Market study on Marine Renewable Energy

The aim of this study is to:

• estimate the funding needs of the ocean energy sector in the EU;
• identify and analyse potential financial gaps and possible funding solutions;
• analyse the recommendations of the ocean energy roadmap in this context.

Three scenarios were developed: optimistic (all projects in progress and starting on the proposed date), neutral (all projects are in progress, but some are delayed), pessimistic (projects are delayed and some have been cancelled).

Main results:

• In an optimistic scenario, given the current level of political support, a global cumulative installed capacity of about 3.9 GW is forecast through 2030. Capacity drops to 2.8 GW in a neutral scenario, and to just over 1.3 GW in a pessimistic scenario.
• Europe must retain its world leadership in ocean energy in the period up to 2030.
• Marine current energy is expected to take off in the next few years. While they are not modelled in the analysis, the success of some key projects, such as MeyGen and Cape Sharp Tidal, might well propel the sector further.
• Most of the financial resources injected into the industry come from private equity.
• Like any other form of renewable energy, ocean energy tends to have relatively higher investment costs (e.g. installing equipment in the water), but lower operating costs (e.g. maintenance, fuel, etc.). Therefore, for projects to be successful, over time initial investments will be repaid by generated capacity, which will result in lower operating costs than in fossil fuel-based energy sectors. The cost of fossil energy might remain lower than that of ocean energy for a long time. However, the higher CAPEX/OPEX ratio of ocean energy is promising, as it reveals that money is being spent to create long-term value. Furthermore, a reduction in capital expenditure costs per unit of power is expected, with an increase in project capacity and overall cumulative installed capacity, meaning that there is a real potential for reducing LCOE for ocean energy technologies. The 10c€/kWh target might be reached once 10 GW is installed, which might be by 2030 for tidal power and by 2035 for wave power, according to Ocean Energy Europe and TP Ocean.
• Excluding tidal energy, in an optimistic scenario, investments up to 2030 will amount to 9.4 billion euros in Europe, 7 billion euros in a neutral scenario and 2.8 billion euros in a pessimistic scenario.
• More than 6 billion euros has so far been invested in projects around the world, 75 percent of which coming from private funding.
• In the EU, between 2007 and 2015 alone, €2.6 billion was invested in the ocean energy sector, 75 percent coming from private corporate investments. The European Commission has provided financial support exceeding 200 million euros through its research funding programmes. Another billion euros has been spent (of which some already allocated, to be spent by 2020) by member States and local governments through EU structural funds and their own programmes.
• Marine energy projects can generate profits by selling power to the grid or to third parties (e.g. a port). Revenue will depend on the sale price of the energy produced. The cost of electricity (LCOE) for ocean energy is still relatively high compared to other forms of renewable energy. LCOE could be reduced by reducing capital expenditures, sharing infrastructure or developing demand-side mechanisms to support revenue.
• Feed-in tariffs are the most common demand-support mechanism. These are public subsidies that require utilities to purchase energy at a subsidized, above-market rate. This support is critical in enabling the sector to grow to a level of maturity so that it can compete in the market.
• The study confirmed that several funding instruments are available at the national and Community levels for prototypes and demonstration projects. What is lacking is a critical mass of funding to further develop the sector and bring it to a fully commercial scale. Marine renewable energy projects are usually too expensive for venture capitalists and too risky for private equity. Similarly, bank loans tend to be very expensive. As a result, private investment in the ocean energy sector often involves self-financing. While this shows some dynamism and optimism in the sector, it also seriously limits the overall availability of resources.

• By using public money to mobilize private capital, the funds proposed in the Ocean Energy Roadmap could be plowed into the sector until it reaches the desired level of maturity. However, funding alone will probably not be enough to reach the tipping point, after which the sector can stand on its own feet without strong and stable public support. The injection of public money through funds will certainly reduce the level of risk for private investors, but the latter will continue invest in light of expected returns. Therefore, some form of revenue support is of paramount importance in accompanying funds and maximizing their effectiveness. It is therefore strongly recommended that measures be taken to implement revenue support mechanisms, as consistent as possible among member States, in order to create certainty in the sector. In addition to legislative and financial support, foresight and determination are crucial. Offshore wind energy - now considered a mature, though still subsidized, industry - took 13 years to reach one GW of installed capacity in Europe, then less than three years to double that capacity, and by 2012 - just five years after the first GW - five GW was already installed in Europe. We should not take it for granted that ocean energy will follow the same path, but a clear vision and stable long-term support will pay off.