Marine Renewable Energy Market Analysis - Essay Example

? Marine Renewable Energy Market Analysis Word Count: Executive Summary From time immemorial till the current times, people all over the world have been part of constructive developments utilizing various aspects of nature, which is helping people for many years and will help people for years to come as well. Utilizing nature in the sense, using many natural elements only including various natural energy sources, humans have come up with many inventions and innovations. However, certain of these natural energy sources, have negative side-effects, which kind of destructs the nature or natural environment, from which it is accessed, thereby pushing the need to tap other eco-friendly renewable energy sources. Among them, Marine energy sources are proving to be a feasible and productive option. The United Kingdom not only has 50% of Europe's marine energy potential but the UK also is a prominent leader in the marine renewables market at the present. When these optimum exploitable wave resources as well as tidal stream resources are optimally tapped, it can provide sizable benefits to various sections or stakeholders. One of the key stakeholders is the government. With this sector being a small and upcoming one, it needs maximum support from the government to grow further. Government has been providing good financial support, but the view is, still more grants can be given by the government. This is particularly important in the context of high installation and operating costs involved with these wave and tidal projects. The capitals as well as operating costs are on the higher side, but with the development of technologies, it can reduce in the near future. In addition, this sector has potential for providing employment opportunities, but there are chances that other socio-economic structures in the vicinity of the projects could be affected. Technologies involved in this sector are manifold, and still it is in the development stage, with completely tuned devices and implementations still some years away. Thus, the UK Marine sector has good potential for growth, but still certain challenges exist. Contents 1 Introduction 1.1 Scope 4 1.2 Marine Renewable Energy 4 1.3 Marine Energy Development 5 1.4 Market Size and Growth 6 1.5 Key Competitors 7 2. Trend I: Interests of the political Government 2.1 Government’s Role 9 2.2 Government’s funding 10 2.3 Need for more funding 10 3. Trend II: Economic Costs and socio-economic impacts 3.1 Installation and operating costs 11 3.2 Socio-economic costs 14 4. Trend III: Technology Development 4.1 Technologies Used 15 4.2 Technology with environmental perspective 16 5. Trend IV: Increasing Environmental Awareness 5.1 Negative impacts 16 5.2 Legislative backings 17 6. Conclusion 17 7. Appendices 20 8. References 21 1. Introduction 1.1 Scope This report will do an analysis of the external environment of the UK’s marine energy market using the PESTLE tool. Through the PESTLE analysis, the report will try to discuss not only the opportunities but also the threats that are prevailing in the marine energy market. By doing these analyses, the report will ‘glean’ four trends, which are visible now and importantly could be visible for the next three years in the marine energy market. These trends as well as recommendations that can be implemented will provide an overview of the market, and could be helpful for the new entrants as well. The information for preparing this report was obtained from various online sources, which includes government reports, reliable websites, online books, etc. 1.2 Marine Renewable Energy Marine renewable energy constitutes into two sectors, Wave energy and Tidal energy. Wave energy is generated with the aid of wave movement. However, as wave movement and the resultant energy is irregular, a variety of infrastructures or prototypes are developed and installed in the sea to tap the energy. Devices are often separated by their location in the sea, particularly the depth of water. Figure.1 Wave energy (Carbon Trust 2006) On the other hand, Tidal energy is obtained utilizing the rise as well as the fall of the sea normally caused by tidal flow. That is, “water storage basin, like a dam, fills with water at high tide and empties at low tide, until it reaches a level that is equal to the water level in the ocean, and when water “is then passed through a turbine” energy is generated. (oceana.org). Depends on the speed of the moving stream and the area intercepted, the amount of energy can be extracted differently. Figure.2 Tidal stream energy (Carbon Trust 2006) 1.3 Marine Energy Development The below table provides the list of marine renewable projects operating in the year 2009 and 2010. Table 1: Marine Renewable Operating in 2009 (Energy Generation Network 2011) Table2: Anticipated Marine Renewables Operating in 2010 (Energy Generation Network 2011) In 2010, more devices are deployed to be tested. (see table 2) A number of devices being located in UK waters, while those have different stages of development. At the end of March 2011 the UK has found capacity of 3.4MW of marine energy, consisting of 1.31 MW of wave energy capacity and 2.05 MW of tidal stream capacity. This is a 50% increase from the 2.4MW installed in 2010. (RenewableUK 2011) 1.4 Market Size and Future Growth potential When one focuses on the current market size of the UK’s marine energy sector, it is only