sbi ocean energy technologies & components worldwide

SBI Ocean Energy Technologies & Components Worldwide

SBI Energy White Paper

October 2009

SBI 11200 Rockville PikeRockville, Maryland

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Ocean Energy Technologies Worldwide SBI Energy White Paper

©2009 SBI, Rockville, MD · 240-747-3097 · Copying Prohibited.

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SBI Energy White Paper: Ocean Energy Technologies & Components Worldwide

This SBI white paper presents a comprehensive overview of the growing market for ocean energy technologies, technology systems, and products in the United States and throughout the world. Discussion includes both public and privately funded systems that are in development or have already been installed. As well as emerging systems in the early development stages.

Three ocean energy technologies have received the most funding and undergone the most advanced testing and implementation: wave power, tidal (current) power, and ocean thermal energy conversion. Wave power is the largest segment of marine power technology, though tidal power has seen a significant increase in development in the last five years. Ocean Thermal Energy Conversion has been in development for at least thirty years; however, it has not experienced the market growth seen in wave and tidal power.

Tidal Energy Generators

Tidal energy generators function much like wind turbines though they harness power from water rather than air. Water is at least 800 times denser than air, and so tidal energy generators can be equipped with smaller turbines than those required for land-based windmills. Tidal energy generators convert the potential energy from tides going in and out into electricity. There are primarily two types of tidal energy generators: underwater turbines and hydrokinetic power generators.

Underwater Turbines

Underwater turbines are primarily used in conjunction with the ebb and flow of the tide. As the tide comes in, the water flows through the turbines, generating power. As the tide goes out, the turbines turn once again, continuing to generate power.



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The predictable nature of tides make this type of ocean technology especially viable in areas

where the tidal movement averages at least 2 knots. Tidal farms can be anchored or suspended from barges. The environmental impact of floating or anchored tidal generators is negligible; the particularly high energy density of water can rotate the turbines at very slow speeds that do not harm marine animals.

Tidal generators are considered an environmentally friendly alternative to the tidal power

systems that rely on barrages placed in estuaries. The barrage systems are much more expensive to build than the floating or anchored turbines, and the barrages also have a negative impact on the estuaries and the rivers that feed into the estuaries.

Hydrokinetic Power Generation

Hydrokinetic power generators may eventually replace existing hydro-electric power plants. Borrowing from the turbine designs used in tidal energy systems, hydrokinetic power generators convert the power from the water flowing through a river or stream. As with the ocean tidal energy generators, hydrokinetic power generators can either be suspended from a floating platform or anchored to a river bottom.

Unlike conventional hydro-electric power plants, hydrokinetic power generators convert

energy from the existing current or flow of water and do not require the building of a dam for energy production. Early tests also indicate that hydrokinetic power generators have only a marginal impact on the environment when compared to conventional hydroelectric power systems.

Wave Power Generators

There are four main types of wave power generators:

• Point absorbers • Attenuators • Terminator Devices • Overtopping Devices

In the United States alone, wave power generators have the potential to produce an estimated 2,100 Terawatt-hours of power, equivalent to almost 1/5 of the power consumed in the country. The Pacific Northwest has ideal conditions for wave power plants and several



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intentional and domestic companies have filed applications with FERC the Federal Energy Regulation Commission to test their projects off the coasts of California, Oregon and Washington.

On an international level, wave power generators have been receiving strong government

support in Europe and Australia. The first grid-connected, wave-power conversion farm, using Pelamis technology, began operation in Portugal in September 2008. Each Pelamis device deployed can generate up to 2.25 MW at peak power capacity. If successful, the wave farm could be expanded with an additional 25 Pelamis devices.

Point Absorbers

Point absorbers use the rising and falling of a buoy to create pressure in a submerged, anchored component. The pressurized sea water or other fluid in the submerged component is then used to drive either an electromechanical or hydraulic converter. Point absorbers rely on existing marine technology and can be scaled meet both varying degrees of energy need.

