Five CEOs of companies that are developing devices that can generate electricity from waves and tidal currents participated in a roundtable discussion at the 4th annual Global Marine Renewable Energy Conference in Washington at the end of April. They were joined by a senior manager from a west coast utility that is experimenting with ocean energy. The following is an edited transcript of the discussion.
The panelists are Cameron Johnstone, CEO of Nautricity, Chuck Dunleavy, CEO of Ocean Power Technologies, Derek Robertson, CEO of WaveBob, John McCarthy, CEO of Ocean Energy, Ltd., Reenst Lesemann, CEO of Columbia Power Technologies, and Craig Collar, senior manager for energy resource development with the Snohomish County Public Utility District in Washington State. The moderator is Keith Martin from the Chadbourne Washington office.
MR. MARTIN: Lawyers talk about laying a foundation for a discussion to follow. Let’s start with Cameron Johnstone from Nautricity. Tell us about your technology. What is it?
MR. JOHNSTONE: Our focus is tidal energy. In the early days of tidal power, the first movers were basically taking wind turbines, modernizing them and putting them into the water. We believe there are limitations with that approach, so we went back to the drawing board to design a new technology. We eliminated the rigid monopole support system that one finds in wind turbines. We introduced two counter-rotating rotors. That opened up the opportunity to eliminate the gear box. What you end up with is a generator that rotates faster than a traditional turbine, allowing you to adjust the weight and size.
MR. MARTIN: You put this device in currents or tides or both?
MR. JOHNSTONE: We put it into tidal currents. It is a generator with rotors or blades bolted straight on to the body of the generator. It is submersed in water.
MR. MARTIN: Is there a difference between a tide and a current and, if so, what?
MR. JOHNSTONE: There are thermal currents that cross the ocean floors, much like the trade winds, and there are also tidal currents that exist because of the gravitational pull of the moon. A tidal current has a higher velocity than a thermal current.
MR. MARTIN: The device looks a lot like two propellers, one in front of the other. One spins in one direction and the other spins in the other direction?
MR. JOHNSTONE: Correct. The device looks like a torpedo with propellers. It has a flexible mooring system that keeps it in location. It can be suspended from a buoy above or below the surface that is anchored to the seabed. We look to position the device in the sweet spot in the vertical column between the buoy and the seabed floor.
MR. MARTIN: How much electricity does the standard device produce?
MR. JOHNSTONE: Up to 500 kilowatts. We don’t have materials that are robust enough yet to withstand the forces that a one megawatt device would encounter.
MR. MARTIN: That is Nautricity’s product. Let me go next to Chuck Dunleavy with Ocean Power Technologies. You have a power buoy, I believe. Describe it.
MR. DUNLEAVY: It is an ocean-going buoy of a type that has been in use for decades. It has a fairly straightforward geometry: a central spar is held steady. A float encircles it. The float moves up and down with the passing waves. The buoy is positioned in at least 50 meters of water and more likely 50 to 100 meters. The passing waves cause the float to move up and down in relation to the stationary spar. The up and down motion actuates a power take-off inside the system.
There are a couple of interesting aspects to the technology. The power buoy is versatile. It can accommodate different power take-off systems, such as hydraulics, direct-drive systems and linear generators.
Another important differentiator is our technology has an automatic electronic-based tuning system. That is to say, we use electronics, not brute mechanical force, to enable the system to tune itself automatically as wave conditions change. That is important for optimizing power conversion. There are so many places from tide or wave to grid where you have an opportunity to lose energy. We have focused on using electronic means to minimize those losses and, in fact, enhance output.
MR. MARTIN: Your standard model is a PB-150?
MR. DUNLEAVY: We have a PB-40 that is connected currently to the grid off the coast of Hawaii. It was originally put in the water in December 2009, so it has been in place now for a year and a half.
We are working now on our PB-150, which is a 150 kilowatt system. We expect to go into ocean trials with the first one off the coast of Scotland to be followed later this year with another PB-150 off Reedsport, Oregon.
