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MBA Business Research Project - A Study into Commercial and Technical

Considerations for the Future Use of Marine Energy in New Zealand
Thesis · December 2012
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MMBA 532 (Business Research Project)
Final Report
A Study into Commercial and Technical

Considerations for the Future Use of Marine Energy
in New Zealand
Presented to: David Stewart
Presented by:
Simon Fleisher 300184004
Date: 24 October 2012

Word Count: 9,985
MMBA 532 Business Research Project Final Report
Table of Contents
1. EXECUTIVE SUMMARY ................................................................ 1
2. INTRODUCTION ............................................................................ 3
3. LITERATURE REVIEW .................................................................. 5
3.1 New Zealand’s Tidal and Wave Characteristics and their

Impact on Marine Energy Viability ....................................... 5
3.1 (a) Tidal Energy ............................................................ 8
3.1 (b) Wave Energy ......................................................... 14
3.2 Marine Energy Technical and Commercial Development 19
3.2 (a) Technical Development ....................................... 19
3.2 (b) Commercial Development.................................... 22
4. RESEARCH DESIGN ................................................................... 24
5. DATA COLLECTION AND ANALYSIS ........................................ 28
6. DISCUSSION ............................................................................... 30
6.1 Technical Developments .................................................... 30
6.1 (a) Tidal Devices ........................................................ 30
6.1 (b) Wave Devices ....................................................... 31
6.1 (c) Technical Standards ............................................ 35
6.1 (d) Prototype-to-Production Changes ...................... 36
6.2 Commercial Developments ................................................ 37
6.2 (a) Industrial Assimilation and Technical Alliances 37
6.2 (b) Marine Energy Device Testing ............................. 38
6.3 New Zealand Projects ......................................................... 39
24 October 2012 - ii - 300184004

6.3 (a) Marine Energy Deployment Fund (MEDF) .......... 39
6.3 (b) New Zealand Marine Energy Centre .................... 40
6.3 (c) Energy Efficiency and Conservation Authority .. 41
6.3 (d) Lessons Learned (Critical Success Factors) ..... 42
6.4 Driving Factors for Marine Energy LCOE.......................... 43
6.4 (a) Installation Costs.................................................. 43
6.4 (b) Operation and Maintenance Costs ...................... 44
6.4 (c) Electrical Balance of Plant and Transmission.... 44
6.4 (d) Capital Cost and Power Output ........................... 45
7. VALUE CHAIN ANALYSIS........................................................... 46
8. INDICATIVE MARINE ENERGY LCOE ........................................ 49
9. CONCLUSIONS ........................................................................... 54
10. RECOMMENDATIONS................................................................. 58
11. ACKNOWLEDGEMENTS ............................................................. 60
12. BIBLIOGRAPHY .......................................................................... 61
ANNEX A – New Zealand Electricity Generation Statistics ............ 68
ANNEX B – Renewable Electricity Generation Target .................... 70
ANNEX C – Global Marine Energy Project Breakdown .................. 71
ANNEX D – New Zealand Marine Energy PEST Analysis ............... 73
ANNEX E – Marine Energy Deployment Fund ................................. 75
ANNEX F – WET-NZ Testing in Portland, Oregon ........................... 76
ANNEX G – Carbon Trust Report – Installation Techniques .......... 78
ANNEX H – Economic Modelling Parameters (Tidal)...................... 81
ANNEX I – Economic Modelling Parameters (Wave) .................... 82

24 October 2012 - iii - 300184004
List of Figures
Figure 1: Wave Power in the Chatham Islands ................................. 5
Figure 2: New Zealand Exclusive Economic Zone............................ 7
Figure 3: Bay of Fundy, Canada ......................................................... 9
Figure 4: UK Mean Spring Tidal Range (Severn Estuary) .............. 10
Figure 5: Cook Strait Tidal Current Speeds for Spring Tide Flows 11
Figure 6: Global Tidal Range Perspective ....................................... 12
Figure 7: Global Wave Energy Perspective ..................................... 15
Figure 8: Mean Spectral Wave Power (1998 - 2007) ........................ 16
Figure 9: Potential Wave Power ....................................................... 17
Figure 10: Marine Energy Technology Maturity Curves ................... 21
Figure 11: Indicative Levelised Cost of Energy Components .......... 23
Figure 12: MCT’s 1.2 MW SeaGen Device at Strangford Lough ...... 31
Figure 13: Oscillating Water Column Principles ............................... 32
Figure 14: Pelamis P2 Attenuator ...................................................... 32
Figure 15: Oyster Wave Energy Converter ........................................ 33
Figure 16: Carnegie CETO Device Principles.................................... 34
Figure 17: Significant Supply Chain Support Areas ......................... 47
Figure 18: MED Price Path Estimates for NZ Electricity Prices ....... 49
Figure 19: Cost Reduction Pathways for Wave and Tidal Energy ... 52
Figure 20: Net Quarterly Electricity Generation Statistics ............... 68
24 October 2012 - iv - 300184004

Figure 21: Total Electrical Demand over a 24-Hour Period .............. 69
Figure 22: Breakdown of 24-Hour Electrical Demand by Type ........ 69
Figure 23: Breakdown of NI / SI Electrical Demand by Type ............ 70
List of Tables
Table 1:…Examples of Organisations involved in Marine Energy...27
Table 2:…Contact Details for Device Manufacturers……………...…38
Table 3:…Indicative Marine Energy Prices (2012, 2020, 2030)…..…49
Table 4:…76 MW Tidal Array – Calculated NPV, IRR and LCOE..…51
24 October 2012 -v- 300184004

