Blogs, Hydropower, Solar, Wind Power

Can Offshore Wind Make or Break Wave Energy?

If you read the reports from major energy agencies and industry associations, you might be tempted to conclude there is a bright future where all types of renewable energies will flourish and coexist peacefully. Well, they will not. Much like in any other sector, some technologies will trump others. Previously we analyzed how solar photovoltaic (PV) is winning over concentrated solar power (CSP), and we will now look into the relationship between offshore wind and wave energy.

Not unlike fusion energy, wave energy (which is the most significant source of marine or ocean energy, a group which also includes tidal & currents, salinity and thermal energy) has been on the brink of a breakthrough for many years. While writing this article I revisited the earlier work we have done in this sector, and realized that the adoption of wave energy has significantly trailed our 2008 estimates. At the time, we predicted a global installed capacity of 50 MW in 2011, significantly above the 10MW that were actually installed. Our 2015 estimates now also seem overly bullish when compared with IEA’s latest forecasts (Exhibit 1).

Exhibit 1 - Comparison of 2008 and 2010 global wave energy installed capacity forecasts (MW)

Exhibit 1 – Comparison of 2008 and 2010 global wave energy installed capacity forecasts (MW)

Apart from the typically wide error margins of this type of forecasts (which we discuss here), where have we (and most of the industry) gone wrong? 

The blame is usually put on the 2008 financial system meltdown and subsequent credit crunch, but the problem could actually have been too much money, or at least the wrong kind of money. In 2008 close to 3B$ were injected in the marine & small hydro sector through Mergers & Acquisitions (a 149% increase over 2007), compared to only 0,3B$ through Venture Capital and Private Equity (Exhibit 2). This provides an M&A to VC/PE ratio of 10:1, the second highest in the renewable energy sector that year (the highest was in the wind sector, where consolidation of the onshore industry drove record-high M&A transactions).

Exhibit 2 - Venture Capital, Private Equity and Merger & Acquisition investments in renewable energy (2008)

Exhibit 2 – Venture Capital, Private Equity and Merger & Acquisition investments in renewable energy (2008)

VC/PE and M&A money serve different purposes: the former is predominantly used to research & develop a technology, while the latter is used to scale it up (Exhibit 3).

Exhibit 3 - Typical investor profiles for different renewable energy maturity stages

Exhibit 3 – Typical investor profiles for different renewable energy maturity stages

At a time where wave energy was still trying to overcome important technological and engineering obstacles (Exhibit 4), having 10 times more M&A money than VC/PE money might have rushed the technology into larger-scale deployments, hurting both investors and investees.

Exhibit 4 - Sample of reported issued in deployed wave energy devices

Exhibit 4 – Sample of reported issued in deployed wave energy devices

While the rise of offshore wind was also not trouble-free (a topic we plan to address in a future article), the outlook for this technology is now much britgher than that of wave energy (Exhibit 5), fueled by the development of multi-MW turbines, the shrinking availability of suitable onshore sites, and the development of technology that broadens the range of suitable offshore sites (such as floating platforms for deep-sea deployments).

Exhibit 5 - Comparison of wave energy and offshore wind installed capacity forecasts (MW)

Exhibit 5 – Comparison of wave energy and offshore wind installed capacity forecasts (MW)

Does this mean wave energy will eventually disappear, trampled by offshore wind? Not necessarily. These technologies share the same space (water) but harness energy from different sources (wave vs. wind), which means that wave energy can at least evolve to become a viable option for locations where wave resources are better than wind resources. There is also a degree of complementarity between both technologies (e.g. a hybrid wave/wind park can share grid connections and other infrastructures, diluting capital and operational costs), which could help wave energy to piggyback on the success of offshore wind.

Whether this happens or not will largely depend on the wave energy sector’s ability to: i) solve the current technological and engineering obstacles; and ii) attract the right type of investors to do so.

This article was originally published in X&Y Partners blog.