HC 1624 Energy and Climate Change CommitteeMemorandum submitted by Marine Current Turbine Ltd

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. The UK has one of the largest marine renewable energy resources in the world. While estimates vary, MCT alone has identified sites in the UK with the potential to deliver 3,000MW of installed tidal stream capacity. Current Company projections shows in excess of 200MW of capacity being installed by the end of 2020 providing a small but significant contribution to the governments announced renewable energy targets. With wind energy essential to meeting the 2020 goals, investing now to exploit our marine resources will make major contributions towards 2030 goals and beyond.

2. Tidal renewable energy has the specific advantage that it is predictable. In the necessary mix of renewable technologies, this brings an added advantage to utility customers seeking efficient and balanced energy to the grid.

3. As well as the obvious contribution to the UK’s renewable energy targets, the UK has managed – with Government support – to build the worlds most innovative and advanced industry. With tidal resource present in many countries around the world, this represents major export potential for the UK and will add a new sector to British manufacturing industry.

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

4. By and large the Government has supported the sector well thus far as it has progressed through its development phase. This support in turn has attracted significant private sector investment into the market. Over the past 10 years for example, MCT has attracted over £40 million of investment of which approximately £31 million has been private sector and £9 million from the public sector. This investment has enabled MCT to develop its tidal turbine technology to the stage that the company is generally acknowledged as world leader in this field with a commercial scale demonstration unit operational for over three years and a detailed plan developed to move forward into commercial production.

5. We are now entering a crucial phase where the industry needs to make the notoriously difficult transition from development and demonstration, to full commercial scale operation. This path is well trodden by renewable energy technologies, but ocean energy needs this key support right now. If the transition cannot be made in the next two-three years, there is every likelihood that much of the good work Government has done in positively positioning the UK marine industry will be undone as companies fail to be able to exploit their developments.

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?

6. Fundamentally the lesson is to have stable and consistent policies that give the private sector the confidence to invest. The sector is risky enough for investors during the technology development phase without the policy ground shifting underneath ones feet. It has taken MCT over 10 years to reach the point where it now has a product ready for the market and the consistency of government support over this period has been essential. Moreover the projects that are needed to allow the technology to be deployed on the increasing scale necessary to bring down costs, in common with virtually all large scale power generation projects have a multi-decade life expectancy. This therefore needs long-term and consistent government support.

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

7. At this stage, yes absolutely. But the UK Government’s commitment to the sector now needs to continue in a different guise as commercial scale projects are developed. There is no need for major new investments in technology development. There is a rich variety of technologies available now with most of the serious ones either completing (MCT) or entering their demonstration phases. The fittest of these will survive but will need to be able to move seamlessly into commercial scale projects if those companies are to survive.

8. Government policy during this next phase needs to focus on commercial scale projects. These require a different scale of investment from the private sector – 10s of millions instead of millions. Government support for the revenue from these projects is essential initially while the economies of scale and learning are achieved. And for the very early projects a level of capital investment support will also be required to soften the risk profile for private sector investors. It is very clear from MCT’s discussions with project investors that Government support will make or break their corporate investment decisions.

9. The Government can, and should rely on the private sector continuing to support the sector strongly provided that the key Government policy implementation is in place and remains so. As with other technologies before, the industry will ultimately be able to stand on its own two feet once economies of scale have been achieved.

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

10. Planning

Planning could prove to be one of the most significant constraints to development. At present the signs are positive for the consenting of projects and the regulators and statutory consulters seem keen to work with developers and get projects consented.

However, so far only single devices and one project have been consented and it is only when larger array projects for longer term durations start going through the consenting process that we will know the full extent of this as a constraint. The nature of tidal sites are that they coincide with areas used regularly by marine mammals as well as having other environmental sensitivities, hence there are often designations that need to be considered as part of the environmental assessment process.

Regulators are being put under increasing pressure by the European Commission to ensure that sites designated in the Habitats Directive are properly protected. This could mean that the required level of environmental assessment work increases, or the level of post construction monitoring required is at such a level that it significantly impacts the financial viability of projects. Or some projects may struggle to get consent at all.

However the scientific evidence so far, at least with MCT’s own technology, is that the environmental impact has been minimal and it is to be hoped this will inform future decisions and thereby help the planning process.

11. Grid connection

Although grid connection is not considered to be a significant constraint on some of the sites being looked at by MCT, such as the Anglesey Skerries, in general the capacity of the transmission network to accommodate additional large scale generation is going to be a significant issue.

The nature of many of the sites identified as being suitable for tidal projects is that they are often in remote locations where the transmission network is weak. In terms of timescales for development this is one of the key constraints with reinforcements to the network around key areas such as the Pentland Firth planned for 2016 at the earliest.

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

12. Over 75%, by value, of the SeaGen turbine in Strangford Lough was sourced from UK suppliers. Given the nature of the technology, it will always be the case that significant amounts of expenditure will be incurred where the tidal turbines are deployed. Assembly and test, commissioning and operation and maintenance will always be local to the turbine site. Structures will often be more economic to manufacture locally thus avoiding transportation costs. All of the design work for the SeaGen turbine was carried out in the UK.

13. The next challenge will be to attract the supply chain that can deliver multiple turbine units to the cost and quality that customers will demand and for this to take place the supply chain must believe that a market of a significant size will develop. The supply chain will be looking at the level of subsidies that will be put in place to stimulate the deployment of the first farms of tidal turbines and react accordingly. Suppliers will not scale up and make the investments required to produce significant quantities of tidal turbines unless they are sure a market will develop.

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

14. To date Government investment has supported the development and demonstration of a wide variety of ocean energy technologies. The task is now to change the focus and nature of public investment to take these technologies to commercial scale operation as the precursor to the sector establishing itself as a viable renewable energy source competing equally with the alternatives.

15. MCT has estimated the cost of the first commercial scale tidal array to be in the region of £40-50 million for an eight-10MW deployment of four-five turbines. A capital grant of at least 20-25% together with five ROC’s for each MWh of generation are conditions precedent to attracting the balance of private sector investment.

16. Although five ROCs implies high generating costs, there is robust evidence that can confirm the costs will fall to competitive levels given the usual economies of scale and learning curve effects that follow the “roll out” of a few reasonable sized projects. It is also worth noting that the initial projects which need this support are sufficiently small to ensure that the initial ROC costs will remain relatively very small in the context of the UK renewable energy market but that the ROC benefits will ultimately be very high if they can kick off a major new industry.

17. It is anticipated that revenue support will be required for some time to come (as it has been with other renewable sources). However, in time this can be progressively reduced. Capital support is likely to be required for the first few arrays but should rapidly be replaced by private sector funding as costs come down, risks reduce, and overall confidence in the sector grows. It is envisaged that key financial players such as the Green Investment Bank will be able to make significant contributions beyond 2015 and broaden the pool of investors for large scale tidal projects.

Are there any other issues relating to the future of marine renewables in the UK that you think the Committee should be aware of?

18. Time is absolutely of the essence. It is no exaggeration to say that the future of this sector is likely to be determined in the next two-three years. Unless the industry can establish a couple of commercial scale tidal array projects, it is very difficult to see how companies will be able to sustain investment. Provided that the revenue support and capital support mechanisms are activated in the next few months and strictly focused on technologies that are at proven maturity, this is eminently achievable.

September 2011

Prepared 15th February 2012