ssi workstream - accelerating the uptake of technology: demonstrating the business case for new...

A step change in energy

technology innovation

and uptake

Challenge & vision

Our approach

Step change technologies

• Findings

• Recommendations

Voyage Optimisation

• Findings

• Recommendations

Pulling them together: towards a strategy for energy step change

What’s next?

Contents

Challenge & vision

• The global shipping industry needs to achieve a step change in the way it uses

energy, in the face of persistent energy price rises and the need for action on

climate change

• In our Case for Action in 2011 we noted the scale of the challenge: if the industry

were to double in size by 2040, while playing its part in delivering global

emissions cuts of at least 50%, it will need to cut its own emissions per tonne km

by 75%

• Incremental improvements will not be sufficient. We need an explicit, active and

ambitious programme to shift industry energy efficiency. No one technology or

technique is likely to do this alone; we will need a portfolio of technologies,

operational approaches and a diverse mix of energy resources, which may apply

differently to different ship types and trades

• There are new technologies and techniques promising the double digit efficiency

gains we need, but they often face difficulties being taken up at scale

• This work stream aims to identify key opportunities and barriers associated with

the innovation and uptake of new technologies and operational techniques.

Together, we aim to accelerate the pace of change and identify ways of

overcoming the barriers

Summary of the work

stream

The SSI wants to see widespread uptake of step

change technologies and techniques that reduce

ship energy consumption and dramatically cut

greenhouse gas emissions.

We have developed real world case studies

which demonstrate:

• There are step change technologies that offer

the potential for cost effective double digit

cuts in energy consumption, but many are

stalled for the sake of fully scale trials

• Collaboration works and is key to managing

risk and unlocking potential

• Supporting startup companies is key

• Slow steaming still offers unrealised potential.

Our overall approach

Our overall approach

The workstream has focussed on real technologies and techniques in its work, rather than

on generic processes or barriers, in order to understand real-world challenges.

We have focussed in parallel on two different approaches to a step change in energy use:

• Step change technologies offering significant energy savings which are at, or nearly

at the demonstration stage rather than proven technologies which need to scale

• Voyage Optimisation (VO) techniques which may not lock in such significant

efficiency gains, but are more flexible, have lower barriers to entry and may therefore

be easier to scale.

Techniques: Voyage optimisation

including, weather routing, virtual arrival, slow

steaming, trim optimisation.

Barriers to entry: low

Applicability to fleet: moderate-high

Maturity: moderate

Ambition: moderate

Step change technologies:

Air lubrication

Wind assistance

Barriers to entry: Moderate-High

Applicability to fleet: moderate

Maturity: Low

Ambition: High

(analysis from SSI Energy technology workplan, 2012)

Step change technologies: Findings & recommendations

Identifying promising step change technologies

The workstream carried out research into and analysis of the range of

technologies and techniques available to the industry to improve energy

efficiency. This analysis included savings claimed, potential financial

performance, applicability (retrofit/new build, ship type), and maturity.

Based on the analysis, we identified two technological areas of focus:

• Wind assistance such as kites and rotors

• Air lubrication of hulls to reduce propulsive power needed. Again there were

several potential suppliers


What we did

SSI members subsequently evaluated the potential of step change technologies for

specific vessels:

• Air lubrication: DK Group Air Cavity System (ACS) and another technology

• Wind assistance: a Flettner rotor system and Skysails (propulsion kite). Work on

Skysails was based around a pre-existing relationship between Cargill and Skysails

In each case one or two SSI members worked with the supplier to develop our

understanding of the potential offering, and evaluate how the technology could work for

their own operations, including risks arising and potential financial performance. This

enabled detailed analysis of probable savings from the technology, and development of

financial indicators in service. Some trials data was also reviewed by Lloyds Register.


Summary findings

• The step change technologies we looked at do indeed offer the

potential for double digit cuts in energy consumption, and can be

cost effective, with some indicating payback times of 2 years or so

• But many are stalled for the sake of full scale trials to prove

savings

• The start up nature of many of the companies offering these

innovations adds additional challenges.


