ECONOMY, ENERGY AND TOURISM COMMITTEE

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1 ECONOMY, ENERGY AND TOURISM COMMITTEE 11th Meeting, 2015 Wednesday 22 April 2015 The James Clerk Maxwell Room (CR4) Meeting starts at am Agenda Previous Meetings Previous Meeting Papers and Official Reports Correspondence/Events Written Submissions Scottish Renewables Highlands and Islands Enterprise and Wave Energy Scotland Offshore Renewable Energy Catapult Background Papers Next Meeting is Wednesday 29 April 2015 Expected to start at 10:00am. Energy Technologies Institute (ETI) Insights into tidal stream and wave energy ETI Infographic

2 EET/S4/15/11/A ECONOMY, ENERGY AND TOURISM COMMITTEE AGENDA 11th Meeting, 2015 (Session 4) Wednesday 22 April 2015 The Committee will meet at am in the James Clerk Maxwell Room (CR4). 1. Decision on taking business in private: The Committee will decide whether to take item 3 in private. 2. Marine Energy in Scotland: The Committee will take evidence from Neil Kermode, Managing Director, The European Marine Energy Centre Limited; Stuart Bradley, Marine Strategy Manager, Energy Technologies Institute; Tim Hurst, Interim Director, Wave Energy Scotland; Elaine Hanton, Head of Energy, Highlands and Islands Enterprise; Lindsay Leask, Senior Policy Manager - Offshore Renewables, Scottish Renewables; Dr Stephen Wyatt, Strategy and Commercialisation Director, Offshore Renewable Energy Catapult. 3. Review of evidence heard: The Committee will review the evidence heard at today's meeting. Douglas Wands Clerk to the Economy, Energy and Tourism Committee Room T2.60 The Scottish Parliament Edinburgh Tel: douglas.wands@scottish.parliament.uk

3 EET/S4/15/11/A The papers for this meeting are as follows Agenda Item 1 Submission from Scottish Renewables Submission from HIE and Wave Energy Scotland Submission from ORE Catapult SPICe briefing (private) TO FOLLOW EET/S4/15/11/1 EET/S4/15/11/2 EET/S4/15/11/3 EET/S4/15/11/4

4 EET/S4/15/11/1 SUBMISSION FROM SCOTTISH RENEWABLES Introduction With an estimated 25% of Europe s tidal power, 10% of its wave power and decades of offshore engineering experience, it is perhaps no surprise that Scotland is at the forefront of the development of wave and tidal stream technologies. Wave technology was pioneered by Professor Stephen Salter at the University of Edinburgh in the 1970s and Scotland is now home to some of the most advanced wave technologies in the world. Scotland is also at the forefront of the development of tidal stream technologies, and while we see other nations taking great strides forward, the UK as a whole remains in pole position. While we are closer than ever to realising commercially viable marine energy technologies, there have been significant challenges over the last few months, leading to a reassessment of the scale and pace of development in Scotland over the near term. However, as outlined below, the industry is working together to chart a way forward to ensure Scotland maximises the benefits from these sustainable, predictable, secure power sources of the future. Achievements Producing electricity from our seas is not an academic exercise. There have been some fantastic technological advancements in recent years and projects continue to move forward in Scottish waters: MeyGen Phase 1a, a 6MW tidal project in the Inner Sound of the Pentland Firth, reached financial close in September 2014, the first tidal array in the world to do so The first community owned tidal turbine in the world, made by Edinburgh based Nova Innovation was installed in Shetland in May 2014 The first wave energy convertor connected to a fish farm was achieved by Midlothian based Albatern off the Isle of Muck in Spring 2014 The European Marine Energy Centre (EMEC) in Orkney, continues to provide a world leading real sea testing facility, helping devices reach significant milestones, including Alstom s 1MW tidal device achieved a generation milestone of 1.2GWh, two Pelamis Wave Power P2 devices achieved a combined generation milestone of 250MWh, and Aquamarine Power s Oyster 800 wave machine demonstrating survivability over its third full winter at sea FloWave, the world s most sophisticated test tank, based in Edinburgh University, was opened in 2014 The sector has also contributed a significant number of jobs and investment into the Scottish economy. Scottish Renewables research showed there were around 800 FTE jobs in marine energy in Scotland in Recent research from the Department for Business Innovation and Skills, released in March 2015, estimates that there are 1000 jobs in marine energy in Scotland (p.70)

