HC 1624 Energy and Climate Change CommitteeMemorandum submitted by Offshore Wave Energy Ltd

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

The UK oceans are particularly rich in ocean wave energy, exploitable resources being estimated as 50TWh per year or 13% of current UK demand, This is two and a half times the estimated exploitable tidal stream energy [CARCON TRUST JULY 2011”ACCELERATING MARINE ENERGY”].

Wave energy is complementary to offshore wind in that waves, originating from a distant weather system, can be present when there is little wind at a particular location. Wave power therefore needs to be developed in order to provide a balance in the offshore network of renewable power sources and to provide a risk-mitigation opportunity to offshore wind developers. In a wider perspective, the more diverse sources of energy are, the less the effects of variation in resources, so the more types of RE generation (Solar, Wind, Marine, Biomass etc) the more reliable the supply will become. This is also true for diverse locations as the resource often varies regionally, so it is important to have many sources in as many locations as possible. The upshot of this will be to increase the penetration of renewables and the quantity of energy that can be supplied to the nation.

OWEL WEC’s can be deployed in flotillas away from shipping lanes in many sites off the UK coasts with the maximum output from the energetic oceans off the west coast . This dispersed generation has security benefits in that overall supply from these sources cannot easily be disrupted and remains in the UK’s control.

In economic terms, there are synergies between offshore wave and wind devices in that they can be co-sited to share infrastructure including power cabling to the shore and management/maintenance economies. Large, mature-stage, multi-megawatt, OWEL wave energy converters (WECs) have the potential for sharing physical platforms with wind turbines.

The development and construction of OWEL WECs brings together many UK sources of marine expertise and operational facilities, such as consultancies, manufacturing and servicing. (See also the answer to question 5, below).

A strong UK capability in the development of wave energy devices brings opportunities for export in the form of complete systems or in the sale of licenses for local construction. However, this opportunity depends on the existence of strong intellectual property to protect the WEC designs. The unique OWEL technology is fully protected by international patents, but this is not the case with many other systems such as point absorbers, attenuators and oscillating water columns, where the basic operating principle has no such protection.

Where protection is weak, the market is open to late-comers from abroad who may manufacture similar devices to those developed over many years in the UK through the expenditure of blood, sweat and tears (and money). The late entry of GE into the market for horizontal axis wind turbines with similar designs to those developed by the Danes, is an example of this process and demonstrates that concepts have to be exploited early or others will reap the benefits.

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

OWEL has received four stages of support, without which the present state of development could not have been achieved.

At an early stage, a small SMART grant helped to fund a “proof of concept” investigation. This was conducted at Southampton and Gosport by the Qinetiq organisation and comprised both tank-testing and mathematical modelling. It predicted multi-megawatt performance from a full-scale device.

Later, a grant from the Carbon Trust enabled 1:4 scale tank-testing at the NaREC facility in Blyth supported by computational fluid dynamics (CFD) modelling at the University of Bristol. This proved the scalability of the concept.

At a third stage, support from the South West Regional Development Agency (SWRDA) allowed further design and tank-testing work to improve the efficiency of the wave to air pressure energy conversion. This led to refined and highly promising estimates of the commercial viability of the OWEL system.

The current development programme is leading to the construction and testing of a seagoing demonstrator at the Wave-hub facility. It is supported by a grant from the Technology Strategy Board.

The first two of the above tranches of support were vital for proving the technical effectiveness of the OWEL WEC. The third concentrated on efficiency issues and concluded with predictions of viable commercial operation for the WEC. The fourth has allowed progress towards a near full-scale demonstration of the potential of the OWEL design under seagoing conditions. This will lead directly to the design, construction and deployment of the first, commercial WECs. The first three tranches of support proved highly effective in confirming the technical viability of the OWEL concept. The fourth is expected to be equally effective in confirming its commercial viability.

The OWEL project was not sufficiently advanced to be eligible for the Government’s MRDF or MRPF schemes. It is interesting to note that of the wave energy technologies that currently have demonstration devices in ocean conditions ALL of these benefitted from the MRPF funding and indeed the absence of such funding at the present time is a significant problem for emerging technologies such as OWEL in terms of the timescales in moving these to “market” and to Commercial-scale levels of operation. Facilities to assist in the ACCELERATION of the technologies are urgently required.

3. 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?