These step change technologies offer the potential for

double digit cuts in energy consumption

Technology Literature

estimates pre SSI*

Fuel savings indicated

by SSI case studies

Basis

Air lubrication

DK Group

ACS

10-15% (tanker/bulker)

5-9% (container)

10% (bulker) Tank testing witnessed by

GL, data reviewed by

Lloyds Register

Mitsubishi

MALS

Up to 10% depending

on vessel type, speed &

draft.

7% at light draft

2% at scantling draft

Cost benefit analysis for

new building vessel for

delivery 2015

Wind assistance

Flettner Rotor >15% (supplier

expectation)

Not yet available, work on-

going

Skysail 10-35%

20% Cargill analysis of weather

vs. trading patterns

* unless otherwise indicated literature claims are from Ship Effiiciency: The Guide. Fathom Shipping 2012


… and can be cost effective

One technology, the DK Group ACS (Air Cavity System), was taken through financial

analysis by two SSI members. These members derived similar results – that the

technology, if it performed in line with the case study results, would deliver an acceptable

payback time of 2-2.5 years.

In addition, prior to SSI an investment decision had already been made by Cargill for the

Skysail. This is expected to be deployed at sea Q4 2013. The SSI members will then be

able to analyse the full in-service testing data.

The MALS system was not taken through the same analysis. While the MALS system has

been shown to be effective for shallower draft, broad beamed vessels, for the SSI

member the subject vessel’s deep draft and mainly fully laden operational profile were not

ideally matched to the system’s strengths and the cost effectiveness of implementation

would have been marginal at best.


But they are stalled for the sake of full scale trials to

prove savings

Despite these mainly positive findings on savings and payback, our members have not yet

been able to make a new investment decision for any of these technologies.

One reason is performance risk: the nature of these technologies, involving complex air

and water flow, means that even the best tank testing and computer modelling can only

offer so much, and the real performance of the technologies can only be proved by full

scale trials. An investing owner/operator therefore has to take the risk that the technology

does not perform in line with tests and so does not deliver savings which justify the

investment. While the potential reward, if scaled across a fleet, might be considered large

compared to the investment cost of a trial installation (eg of the order of $1m), it has to be

remembered that, in the current depressed shipping market, investment tends to be in

tried and tested technologies.

By comparison operational risk, the risk that the new technologies might impede the

delivery of goods/services to customers, did not emerge as a major problem.

This critical demonstration/risk barrier is often known in technology development circles as

the

“Valley of Death”


The startup nature of many of the companies offering

these innovations adds additional challenges

With the exception of Mitsubishi’s MALS, all the case study technologies were offered by

start up companies dependent on one product. This raises the following potential

challenges:

• These companies often find it difficult to fund testing, moving their product from

drawing board to test tank/ computer modelling, and into trials

• They may not have enough capital to offer cut price “first mover” deals as a way to

profile, prove and refine their technologies – a way of overcoming performance risk,

and gaining market penetration

• They may not have enough experience to know what information is needed by

potential customers at the various stages of technology evaluation and investment, or

how to work up investable business proposals with them.


Case study findings: Air lubrication

Technology

description,

supplier

DK Group ACS

Air Cavity System (ACS) is an air hull lubrication system that reduces drag on the flat bottom of

a ship using a series of air-filled cavities fitted to the flat of bottom which create a stream of

micro-bubbles as a result of the vessel’s forward motion through the water

Applicable to both newbuilds and retrofit.

Literature quoted savings of 10-15% (tanker/bulker)l; 5-9% (container)*

Mitsubishi MALS Air hull lubrication Compressed air from a blower is

released through a series of openings in the forward flat

bottom of the vessel to form a carpet of air bubbles which

reduces the frictional resistance between the hull and sea

water. Literature quoted savings of up to 10% depending

on vessel type, speed and draft*

Case study

Company

Case study

process

Under auspices of SSI:

Conclusion of joint NDA between DK Group, Gearbulk, Bunge, LR.

Access to and evaluation of test data conducted by HSVA

Further data review by LR as part of SSI

Development of MALS cost benefit analysis for

planned 62500t vessel.

