OES Annual Report 2012 - Ocean Energy Systems

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117 05 / DEVELOPMENT OF THE INTERNATIONAL OCEAN ENERGY INDUSTRY: PERFORMANCE IMPROVEMENTS AND COST REDUCTIONS ÌÌ Phase 3: Large Commercial Arrays (50MW+) This Phase would involve large deployment of technologies in 50MW+ scale arrays. A sustainable tariff must be sufficient to develop projects at this phase, similar to the case of offshore wind. The future availability of a sufficient tariff will depend on the future electricity market and in particular the future supply and demand for low carbon and secure forms of energy. €M/MW 14 12 Phase 1 Pre-Commercial Arrays Phase 2 Small Commercial Arrays Phase 3 Large Commercial Arrays INDICATIVE WAVE ENERGY COST TRAJECTORIES (€/MW INSTALLED) 10 8 6 Single Device Demo Grant Support & Hi Tariff Support Transition Tariff Support Enduring Tariff Support 4 2 0 2010 <strong>2012</strong> 2014 2016 2018 2020 2022 2024 2026 2028 2030 INDICATIVE TIMELINE FIGURE 1: An ESB cost projection for projects based on an indicative wave energy technology, showing the role of the WestWave project in putting technology on a commercial cost trajectory ÌÌ The WestWave phase 1 project is a 5MW pre-commercial project in Irish waters. Site selection, resource monitoring, grid connection and consenting works are progressing. As part of the first steps in a procurement process for WestWave, ESB has been undertaking detailed technical dialogue with technology developers to support this activity. In undertaking such work, ESB has established Readiness, Cost and Performance criteria to guide suppliers of ocean energy technology towards that required for viable early project investment propositions. ESB present these criteria in terms of: ÌÌ Cost & Performance Envelopes ÌÌ Technology Readiness Levels (TRLs) Cost & Performance Envelopes provide clarity on what combination of cost and performance is likely to be affordable from a project investor’s perspective. These envelopes will correspond to a particular market. Technology Readiness Levels (TRLs) are used by ESB and others to describe the criteria that technologies must meet for projects at different phases. Cost and Performance Envelopes Figure 1 gives an indicative cost trajectory for a typical wave energy technology based on matching offshore wind costs in the future and ESB’s estimates of current wave energy cost and performance. However, acceptable capital expenditure (Capex) for such projects will in reality depend on other characteristics of the project, in particular: ÌÌ The amount of energy actually produced by the project. This is usually given in terms of capacity factor: the average output as a percentage of the rated capacity installed. This is influenced by reliability and plant uptime as well as variability in the input resource. ÌÌ The ongoing annual operational expenditure per MW (Opex), required to operate and maintain the project. This must also include insurance costs.
118 As such Figure 1 is only an indicative cost trajectory based on particular assumptions of capacity factor and Opex expected for a wave energy technology. To describe acceptable cost constraints more generally, ESB has devised cost and performance envelopes. Phase 1 Cost & Performance Envelopes: Phase 1 projects will be required to establish the reliability and predictability of plant cost and performance in advance of larger project investments upon which economies of scale can be built. In order to understand the investment case in such activity, one must consider: 1. The internal rate of return (IRR) demanded by a commercial investor: For such early projects, investors may be willing to accept a reduced IRR where there is strategic value to being involved in an early project, especially where it would provide access to subsequent investment opportunities. An IRR of 7% is selected for this analysis to determine realistic phase 1 project financing costs, though this will vary depending on the project and the investor appetite. An IRR of 7% is probably optimistic as it is not risk-adjusted to the uncertainty involved in the deployment of hardware in the marine environment without a proven track record of reliability. However, it is assumed that all safety critical risks can be managed satisfactorily at this stage. 2. The revenue stream for the project: ESB considers that tariffs of circa €300/MWh are expected to be available in some jurisdictions (e.g. 5 ROCs in the UK market) to undertake these early projects of limited scale. 3. The lifetime of the project: ESB considers that a reduced project economic life of 10-12 years is appropriate for Phase 1 projects as early technology is likely to become obsolete and be replaced at a date earlier than the design life. Based on the above, an affordable Capex per MW can be established. In order to represent technology variability, the affordable investment cost is presented in Table 1(a) and is calculated for varying capacity factor and annual Opex (as a percentage of Capex). Table 1(a) is the case where it is assumed that no additional grant aid is available for the project. This table provides an “affordable cost envelope” for private project financing of early stage projects. The influence of capacity factor and Opex on these affordable costs is considerable. For example, for a tidal stream generation plant rated at 1MW, a Capex in excess of €7m is affordable where capacity factors of 45% can be achieved but this reduces to only €4.75m where capacity factors are limited to 30% (for the case of Opex is 4% of Capex). Similar variation is apparent for wave energy technology, where there is ambiguity about how such converters are rated and consequently about what capacity factors can be expected. This highlights