One final point about our product offering is that we are also making and selling what we call an undersea sub-station pod that sits on the sea bottom. It is a universal platform that can accommodate the power output from multiple structures, not just power buoys.
MR. MARTIN: Derek Robertson from WaveBob, I think you have a power buoy also, is that correct?
MR. ROBERTSON: We call it “WaveBob” but, yes, it is in many respects similar to what Chuck Dunleavy described in that it looks like a buoy. There are two main challenges when trying to work with wave energy. One is how to absorb lots of energy so that you have a basis for generating electricity. The other is how to design any device for survivability. The ocean is a harsh environment.
It is easiest to achieve one without the other. Bringing both together is the real challenge.
Our device has two distinct floats. One is a lightweight life ring that floats on the surface and that is coupled with something that is akin to an iceberg. It is a float above surface that is attached to a large mass below the surface. You capture a big slug of seawater. By virtue of your ability to open or empty the tank, you add energy as well as some survivability features by being better able to tune the device.
MR. MARTIN: Sticking with you and Chuck Dunleavy, how do your two buoys differ from each other?
MR. ROBERTSON: What distinguishes the WaveBob is tenability. First, the tank venting concept allows a degree of tuning to adjust to the waves. Second, two floats are linked through the power take-off system. Third, we have a unique and proprietary control algorithm that allows the power take-off not only to absorb the energy from the up-and-down motion of the waves but also to convert that energy into electricity with greater efficiency.
MR. DUNLEAVY: The way our respective technologies differ is in tuning capability. From our viewpoint, we would much rather effect this tuning using electrons or electrical systems than by causing large amounts of water to rush in and out of the buoyant structures.
MR. MARTIN: John McCarthy, your device also floats on the waves, but it produces electricity a little differently.
MR. McCARTHY: Yes. Our device is a floating, oscillating water column that uses the energy in the waves to push air that rushes through an air turbine to generate electricity. We have a quarter-scale device on a government test site at the moment as part of a $6 million European Union research program.
It is part of an industry research project in collaboration with a number of European-based universities to look at different issues. We are looking at moorings, telemetry, power control systems, the turbine. The information will be shared across the research and industrial community. The components can be used with other technologies.
There is a lot more room for collaboration within the ocean energy industry. A lot of research and testing that you are just starting to undertake in the States has already taken place in Europe. The information can be transferred to the States. There is a lot that the US industry could learn from what we have already tried in Europe.
MR. MARTIN: Your device looks like the back third of a ship. You said the turbine generates electricity from air passing through it. How does the air get up to the turbine?
MR. McCARTHY: The air is pushed through the turbine by the movement of the waves.
It is actually a hollow, L-shaped device. You have the long part of the L underneath the water, and as the water rushes into the device, it pushes the air column at the rear of the device upwards and through the air turbine. Our test unit is at a government test site in Galway Bay and is approximately one mile offshore.
MR. MARTIN: How much electricity is the device producing?
MR. McCARTHY: About 30 kilowatts. The full-scale device will be approximately 1.75 megawatts.
MR. MARTIN: Reenst Lesemann of Columbia Power Technologies, you are also harnessing wave technology, but you are doing it differently. Describe what you are doing.
MR. LESEMANN: Our device is a rotary point absorber. It absorbs energy from the heat and surge of every wave. It has a forward wing and a stern wing with a long cylindrical nacelle in between. Each wing is coupled to a permanent magnet generator. The generators are inside the nacelle. Our view is that simple is better, so we have cut down on as many moving parts as possible. Each wing is directly coupled to its own generator and, for the most part, those are all the moving parts in the device. More moving parts would mean more things that the sea can break at some point.
MR. MARTIN: You are relying on the heat in the water itself for energy?