Meetings with management

Development of performance estimates

for 63000t Gearbulk vessel

Meetings with management

Secure owner who would host

(but not pay for) initial trial

Negotiation around alternative

financing arrangements

Investment proposal

Headline

results:

technical,

financial

Fuel saving: 10% scantling draft, more

at lighter drafts

Payback: 2.5 years

Cost: €1.1m

Fuel savings: 10% (bulker)

Payback: 2 years

7% at light draft (bulker)

2% at scantling draft

Investment

decision/

reasons

Not able to proceed.

Implementation limited to a few yards,

outside normal locations, due to IPR

concerns – substantial additional

drydock/deviation costs

Performance risk could not be reduced

sufficiently without full scale trial.

Not able to proceed.

Performance risk could not be

reduced sufficiently without full

scale trial

No alternative financial

arrangements available

Greatest benefits for vessel in ballast

Gearbulk’s mostly fully laden operational

profile would therefore not allow it to gain the

maximum benefit from the technology.

*unless otherwise stated, quoted savings are taken from the Fathom Shipping

guide

Case study findings are specific to the SSI member companies, their vessels and

operations. Other applications of the technologies may get different results.


Case study findings: Wind assistance

[insert full page table]

Technology description Flettner Rotor Wind assistance technology that uses the Flettner

rotors and the Magnus effect to help drive the vessel.

Suitable for both retrofit and newbuild.

Supplier expectation of >15% saving

Skysail Wind assistance technology using a large automated kite to help

tow the vessel.

Literature quoted savings of 10-35%*

Case study company

Case study process

(bullets)

Involvement of SSI members LR and Namura

involved in evaluating design and integration

into ship structure.

Results not yet complete – draft business case

under review.

Frequent visits to supplier

Close liaison between vessel owner (on long term

charter), Cargill and technology supplier.

Inhouse analysis of weather vs trading patterns

Fit with Business Unit and Corporate Responsibility goals

Purchase and retrofit of Skysails system to handy size

vessel

Implementation of comprehensive MRV approach in trail

vessel to ensure accurate baselining of performance.

Headline results:

technical, financial

Not yet confirmed 20%

Investment decision/

reasons

No decision yet Decision to proceed.

Implementation expected Q4 2013. Cargill are paying full

cost of system.

*unless otherwise stated, quoted savings are taken from Ship efficiency: the guide,

Fathom Shipping 2012.

Case study findings are specific to the SSI member companies, their vessels and

operations. Other applications of the technologies may get different results.


Recommendations

We have identified the following critical needs to enhance shipping energy technology

uptake, which are candidates for SSI action in the next phase:

• Risk management: crossing the “Valley of Death”. Shipping faces a similar barrier to

that identified in land based clean energy innovation (below). Our work found the

commercialisation (or demonstration) valley to be the key barrier, rather than the

technological (or proof of concept) valley

• Supporting technology suppliers – especially start-ups

Bridging the Clean Energy Valleys of Death, Breakthrough Institute, 2011


Recommendation 1: Horizontal risk sharing

We recommend further work on the following risk management approaches, to help the industry cross

the energy technology demonstration “Valley of Death”.

“Horizontal” risk sharing – i.e. industry peers share both the investment and the performance

findings for one or more step change technologies. This could be considered as a “technology club” of

owner /operators. Technology trials could be carried out on a one-off basis where several interested

owner/operators share the cost of implementation on one ship, and then share the results. Alternatively

a group could test a basket of several technologies, sharing all the results.

Advantages include:

• increasing the chance of a successful outcome

• Our experience is that collaboration increases confidence, and speed of assessment

Barriers and potential solutions include:

• Intellectual property: SSI members dealt with this successfully using a group NDA approach as

part of this workstream

• Comparability: a technology club would work best for members with similar vessels/operations

• Split incentive*: this barrier is avoided for integrated owner/operators. Equally a technology club

could be combined with the SAYS model (SSI Finance workstream), which is a form of vertical risk

sharing (see below)


*Split incentive occurs when the benefits of a new technology eg in fuel savings to

charterer do not accrue to the party who makes the investment eg owner. This

barrier has been addressed by the SSI Finance workstream, resulting in their SAYS