5 EET/S4/15/11/1 Work for EMEC has also shown that for every 1 job at EMEC, around 10 direct jobs have been created in the supply chain. This is a significant impact in comparison to similar industries, and its benefits are having a huge effect in Orkney s small community with around 265 FTE jobs in total being supported by the marine energy sector. In addition, Scottish Renewables research has also found that companies working in Scotland boast high levels of Scottish content throughout their supply chain, at around 62%, with total investment to date in the region of 200 million 2. RenewableUK research has further shown every 1 of public funding has leveraged 7 of private money into the sector 3. Challenges The announcements at the end of 2014 regarding Pelamis Wave Power entering administration and Aquamarine Power downsizing were clearly concerning for Scotland s wave energy sector, and even more so for the companies and employees involved. While Aquamarine Power remains confident that its Oyster technology offers the best route to a commercial near shore wave energy machine, these developments show both the challenging conditions in which the wave sector operates and the risks inherent in developing any new technology. Siemen s decision to divest from Marine Current Turbines was also a concern for the tidal industry. It is clear that while huge progress has been made, technology development has been slower than initially anticipated, especially in the wave sector where there has been a lack of technological convergence. This, combined limited access to finance, availability of affordable grid connections and uncertainties around longer term market visibility, has impacted investor confidence and called into question long term prospects for the development of a market. The Way Forward Scottish Renewables has worked through the Marine Energy Programme Board (MEPB), the UK Government s industry liaison group, to develop a series of actions that we believe will tackle the most pressing issues and help to re-instil confidence throughout the sector 4. The first and overarching recommendation is for both the UK and Scottish Government s to provide a joint, clear and consistent vision of the role wave and tidal energy will play out to 2030 and beyond. This vision must be supported by a UK wide strategy and funding at a suitable intensity to kick-start a transition to a commercial industry over the next 5 10 years. The MEPB endorsed the ORE Catapult assessment that this funding should be in the region of 300 million 5. Scottish Renewables has also welcomed the Scottish Government s decision to establish Wave Energy Scotland (WES) and its continued commitment to the wave energy sector. The importance of consistent and supportive government messaging for emerging industries like wave energy cannot be understated. Scotland s wave energy sector has recognised for some time now that a more collaborative approach to R&D is required, and recent developments have reinforced that a business as usual approach to funding technology development is no longer appropriate. WES provides an opportunity to move away from company focused and array driven funding models towards a more collaborative R&D approach that ensures less duplication of effort on common challenges and supports all of Scotland s indigenous wave technologies (p.4)

6 EET/S4/15/11/2 SUBMISSON FROM HIGHLANDS AND ISLANDS ENTERPRISE AND WAVE ENERGY SCOTLAND Introduction Highlands and Islands Enterprise (HIE) and Wave Energy Scotland (WES) welcome this opportunity to provide written evidence to the Scottish Parliament s Economy, Energy and Tourism Committee. Background For the past fifteen years HIE, with Scottish Government and Scottish Enterprise has focused on supporting the development of a new marine energy sector providing Scotland and the Highlands and Islands with a major opportunity to secure economic benefit through business diversification, inward investment, commercialisation of research and development, and community empowerment. HIE has taken a leading role in this process, including through its leadership of the public sector partnership which created the European Marine Energy Centre (EMEC) on Orkney it remains the world s only grid connected wave and tidal test site, has been operational for almost 12 years, and has hosted the testing of more devices than any other single location in the world. HIE continues to work closely with EMEC, and is supporting it attract new users to its site. HIE s support for the marine sector, however, goes beyond its ongoing relationship with EMEC. HIE alongside the Renewable Energy Investment Fund has approved investment of up to 23million (mainly commercial equity plus some grant) towards the 51 million Meygen tidal array demonstration project. That project, which will initially have 4 tidal turbines, will be deployed in the inner sound in the Pentland Firth and started onshore construction in January In 2014 HIE also published its Marine Renewables Infrastructure Plan which set out the likely needs of the marine sector in relation to ports and harbours, and detailed the facilities available around the Highlands and Islands that are well placed to support the sector as it grows. HIE has also worked with Scottish Enterprise and Scottish Government on all three rounds of WATERS, with the most recent round resulting in 3.7m being awarded to further test and develop new marine prototypes in seas around Scotland. Finally, HIE and Scottish Enterprise have recently launched a Marine Supply Chain Expert Support programme which is designed to assist local businesses service the sector. Notwithstanding the considerable support and investment from Scottish Government and its Agencies over the last decade, the marine sector continues to face considerable challenges including around technology, investment and grid. The wave sector in particular is in an increasingly fragile state. Despite considerable investment over several years, there is as yet no wave technology sufficiently developed to move from testing to commercialisation. This slower than anticipated development of technology has been accompanied by a reduction in private investment into the sector, and a withdrawal of some major funders from it. As a consequence, a number of Scottish wave companies have found their ability to continue to trade increasingly difficult, including Pelamis Wave Power which entered administration in November 2014.