MR. LESEMANN: No. It is a heave and surge device. We take energy off of each passing swell. This creates a rotary motion. The power take-off is a direct drive permanent magnet generator. We originally licensed a linear magnet generator technology from Oregon State and then worked to convert it into a rotary design. We are borrowing lessons learned from the work that others are doing with offshore wind turbines and direct drive systems. Direct drive is efficient. It is simpler. There is no gearbox between the hub and the generator to break. Again, we are trying to be simple rather than complex. We are trying to learn everything we can from what is a significantly larger industry — offshore wind — than the wave industry is at this point.
MR. MARTIN: Craig Collar with the Snohomish County Public Utility District. What is the interest of the PUD in ocean energy? How do I put this delicately: why are you here? [Laughter]
MR. COLLAR: I feel like the odd man out since we are not a technology developer.
Our utility is located just north of Seattle. We are the twelfth largest public utility in the United States. Our customers — not investors — own us. Our mission is to provide safe, cost-effective and reliable power to our customers. We have a couple key challenges moving forward to achieve that mission. One is meeting projected load growth. Our average load is currently about 1,000 megawatts. We peak at about 1,600 megawatts in the winter. The other challenge is how to meet our obligations under the renewable portfolio standard in Washington State. We are required to supply at least 15% of our electricity from renewable energy by 2020.
MR. MARTIN: How close are you currently to meeting that goal?
MR. COLLAR: It depends on your definition of “renewable.”
We get over 80% hydropower from the Columbia River system, but it does not count toward the target.
We are probably in the range of 6% to 8% today. Most of that is from wind. Wind is the only really commercial scale utility resource available to us to meet our state’s RPS target today. We have the highest percentage of wind of any utility in the Pacific Northwest. As a consequence, we are one of the first utilities in the Pacific Northwest to start bumping up against some of the integration and transmission constraints associated with wind. Wind is unpredictable. The wind farms are physically distant from the coast far down the Columbia Gorge on the other side of the Cascade Mountains, so even if we had more wind, it would not do us much good.
We would like to get to a position of not having to rely at all on fossil fuel. Coal is completely off the table and has been for a while, but even natural gas is off the table for our utility. That forces us to look at other renewable energy options, specifically ones that are predictable, like tidal energy, or baseload resources like geothermal.
MR. MARTIN: How far along are you in the search for tidal energy?
MR. COLLAR: We started our search for tidal energy four or five years ago. Snohomish County borders on Puget Sound, one of the larger estuaries in the United States. We hired consultants to do site studies and eventually selected Admiralty Inlet as the location for a pilot plant. There are currents there of as much as seven knots.
MR. MARTIN: Who will own the pilot plant?
MR. COLLAR: It is our project. We hope to submit the final license application to the Federal Energy Regulatory Commission in a few months.
MR. MARTIN: What technology will you use?
MR. COLLAR: We went through a rigorous technology selection process three years ago and eventually selected the OpenHydro Group in Ireland. Our project will involve installation of two OpenHydro turbines that will be grid connected.
MR. MARTIN: These are traditional hydroelectric turbines that just happen to be in Puget Sound?
MR. COLLAR: No, there are not traditional hydro turbines. OpenHydro offers a direct drive, permanent magnet generator. Our mission with the project is not necessarily to produce costeffective energy from day one but to learn. We want to collect technical data. We want to understand the environmental viability of tidal energy.
MR. MARTIN: Let me ask the following question of each of you, starting with Chuck Dunleavy. It takes a long time to develop a new technology. How long have you been at it, and how much longer do you think it will take to get to a commercial- scale project?
MR. DUNLEAVY: Our first in-ocean test commenced in late 1997 and, since then, we have had 14 or 15 systems in the water. Throughout that period, we have had terrific support from a number of entities, including the US Navy and Department of Energy, as well as a number of private investors.