(Save As You Sail) financial model

Recommendation 2: Vertical risk sharing

“Vertical” risk sharing – i.e. technology suppliers and shipping technology customers collaborate on

sharing risk, potentially with the participation of other relevant players like financiers and class

societies. Approaches include:

• First mover deals, and performance guarantees: These are the best established sales aid

approaches for innovative products, suitable for suppliers with the financial resources to offer

them and deliver on guarantees. However, many new technological innovations, including all

but one of the technologies investigated by the SSI, are from startups who lack these

resources

• Financial collaboration such as equity participation by the first mover customer, or an equity

for technology deal. This helps provide a startup company with finance in return for supply of the

technology to the customer/investor, and of course the customer then gets to share in any

subsequent financial success by the startup. The barriers to this approach are that a) shipping

customers, being relatively risk averse, do not see themselves as venture capitalists either, and

b) the startup shareholders may not wish to dilute their shareholdings. One of our members

suggested equity participation in a startup as part of a deal for the first implementation of their

technology, but this was not taken up

• Third party guarantees: even if a startup cannot offer performance guarantees on their own

account, there may be others who will, if they are in possession of enough information about the

technology. Insurers should therefore be involved in work in this area


Recommendation 3: Supporting technology suppliers

Supplier checklist

• Based on our case study experience, we

have developed a checklist and innovation

flowchart for suppliers in preparing for and

working with potential technology buyers (see

Resources).

Buyers group

• There is the potential for a “one stop shop”

grouping of shipping industry buyers seeking

step change technologies, who can act as a

focal point for technology suppliers, share

data and provide feedback etc. This could

dovetail with a horizontal risk sharing group

as in recommendation 1. However, scope

would have to be set carefully to minimise

resource requirements for the Buyers Group

companies.

R&D

Proof of concept

Business proposal

Pitch preparation

Commercialisation

Pilot / demonstration


Innovation process

summary.

An expanded version

with key supplier /

client actions

required, will be

available as the

supplier checklist

Other approaches

The following also have potentially important contributions to make, although their development is likely

to be led by other bodies than SSI.

• Grants or other 3rd party funding for demonstrations of technologies

• Market Based Measures : These have far reaching consequences beyond demonstration stage

technologies, and are of course already in established discussion in key industry fora such as IMO


Voyage Optimisation Findings & recommendations

What we did

• Objective: establish to what extent Voyage Optimisation (VO) measures are

a worthwhile focus in reaching the SSI vision of a step change in energy

performance

• Our Voyage Optimisation focus included slow steaming, virtual arrival,

weather routing and trim optimisation. However, slow steaming (and virtual

arrival as an enabler) is the only one to promise step change potential and a

key focus was assessing benefits, remaining potential and barriers

• Our start point was a detailed case study analysis of VO implementation,

energy savings and barriers for one member, BP Shipping

• This was followed by a summary assessment of VO implementation, savings

and barriers for our other owner/operator members: Bunge; Cargill; Gearbulk,

Rio Tinto and U-Ming. This included specialist analysis of some of the data to

filter the impacts of local sea and weather conditions

Voyage optimisation

Summary findings

• Implementation of VO measures may be falling short of its potential, with a range

of barriers keeping implementation of slow steaming in particular down to a minority of

many fleets

• Slow steaming is a special case: SSI members reported data indicating significant

energy savings where implemented, but a range of barriers mean that implementation

levels are in many cases below 50%

• There is reasonable source data availability, but potential for more and better analysis

to ensure adequate understanding of VO benefits

• There are significant and legitimate concerns over the “lock in” potential of slow

steaming in the face of changing market conditions

• Slow steaming will not be commercially viable for all vessels or voyages. But with

energy savings potentially double (or more) those of some “step change” technologies,

maximising the potential of slow steaming, and measures to lock them in, are too good

to pass up and should be a priority for the industry

• For other VO measures except slow steaming and virtual arrival, energy savings are

hard to separate out from wider operational variances. Nevertheless their low cost and

cumulative effect makes further action worthwhile

Voyage optimisation

Implementation of VO measures may be falling short of

potential • VO measure implementation by our members is broadly in line with industry rates, apart from slow

steaming, which is being used to some extent by all our members.