7 Strategic Contribution Scottish Renewables estimates show that Scotland s marine energy sector has invested more than 200m in the country to date, with 31.8m spent in the last 12 months alone. The UK Marine Energy Programme Board has estimated that the UK could capture a significant share of the global marine energy market worth up to 76billion, contributing 4billion to UK GDP by 2025 i. Achieving such economic impact will, however, require improved confidence in technology and market conditions to drive investment. Wave Energy Scotland In response to the challenges affecting the wave sector in particular, the Scottish Government announced in November 2014 its intention to establish a new wave energy technology development body Wave Energy Scotland (WES). The creation of WES underlines the Scottish Government s support for the wave sector - and the wider marine energy sector. It offers a new model of support for the wave sector and represents a move away from the company-focused approach to date towards a model that will encourage deeper collaboration and less duplication of effort on the underlying technological and system challenges of capturing the energy of the waves. The purpose of WES is to bring together the best engineering and academic minds to collaborate on innovative projects that will accelerate the development of wave energy technologies. It aims to address the challenges facing the wave sector by supporting the development of the most promising energy technologies, sub systems and components. WES will seek to maintain Scotland s position as a global leader in marine energy and build on the significant value that has accrued to Scotland from research and development, innovation and demonstration to date. The objectives for Wave Energy Scotland recognise the value of this wave technology development to date, and the large global market that can be developed through further technological innovation: Seek to retain the intellectual property and know-how from device development in Scotland for future benefit; Enable Scotland s indigenous technologies to reach commercial readiness in the most efficient and effective manner, and in a way that allows the public sector to exit in due course; Ensure that the learning gained from support for wave device development and deployment to date, in particular the learning from Scotland s leading wave technologies, is retained and used to benefit the wave energy industry; Avoid duplication in funding, encourage collaboration between companies and research institutes and foster greater standardisation across the industry; Ensure value for money from public sector investment; and Promote greater confidence in the technical performance of wave energy systems in order to encourage the return of private sector investment.

8 The Energy Minister, Fergus Ewing MSP, confirmed in a letter to the HIE Chief Executive on 9 December his wish that Highlands and Islands Enterprise (HIE) establish and operate WES. WES has been established as a subsidiary of HIE, operating within its governance and accountability framework, with responsibility falling within the remit of the HIE Accountable Officer. The Minister recently confirmed funding of up to 1.3million for WES for 2014/15 and a further 13million for 2015/16. WES will have a small core team of around 12 employees based in the Highlands and Islands. HIE recently started the recruitment process for the Managing Director s role, and will follow this with recruitment for further senior posts by the end of April. WES acquired the IP and bulk of assets out of the Pelamis administration in January Operating Model The WES operating model has evolved from work in which HIE, SG and SE were involved during 2014 and is designed to allow projects to be 100% public sector funded. European guidelines on aid for research and development and innovation specify both collaborative and pre-commercial procurement routes to enable such activity to be progressed and funded by the public sector. It is expected that WES would use either or both of these routes together with procurement of a public service contract, in compliance with the EU procurement rules. Advisory Group Crucial to the WES model is the establishment of an Advisory Group which will play a key role in supporting WES and HIE ensure that only the best technologies with the potential for commercial development are supported. It is intended that the group will be made up of representatives of industry (e.g. OEMs and utilities), academia, investment and insurance interests. Recommendations on projects and collaborations to be pursued and supported by WES will be submitted to the Advisory Group for consideration and endorsement where appropriate. It is intended that the Advisory Group will provide a commercial focus to the operation of WES, and ensure that only those projects or collaborations which have a realistic prospect of delivering technology which can be commercially developed are taken forward. WES issued a call for expressions of interest in Advisory Group membership on 30 March. Stage Gate Review Those projects supported by WES will be the subject of a stage gate review process. Technical milestones will be agreed with the Advisory Group and the stage gate review process will be used to assess the performance of each activity against these milestones. This will determine whether the technology will progress to the next stage and further funds made available. This process will introduce a level of engineering rigour, objectivity and cost management. It will also identify additional collaboration opportunities. WES will also ensure that all activity undertaken within its programme is in line with industry standards. This will involve external accreditation by a recognised standards body such as DNV GL.