We believe we are at a very important inflection point from the standpoint of commercial development. We are just starting to move to a commercial scale. Our grid-connected PB-40 is at about eight or nine on a scale of 10 for technology readiness. We will be deploying two PB-150s off Scotland and Reedsport, Oregon this year. We expect a commercial market for our PB-150 to develop. We are working on two, good-sized projects: one for 19 megawatts in Australia and another for 1.5 megawatts off Reedsport. We have a preliminary FERC permit for the Reedsport location for up to 50 megawatts. So these are substantial sites that will be using the PB-150.
MR. MARTIN: Do you have long-term contracts to sell the electricity to utilities?
MR. DUNLEAVY: Not yet, but we have candidates to buy electricity from the Reedsport project and we have had encouraging discussions with a number of large companies in Australia.
MR. MARTIN: When will the Australian project be built?
MR. DUNLEAVY: It will be built in phases over three years. We are working with a strategic partner to raise funding. We were fortunate to receive a grant of A$66 million from the Australian central government. The project should take three years to build from the point the financing is nailed down.
MR. MARTIN: So 24 years in the effort and maybe another three or four years away from building a 19 megawatt project off the coast of Australia. How many buoys will the 19 megawatt project involve? How much space?
MR. DUNLEAVY: It will be about 45 buoys in total. The first phase is a group of PB-150s. The last two phases are expected to include our PB-500, which is the next stage of our system and on which we are working now.
MR. MARTIN: Reenst Lesemann, how long have you been at this, and how much farther do you have to go?
MR. LESEMANN: We licensed our technology from Oregon State in 2005. We refer to that as our first generation. We did a sea trial and worked on the first and second generation linear devices. We shifted to the rotary design. If we were at a technology readiness level one or two in 2008, we had marched to TRLs three and four by last year. Right now, we are at five and six. By the end of next year or beginning of 2013, we will be on the cusp of seven and eight, which is a utility-grade device. We are 18 months away from our initial open water test of that utilitygrade device. It will have taken roughly five years to get to that level.
MR. MARTIN: That gets you to pilot testing, correct? How much longer do you think it will be before you have a commercial- scale project like Chuck Dunleavy described?
MR. LESEMANN: We are not trying to be a project developer ourselves. The initial projects will probably have some element of cost sharing with our customers.
MR. MARTIN: So you are thinking like an equipment manufacturer. Derek Robertson, how long have you been at it; how much longer do you have to go to get to commercial scale?
MR. ROBERTSON: WaveBob was founded in 1999 and originally focused on basic research. We matured over the years toward more proof-of-concept testing. We, too, are at an important inflection point where we are trying to become a more focused product development company. We are putting together relationships, including a joint venture with Vattenfall in Europe. We agreed in 2008 to build a commercial wave facility off the west coast of Ireland. We hope to enter into low-rate production in about five years.
Scottish Feed-In Tariff
MR. MARTIN: Cameron Johnstone, how long have you been at it, how much farther is there to go?
MR. JOHNSTONE: We started with fundamental research in 2000. We completed technology readiness levels one and two by 2002. We then moved to levels three and four, with extensive time testing of devices, and that takes us up to 2005. In 2005, we built our prototype device and deployed it in the sea. That has taken us up to technology readiness levels five and six, and now we are building a peak commercial device for deployment in 2012.
In parallel to that, we are in the process of setting up a single-purpose entity to take forward commercial development. We expect to start construction of a project near Aberdeen in 2012 that will run eventually to 50 megawatts by 2015.
MR. MARTIN: Who will be the offtaker for the electricity?
MR. JOHNSTONE: The project will be owned by the singlepurpose vehicle that will then sell the electricity into the network and earn revenue from ROCs or renewable obligation certificates. There is a high-value feed-in tariff in the UK.
MR. MARTIN: Correct me if I am wrong, but in the UK, you have a power pool and the ability to sell on a merchant basis into that pool. Is there an economic dispatch principle where generators bid to supply electricity, and they are dispatched by the grid from least expensive to most expensive until demand for electricity has been filled?