Attenuators

Attenuator-based wave-power devices resemble the types of attenuators used to dissipate wave activity, however, rather than being heavy enough to dampen the waves, these power generating type of attenuators, like the Pelamis, are designed to move with the waves. Attenuators are linked together a bit like sausages. At the points where one attenuator connects to another there are hydraulic pumps or other types of devices that convert the flexing motion into power. The Pelamis project has three units, with two segments attached to a fixed central segment. As the waves move the outer segments the hydraulic pumps at the joints pressurize hydraulic fluid that is then used to drive a motor. In addition to the Portugal site, Pelamis units are being considered for sites in Scotland, Hawaii, Oregon, California and Maine.

Terminator Devices

Similar to attenuators, terminator devices can be built with existing breakwater technology. The most common terminator device used is an oscillating water column (OWC) used in an onshore or near-shore structure. These devices use a combination of pneumatic energy and mechanical energy to generate power. As water enters the water column through a



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subsurface opening, it exerts pressure on the air above it. The subsequent wave motion then acts as a piston, moving the air up into a turbine that rotates and generates electricity. Energetech has been testing a full-scale, 500kW OWC at Port Kembla, Australia and is developing another OWC project for Rhode Island.

Overtopping Devices

Overtopping devices use many of the same principles as traditional hydropower plants. Overtopping devices channel waves toward a reservoir within structure. This reservoir sits higher than the surrounded sea level water, and thus forms the “head” of the enclosed cycle. As the water is released into turbines, the mechanical rotation generates energy just as in river dams. Overtopping devices have few moving parts other than the turbines, and can either be anchored, fixed or kept in place by the weight of the water they temporarily contain in the reservoir. One of the most advanced overtopping devices is the Wave Dragon testing off the coast of Wales.

Ocean Thermal Energy

One of the oldest forms of ocean energy technology, ocean thermal energy conversion (OTEC) was first theorized by Jacques Arsene d'Arsonval in 1881. OTEC systems use a combination of warm surface waters and cooler deep waters to generate power. There are three types of OTEC systems: open cycle, closed cycle and hybrid cycle. All three systems work best in tropical areas where there is at least a 20C difference between surface and deep-water temperatures.

Closed Cycle OTEC

In closed cycle OTEC systems, low-boiling point liquids such as ammonia are evaporated through contact with warm surface water. The gas vapor that is produced is then used to rotate a turbine and generate power. As the system is closed, the gas is then exposed to cooler ocean water and returned to its liquid state, and the cycle continues.

Open Cycle OTEC

In open OTEC cycles, low-pressure containers are used to boil warm surface water. The steam is then used to rotate a turbine and generate electricity. The open cycle presents the



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opportunity to capture the steam as desalinated water, though the steam can also be cooled and returned to liquid form through contact with cooler sea water.

Desalination

Both the open and hybrid OTEC cycles can be used to produce ample amounts of pure, potable water. Island communities and nations would benefit the most from OTEC desalination by cutting down on the cost of accessing, transporting or desalinating potable water. The U.S. Navy is actively pursuing the benefits of OTEC desalination at the Navy Support Facility Diego Garcia in the Indian Ocean. They estimate that a 7 MW OTEC plant will produce 1.25 million gallons of potable water per day.

Refrigeration Fluid

Researchers at NELHA propose that the cold seawater collected from deep ocean depths be used as the chiller fluid in air conditioning systems. Because the deep ocean water does not need to be cooled by the system, there is ample opportunity for energy savings and carbon footprint reduction. One estimate from the NELHA suggests that it would require only 360kW of pumping power to cool 5800 average sized rooms with cold ocean water. A conventional AC system would use 5000kW. Given the energy costs in Hawaii, such an AC system would offer substantial savings and a relatively quick return on investment of perhaps just 3 to 5 years.



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The Ocean Energy Technology Market

Though the United States is second only to China in renewable energy production, renewable energy accounts for only 7% of U.S. energy production. The majority of the U.S. renewable energy is from hydroelectric power, which accounts for 36% of the renewable energy, and wind energy, which is just above 5% of the renewable energy used. Wind generated electricity increased by 21% from 2006 to 2007 due to new construction; however, during that same period hydroelectric power decreased by 14%, primarily due to environmental factors reducing the amount of snow and rainfall in watersheds.