9 One of the fundamental objectives of WES is to share research findings and ensure that they are disseminated widely. Applicants to WES will retain any arising IP, but they will be required to make it available to others on market terms. A number of provisions have been developed to ensure that IP is managed effectively by WES, such as a use it or lose it clause should the applicant fail to meet certain targets in connection with continuing development or commercialisation of arising IP, and first right of refusal to acquire the arising IP if the applicant wishes to sell or otherwise dispose of the IP. Ownership of background IP will also reside with the applicant, but all applicant background IP required for WES to make reasonable use of arising IP shall be licensed to WES on a perpetual, worldwide, irrevocable, royalty free basis. Test and Demonstration All testing and demonstration will be required to be carried out in Scotland in order to capture the economic benefit for Scotland. Enterprise Agencies and Scottish Development International will work with WES to help support companies interested in setting up operations in Scotland. Capturing Lessons Learned WES has contracted with Quoceant, a new entity established by a group of ex-pelamis employees, to document and capture knowledge around the assets acquired by WES out of the Pelamis administration. WES is also in discussion with the remaining Scottish wave developers to capture the wider lessons learned by the sector over the last 20 years. The outputs of that work will help define the future priorities of WES. Competitive calls On 19 March, WES issued its first major competitive project call for innovative power takeoff (PTO) systems with a budget of up to 7million. Successful applicants will be eligible for contracts that cover up to 100 percent of the cost of their technology development project, and contracts will range from between 100,000 and 4 million, depending on the maturity of the technology. WES is calling for innovative ideas that could result in a step change in the capital cost and performance over current technologies. Applications are being sought in the following four programme stages: Feasibility studies Concept optimisation/proof-of-concept projects Early stage prototype development Late stage prototype development Applicants will need to demonstrate they meet specific gate entry criteria in order to be assessed. Applications will be assessed according to their technical and commercial merit, impact on cost reduction and performance.

10 The deadline for applications is 22 May and decisions are expected to be made by the end of June. The Carbon Trust and Offshore Renewable Energy Catapult are working closely with and supporting WES through this process. The PTO system competitive call is the first of five calls expected to be run over the next year, with the next call expected to issue in May for novel concept designs. Advisory Group input will be sought on future topics. Conclusion Over the last four months considerable efforts have been made to establish and quickly commence WES operations, and to secure the assets out of the Pelamis administration for Scotland. HIE, evidenced through its commitment to deliver WES on behalf of Scottish Government and wider support for the marine sector, continues to believe that the sector offers Scotland and the Highlands and Islands substantial long term economic opportunities which should be pursued.

