Ocean Energy Contenders Race to Market

By Steve Carden and Paul Johnson, PA Consulting
December 26, 2012 

Competing technologies are now vying to overcome investors' caution and launch their designs.

As global energy demand continues to increase, renewables are clearly becoming a much more important part of the energy mix. Of the various renewable energy options, marine energy (wave and tidal) is particularly interesting as it is relatively new but offers significant opportunities for growth. Vast resources are being spent to design and build marine energy systems that are scalable and provide energy at a reasonable cost, and significant testing is now underway.

R&D Needs Capital

There are no extensively proven, deployed marine energy systems but dozens of development projects are now active. The nature of marine deployment - a harsh environment, with difficult access and no existing support infrastructure - means that development projects necessarily have a high capital outlay. Typically, tens of millions of dollars are necessary to get an idea to a proven technology base, followed by further tens of millions of dollars to create an appropriately scaled array that generates electricity.

The challenge is that most countries and companies are in a state of ‘zombie’ investment, where investors are unable or unwilling to free up the capital required to make a gamble that will only pay back over many decades. Within this investment environment, it is important to be selective about which projects to support. With a broad base of marine renewable energy projects to choose from, which are at relatively modest levels of maturity and have payback times longer than current investment lifecycles, investors are finding it hard to determine which projects are most likely to succeed.

Which Technologies Will Meet Business Needs?

Picking winners is always difficult and in many cases a winner will not have followed the traditional trajectory of development and then market acceptance. The most dramatic example of this is Apple’s iPhone, which appeared to emerge fully formed and rapidly overtook all other mobile phones, forcing Nokia into retreat. However, within the marine renewable energy field, the long-term and visible nature of the developments makes it possible to identify some trends and explore which technologies might have a greater chance of getting through to the finish line, and where others may need to spend more time to maximise their chances. Using this approach, an analysis was made of the potential success of different wave and tidal devices.

Business Cases and the Case for Business

The developments most likely to come to fruition and deliver value are those which have the best business case. Therefore we need to look at the upside, the downside and what risks are involved.