MR. JOHNSTONE: The tariffs that individual generators receive vary with the technology that each is using. Generators have two options: to sell into the pool or to enter into a direct contract with a customer.
MR. MARTIN: You are sure of being able to sell all 50 megawatts?
MR. JOHNSTON: Yes. We will get ROCs that we can then sell into the open market.
MR. MARTIN: It sounds like the rest of these guys ought to join you in the water off Scotland. You have a sure market.
MR. JOHNSTON: The purpose of the tariff is to stimulate growth. That’s why you are seeing a lot of interest in Spain as well as the UK.
MR. MARTIN: What price will you get ultimately for the electricity?
MR. JOHNSTON: For tidal power? You are looking now at what we call three ROCs, or about £160 an mWh.
MR. MARTIN: And at the current exchange rate into US dollars?
MR. JOHNSTONE: About $240 an mWh.
MR. MARTIN: It is a little higher than some of the offshore wind developers are getting in the United States. John McCarthy, how long have you been at it, and how much farther is there to go?
MR. McCARTHY: We have been developing our device since 2001. We probably have another two to three years to go before we have a device ready for commercial production. We started in 2001 with a 1/50th scale device that we tested in the sea. We progressed to a 1/15th scale device that we tested in France, and then moved to a full-scale prototype that we expect to start testing sometime early this autumn.
MR. MARTIN: How do you define commercial scale?
MR. McCARTHY: Commercial scale will be 50 meters long and 25 meters wide and have a capacity of 1.75 megawatts.
MR. MARTIN: Do you have a place yet in mind where you will deploy the first commercial-scale device?
MR. McCARTHY: The location will be driven by a number of factors. The main factor is the price we can get for the electricity output. In Scotland, for example, electricity from wave energy can be sold currently for about $400 per mWh. The figure is a little lower in Ireland, but the incentive is still there. Scotland, Ireland and Portugal all have attractive feed-in tariffs currently to stimulate development of the technologies locally in order to create jobs and potentially large-scale new industries.
MR. MARTIN: Ireland is having economic troubles; Portugal is as well. Many US developers had looked longingly at the feed-in tariffs in Europe as a better way to promote renewable energy than the tax subsidies that developers are offered in the US but have a hard time using. However, as economic troubles mount, renewable energy subsidies end up being scaled back. Spain is an example. Do you foresee any pressure to reduce the tariffs in Ireland and Scotland?
MR. McCARTHY: Absolutely.
Financing is a challenge. The maritime technology development period does not match with the venture capital fund requirements in terms of time for a return. A report published last month by Renewable Energy UK suggested that the best way to develop the technologies is to do it in a three-stage process. The first stage is pre-commercial prototypes, and the report suggested this stage would have to be driven primarily by government grants. The next stage is to build small-scale installations, and the money will have to come from a combination of grants and private funds pulled in by attractive feed-in tariffs. The last stage is commercial-scale projects that will have to be driven by commercial factors, but feed-in tariffs will remain important at this stage, at least until the industry can reach scale.
MR. MARTIN: Are you worried that the feed-in tariffs will have been dismantled by the time you are ready to mount a commercial-scale project?
MR. McCARTHY: We think the tariffs will remain in place because they produce long-term economic benefits for Scotland and Ireland. There are hundreds of thousands of jobs available to these countries. We have a lot of wind farms in Ireland, but they produce very few jobs: only one job per megawatt of installed wind capacity.
MR. MARTIN: Cameron Johnstone, do you think by the time you complete your project off the Scottish coast, the feed-in tariff of $240 an mWh will still be there?
MR. JOHNSTON: Yes. Indications are that the new government is considering introducing a wider feed-in tariff for carbon capture and storage technologies, although the wider tariff might not be in place until 2016.
MR. DUNLEAVY: We have been talking about feed-in tariffs. Let’s also not lose sight of green tags as another source of revenue. Certain technologies qualify for three ROCs in the UK. Some qualify for five ROCs. In Australia, there are RECs or renewable energy certificates, but they are the same concept. As we try to work out a business model in the commercial market that will make money for project developers, the monetization of green tags will be very important.