at a small ‘range’ with potential for high growth. As stated in the State of the Industry report by RenewablesUK, a trade and professional body dealing with marine renewables, as of “March 2011 the UK has 3.4MW of installed marine energy capacity” (RenewableUK 2011). In addition, as stated by RenewablesUK (2011) UK has more than 7.665MW of wave and tidal energy projects are being installed, with all of them at the “advanced stages of planning and fabrication for deployment in 2011, representing a potential 100% increase.” When one looks at the future forecasts, the report prepared by RenewablesUK (2011), states a total of 11MW of marine energy projects have been awarded consents and an additional 23MW has entered the planning system, which will result in above 250 MW marine energy projects by 2020. The below figure shows how electricity generation from marine energy sector as well as consent for new projects has been increasing from 2000’s, and how it also poised to accentuate even further (RenewableUK 2011) 1.5 Key competitors In the UK, a number of firms are active in the marine energy market. Voith Hydro Wavegen is one of leading firm which created the world’s first commercial-scale grid-connected shoreline wave energy device in 2000. (RenewableUK 2011). This firm achieved profits of more than 1.2 billion Euros in the business years 2010 to 2011 in the hydro market and has won the Accenture Award for Outstand International Achievement in Green Energy in 2011. (Voith Hydro; Hi Energy 2011) Edinburgh based wave energy firm Aquamarine is another competitor, has launched Oyster project at the European Marine Energy Centre (EMEC). (BBC 2012). The firm commenced second Oyster wave power project, through installing Oyster 800 energy device at Billia Croo in Orkney in 2011. (Aquamarine Power). Other competitors are Pelamis Wave Power, OpenHydro and Marine Current Turbines (MCT). Pelamis Wave Power installed the 0.75MW P2 device at EMEC in 2010, OpenHydro deployed 0.25 MW Open Centre Turbine at the EMEC in Scotland for testing. ((RenewableUK 2011) 2. Trend I: Interests of the political Government 2.1 Government’s role Any industrial sector growth and even survival depends on the support provided by the political setup or the government, and this is applicable to the Marine renewable energy sector as well. When the role of UK government in regards to Marine renewable energy sector is viewed historically, it shows that the government “funding for research and development of wave energy technologies was discontinued in the 1980s, when it was disputedly viewed as uneconomic and technically problematic.” (WWF 2005). However, when new technological developments showed that generating energy from waves and tides is a technically as well as financial feasible option, the government started supporting that initiative by passing favorable legislations like the Energy Act (2004) as well as by granting financial aids. 2.1 Government’s funding When the economic aspect is focused, the UK government granted ?50 million funds in the mid 2000s “to help ensure the UK is a world leader in harnessing wave and tidal stream power as a potential source of renewable energy” (WWF 2005). That first initiative was further strengthened with the UK government continuously providing more financial aids for the past few years. For example in the year 2011, the UK government through its Technology Strategy Board (TSB) provided an investment of more than ?2.5m to the three research and development projects that are being operated by companies Bauer Renewables, Pelamis Wave Power and Marine Current Turbines with the intention to develop wave as well as tidal energy related technologies. That is, “the investment will help to finance research and development focusing on supporting and underpinning the deployment of pre-commercial devices installed and operating in the sea.” (Ocean Power 2011). However, there are expectations for more funds. 2.3 Need for more funding The key players in this sector are of the opinion that only if the government provides the needed financial support, the potential energy sources can be tapped, for the benefit of the UK economy and importantly to reduce CO2 emissions. According to them, the currently allocated amount is way below their expected levels, and so the government has to make further allocations to reach the expected levels. That is, the total expectation of the marine energy sector is, the UK government has to allocate ?120 million “for the industry to develop wave and tidal energy technology and overcome the barriers to full-scale commercialisation.” (BBC 2012a). However, as the government has allocated around ?32 million only, which is just the one-third of the total allocation, the UK Marine energy industry are expecting an the remaining ?82 million investments. In addition, they are of the opinion that only if the government provides its support, the private sector will make matching contributions. This is particular in the Scottish marine energy sector, with heightened expectation that good government support, and sizable contribution by the private players, can enable Scotland to generate 100 percent energy solely from the renewable resources, discarding the fossil fuels by 2020. This was validated in the study, which states, “…every pound of public sector investment will unlock ?6 of private investment, assisting greatly in the achievement of Scotland's energy target of 100% electricity equivalent to come from renewable energy sources by 2020.” (Orbit Communications 2012). Thus, one of the key trends that could emerge in the next three years in the Marine renewable energy sector, in relation to the political and economic aspects is the need for constant financial support from the government, as well as the private players. With the whole programme of tidal and wave installation and operation being an expensive affair, adequate financial support is expected from the government along with other financial incentives. 