Both wind and hydroelectric power are susceptible to environmental conditions that can

reduce their available energy. Ocean energy, however, is far more predictable the wind power and far less environmentally damaging than conventional hydroelectric power, nevertheless, ocean energy technology has been slow to develop in the United States, and the country now finds itself lagging behind the UK (namely Scotland), Japan and New Zealand in the development of commercially viable ocean energy power plants.

Figure 1 Total Global OET Projects in Development, 2000-2008

Source: U.S. DOE



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Ocean Energy Investments

The ocean energy market started to take off in 2004, and continued to grow through 2005 and 2006. While it maintained a healthy level of investment in 2007, at $76 million, investments in ocean energy dropped by $26 million in 2008. While the market will continue to grow over the next decade, much of that growth will depend on which prototypes eventually become more of a market standard and receive the most support from the public sector, state agencies and private investors.

Figure 2 Global Investments in Ocean Energy, 2004-2008 (in millions of dollars)

Source: U.S. DOE and SBI

Growth in World Wave-Energy Market

The U.S. DOE lists 36 global wave-energy projects in their database since 1998. Seven of these projects are in the full-deployment phase: Pelamis Wave Power (Scotland, Portugal), Wavegen (Scotland), Oceanlinx (Australia), Wave Energy Centre (Portugal), SEEWEC (Norway) and Ocean Energy Limited (Ireland).



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Pelamis Wave Power (PWP) has raised more than 40 million British pounds ($55 million)

from investors. PWP’s investors includes: Emerald Technology Ventures, Norsk Hydro Technology Ventures, BlackRock Investment Mangers, Nutton Power, Carbon Trust and 3i.

Figure 3 World Wave Energy Projects and Values, 1998-2009

Source: U.S. DOE and SBI



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Ocean Energy Production in the Years Ahead

The future of the ocean energy market will depend largely on the turnaround in the global recession and also the extent to which countries continue to fund or subsidize the cost of creating the new technology and connecting the most advanced systems to the grid. Feed-in tariffs, like the program offered in Portugal, lower the cost of connecting ocean energy to the national grid. However, countries like the United States have not yet moved in the direction of offering feed-in-tariffs, and may not until the technology has proven viable in other parts of the world.

While the potential market value of ocean energy technology could well-exceed $200 billion,

the market has yet to develop enough commercial-scale generators and the infrastructure necessary to take advantage of that potential. In the United States, the development of ocean energy technology had been slowed, not just by market concerns, but also by regulatory disparities that has agencies competing with one another over jurisdiction of the United State Outer Continental Shelf. Given these delays, it is likely that the first, full-scale, grid-connected ocean energy project in the United States may not be deployed until 2020.

In order to gauge the market potential of ocean energy technology, one can look at the

potential increase in the amount of power that could be generated when the existing projects go into commercial production over the next five years. A conservative analysis of these companies and their projects indicates an increase in ocean energy production of over 600MW from 2009 through 2013.

Figure 4 Projected Growth in Ocean Energy Generated, 2009-2013

MW

668

44

238358

135

0

200

400

600

800

2009 2010 2011 2012 2013

MW

Source: SBI and U.S. DOE



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U.S. Tidal Energy Market

The U.S. Tidal Energy market is poised for massive growth in the near future. In 2008, only one tidal energy project received a valid hydrokinetic preliminary permit from FERC. This permit was granted to the Oceana Energy Corporation based in Washington, DC.

While the majority of FERC’s hydrokinetic preliminary permits went to in-river technology

in 2008, 2007 saw a vast growth in the number of preliminary permits granted for tidal energy technology.

Pending U.S. Tidal Projects 2008

In 2007, FERC announced that they would expedite the issuing of preliminary permits to companies that are developing ocean energy technology. In 2009, FERC is expected to be even more aggressive in their support of ocean energy technology under the new Obama administration. With continued support from FERC, ocean energy companies might move quickly from the pending permit phase to receiving valid permits.

U.S. Wave Energy Market

Unlike tidal ocean energy, which is best along the coasts of Maine and Alaska, wave energy offers high potential throughout the U.S. coasts. The Northern Atlantic and Northern Pacific Coasts have the potential to generate a total of up to 2,100 terawatt hours per year. The challenge, of course, will be in how to harness this potential energy, and as of early 2009, there are still no commercially available wave energy power plants in the United States.