In the OWEL experience, although we have been successful in being awarded Government grants, there have been gaps between the funded periods which have caused some difficulties and delays. This lack of a coherent technology acceleration strategy is a major impediment to growth.

It has to be remembered that a company developing a wave energy device generates neither profit nor cash-flow until the first commercial device is sold or licensed. There are many years between the first conception of a device and the first sale. The long time-scale and market uncertainties are such that private investment is difficult to find. This, in turn, makes it difficult for a development company such as OWEL to continue development, or even survive, when there are long periods between grants, and the absence of a technology strategy. There is a problem inherent in the concept of “matched-funding” which is an effective condition of certain grant/subsidy awards, because there is a genuine difficulty in the present market to obtain such funding. This is in part the result of difficult economic conditions (at a world or macro level) and also the experience of the investors who became involved in marine energy devices in 2008-9 against a more optimistic outlook. Certain of those businesses have expended considerable sums of government and private investment with little tangible progress. This experience points towards the consideration of more active involvement by government (or government funded bodies such as Carbon Trust and Narec) in projects where funding/grant assistance is treated as a part of the technology acceleration process which involves:

Definition of detailed milestones and achievement of these defined targets to permit access through “Gates” to next level of funding/support (see note on Technology readiness levels (TRLs) below).

Use of existing expertise within organisations such as CT/Narec/(other approved technical bodies) to supervise/manage projects and carry-out due-diligence reviews.

Potential for government to share in upside of projects through defined repayment plans/profit participation.

More creative and coherent approach to funding opportunities and engagement of private sector (see below).

In the case of OWEL, it would have helped to maintain the momentum of R&D if our Carbon Trust funding had followed closely on the successful “proof of concept” study, and if the SWRDA funding had followed closely on the Carbon Trust funding. In the event, commitments by partner companies and by academic institutions allowed R&D effort to continue during unfunded periods although at a lower level than would have been desirable. Current progress and route to market in inhibited by difficulties in securing investment/matched-funding in the difficult market conditions.

It is clear to us that a level playing field needs to be created in order that the correct devices receive funding. Definitions of rated power and methodologies for calculating important metrics (such as annual power output) should be used. The European Marine Energy Centre (EMEC http://www.emec.org.uk/) testing documents would be excellent for this purpose, and should become the standard for testing across Europe, and the world.

It is also important for the concept of matched-funding to be (re)appraised . It seems inconsistent that as a part of the TSB awards in July 2010 grant monies were provided on similar terms to private (“start-up”) companies and mature companies including a company whose shares are quoted on the US stock-exchange. We are not suggesting that projects which assist the UK economy (in medium and longer term) should not receive support, but it would appear that such support might be in terms of deferred-project-loans rather than outright grants and the less mature businesses have access to “capital or quasi-capital” funding.

Note on Gates and Technology Readiness Levels.

The staged provision of support is an efficient way of encouraging the innovation that has been necessary in the emerging technology for extracting energy from ocean waves. In the OWEL case, the funding has comprised four stages, with, at the end of each, a rigorous assessment of the results obtained leading to an informed decision as to whether or not investment for the next stage was justified.

At the first stage, the investment was small but the risk was relatively high. At subsequent stages, our understanding of the techno-economic factors was greater, the risk of proceeding was therefore decreased, and it was reasonable to make an increased investment. The risk of making a large investment in an ultimately non-commercial product was thus minimised.

OWEL would be glad to submit to a formal review process in order to qualify for future funding. Such a process could be based on Technology Readiness Levels (TRLs). Nasa defines nine of these, starting with the concept, progressing via various levels of testing through to a commercial machine.

Formal assessments could be made between TRLs 3&4 when moving from a desk based study to scale modelling (which represents a step change in funding) and between TRLs 6&7 when moving from a model to a large scale demonstrator (another step change in funding), and then again when moving to eight which is a full scale demonstrator.

These assessments could initially focus on efficiency, and later on they could focus on the likely cost of energy (COE). Standardising these reviews would give the funding bodies an excellent insight into the comparative performance of the various machines, and the tests themselves could (should) be based on EMECs test protocols for small scale and large scale devices.

Assessments should be carried out by competent, but impartial, experts who all work within one governing organisation (to ensure continuity.

This approach is detailed in: Guidelines for the Development & Testing of Wave Energy Systems IEA-OES June 2010 www.iea-oceans.org/_fich/6/Report_02-2.1(a).pdf.