3. Trend II: Economic Costs and socio-economic impacts 3.1 Installation and operating costs All the wave and tidal energy projects entail high installation and operating economic costs because of its location in the difficult sea areas, use of advanced and various technologies and importantly as it was an upcoming concept. The capital cost of marine renewables technologies can broken down into: the cost of the generation device itself; the costs associated with installing it (which includes the materials, components and labour needed for manufacturing, fabricating and importantly deploying it); the costs of developing the surrounding infrastructures (foundations or moorings); and finally the costs of connecting it to the grid (electrical cables and switchgear). (Carbon Trust 2006). Although, this breakdown of costs could vary according to location and other factors, the Figure 4 illustrates the breakdown costs for a specific wave farm (Figure 4a) and for a specific tidal stream farm (Figure 4b). (Carbon Trust 2006) However, the key point that has to be noted is that these high capital costs are not static and could evolve or even evolving with passage of time, due to the developments in technology, availability and importantly costs of various raw materials and other components. This can be seen in the below figure. That is, from the high costs that were required to manufacture the first prototypes, the costs have sizably decreased. For example, the total capital cost of first prototype wave energy converters could be up to ?9,000/kW, but certain prototypes have already been built at costs below ?4,300/kW. (Carbon Trust 2006) Likewise, the initial tidal stream energy generators were developed at ?8,000/kW, but certain concepts have already been built for under ?4,800/kW. (Carbon Trust 2006) (Carbon Trust 2006) To establish demonstration stage devices of wave as well as tidal projects at particular sites, the capital costs are reaching millions. For example, “capital costs for demonstration-stage wave devices are estimated to be in the range of ?3.9m and ?5.6m/MW, whilst the capital costs for demonstration-stage tidal stream (shallow) devices range between ?3.0m and ?4.6m/MW.” (Department of Energy and Climate Change 2011). However, as mentioned above, the cost are reducing sizably, and in the near future, it could come under feasible ranges. Thus, the key trend that is emerging regarding the economic costs in the marine energy sector is, currently the installation and operating costs are on the higher side, but the expectation is it will decrease appreciably 3.2 Socio Economic impacts When the marine renewable energy sector is focused from the social perspective or even socio-economic perspective, it provides interesting details. These projects can make social as well as socio-economic impacts in the areas in which they operate, although, they are installed and operate in non-social isolated sea areas. That is, it facilitates recruitment of high number of employees from the surrounding areas, which will surely create socio-economic impacts. Although, the current employment levels in the UK marine energy industry is in the low ranges, with more projects on the anvil, more employees could be recruited. According to estimates, by 2035, the industry could Employ 19,500 individuals for various positions. (RenewablesUK 2011). The below figure, shows the current employment levels and the positions for which the employees are recruited. (RenewablesUK 2011). Apart from his impact, the social and economic structures on the shores could also be impacted. For example, the shipping and the options for recreations in the vicinity could be affected. That is, with the infrastructures of both the wave and tidal energy projects occupying sizable portions of the sea, ships cannot come ashore and importantly other commercial plus socio-economic activities like surfing, sailing, etc., cannot be carried out. “They attract bird watchers, water-sports enthusiasts and other visitors, so the construction of a tidal barrage would have a significant impact on the appeal of an estuary” (WWF 2005). In addition, even the livelihood or economic earnings of the fisherman and other workers could be affected, as installation could impede their fishing activities. “Displacement of existing economic activity such as fishing and aggregates industries would also be affected (for example, the Severn Barrage would displace three major ports – Bristol, Cardiff and Newport).” (WWF 2005). Thus, the other key trend that is emerging from this analysis of the social aspects is that apart from the environmental impacts (which will be discussed in the following sections), socio-economic impacts also has to be focused when setting up Marine energy projects. 