• However, a range of barriers (next page) is limiting slow steaming to a minority of voyages in many

cases. This means there may be significant unrealised potential.

Voyage optimisation

Measures used/

performance SSI members % Industry

with some

implementation * 1 2 3 4 5 6

Weather routing ● ● ● ● ● ● 75%

Virtual arrival ● ● 50%

Trim optimisation ● ● ● 55%

Slow steaming

40% (of voyages)

25% (of vessels)

20% (of voyages)

45% (of sea days)

~75% (of vessels)

60% (of sea days)

55-75% (of companies)

Fuel savings with

slow steaming (estimated)

16% n/a 16% n/a 10% (for whole fleet)

39% 19-36%**

Notes

• Analysis based on at least a year’s recent data for all voyages reported by members. Additional analysis in some

cases. Baseline approach for savings may vary: both standard speed/consumption rates and calculated baseline

filtered for other factors have been used. Therefore savings data is not directly comparable between companies.

• * Survey data from UCL Energy Institute, 2012. Data is % of respondents implementing to some level, not

necessarily % vessels/voyages

• **IMarEST 2010, quoted by Fathom guide, for 10 and 20% speed reduction.

• Dot sizes indicates wider implementation vs. small scale/trial

Slow steaming is a special case

• The energy saving potential of slow steaming is well known and our findings suggest SSI members

are achieving indicative savings of 16-39% when doing so, in line with industry estimates

• With slow steaming still only applied to a minority of many fleets, there is still major unrealised

potential, including potential from Virtual Arrival

• These savings are being realised under current market conditions and exceed those available from

other technical solutions. Increased freight rates could wipe them out, and increase industry CO2

emissions significantly. But given the urgency of action on climate change, they are a valuable short-

medium term contribution

• Our work found difficulties in deriving implementation and savings data, with different

approaches and existing data going unused. The industry needs a more accurate understanding of

savings, to maximise potential. This approach will also benefit understanding of other VO measures

Voyage optimisation

Speed/CO2: Smith et al. (2011)

• The challenges in identifying true savings include:

• Measurement and reporting errors

• Defining the baseline: what is the “normal” speed?

E.g. standard vessel fuel consumption data vs. a

“counterfactual” analysis which estimates what the

vessel consumption would have been in the real

weather sea state conditions prevalent

• Depending on market conditions, slow steaming may

require more vessels in a fleet, which may involve

additional embedded carbon

Slow steaming (2)

• The most significant barriers to scaling slow steaming are*:

• Charter parties

• Logistical constraints (e.g. navigation, tides etc, customer needs)

• Monitoring, reporting and verification (MRV) limitations undermining

robustness of savings data

• Technical limitations (engines) and commercial viability (fuel saved vs. vessel

cost)

• Virtual arrival (Just in Time arrival) allows a vessel to slow steam to meet a port

schedule, and as such is less vulnerable to market conditions. BP Shipping has

pioneered this approach and developed charter party clauses (see Resources) to help

scale. Virtual Arrival has been effective for 1% of BP voyages, delivering fuel savings

of 14% for those voyages

Voyage optimisation

* Identified by both SSI members and industry survey (UCL, 2012)

The performance of other VO approaches needs further

work

• As part of the workstream we looked at members’ use of other VO approaches,

principally Weather Routing and Trim Optimisation

• Weather routing (WR) is the most widely used. However members have not been

able to definitively relate fuel savings to WR, and fuel saving is often not its main

purpose, with safety, cargo care and performance claims also key considerations

• Trim optimisation is only in limited/trial use by members:

• Literature sources suggest savings generally 1-5%.

• There are some technical barriers which may need to be addressed, such as changes in

vibration and crew comfort.

Conclusions:

• These measures arguably do not amount to step change techniques.

• However, they are relatively low cost with a cumulative effect, and not subject to the same

market vulnerabilities as slow steaming.