Only One Company Takes Advantage of FERC Decision

Only the Grays Harbor Ocean Energy Company took advantage of FERC’s decision to assert jurisdiction of the OCS, filing for their permits just six days after FERC’s announcement on October 16, 2008.

Though they filed seven permits for the seven projects in six states, Grays Harbor hopes to

receive federal approval as a single project, given that all the technology used will be the same. Grays Harbor estimates that the each of the seven projects will be able to generate up



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to 1000 MW at a total cost of $20 to $30 billion, but with the potential to generate $3 to $5 billion per year for 30 years.

U. S. Annual Ocean Thermal Energy Projects

As of January 2009, there are no Ocean Thermal Energy Conversion (OTEC) companies listed in the U.S. Department of Energy’s Marine and Hydrokinetic Technology Database, though the DOE indicates that they will eventually include information on OTEC companies, projects and technologies.

Positive Factors in Future Growth

President Barack Obama has pledged to invest $150 billion in alternative energy technology over the next ten years. While some of this investment may go toward clean-coal and solar technology, ocean energy technology figures in his alternative energy plans as well.

Obama’s appointment of the Nobel laureate Steven Chu as the nation’s energy secretary

indicates a new approach to guiding the nation’s energy department. Chu is not an industry executive, but a scientist who specializes in global warming and alternative energy technology. While Chu’s work has focused on biofuels and solar energy, by December 2008, Chu and President Obama had already met with a consortium of companies and institutions interested promoting the benefits of ocean energy technology.

External Factors Favoring Growth

As of August 2008, Renewable Portfolio Standards (RPS) have been established in 32 states as well as the District of Columbia. RPS goals or requirements encourage a cost-effective, market-based approach to increasing the use of renewable energy sources within a state. States with RPS programs agree to a mandate stipulating that 4 to 30% of electricity within that state come from renewable sources. All of the Pacific Coast states have established RPS programs, as well as all of the New England States. Coastal states that have not yet established an RPS program include: Alaska, South Carolina, Georgia, Florida, Alabama, Mississippi and Louisiana.



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Internal Factors Favoring Growth

As more U.S. companies have the opportunity to conduct full-scale feasibility studies, they will be better equipped to evaluate the cost of deployment and the cost of running cable from the power generators to shore. For deep ocean installations, the cost of deep water cable has been considered as prohibitively expensive and cited as one of the obstacles to further investment in wave energy plants by the California Energy Commission. Successful feasibility studies will also encourage more public and private investment and continue to bring down the cost of building OET power plants.

Environmental Impact Concerns

Environmental concerns ranges from the disruption of natural wave propagation to, to the reduction of marine line and the disturbing of shipwrecks visited by divers. No matter where companies install their ocean energy systems, they are bound to encounter a series of environmental concerns. Some of the concerns that have already been brought up during testing in the United States include the following:

• Disruption of natural wave propagation. • Reduction of marine life. • Disturbing of shipwrecks used as artificial reefs and visited by divers. • On-shore effects of obstructing or diminishing wave impact. • Impact on local habitat due to reduced sedimentary process or natural erosion. • Seabird migrations

Legal/Regulatory Issues

Questions of jurisdiction between the Federal Energy Regulatory Commission and the Department of Energy may lead to more obstacles for ocean energy companies. Though FERC grants preliminary permits that allow up to three years of study in a given area, they do not grant the licenses required for any type of construction. As developers explore sites for possible deployment of ocean energy devices, they will also have to overcome possible opposition from state energy commissions, local utility companies and local, state and federal environmental agencies.



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FERC and MMS Reach New Agreement on Outer Continental Shelf

On April 9, 2009, Secretary of the Interior Ken Salazar joined FERC Chairman Jon Wellinghoff in signing an agreement regarding the regulation of the U.S. Outer Continental Shelf. According to Wellinghoff, “By removing all the regulatory barriers to the development of hydrokinetic energy in the Outer Continental Shelf, this agreement will advance the development of a promising renewable resource that in the end will benefit consumers.”

Potential Growth in U.S. Ocean Energy Power Output

In the United States, the amount of power generation through ocean energy technology could increase exponentially from 2009-2013. Many of the companies that have had projects in a prototype stage leading into 2009 expect to launch full-scale commercial and grid-connected projects by 2013. In New York, Hydro Green Energy plans to complete two 70-MW power plants in Niagara Falls while Underwater Electric Kite intends to develop at least three 10-MW projects throughout the United States.