Cost Per Megawatt
MR. MARTIN: Reenst Lesemann, how much does your device cost today per installed megawatt and where do you hope to be?
MR. LESEMANN: We have not set a price yet. It is too early given where we are with our technology readiness level. That said, I think where everybody would like to be ultimately is in the $3 to $4 million per megawatt range.
MR. MARTIN: And you are five years away from that? Six? What do you think?
MR. LESEMANN: It depends on scale and production. We are still optimizing the design. Once we settle on a final design and start to invest in tooling, then we will be able to see more clearly how far down we can drive the cost of energy.
MR. MARTIN: Cameron Johnstone, how much does your device cost per installed megawatt, and where do you hope to be?
MR. JOHNSTONE: We are looking at about $4 to $5 million per megawatt.
MR. MARTIN: That is the current cost?
MR. JOHNSTONE: Yes. That includes about $0.4 million per megawatt for the mooring system and $0.5 million for physical installation with vessels.
We can foresee future cost reductions through further development of the generator technology. We certainly see the cost dropping easily to below $4 million per megawatt. Further reductions should also be possible as production scales up. We believe we will eventually undercut offshore wind.
MR. MARTIN: How long before you expect to drop below $4 million in cost?
MR. JOHNSTON: Around 2015.
MR. MARTIN: You need a lot more production to reach these goals.
MR. JOHNSTON: Economies of scale will have an impact, but the major impact by a factor of two is in the direct costs of the device.
MR. MARTIN: Chuck Dunleavy, what is your cost per installed megawatt?
MR. DUNLEAVY: The way we approach the cost per megawatt is for a full turnkey wave power station connected to the grid and fully deployed. Our target costs, in volumes of four hundred power buoys per year, are $4 million per megawatt. We need to look as well at the levelized cost of energy associated with these numbers. The operations and maintenance component obviously is a significant line item in our customers’ financial models.
An installed cost of $4 million per megawatt translates into about 15¢ a kWh. Our roadmap over the next few years as we roll out our PB-500 will take us considerably lower than that. We are targeting a cost of energy of 8¢ to 10¢ a kilowatt hour.
MR. MARTIN: Do these prices include the cost of mooring, ships, deployment, etc. as Cameron Johnstone’s figures did?
MR. DUNLEAVY: Yes. They are all inclusive.
MR. MARTIN: So if you need $150 per megawatt hour, you are already economic — if not wildly profitable — if you deploy off the coast of Scotland.
MR. DUNLEAVY: I’ll leave the adjective “wildly” to the analysts. [Laughter] But I sure hope that it comes to fruition. We think we can make a lot of money with our PB-150. We have deployed systems on three or four continents and have a very good supply chain set up. The good news for governments is we use local entities: divers, tugboats, fabricators, welders and that is a great part of the marine energy story.
MR. MARTIN: Derek Robertson, how much does a WaveBob cost per installed megawatt?
MR. ROBERTSON: We hope to deliver our systems fully deployed at $3.5 to $4 million per megawatt.
MR. MARTIN: Where do you think you are now, and how much time will it take to get to this target?
MR. ROBERTSON: Our target for getting into production is about five years. We are at a premium to the target right now: maybe not double that cost, but not too far from it. Our most important target is levelized cost of energy. We are going ultimately to succeed or hang ourselves on the operations and maintenance costs. Our levelized cost of energy target, in the early stage of production, is more conservative than the figure Chuck Dunleavy used: something on the order of 25¢ per kWh, which is in line with some of the feed-in tariffs introduced in European member states as well as what we see as some of the niche market opportunities for discreet targeted applications.
MR. MARTIN: So you think these devices need $250 per mWh to work. John McCarthy, how much does the floating air turbine cost per installed megawatt?