OWEL has followed this process internally and it has been highly productive in our experience, although the often prolonged delays between the successful completion of one stage and the start of the next were undesirable and not easy to deal with. The fact that OWEL had to interact with a different funding team at each of the four stages may have exacerbated the delays.

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

The OWEL experience is that publicly provided innovation funding is necessary for the development of wave energy devices. The main reason, as noted in the previous section, is because of the very long lead-time between first concept for a wave energy converter and the deployment of the first commercial device.

The time between initial investment and the first return on capital is likely to be between five and 10 years, which is too long for most private financiers to consider. We believe it is the case that no—developer of wave energy converters has yet made a profit, although many have been in business for over 10 years.

It is certainly the OWEL experience that development work to date could not possibly have proceeded without Government support. However, the nearer we come to a commercial project, the shorter the lead-time and the greater the probability of receiving private investment.

Please refer to comments made above regarding the urgent need for continuity of finance along the lines of the MRPF, and for a more developed an coherent technology acceleration strategy.

A more creative approach to investment opportunities is also required .Many of the ideas put forward by the Green Investment Bank(“GIB”) would appear to offer the kind of solution required, although it is appreciated that these will take some time to develop/roll-out. We see no reason however why certain of the proposals cannot be fast-tracked ahead of the formal GIB launch or as a part of a staggered launch. These might include:

Issued of Green Investment Bonds to institutions/public and advance of funds to approved bodies (CT/Narec/TSB) to manage due-diligence and Investment process and monitoring.

Underwriting a proportion of investment risk.

Tax relief for defined projects. The government increased the tax relief for EIS investment schemes in the 2011 budget to 30% and also restricted reliefs to those businesses receiving a significant proportion of their income from FITS or similar subsidies. These moves are welcomed but the government should consider increasing the tax reliefs available for certain defined “high-risk Cleantech “projects which would include marine energy to 50%. This would provide a measure of risk-mitigation which, if combined with availability of development/research funding such as the MRPF could pride a coherent technology acceleration path and a partial solution to the “funding-gap”. This when combined with the issue of Green Investment Bonds could provide a real and substantive acceleration of the route to market of Marine Energy businesses and provide real and tangible benefits to UK employment and the economy.

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

Wave devices are very diverse, with different machines suitable for deployment in different zones (on-shore, near-shore and off-shore). This diversity is good for the generation of ideas in an industry that hasn’t yet settled on particular designs for the three zones. It does make it difficult for investors and policy makers to decide on which device is a good prospect, and this it another reason to introduce the staged development process described above.

There is considerable uncertainty over governmental support, both in the development stages, and further down the line in easing companies into a commercial state. The recent announcement of the withdrawal of ROCs wasn’t accompanied by details of the support that will be available after 2017.

The grid is likely to be a barrier in the coming years with strengthening required in most areas close to the large marine resources.

6. 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?

It is the OWEL experience that almost all our funding has been spent using UK suppliers.

This includes such items as the construction of a Perspex model for tank-testing at the Southampton test-tank, and conduct of the “proof of concept” study by the Qinetiq organisation at Gosport.

A 15 metre steel test-tank model was constructed by a Newcastle fabricator and conduct of the proof of scaling study by the NaREC organisation at Blyth.

Supporting studies were carried out at the Universities of Bristol and Southampton.

The only exception has been the construction and testing of a polycarbonate model at HMRC, cork which has a test tank capable of a greater variety of sea-states than any currently available in the UK.

At the present stage, OWEL has been joined by UK partners:

IT Power (project management and engineering design).

Gifford (structural design in concrete).

A&P Falmouth (structural design in steel and construction techniques).

NaREC (electrical systems and control, grid interface).

NPL (instrumentation and performance monitoring).

Mojo (mooring systems, deployment and commissioning).

University of Plymouth (control, safety and performance optimisation).

DNV (certification).

For partners A&P and NPL, working with OWEL provides an opportunity to enter the renewable energy sector.

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

See also our detailed comments above.

Staged provision of support (Based on TRLs, and administered centrally).

Certainty over log term government support (define support after ROCs, and introduce a development fund for early stage developers).

Creative approach to project funding (GIB loans and reduced reliance on matched funding)

Re-introduce schemes like the MRPF/MRDF to fill the demonstrator funding gaps.

September 2011

Prepared 15th February 2012