Figure 5 Potential Growth in U.S. Ocean Energy Generated, 2009-2013

MW

2588

10588

11.5 168 2180

2000

4000

6000

8000

10000

12000

2009 2010 2011 2012 2013+

MW

Source: SBI and U.S. DOE



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Ocean Energy Technology Competitors

Types and Sizes Companies

Compared to other renewable energy markets, the ocean energy technology market remains an immature market. The world’s first commercial wave farm was first installed of the coast of Portugal in September 2008 and the United States has only asserted jurisdiction over the out Outer Continental Shelf on October 16, 2008. The recentness of these developments highlights the relative youth of the ocean energy market and underscores that the market is still in the early stages of growth.

Most Development Driven by Local Marine Conditions

Given the different marine requirements for the prevailing types of ocean energy generators, it follows that developers tend to specialize in one of the five ocean energy systems: tidal energy, wave energy, current energy, thermal energy and salinity gradient.

Europe continues to be the leader in wave energy technology, with notable wave-energy systems under development by Pelamis Wave Power, Wave Energy AS and Finavera Renewables Ltd. Other countries with a growing interest in wave energy conversion include the United States, Canada, China, India, Japan and Russia.

Tidal energy technology has advanced most in France and the UK, while there is also testing in Canada, Argentina, Australia and Korea. Some of the early developments in tidal energy, however, relied on tidal barrages, which are increasingly criticized for their negative impact on tidal waters and local marine life.



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Competitors by Product Category/Segment

Competitors: Attenuator Energy Competitors

Attenuators convert wave energy to power. As of April 2009 the number of companies developing attenuator technology remains small.

Table 1 Selected List of U.S./Global Attenuator Competitors

Applied Technologies Company, Ltd G Edward Cook Brandl Motor Green Ocean Energy Ltd

Checkmate Seanergy Ltd Pelamis Wave Power (formerly Ocean Power Delivery)

C-Wave University of Manchester

Ecole Central de Nantes Wave Energy Technology-New Zealand (WET-NZ)

Edinburgh University (aka Wave Power Group) Waveberg Development

Float Inc. -- Source: SBI

Competitors: Horizontal Axis Turbines

Horizontal axis turbines convert ocean current kinetic energy into power. The technology used in horizontal axis turbines shares many similarities with wind-power turbines, and so this technology is considered to be among the more advanced in terms of development.



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Table 2 Selected List of U.S./Global Tidal (Wave) Energy Market Competitors

Aquamarine Power OpenHydro Aquantis, Inc. RED HAWK Tidal Turbine

Aquaphinle sarl (Hydro-Gen) Robert Gordon University Atlantis Resources Corporation Rugged Renewables (EMAT, Inc.) Atlantis Resources Corporation Scotrenewables

BioPower Systems Pty Ltd SMD Hydrovision Bourne Energy Statkraft

Clean Current Power Systems Swantubines Ltd. Free Flow 69 Tidal Defense and Energy Systems (TIDES)

Free Flow Power Corporation Tidal Electric Hammerfest Strom UK Tidal Energy Ltd. Hydro Green Energy Tidal Generation Ltd. HydroCoil Power, Inc. Tidal Hydraulic Generators Ltd. Hydrohelix Energies Tidal Stream

Kinetic Energy Systems Tocardo Tidal Energy Ltd. Source: SBI

Competitors: Overtopping Devices

While there are only of three major competitors in the Overtopping device market, they share the same conceptual design of creating a “head” of water to generate power through a turbine.

Table 3 Selected List of Overtopping Device Companies

Wave Dragon Ltd Wave Energy AS

WavePlane Production Source: SBI



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Ocean Energy Technology Market Trends

As an immature renewable energy source, Ocean Energy Technology continues to depend in large measure on its geographic location.

In the United States, as should be expected, Ocean Energy Technology is primarily a concern

in coastal cities. However, not all coastal municipalities and states have the same interests in Ocean Energy. Along the Pacific coast, states like California, with higher energy costs, are beginning to take a more active, albeit cautious interest in Ocean Energy Technology.