MR. McCARTHY: At commercial-scale production, we expect to be in the region of $3.5 million per mWh installed, with a cost of energy somewhere between 12¢ and 15¢. That is where we expect to be when about 300 megawatts of devices have been installed. In the long run, the cost of electricity will come down the more devices are in the water because of the economies of scale that are developed in terms of laying the devices. It is not the cost of the device alone that you take into account. You have to take into account the distance offshore and your cable to shore. You have to take into account the potentially substantial interconnection costs of the cables to reach the devices. You have to take into account the cost of hiring a crew to lay the moorings. There are lots of costs that turn on the location and the depth of the water.
MR. MARTIN: Each of you is looking for the same target, which is $3 to $4 million per installed megawatt. Craig Collar, do those prices sound like something that your PUD would find attractive?
MR. COLLAR: We tend to focus more on the levelized cost of energy, but $4 million per installed megawatt is within the ballpark. We tend to compare the cost to wind because that is the only renewable energy resource we have. It is difficult to predict where wind prices will end up. If we were to buy new wind electricity today, it would end up in the 12¢ range. That is 8¢ to 10¢ for the electricity and the rest to integrate it. We are talking about alternative sources of renewable electricity that are probably under 15¢ a kWh today.
MR. MARTIN: So you will need your fellow panelists to get under 15¢ a kWh before you find their electricity attractive?
MR. COLLAR: If it were today, yes. But keep in mind that their projects are still a few years down the road, and a lot of things could change by then. Gas prices, how much more wind comes on line in the Pacific Northwest and what kind of storage opportunities are developed will all affect pricing but, today, that is what I would say.
MR. MARTIN: At what levelized price are the OpenHydro turbines you are testing capable of producing?
MR. COLLAR: This is a pilot project, of course. OpenHydro would probably say it is aiming for something around 10¢ or so long term. I could not tell you over what kind of time frame it expects to achieve that. We are technology agnostic.
Potential Funding Sources
MR. MARTIN: One of the challenges for developers who are trying to develop new technologies is to find the money. Derek Robertson of WaveBob: where does your money come from today and what is your financing strategy going forward?
MR. ROBERTSON: Our money today largely comes from a combination of government agencies, friends and family.
MR. MARTIN: Can you break it down? What percentage of it has been from government sources?
MR. ROBERTSON: More than half. We believe going forward that there is probably not a business model that will allow us to remain an R&D-focused design house for wave energy converters. Our patient sources of capital and partnerships are going to require some vertical integration through the value chain. We have shied away from assuming any kind of role as project developer or manufacturer. That is a tough transition to make, and I don’t think it is a realistic one for us, but I think with some vertical integration, we will be able to support our development program and go to market.
MR. MARTIN: Vertical integration means you might be acquired by a larger manufacturer?
MR. ROBERTSON: Yes.
MR. MARTIN: Reenst Lesemann, you have a partnership with Oregon State University?
MR. LESEMANN: Yes, we have a number of partners. Oregon State was one of the original ones, but we have moved to more of a proprietary commercial set up. Our funding to date has come from a mix of public and private sources. We have moved remarkably fast from technology readiness level one toward level seven and eight. Our model depends on strategic partners. We have a core competency in designing these devices, but the actual manufacture will depend on our partners. For us, it is a mix of funding sources, and we expect it to remain that way.
MR. MARTIN: What percentage has been government funded so far?
MR. LESEMANN: Through 2010, it was about 65% public to 35% private.
MR. MARTIN: Is that mainly federal government or state governments?
MR. LESEMANN: Mainly federal. It would be impossible under a private-only funded path to have gotten as far as quickly as we have done.
MR. MARTIN: John McCarthy, tell us where your money has come from and where you see it coming from in the future. MR. McCARTHY: Our money has come from a combination of sources: private equity primarily and roughly 35% from the Irish government. In the future, we expect the funds to come from the industrial community.
