Webinar: Market pull - Revenue support for ocean energy
Niamh Kenny, DP Energy
Shelley MacDougall, Acadia University
Revenue support schemes have proved extremely successful at driving innovation, lowering costs and creating markets for renewable energy technologies. By incentivising production, revenue support can make the business case for the best performing technologies stack up. It drives investment by reducing risk. It is a critical step for ocean energy on the road to industrialisation.
During the webinar, Niamh Kenny explained the clear rationale for revenue supports for emerging technology like marine renewables, based on historical trends and requirements for current projects. Shelley MacDougall presented Nova Scotia’s support scheme.
View the video recording and the presentation slides.
- Revenue support mechanisms and subsidies provide government with a strategy to ensure the delivery of public goods and services that would not otherwise be provided. Energy and electricity have been socialised for decades, since electrification began, and infrastructure continues to be supported at national level for all types of generation.
Typical early stage supports:
- Production tax credits based on production output (most popular in US),
– Tax relief for investors,
2) Feed in Tariffs – FiTs (most attractive for ocean energy sector):
– Fixed price tariff as a long term agreement – 10-20years,
3) Alternate offerings:
– Renewable Energy Guarantee of origin (REGoOs),
– Renewable Obligation Certificates (ROCs),
– Contracts for Difference (CfD),
4) Ownership structure incentives:
– Co-operative model,
– Community ownership.
- Denmark – The Wind Story. Denmark started supporting wind sector after the oil crises in the 1970s. With the planned approach and providing revenue certainty for the renewable energy developers Denmark became one of the leader of the wind sector. By the end of 2017, Denmark had installed 5.3GW of wind capacity both onshore and offshore. Wind energy accounted for 14,700GWh or 44% of Denmark’s electricity consumption.
- Currently, marine energy sector cannot compete with prices of offshore/onshore wind or solar energy. Before ocean energy industry will become competitive, sector needs to install significant number of megawatts and for that revenue support is needed.
- Offshore renewable energy (ORE) catapult in the UK published a report called ‘Tidal Stream and Wave Energy – Cost Reduction and Industrial Benefit’ in April 2018. Main message:
• Tidal stream has potential to reach LCOE of £150/MWh by 100MW installed, reducing to £90/MWh by 2GW.
• Further reductions are possible with additional focus on innovation and continued reductions in cost of capital towards levels coming through in offshore wind.
• The report recommends a revenue support mechanism to accelerate the maturity of the technology to support cost reductions.
Why is revenue support important?
1. It is impossible to fund pre-commercial and early commercial arrays without revenue certainty.
2. New technologies are inherently risky – the revenue support mechanism mitigates this risk for investors.
3. Revenue support mechanisms have been shown in countless reports across all renewable energy sectors to be a catalyst to drive down price – to the point that they are no longer needed.
4. New wind and solar projects are now cheaper than new gas! This is the pathway to a carbon free future.
5. ORE Catapult modelling found that the tidal stream industry could generate a net cumulative benefit to the UK exchequer, through employment and export benefits. They predict a net GVA benefit of £1.4billion even allowing for revenue support of £1.3billion.
6. Revenue Support mechanisms are a tried and tested way to increase deployment of new technologies and drive down price.
Three pathways to tidal energy development in Nova Scotia, Canada
1) FORCE demonstration site for large-scale in-stream tidal:
- 5 berths, large-scale in-stream tidal devices, small arrays, 25 MW total for FORCE;
- Utility-grade, subsea cable, connected to transmission grid;
- Feed in tariff is CA $0.53/kWh, allows developer to enter a 15-year PPA with NSPI;
- 5 berths were awarded in 2009, 2011, 2014.
2) Small-and community-scale:
- 5 community feed in tariffs awarded in 2011 for 3.55 MW total;
- For arrays of small-scale devices (<500 kW);
- Feed-in tariff of CA$ 0.652/kWh, 15-year PPA;
3) Legislative changes (2017) and new projects:
- 2 Areas of Marine Renewable Energy Priority (AMREP): Bay of Fundy, Bras d’Or Lakes;
- 4 Marine Renewable Electricity Areas (MREA): FORCE, Digby Gut, Grand Passage, Petite Passage;
- Amendments further define the licensing and permitting regime.
- Developers need to “follow the money” in the early stages of technology development and are willing to internationalize – to move to other countries where a necessary support is provided.
- Market-pull mechanisms are important but not sufficient alone. A “package” of grants, price supports and infrastructure investment, bundled with the region’s resources, is needed.
- The package of supports needs to be clear, sufficient, stable, and predictable. Clearly defined and articulated goals of governments’ supports are paramount. The form and scale of support will need to evolve as the industry does, eventually diminishing to make way for private-sector investment.
(Image courtesy to Mike Brookes-Roper)