11 EET/S4/15/11/3 SUBMISSION FROM OFFSHORE RENEWABLE ENERGY CATAPULT About ORE Catapult The Offshore Renewable Energy Catapult was established in 2013 by Innovate UK (formerly the Technology Strategy Board) to be the UK s technology innovation centre in offshore wind, wave and tidal energy. It is one of nine such Catapults set up in high potential growth industries to accelerate the commercialisation of technology and realise substantial economic and social benefits throughout the UK. We operate on a 5 year business plan and receive an annual core grant of 10-15m from UK Government. In common with other Catapults, our business model is to obtain additional funding for research and innovation programmes from the private sector and other public funding sources, such as the EU and devolved Governments ORE Catapult is headquartered in Glasgow, having received strong encouragement from Scottish Government, academia and industry. We also operate the National Renewable Energy Centre in Blyth, Northumberland, providing an open-access test and demonstration facility for the offshore industry. We employ 125 people, many of whom are engineers, researchers or technical experts, and acts as the technical focal point for the sectors it serves. In collaboration with industry, academia and Government, the Catapult delivers prioritised research and Innovation projects focused on increasing knowledge and reducing the cost of offshore renewable energy. ORE Catapult is a key component in Scotland s drive to lead the world in offshore renewable energy, and deliver affordable, low carbon, secure energy from offshore wind, wave and tide. Supporting the development of wave and tidal technologies is core to our mission. The ORE Catapult team has a strong marine energy team with over 25 man years of experience in delivering wave and tidal technology innovation programmes, and have over 80 technical specialists across a range of disciplines. We have a Research Advisory Group chaired by Prof. Robin Wallace of the University of Edinburgh, representing ten leading universities active in the sector. This is mirrored in industry by our Industry Advisory Group of 18 leading utility, OEM and supply chain players, chaired by Jonathan Cole of Scottish Power Renewables. Around 60% of our project activity developing innovative technology is in partnership with Scottish academia and industry. The current state of the marine industry In tidal current energy, today s front running device technologies are considered close enough to being commercially ready for project developers to move to the first array stage, but projects need more innovation to solve prevailing challenges relating to first array construction and operation. In wave energy, leading technology developers have demonstrated full-scale prototypes at EMEC (and other locations), but further technology development is

12 EET/S4/15/11/3 required to prove devices and build confidence in reliability and the potential to reduce the Levelised Cost of Energy (LCOE). Innovation in both tidal current and wave needs ongoing public support. It is often said that Scotland leads the world in wave and tidal energy. With the demise of Pelamis Wave Power and the threats facing Aquamarine Power s future, and the backdrop of increasing activity in Canada, USA, France as well as parts of Scandinavia and SE Asia, this statement is becoming increasingly difficult to defend. The aforementioned countries could now be considered level pegging with Scotland since they are all developing tidal projects or developing scale prototypes for wave as we are. However, we believe that Scotland still has a lead, but that lead now exists in the hard lessons we have learnt and the experience of several years out in front. It could be said that Scotland s leadership position now resides in our people, knowledge and expertise rather than our companies developing technology. The next phase of industry development must build on the lessons we have learned to date. As a new and well-funded initiative, Wave Energy Scotland s approach to this is crucial. Failure to effectively capture lessons, and feed these into the overall direction and strategy, could be disastrous for the sector. ORE Catapult s relationship with Wave Energy Scotland The ORE Catapult is keen for WES to be a great success, especially given the alignment of WES and ORE Catapult s missions. Since January 2015, ORE Catapult has been providing support to WES and, going forward, we envisage a close partnership to support WES through the prevision of technology expertise. As well as committing time to WES team, ORE Catapult has offered to provide strategic guidance to WES by participating in either its board of directors or senior advisory group. An opportunity for greater collaboration Most industry stakeholders recognise that the journey for developing marine energy is going to be long and expensive. Estimates from a recent study by the ORE Catapult 1 indicate that, collectively, wave and tidal energy need a further 300m of investment from the public and private sectors to get to a position where we are confident in the performance of the technology. To achieve this position in the most efficient way we need to leverage our collective experiences to inform technology development, decision-making and the way we support the sector. There is an opportunity for greater coordination between Scotland and the rest of the UK to share the burden of industry development; areas such as SW England and Wales have dedicated marine energy development funds which should not replicate what Scotland is already doing, but should be opportunities to leverage some of the work taking place in these geographies. Given its UK wide remit and Scotland headquarters, the ORE Catapult is well placed to help in this regard. 1 Financing solutions for wave and tidal energy, November 2014

13 Dr. Stephen Wyatt 16 th April 2015 EET/S4/15/11/3

14 Energy Technologies Institute Infographic