Report predicts growing market for ocean energy

Medium term financial needs pie chart
Medium term financial needs pie chart
Financing in Europe
Financing in Europe

The European Commission has published a report on wave and tidal energy, which forecasts that global installed capacity 'could reach in the region of 3.9GW by 2030 - assuming current levels of political support.'

Another of the key findings of the Market Study on Ocean Energy report is that a great deal of investment has already been committed to the wave and tidal sectors across the continent.  In fact, since 2007, almost €3 billion have been invested in the ocean energy sector in the EU, with some 75% coming from the private corporate sector.

"Europe can keep its global leadership in the ocean energy sector by 2030. Tidal stream is expected to take off over the next few years. If we exclude tidal range, in an optimistic scenario, the investments until 2030 amount to €9.4 billion in Europe, €7 billion in a medium scenario and €2.8 billion in a small scale scenario," explains an EU official.

The study also confirms that there are several funding instruments at national and EU level for prototypes and demonstration projects - but that a 'critical mass of finance' to further develop the sector and scale it up to a 'fully commercial dimension' is lacking.

REVENUE SUPPORT
The report also urges policy makers to use public funds to leverage private capital and lower the level of risk for private investors - but concedes that they will also 'continue seeking investments based on projected returns.'

"Hence, a form of revenue support is of paramount importance to accompany the funds and maximise their effectiveness.  The report thus recommends taking action towards the implementation of revenue support mechanisms, as much as possible consistent across Member States, so as to create certainty," says the EU official.

The report begins by presenting the results of a data collection exercise, carried out in an effort to build a set of scenarios that could provide solid estimates on the near to medium-term financial needs of the ocean energy sector.  This is followed by an analysis of the investments necessary to install the estimated capacity, based on the same data sources.  It then addresses the financial challenges and barriers to private investment in the ocean energy sector, also drawing comparisons with other renewable energies, most notably offshore wind - before providing an overview of possible funding sources and prevailing business models and proposing recommendations, including the establishment of an investment support fund and a €60 million insurance fund.

COMMERCIAL DIMENSION
According to the EU official, the study has confirmed that there are several funding instruments at national and EU level for prototypes and demonstration projects - but that 'what is lacking is a critical mass of finance to further develop the sector and scale it up to a fully commercial dimension.'

Ocean energy projects are usually too capital-intensive for venture capitalists and too risky for private equity.  By the same token, borrowing from banks is often too costly.  As a result, private investment in the ocean energy sector often involves own financing.  While on the one hand this shows a certain dynamism and optimism in the sector, on the other it seriously limits the overall availability of resources," says the official.

"We are working on a political initiative to convince EU member states to pool resources and work jointly towards establishing revenue schemes for ocean energy farms that are deployed in the water, so as to give investors certainty and incentives to continue to invest in this promising technology," they add.

With reference to the scenarios outlined in the study, the EU official also reveals that, although they are optimistic, they would 'adhere to the medium scenario' - predicting a capacity of 2.8GW by 2030.

"When wind energy reached 100MW of installed capacity, the tipping point for cost reductions was reached and it is now fully competitive.  We expect a similar path to be possible for ocean energy, with a similar point to be reached in a few years' time," they add.

By Andrew Williams

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