this innovation will not happen without public funding support. We believe continued innovation with a focus on cost of energy reduction is required alongside demonstration funding of the leading devices. Early-stage innovation will deliver the next generation of wave and tidal devices (these are necessary for tidal, to cope with the technical challenges of high-resource areas, and desirable for wave to reduce costs).

12. We also believe that de-risking innovation activity is crucial for the delivery of the first arrays. These farms are likely to be supported by a combination of the European Commission’s NER300 mechanism and the £20 million announced by DECC for array-funding to 2020.

What non-financial barriers are there to the development of marine renewables?

13. The ultimate barrier limiting the deployment of wave and tidal arrays is the availability of capital due to the high level of technical and project risk currently associated with marine installations. These barriers, and the steps needed to address them, are addressed in detail in our Accelerating Marine Energy report.

14. Other non-financial barriers which impact the marine sector include: uncertainty on availability of grid capacity at shore (particularly at the Pentland Firth and off the Western Isles); consenting requirements; inflexibility of leasing arrangements for small-scale projects; and potentially bottlenecks in the availability of offshore vessels and some device components.

To what extent is the supply chain for marine renewables based in the UK and how does Government policy affect the development of these industries

15. While the supply chain for most devices installed to date is based in the UK these devices are small-production run prototypes. To a large extent it remains to be seen whether the supply chain will or will not be UK-based.

16. That said, a relatively high proportion of the value of marine energy projects is in installation and assembly, both operations that are likely to take place near the final project site. Given the size and quality of the UK resource, a large proportion of total marine energy expenditure is likely to remain in the UK. And, of course, government support for marine technology development will increase the proportion of components or operations delivered from the UK. This is particularly true for high-value components: we believe certain simple components will eventually be manufactured at the location of least cost, but innovation support will increase the likelihood that technically complex components such as control-systems, hydraulics, bearings and marine-specific PTOs and electronics will be developed and manufactured in the UK. Similarly, by continuing to lead the world in the deployment of early prototypes and first arrays, the UK can develop the capability for marine deployment and operations and export this capability globally (it is of note that the UK’s offshore oil and gas operations capability is now exported globally; in contrast, the offshore wind sector currently brings its installation capabilities from overseas due to the lack of an indigenous supply chain).

What approach should Government take to supporting marine renewables in the future?

17. With capital support for first arrays, it is crucial to recognise that technology developers need external help in de-risking the delivery of these projects. There are fundamental challenges that need to be addressed now in order for the government to have confidence that first-array support can be utilised in the 2013–2015.

18. The assessment of technologies suitable for funding is key to success and for ensuring value for money from public funding. The best concepts should be identified and funded, which requires specialist skills and capability. This was achieved in the MRPF, and a similar process should be deployed at the later stages of industry development.

19. Our experience suggests that the delivery body for the capital support should have significant experience of marine energy projects. Understanding of the project risks and technical issues is vital for designing a suitable assessment framework for selection of participants and then for putting suitable milestones in place. Understanding of the numerous issues facing installation of marine projects is also vital for management of the operational changes and contingencies that will inevitably be part of any large-scale funding programme.

20. As stated earlier, we also believe that a continued focus on technology innovation is vital to achieve an acceptable cost of energy within a reasonable time-frame. Cost of energy reductions will come through “simple” learning-by-doing as volume and scale increase, but we believe the cost reduction curve needs to be steepened beyond that achievable through simple learning and scale effects alone. Our thinking on learning rates is developed in some depth in Accelerating Marine Energy, but the graphic below gives a summary of the potential pathways for cost of energy from marine energy with and without innovation support.

Figures 23a and 23b

DEPLOYMENT POTENTIAL TO 2020 FOR MARINE ENERGY

batch 1 folio 226.eps

21. Alongside capital support for projects we feel that a programme aimed at promoting non-competitive R&D by industry participants would help to significantly accelerate technology improvement in marine energy. A consortium-based R&D programme could be based on the Carbon Trust’s DECC-funded Offshore Wind Accelerator model, which draws in funding and expertise from eight of the leading utilities with Round 3 Offshore Wind licences, and could deliver value-for-money technology innovation through leveraging public funds with industry funding (the Offshore Wind Accelerator delivers £2 of industry funding for every £1 of DECC funding). A consortium-based approach to delivering innovation would work with project developers and supply chain companies involved in R&D work to address specific technical and cost problems identified as the principal barriers to preventing the cost-effective deployment of the first commercial arrays.

22. We believe there is still scope for early-stage devices to offer a step-change reduction in cost of energy. An innovation programme funding the development of these devices (this might include innovative device-agnostic installation/deployment concepts) will ensure that future or “second generation” devices are developed in the UK rather than elsewhere. The “nursery berths” currently being installed at EMEC would be a good target-point for this sort of early-stage innovation.

23. Finally, we believe that the work being undertaken within the Low Carbon Innovation Group (LCIG, comprising DECC, BIS, Technology Strategy Board, Energy Technologies Institute, Carbon Trust and EPSRC) to ensure a coherent and coordinated approach is taken to supporting innovation in the marine sector is vital in ensuring value for money. Through LCIG, the development of a Technology Innovation Needs Assessment has allowed a consensus to be built around the key steps to accelerating the reduction of costs of marine energy, and we believe that an LCIG-wide approach to this challenge is vital to the success of the sector.

September 2011