What the private investors want is to see the industry players getting involved in the manufacturing of the components and supply of devices so that creditworthy warranties can be provided to customers. They want the security to know that these devices will be operating in 10 or 15 years’ time. Having industry players on board will accomplish two things. It will provide the equity that is needed, and it will provide security in terms of the device’s performance to the ultimate end user.
MR. MARTIN: Cameron Johnstone, where is your money coming from?
MR. JOHNSTONE: I think we are relatively unique in our development story in that our company started within an academic university environment. In 2000, we secured funding from the UK Research Council. In Scotland, we are fortunate to have a program called proof of concept with our local enterprise agency, Scottish Enterprise. It covers breaking this out from fundamental research to full commercialization. The Scottish Enterprise proof of concept fund allows you to build prototype systems and test them to prove robustness.
MR. MARTIN: So 100% is coming from universities or the government?
MR. JOHNSTONE: Through proof of concept. Since then, we have managed to tap into the Scottish offshore oil and gas industry, and we were fortunate to secure a lucrative deal with a private oil and gas company.
MR. MARTIN: So an oil and gas company has now provided some funding. Can I ask how much?
MR. JOHNSTONE: Around $15 million.
MR. MARTIN: It’s no fun raising money. Are you sorry you left academia? [Laughter]
MR. JOHNSTONE: Let me tell you in about 18 months’ time. In the commercial scale-up phase that we have now entered, the developments will be done through single-purpose vehicles. Individual project companies are formed and raise the hundreds of millions of pounds or dollars required to develop commercial sites. We as a company will not have an equity stake. We will be the technology provider. We have the sole international license for the technology.
MR. MARTIN: Chuck Dunleavy, your bio says that you have raised $150 million so far for your company from strategic, institutional and individual investors. That is a significant amount of money. What percentage of it has come from the government?
MR. DUNLEAVY: Roughly $40 to $50 million has come from government sources.
MR. MARTIN: So a quarter to a third from the government. What’s the secret to raising so much money from the private markets?
MR. DUNLEAVY: It is a tremendously hard task to raise money. You need to present a good team — the employees you have, your advisors as well as the initial sponsoring customers — and have a strong technology plus luck when it comes to market timing.
MR. MARTIN: Derek Robertson, is there anything more governments should be doing to help ocean energy?
MR. ROBERTSON: The biggest help would be stable support. Investors and potential industry partners have a positive outlook about the future cost of energy from marine renewables. The concern is in the perceived volatility of market prices and government support.
MR. MARTIN: If you could pick one thing the government should do — one program — what is the most effective?
MR. ROBERTSON: Investment tax credits are effective. Developers have a hard time using them directly, but they are a carrot to attract strategic partners.
MR. MARTIN: Reenst Lesemann, same question: what is the most effective thing the government can do?
MR. LESEMANN: Institute a feed-in tariff. However, if we are trying to answer the question from the standpoint of a potential investor, the answer is a stable policy that one can feel confident will still be in place in the time it takes for the technology to mature.
MR. MARTIN: Craig Collar, does the government have a role to play here and, if so, what would be most effective?
MR. COLLAR: Government support through the US Department of Energy water power program has been essential for us. We would not be in this game today if not for the support of DOE. About half the cost of our pilot-scale project will have come ultimately from the DOE and the other half will have come from us. Beyond that, utilities tend to be sensitive about unfunded mandates to purchase electricity. Putting a price on carbon, either from coal or natural gas, would be a significant shift in market signal here.
MR. MARTIN: Is the future of ocean energy large utility-scale projects or is it smaller applications?
MR. LESEMANN: It is both. Many of the devices that people are trying to bring to market can be used in remote locations to generate electricity for local use, but our goal is for large-scale utility projects.
MR. JOHNSTONE: It has to start at utility scale to drive down the capital costs of the technology. Doing that then opens up the distributed generation option.
MR. MARTIN: That’s very interesting. You need large-scale projects to bring down the cost. That is the reverse of how the solar photovoltaic industry is developing.