On the global scale, the emergence of Ocean Energy Technology as a viable, cost-effective

alternative to other established renewable energy sources often depends on a country’s access to high-density ocean currents or waves as well as the cost of connecting ocean generators to the grid.

Foreign Dominance of Research and Development

While Ocean Energy Technology is just starting to take hold in the United States, and expanding quickly, ocean energy has already received several years of funding in Europe, Australia, and the UK. Australia, like the EU and the United States, has a national goal of using 20% renewable energy sources by 2020. Toward that end they have already started supporting wave energy products throughout the country.

Scotland, Ireland and the UK

Scotland continues to lead the world in Ocean Energy Technology development. The Scotland-based Wavegen, a wholly owned subsidiary of Voith Siemens Hydro Power Generation, has developed the Limpit, the first commercial-scale, grid connected, wave energy device in the world. Wavegen’s oscillating water column technology is also being deployed in Bas que country, Spain, as part of the Ente Vasco de la Energía’s Mutriku project. This will be the first wave-energy projected connected to the grid in Spain.

Wavegen’s success reflects the Scottish government’s support for ocean energy technology as a viable renewable energy source. In January 2009, the Scottish Government approved the



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Siadar Wave Energy Project (SWEP), a joint-venture between Wavegen and the UK’s npower renewables. Once complete, this commercial demonstration project should supply up to four megawatts of power, enough electricity to power 1,500 homes in the Siadar Bay. SWEP is the largest such venture supported by the Scottish Government’s Renewable Obligation Certificates. The outcome of this commercial demonstration project will have a profound impact on the future of funding for ocean energy technology in Scotland, where they aim for producing 40% of their power from renewable energy sources by 2020.

Table 4 UK Renewable Obligation Time Table

Obligation period Percentage of total supplies 1 April 2007 to 31 March 2008 7.9% 1 April 2008 to 31March 2009 9.1 1 April 2009 to 31 March 2010 9.7 1 April 2010 to 31 March 2011 10.4 1 April 2011 to 31 March 2012 11.4 1 April 2012 to 31 March 2013 12.4 1 April 2013 to 31 March 2014 13.4 1 April 2014 to 31 March 2015 14.4 1 April 2015 to 31 March 2016 15.4 Each subsequent period of twelve months 15.4 Source: UK Office of the Gas and Electricity Markets (Ofgem)

Australia

Australia has been on the forefront of Ocean Energy Technology for at least a decade and has set the goal of using 20% renewable energy by 2020. As part of their Renewable Energy Target (RET) scheme, the country plans to increase the increase the amount of mandatory renewable energy used to 45,000 gigawatt-hours by 2020, which would be a four-fold increase from the current rates in 2009. To achieve this goal, Australia will offer market incentives to promote the research and development of both new and existing renewable energy technology that takes advantage of the country’s natural renewable energy sources. These energy sources are not limited to wind, solar and geothermal, as they tend to be when discussed in the United States, but also take into account the potential impact of wave energy technology. The Australian federal government has also assigned itself the task of reducing the amount of “red tape” created by having state-based targets rather than a single, national scheme.



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Portugal

The first grid-connected wave energy farm in the world has been installed off the coast of Aguçadoura, Portugal. At an estimated cost of nearly $100 million, the expenses for the initial commercial model were covered by collaboration between the Pelamis Wave Company (formerly Ocean Power Delivery), Enersis (a subsidiary of Babcock & Brown) and Energias de Portugal (EDP). The Portuguese government further funded the project with a €1.25m grant from the Agência de Inovação (Agency for Innovation). The project also received a feed-in tariff of 25c per KWh. The first phase of the Aguçadoura project cost €9m (£7.14m). The Aguçadoura wave farm uses Pelamis’s 140-meter long “wave snakes” to generate up to 750 kW each.

Horizontal and Vertical Integration

As with the global market, the majority of ocean energy technology projects in the United States are still in the development stages and looking for funding. There are opportunities for both horizontal and vertical integration, and as the market matures, the more cost-effective options will become clearer. For now, the majority of the costs involved in ocean energy technology are in research and development, with just a few a few companies already exploring the costs of full commercial deployment.