4. Trend III: Technology Development 4.1 Technologies Used With our growing understanding of science, new technologies are incessantly emerging and replacing existing technologies, in an attempt to simplify or enhance existing technology. Power generation technologies are becoming popular with the mounting necessity to generate clean energy round the clock, and that is visible in the marine energy sector as well. Electricity from the marine energy sources are generated based on the “design of the prime mover (mechanical components) that extracts energy from the resource – e.g. the rotor of a tidal stream turbine; and the power take-off system (equipment used to convert the mechanical energy into electricity).” (Carbon Trust 2006). 4.2 Technology with environmental perspective However, the fact is, not all the devices for both wave and tidal energy sector have been finely tuned, and still many of them are undergoing improvements. Thus, the key expectation is these devices have to move from the demonstration and trial stages to the actual implementation stage. “The challenge for the sector is to move from a research and development focus towards, initially, demonstration of small arrays (in the range of 5-10MW) and subsequently commercial-scale deployment in the period to 2020.” (Parliament UK 2012). Even with current operating technologies, there seems to be issues regarding its environmental impacts. Although, all these technologies are used to generate cleaner energy, the thing that has to be taken care is, while installing and running these technologies, the environment does not get impacted negatively. “The right renewable technology should be built in the right location to minimise any adverse environmental impacts on marine species, biodiversity and habitats.” (WWF 2005). Thus, the other key trend that is visible and could be visible for the next 3 years is, all new technologies will be or have to be developed, taking into consideration its environmental impacts. That is, technologies which aptly support energy generation through wave and tidal energy, without negatively impacting the surrounding environment are the key. 5. Trend IV: Increasing Environmental Awareness 5.1 Negative impacts With both the wave and tidal energy projects installed and operated in the sea, it is having and could have major impacts on the habitat and thereby the environment. For example, the construction of a tidal barrage affects the hydrodynamic regime in the local estuarine environment, causing fluctuations in the water levels, which will impact the salinity and water quality. That impacts the mudflats and shorelines, affecting the feeding grounds for many species. In addition, “estuaries are major spawning grounds for fish and other organisms as well as important sites for migratory birds of national and international importance”, and the constructed “tidal barrage will act as a barrier to migratory fish which may use the estuary channel.” (WWF 2005). Thus, all the marine projects have high chances of affecting the environment, unless legal steps and even steps by the projects operators are not taken. 5.2 Legislative backings Speaking about legislations, UK Energy Bill (2003), renamed the Energy Act (2004) was passed to “enable development of marine renewable energy beyond 12 nautical miles (nm).” (The Crown State 2011). With this demarcation of territory for tapping marine energy, the act led to the formation of the Renewables Energy Zone (REZ). These REZ are crucial because it provided the companies exclusive geographical zones to install their related infrastructures and operate them to optimally tap the energy sources. Although these political backed legislation gave the shot in the arm for the marine energy sector, more complementary legislative protections has to be formulated to protect the marine habitats and wildlife of national importance, which could be impacted while tapping this marine energy. This is of vital importance because, when the marine projects expand, they will be scrutinized by the environmental groups. Thus, the key trend emerging is, government will take steps and apart from them, the operators also have to take key steps. 6. Conclusion From the above analysis of the UK marine energy sector, and thereby coming up with four trends, it is clear that the sector has huge potential, but at the same time has certain challenges. The first key trend relates to the government’s role in providing financial assistance to the current as well as future projects. The political machineries will always influence the industrial sectors through various policy decisions like giving finance related concessions, land concessions, setting up of exclusive zones and importantly by providing financial grants. In that direction, UK Government support for wave and tidal sector has been in the form of grants, with over ?100m of funding to date from UK Government and Devolved Administrations, thus reflecting the early stage of development, with potential for their future deployment (RenewablesUK). Although, UK government is providing apt funds to the various wave and tidal energy projects going on throughout UK, when one looks at the economics or the costs involved in the setting up and the running of these marine renewable energy projects, the financial aid appears only minimal, with the necessity in the high range. Thus, the first key recommendation is that government has to continuously provide more funds, so that more projects are initiated and importantly it elicits sizable contribution from the private sector. As