• The same Monitoring, Reporting and Verification (MRV) focus recommended to maximise

slow steaming potential will enable better identification of other VO benefits

Voyage optimisation

VO Recommendations

With industry leaders achieving 75% or so but many others well below 50%, it is clear

more can be done. The key measures to achieve this are:

• Better analysis of vessel data, to get clarity and precision on implementation and

savings. In many cases the data is there already, but needs consistent analysis and

better baselines. This may be a suitable activity for the next SSI phase, and may be

supported by:

• Standardisation of reporting structures will contribute to this process: this

may apply both within and between fleets. BP Shipping is already

implementing this measure

• The EEOI* as a consistent format for actual data (but not baselines)

• Charter Parties need to be reviewed, to allow the addition of clauses which aid the

use of slow steaming, Virtual Arrival etc. (see Resources for BP clauses)

Voyage optimisation

* EEOI: Energy Efficiency Operational Indicator, developed under IMO auspices

Pulling them together:

How might step change technologies and VO combine?

• Combining step change technologies and VO techniques may be more complex than

just “do both”

• While step change technologies may offer significant locked-in efficiency

improvements, they have a significant capex requirement, and may face “rebound”

effects – e.g. where an operator takes the benefits in higher speed rather than

reduced fuel use, as the enhancements may benefit from higher freight rates:

• VO techniques have a much lower barrier to entry. Slow steaming may offer benefits of

20% or more, perhaps exceeding those of step change technologies

• But these benefits are not locked in, and may be abandoned in different market

conditions

• Therefore the optimum choice between step change technology, VO or a combination

of the two is likely to depend on vessel/voyage including age, and market conditions

• We have not tested interactions between the two approaches in the workstream, but

as they move to scale, the industry needs to consider these interactions

Step change technologies Voyage optimisation

Pulling them together:

towards an integrated strategy for energy step change

• There are potential interactions between step

change technologies and VO, as outlined in the

table

• An integrated strategy would therefore need to

prioritise investment and VO application, e.g:

1. All vessels use VO techniques to some extent,

given low barriers to entry

2. Step change technologies may be most

appropriate for the newest vessels and fastest

routes; whereas:

3. Slow steaming could deliver the greatest benefits

for older vessels with higher fuel consumption

4. There may be particular interactions – e.g.

combining wind assistance with sophisticated

Weather Routing

Developing such a strategy is likely to be a future need

after proving the capabilities of step change technologies.

Possible interaction with step change

technologies

Slow

steaming

Technology delivers benefits but

absolute financial savings may be

smaller than at standard speeds

Enhanced energy technology may

increase vessel value / freight rate,

reducing or eliminating financial

benefits of slow steaming.

Virtual

Arrival

As for slow steaming

Weather

routing

WR likely to be key to optimum

performance of renewable

technologies like wind, solar.

Trim

optimisation

Some technologies may have specific

trim needs.

Synergy or cannibal? Possible interactions

between step change technologies and voyage

optimisation techniques

Step change technologies Voyage optimisation

What’s next?

Next steps

The following actions are already under way:

• Cargill Skysail implementation due in Q4 2013. Full before & after data will be made

available to SSI members. This is the kind of critical “first mover” action that can

transform technological uptake in the industry

• Completion of investigation of Flettner rotor technology. Rio Tinto is reviewing the

technical and business case and subject to satisfactory completion will move to a trial

installation. If so test data will be shared with SSI members

• BP Shipping is implementing measures to standardise reporting structures, identified

as a result of the SSI VO case study

Candidate collaborative actions for the next SSI phase:

• Development of vertical or horizontal risk sharing approaches

• Development of more sophisticated, consistent voyage data analysis to improve

understanding of VO savings. This may not require collection of additional source data

from vessels

Resources

• Case studies in technology evaluation created by SSI members

• An evidence base for voyage optimisation

• Supplier checklist and technology innovation process

• BP Shipping Virtual Arrival clauses

• Full performance data for the Cargill Skysail will be shared with SSI members after its

implementation in late 2013

To access the resources visit www.ssi2040.org

To express interest in the SSI contact [email protected]

http://www.ssi2040.org/

mailto:[email protected]

Thank you

Prepared by Rupert Fausset and Ben Ross of

Forum for the Future

[email protected]

www.ssi.2040.org