Only a handful of Ocean Energy Technology companies are listed in international markets,

with the overwhelming majority of companies still in the development and scale-model prototype stages.

Stock Market Trends

Only a handful of Ocean Energy Technology companies are listed in international markets, with the overwhelming majority of companies still in the development and scale-model prototype stages.



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Table 5 OET Companies Trading on Public Stock Markets: By Exchange and Stock Symbol

Company Exchange Symbol Finavera Toronto Stock Exchange FVR Lockheed Martin NYSE LMT Renewable Energy Holdings London Stock Exchange REH Ocean Power Technologies NASDAQ OPTT Electricité de France (French utility partnering with REH) Paris Exchange EDF

Carnegie Corporation Australian Securities Exchange CNM Source: SBI

Ocean Energy Trends in the United States

Fossil fuels continue to provide the majority of the energy consumed in the United States with still just a small fraction of that energy coming from renewable energy sources. As the chart below indicates, solar and wind energy, two of the renewable energy sources most comparable to ocean energy, only account for 6% of all the renewable energy used in the country. The hydroelectric figure cited refers to conventional dams, which are no longer being built in the United States.

Figure 6 U.S. Energy Consumption, 2007 (percent)

Source: U.S. DOE



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Financing Trends

Though direct-investment in ocean energy technology is limited to just a few publicly traded companies, many of the smaller ocean power companies are funded by venture capital firms, utility companies, and state-sponsored financing.

Emerging Financing Models

The average cost of research and development, testing and deploying a demonstration prototype ranges from $10 to $50 million for wave energy, and from $100 to $200 million for a viable ocean thermal energy conversion system.

As with solar and wind power, the primary cost associated with ocean energy is in the installation of the plants. Unlike fossil fuel plants, which can face massive fluctuations in cost due to market fluctuations in the cost of fuel, the kilowatt-hour cost of operating an ocean power plant depends primarily on the initial expense. Beyond the initial expense of installation the cost of the plant would depend on operating and maintenance costs and the possible cost of replacement should an ocean storm damage or destroy a plant.

Federal Government Trends

The federal plan calls for 10% of U.S. electricity to come from renewable energy sources by 2012 and 25% by 2025. Toward achieving that goal, the plan also stipulates that the country should “[d]eploy the Cheapest, Cleanest, Fastest Energy Source” with a focus on energy efficiency. While it is early days, the provisions set out in the plan do leave ample room for the public funding and support of increased research and development in ocean energy.

State Trends

California

California has a guarded interest in ocean energy technology. The California Energy Commission funded a two year, two-part study on the potential for wave energy power plants off the California coast, with particular attention to the socio-economic and environmental



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impact. The reports are entitled: Developing Wave Energy in Coastal California: Potential Socio-Economic and Environmental Effects (2008) and Summary of PIER-Funded Ocean and Wave Energy Research (2007). The reports, which are both available at www.energy.ca.gov, do not argue against the development of ocean energy technology, nor do they advocate the technology as an immediate solution to California’s energy concerns. Rather, the reports recommend further study of this emerging industry, with particular attention to the environmental impact.

Florida

In 2006, Florida’s Legislature passed the Florida Renewable Energy Technologies & Energy Efficiency Act and created the Florida Energy Commission. The bill grants state funding for renewable energy technology grants as well as sales tax incentives for energy efficient products. In 2008, the Legislature appropriated $15 million in grant funding. The funds were allocated in two separate categories, with $7 million “to support projects that generate or utilize renewable energy resources, including hydrogen, biomass, solar energy, geothermal energy, wind energy, ocean energy, waste heat and hydroelectric power.” The remaining $8 million in grant funding was aimed at bioenergy projects.

State Rebate Programs

Unlike solar and wind power, ocean power is not a technology aimed at individual consumers. Thus, while states are unlikely to offer the types of rebate programs that are available for solar and wind power installations in California, Oregon, and Florida, for example, these coastal states may follow-up their funding for research and development by offering greater rebate programs for the development of new ocean energy technologies within each state.