mentioned above, only if the government makes the contribution, the private sector will make matching contribution. So, the key players including the new entrants should form or should be part of influential bodies, so they can lobby with the government. The next key trend is regarding the high installation and operating costs and the socio-economic impacts. The key recommendation that can be carried it and that will be applicable for the entrants as well, is the current operators as well as other players should allocate a major portion of their financial resources for Research and Development. When more and more RD is done on the field as well as off-field, better and importantly cost effective technologies can be developed. This will result in more employment opportunities that will take care of socio-economic aspects. In addition, as these better technologies should take care of the environmental aspects as well. These above mentioned renewable energies are being generated at many places, and so if it is popularized all over the world and if it becomes the main energy generation options, then negative effects of climate change can be minimized. Although, it will be a difficult task to get rid of non-renewable energies completely and instead make people use safer renewable energies. It can be done in a phase-by-phase manner. Industries as well as the common people can be encouraged to utilize it and if they start feeling the benefits, it can become a global phenomenon. Appendixes Political From 2000’s UK government has been contributing to the Marine energy sector It has recently contributed ?2.5m However, the expectation from the government is around ?120 million Economic High economic costs for installing and operating both wave and tidal projects Capital cost of marine renewables technologies are on the higher side However, with the development of cost-effective technologies, it can reduce Social Facilitates recruitment of high number of employees in future projects Social and economic structures along the shores could be affected Technology Marine energy sector is technology intensive All new technologies will be or have to be developed, taking into consideration its environmental impacts Legal UK Energy Bill (2003) renamed the Energy Act provides good back for the marine energy sector Environment Impacts nearby natural environment Hydrodynamic regime in the local estuarine environment are affected References Aquamarine Power. Technology: How Oyster wave power works, [Online] Available at http://www.aquamarinepower.com/technology/how-oyster-wave-power- works/[Accessed March 17, 2012] BBC., 2012. New Orkney wave devices set to power 1,000 homes via National Grid, [Online] Available at http://www.bbc.co.uk/news/uk-scotland-north-east-orkney-shetland- 17026809/[Accessed March 17, 2012] BBC., 2012a. Marine power needs public funds, says industry, [Online] Available at http://www.bbc.co.uk/news/uk-scotland-17381937/[Accessed March 17, 2012] Carbon Trust (2006): ‘Future Marine Energy Results of the Marine Energy Challenge: Cost competitiveness and growth of wave and tidal stream energy, [Online] Available at http://www.oceanrenewable.com/wp- content/uploads/2007/03/futuremarineenergy.pdf. /[Accessed March 17, 2012] Department of Energy and Climate Change., 2011. Renewables Obligation Banding Review 2013-17 – Public Consultation, [Online] Available at http://www.decc.gov.uk/assets/decc/11/consultation/ro-banding/3235-consultation- ro-banding.pdf/[Accessed March 17, 2012] Energy Generation and Supply Knowledge Transfer Network (2011): ' Market information - Marine Renewables'. Hi Energy., 2011. Voith Hydro Wavegen awarded for international achievement, [Online] Available at http://www.hi-energy.org.uk/Default.aspx.LocID-00tnew09n.RefLocID- 00t007008001.Lang-EN.htm/[Accessed March 17, 2012] oceana.org. Feature: Marine Renewable Energy, [Online] Available at http://oceana.org/en/eu/media-reports/features/marine-renewable-energy/[Accessed March 17, 2012] Ocean Power., 2011. UK to Invest $4 Million(US) in Three Wave and Tidal Energy Technologies, [Online] Available at http://www.oceanpowermagazine.net/2011/02/07/uk-to-invest-4-millionus-in-three- wave-and-tidal-energy-technologies//[Accessed March 17, 2012] Orbit Communications., 2012. Wave and tidal energy needs ?82m to begin to realise full potential in Scotland, [Online] Available at http://www.orbit-comms.co.uk/wave-and-tidal-energy-needs-82m-to-begin-to- realise-full-potential-in-scotland//[Accessed March 17, 2012] Parliament UK., 2012. The Future of Marine Renewables in the UK, [Online] Available at http://www.publications.parliament.uk/pa/cm201012/cmselect/cmenergy/writev/marine/mar01.htm/[Accessed March 17, 2012] RenewableUK 2011, Wave and Tidal Energy in the UK State of the industry report, [Online] Available at http://www.bwea.com/pdf/marine/Wave_Tidal_energy_UK.pdf. /[Accessed March 17, 2012] The Crown State., 2011. The marine estate: our strategy to 2015, [Online] Available at http://www.thecrownestate.co.uk/media/154774/marine_estate_strategy_to_2015.pdf. /[Accessed March 17, 2012] Voith Hydro, Voith wins Scottish award for Outstanding International Achievement, [Online] Available at http://www.voith.com/press/564331.htm/[Accessed March 17, 2012] WWF., 2005. Marine Renewable Energy for the UK, [Online] Available at http://www.wwf.org.uk/filelibrary/pdf/marine_renewable_energy.pdf.[Accessed March 17, 2012] Read More