Tide on the rise for wave generation

By Andrew Bolger, Scotland Correspondent
Published: February 2 2009 02:00

Could the credit crunch actually benefit the development of Scottish wave and tidal power?
This intriguing prospect has been raised by Cameron Johnstone, director of Strathclyde University's energy systems research unit and a member of EquiMar, Europe's largest ocean energy research programme.
Speaking in Edinburgh last week, Mr Johnstone said: "With sterling losing value against both the dollar and euro, the attractiveness of deploying devices in UK waters increases for overseas developers."
Vessel hire and services costs accounted for a large part of project costs, he said. "Since these are charged in local currency, it will be 25 per cent cheaper for most foreign projects to work in UK waters compared with the same time last year - and that is a meaningful reduction in total project delivery costs."
Mr Johnstone was speaking on the day Lord Smith, chairman of the Environment Agency, expressed concern that several big energy companies were reconsidering plans for offshore wind farms. Eon, the German energy company, also said the economics of the London Array - touted as the world's biggest offshore wind farm - were on a "knife-edge".
But Mr Johnstone argued that the credit crunch had reduced asset values of both share and land bank portfolios, so returns to investors in conventional markets were very low. The Russian threat to the security of gas supplies had induced further instability in financial and energy markets.
"The coincidence of these events could open up opportunities for wave and tidal energy projects to attract new and greater levels of investment," he said.
Returns on wave and tidal projects "could easily match and potentially exceed" returns in conventional markets. Such projects would also provide "an autonomous energy supply" controlled by the UK.
"Scotland is ideally placed to house new marine projects - and reduce its dependency on potentially insecure supply networks, with all the turmoil that dependency creates in both our financial and energy markets."
Mr Johnstone was speaking days after Alex Salmond, Scotland's first minister, said one of the world's largest wave electricity generating stations would be constructed at Siadar, off Lewis in the Western Isles.
The 4MW Npower Renewables scheme will create up to 70 jobs and start with the capacity to power about 1,800 homes.
In 2007 the Scottish government granted consent for a 3MW array of four Pelamis machines at the European Marine Energy Centre in Orkney. Pelamis machines float on the surface of the waves, while the proposed 40 turbines at Siadar would be encased in a concrete breakwater.
Holyrood is processing 30 applications for renewable projects - 23 wind farms and seven hydro-electric projects - and more are expected.
The tardiness of the planning process is also being addressed. The Scottish government said it had determined 24 energy applications since being elected in May 2007 - more than during the previous four years. Of these, 18 renewable and one non-renewable project had been approved.
Scottish government targets are to meet 50 per cent of electricity demand from renewables by 2020, with an interim target of 31 per cent by 2011.
Total installed capacity of renewables in Scotland is already more than 3,000MW. Adding all potential energy from consented renewable projects brings the total to 5,500MW, which means the government is set to surpass its 2011 target.
Meanwhile, about £12bn
of new offshore power networks will be needed to carry electricity from proposed wind farms off Britain's coast. Ofgem, the UK energy regulator, has appointed financial advisers to help it run the competitive tendering of the transmission licences.
Ofgem has engaged a consortium - led by Ernst & Young, the professional services group, Royal Bank of Canada and Willis, the insurance broker - for the first round, which is expected to conclude in June. Shortly after that, £500m to £1bn of competitive tenders will be invited.
The Department of Energy and Climate Change expects up to 33,000MW of offshore wind generation to be constructed under the scheme - enough to power about 10m homes.
The UK is already the largest user of offshore wind, with some 4,500MW of projects in operation, under construction or with consent, according to the British Wind Energy Association. The association says increasing the amount of wind energy in the UK's electricity mixture reduces overall energy costs and limits the risks associated with volatile prices of fossil fuels.
Scottish generators say the development of renewable energy is being hindered by the electricity charging regime, which encourages the generation of power close to the largest centres of population.
The Scottish government - backed by Scottish Power and Scottish and Southern Energy - has lobbied Ofgem over this and National Grid is expected to publish further analysis of the issue this month.
Copyright The Financial Times Limited 2009