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Table 6 Coastal State Renewable Portfolio Standards (percent)

State Percentage Target Year

California 20% 33

2010 2020

Connecticut 27 2020 Delaware 20 2019 District of Columbia 20 2022 Florida 7.5 2015 Maine 10 2017 Maryland 20 2022

Massachusetts 0.75 of Sales

5 of Sales +0.25 of Sales

12/31/2009 2020

2020+

New Jersey 22.5

(2.12 solar, 17.88 other renewables)

2021

Oregon Large utilities: 25 Small utilities: 10

Smallest utilities: 5 2025

Rhode Island 16 2020 Washington 15 2020 Source: SBI and U.S. DOE



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Distribution Structure

The ocean energy market has not yet grown enough to match the distribution models seen in other renewable energy markets such as solar and wind power. Rather, the ocean energy market is still at the stage where the technology and different marine projects are supported largely by utility companies and government interests.

While there are only a few ocean energy companies that have reached the commercial stage,

their entry into the commercial energy market indicates how up-coming marine energy companies might begin to integrate their power generators into the existing infrastructure.

Geographic Limitations

The development of the ocean energy market is directly dependent on geographic location. All forms of marine power benefit from proximity to the shore, as the cost of connecting the generator to the grid can range in price from about $500 to over $1 million per kilometer just for the submarine cable.

Where is the Power in the Waves?

Wave power generators require enough wave activity to convert the wave’s kinetic energy into 60 hertz which can then be connected to a grid. While there can be some wave activity close to shore, the ideal locations throughout the world see the most ideal wave activity at 2-3 miles (3-5 kilometers) from shore. The best locations for wave power throughout the world tend to be on western coasts and at extreme latitudes. These sites includes: Pacific Northwest of the United States (California, Oregon, and Washington), Southwestern South America, Western Europe, Northern UK, South Africa, Australia and New Zealand. Of these areas, the UK and the United States have seen the most rapid growth in the last five years.

Where is the Power in the Tides?

Tidal Energy is even more limited in terms of ideal locations throughout the world. Tidal energy converters require a tidal variation of at least 7 meters (23 feet) to be efficient enough to convert the density of the water (which can by 800 denser than air) into electricity. The



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UK and North America have the most potential sites that can take advantage of tidal power, particularly in Wales, British Columbia, the Pacific Northwest, Alaska, Washington, and Maine. Australia, the Netherlands and Norway also have promising sites for tidal energy.

Ocean Thermal Energy Conversion Still Catching On

Unlike the extreme latitudes of wave energy, and the tidal variant required by tidal power, ocean energy technology’s primary requirement is a temperature difference in the water. OTEC is most effective when the temperature difference between surface water and deep water is at least 20C (36F). Hawaii continues to be one of the best locations for testing and implementing OTEC, and is joined by Sothern Pacific Islands nations, Caribbean nations, Florida, the Gulf of Mexico, Africa and Asia. While these locations offer the most promise, there is not yet a burgeoning global market in OTEC.

Socioeconomic Considerations

The type of ocean energy technology used in an area depends not only on the local wave or current activity, or the access to deep water or a salt and fresh-water mix, it must also take into account the local socio-economic factors. Island states and nations, like Hawaii and Japan, which tend to import a significant amount of their fuel not only for automobiles but also for power are more inclined to the long-term cost-benefits of ocean power. Conversely, areas like Washington State, might find that the cost of pursuing ocean power is yet too high compared to their current cost of electricity.

Growth through Established Renewable Energy Market

The ocean energy market is not yet mature enough to have established distribution channels. Instead, the market is growing through the work of electricity producers like EDF Energies Nouvelles. EDF is a green electricity producer that purchased a technology development license from Marine Current Turbines in 2006. As the name suggests, EDF Eneries Nouvelles is a subsidiary of Electricité de France, and was formed specifically to grow the green energy market. As a branch of Electricité de France, EDF Energies Nouvelles has access to the company’s experience in the entire energy industry, from development and construction to power plant operation and maintenance. EDF Energies Nouvelles operates the largest solar power plant in France, and in 2009 they signed a power purchase agreement with PG&E for a 150MW wind farm in California. Financing for the project comes from



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Nord LB and a group of investors including JP Morgan, Wells Fargo and New York Life. The ocean energy market is also growing by use of this power-purchase agreement model already used in other renewable energy markets.

sbi ocean energy technologies & components worldwide

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