Long-term policies and PPA conditions at heart of tidal sector success
The tidal power sector must become more engaged with energy regulators and utilities to garner future stability, growth and long-term policy support. Elisabeth Jeffries reports from the side lines of the International Tidal Summit.
By Elisabeth Jeffries on Jan 15, 2014
Utility interest in marine power could wane as Renewable Obligations Certificates (ROCs) are phased out, according to Rob Stevenson, CEO of Alstom Tidal Generation. Speaking at the Tidal Today International Tidal Summit at the end of 2013, he sounded a note of concern about policy changes: “I believe the utilities are potential customers...but we're seeing key utilities leave the arena. Utilities don't like political or regulatory risk,” he stated.
RWE Innogy’s withdrawal from the Atlantic Array offshore wind farm could be a case in point, indicating utility discomfort with regulatory changes. RWE Innogy executives attributed the company’s withdrawal to “technical challenges...including substantially deeper waters and adverse seabed conditions.” But market sentiment indicates lack of clarity on long-term policies and incentives have also fuelled doubts among market players such as utilities.
EMR & Political Stability undermined?
With the regulatory regime changing due to Electricity Market Reform (EMR), one of the main pillars for long-term investment – policy stability – has been undermined. A fall in long-term power purchase agreement conditions (PPAs) has been partly attributed to this transition. According to a 2013 report from the Department of Energy and Climate Change (DECC), the terms offered by the historical providers of long-term PPAs have been getting worse, with a sharp deterioration noted in 2010.
Stevenson suggested remedies were needed: “If the renewables obligation goes, there are few drivers for the PPA market to improve,” he said.
More forward-looking long-term policy support could help reverse this, and would be more likely to stimulate greater investment. “Post-2019 we have no idea of the tariff structures and the whole market could become weaker as a result. People look for a level of certainty,” he said.
Not only the transition itself, but the characteristics of the new regime, in which Contracts for Difference (CfD) are allocated on a competitive basis, will also create a completely different climate for tidal power development, as Stevenson pointed out. Planned auctions could pit renewable energy technologies against each other for funding, given a limited pot of resources. That in turn could threaten long-term confidence in projects and disincentivise investment companies considering tidal.
“We're in a constrained world. There's a finite amount of money available for funding and no guarantee of a contract for tidal through the auction system. Yet tidal is an emerging technology not yet deployed at scale,” stated Stevenson. Renewable energy technologies at different development stages, could, as he indicated, be competing unfairly against each other.
But the fact that no company is now under obligation to buy renewable energy is the factor that has fundamentally altered the character of the market. It too could have long-term repercussions and weaken utility and other customer motivation. That is particularly true given that many of the other energy options are cheaper and less risky.
KW v. Technologies
As delegates have frequently remarked, utilities are buying kilowatt hours rather than particular technologies. “The RO was an obligation whereas EMR does not maintain an obligation to invest in renewables. Our customers have to have a reason to buy a new technology,” pointed out Rob Stevenson.
Now more than ever appointed staff within tidal power companies in the UK must generate even closer ties with regulators and utilities to assess their future-thinking policies. Clean air and zero carbon targets can only be achieved simultaneously by enacting regulations that require carbon-producing or high level waste companies to become zero carbon companies while simultaneously putting in place legal requirements for all companies to use carbon-free or renewable energies to power their businesses.
Energy policy makers must realise that you cannot have one action without the other. Policy makers must realise that in enacting such changes the companies will have new costs and as a result should be incentivised to not only stop pollution levels, but also at the same time be users of clean air energies, such as tidal power.
The policies and PPAs must also be flexible to the needs of new renewable technologies that best use the UK’s natural resources, such as tidal streams, which in a domino effect create new job markets, education centres, domestic and international investment, etc. Therefore tax incentives or the like are most likely needed for companies on a long-term basis to use new technologies, such as tidal power, to bring the new technologies on a level playing field, while at the same time enabling the companies to meet their carbon free regulatory requirements.
Companies, such as Atlantis Resources, for example, which is preparing for a London AIM public listing, need long-term support from utilities and regulators to garner more investment into the tidal energy sector. They have a strong business model with a well established industrial partner, Lockheed Martin, to bring their product to market on a global scale.
The year 2013 marked many milestones met for the tidal sector, not just in the UK, but in Canada and the US, which is helping the international investment community see the long-term value of tidal power as a clean energy source. Success stories breed more success stories, especially in the world of finance. But it is the harmonious long-term policy support from both utilities and regulators that the tidal sector and its investors need in writing to create an even stronger marketplace for tidal power investment, competitive power pricing and jobs-all of which are positives for the economy. This endeavour is more than possible, so we look forward to reading of more policies and PPAs that garner the industry's long-term growth and stable projectory in the United Kingdom and abroad.