the need for caution in how developers rate energy conversion machines and for how investors compare the cost of technology using the crude metric of €/MW installed. There will also be variability in terms of Opex depending on reliability, accessibility and the cost of maintenance operations, such that the affordable investment costs can also vary considerably depending on these attributes. This highlights the need for project investors to undertake detailed technical due diligence to establish realistic expectations of energy production, reliability, availability and operational costs. Affordable Capex falls within the range of €3-8m for the range of capacity factors and Opex considered in Table 1(a). ESB anticipates that such early projects are more likely to fall in the range of €6-10m per MW. As such, it is likely there will be a shortfall between the required €6-10m and what can be justified as a commercial investment alone, especially where Opex is likely to be high and reliability low for phase 1 projects. As such, these projects are termed “pre-commercial” by ESB and require additional sources of funding. Additional Phase 1 project funding: Grant aid is likely to be essential to establishing this vital bridging market of phase 1 ocean energy projects. Funding supports are already available through schemes such as the EU’s NER300 and the UK’s Marine ANNUAL REPORT <strong>2012</strong>
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ANNUAL REPORT 2012/ IMPLEMENTING AG
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2012 Annual Report Published by: Th
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IV ANNUAL REPORT 2012
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VI ANNUAL REPORT 2012
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VIII The title of the second invite
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2 1.1 / ABOUT THE IEA The Internati
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4 1.4 / OES’S STRATEGIC PLAN The
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6 ANNUAL REPORT 2012
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8 2.1 / MEMBERSHIP The Implementing
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10 2.3 / WORK PROGRAMME & MANAGEMEN
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12 2.5 / SPONSORSHIP Ocean Energy S
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14 3.1 / DISSEMINATION AND OUTREACH
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16 3.2 / ANNEX IV: ASSESSMENT OF EN
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18 3.3 / ANNEX V: EXCHANGE AND ASSE
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20 The first version of the Interna
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22 4.1 / MEMBER COUNTRIES (ordered
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24 WavEC has been further participa
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26 FIGURE 1: Field trip to Wavestar
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28 Main Public Funding Mechanisms T
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30 UNITED KINGDOM Karen Dennis Depa
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32 NORTHERN IRELAND In October 2012
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34 SCOTLAND ÌÌ Scottish Renewable
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36 The Study has produced a series
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38 In the Northern Ireland (NI) off
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40 Technology Development Technolog
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42 Support Initiatives and Market S
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44 The Electricity Research Centre
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46 CANADA Tracey Kutney 1 2 , Jonat
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48 Relevant documents released ÌÌ
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50 Fundy Tidal Inc., a community-ba
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52 Support Initiatives and Market S
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54 In addition to technology advanc
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56 Public Utility District No.1 of
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58 BELGIUM Mathias Damen and Julien
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60 GERMANY Jochen Bard Fraunhofer I
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62 Voith Hydro Wavegen in Inverness
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64 NORWAY Carl Gustaf Rye-Florentz
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Page 77 and 78: 68 MEXICO Sergio M. Alcocer 1 , Ger
Page 79 and 80: 70 RESEARCH & DEVELOPMENT Governmen
Page 81 and 82: 72 SPAIN José Luis Villate TECNALI
Page 83 and 84: 74 A new R&D project on wave energy
Page 85 and 86: 76 The Oceanic Platform of the Cana
Page 87 and 88: 78 ITALY Gerardo Montanino GSE INTR
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Page 93 and 94: 84 RESEARCH & DEVELOPMENT Governmen
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Page 101 and 102: 92 REPUBLIC OF KOREA Keyyong Hong K
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Page 105 and 106: 96 The HyTide 110-5.3 horizontal ax
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Page 109 and 110: 100 TECHNOLOGY DEMONSTRATION Operat
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Page 113 and 114: 104 FRANCE Georgina Grenon 1 and Ya
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Page 158: OCEAN ENERGY SYSTEMS (OES) www.ocea
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OES Annual Report 2012 - Ocean Energy Systems

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