1. EXECUTIVE SUMMARY
Still in its infancy, the global marine energy industry remains mainly at a research
and development stage, but it is actively scaling as governments implement more
stringent renewables targets and directed policy support. Given the substantial
resource potential and the longer-term emphasis to decarbonise the global power
sector, marine energy is poised for gradual growth as the industry gains momentum.
New Zealand’s electricity generation in 2011 to meet consumer demand was 43,000
GigaWatt hours (GWh), of which 77% was renewable energy, including 58% hydro,
13% geothermal and 5% wind. Once the current recession has ended, demand is
predicted to rise at 1.5 ± 0.5% per annum for the foreseeable future,, necessitating a
significant increase (24,000 ± 4,000 GWh) in electrical generation capacity by 2040.
Possessing sufficient capacity to meet future demand is strategically important for the
economy. However, future hydro and geothermal development is constrained, and
wind will be unable to make up the difference, so alternatives will be required.
New Zealand’s geographical location in the “Roaring Forties” with its high winds and
energetic sites provides it with excellent wave resources along much of the West
coast, and a good tidal resource in several locations, including the Cook Strait. This
combination of future potential demand plus an abundance of natural resources
makes marine energy a strong candidate if it can become economically viable.
Tidal energy is more technically advanced with a design convergence towards

horizontal-axis, axial flow devices. Wave energy’s future remains more uncertain,
with fewer full-scale devices operating successfully and no clear technology leader
yet established. Continued development will be required to increase device power
output, simplify mechanical design, reduce weight and provide robust, fit-for-purpose
electrical balance of plant that will survive in the harsh marine environment.
Installation and maintenance comprise the two biggest cost drivers, and reductions in
the scope and cost of these are critical if marine energy is to become economically
viable. Advanced installation techniques, increased reliability, reduced maintenance
and provision of dedicated support vessels are key enablers in achieving this goal.
The electricity market is unsubsidised and there are few grants available to assist
developers. Previous government financial support has now expired without
replacement. Consequently, projects are costly and risky, and provide limited rates of
return, making financing and insurance difficult to obtain without government support.
24 October 2012 -1- 300184004
There have been several tidal and wave energy pilot projects but progress has been
frustratingly slow for a variety of reasons, including lack of finance, resource consent
delays and stalled contractual negotiations. An exception to this is the WET-NZ
device which has undergone testing in New Zealand and in the USA. The New
Zealand Marine Energy Centre initiative, driven by the Aotearoa Wave and Tidal
Energy Association (AWATEA), is seeking support from the Government. If funded,
this will raise the profile of the industry significantly. In addition, this would provide a
multitude of associated economic benefits, and boost the fragile supply chain.
Using the Ministry of Economic Development Price Path as the benchmark, the
Levelised Cost of Electricity (LCOE) for both tidal and wave energy will remain above
projected wholesale prices until at least 2030. Hence, it will remain uncompetitive in
the short-term but has the potential to be a credible alternative to other forms of
renewable energy in a niche market by displacing diesel-powered electricity
generation. If cost reduction pathways are successful, it may be possible to enter the
wholesale market by supplying peak demand electricity after 2030. However, without
dedicated government financial support and backing, there is a risk that marine
energy will never enter the market as other renewable energy forms (for example,
solar photovoltaic) could gain a sustainable competitive advantage.
Key recommendations include formalising government support for Marine Energy

under the stewardship of the Ministry of Business, Innovation and Employment
(MBIE), including funding of the New Zealand Marine Energy Centre. Further
collaborative research should be conducted into cost reduction pathways, and
resource analysis / site selection to support the commercialisation of prototype
projects such as WET-NZ. New projects should be established to commercialise and
build upon the lessons learnt from WET-NZ, as well as installation and testing of a
tidal device, including connection to the national grid. A work stream should be set up
to investigate the future direction of electrical balance of plant required for array
transmission, based upon the technical requirements of the Electricity Code.
A coherent programme is required to drive the collective effort necessary to link all of
these recommendations and disparate work streams together. To plan and manage
this effectively, a strategic roadmap is needed, overseen by a designated lead
authority. Government support should be provided, which would be best managed by
MBIE, with assistance and representation from key industry stakeholders.
24 October 2012 -2- 300184004

2. INTRODUCTION
Still in its infancy, the global marine energy industry remains mainly at a research
and development stage, but it is actively scaling as governments implement more
stringent renewables targets and directed policy support. Given the substantial
resource potential and the longer-term emphasis to decarbonise the global power
sector, marine energy is poised for gradual growth as the industry gains momentum.
New Zealand is uniquely blessed with geographical features that are naturally
predisposed to the development of hydro, geothermal and wind electricity generation
and these have been exploited historically to great effect. Hence, New Zealand’s
percentage of renewable energy electricity generation is one of the highest in the
OECD. In 2011, total electrical demand was 43,000 GigaWatt hours (GWh) of which
77% was renewable energy including 58% hydro, 13% geothermal and 5% wind (a
more detailed statistical breakdown is at Annex A).1
This high proportion reduces dependency on fossil fuels such as gas and coal. 2 It
also partially insulates the economy from significant hikes in the price of oil,3 which
can lead to inflationary pressures due to volatile foreign exchange rates and a long-
term reduction in world oil reserves. As a result of this, as well as political pressure to
mandate climate change initiatives, the government has stipulated an aspirational
and challenging target of 90% renewable energy electricity generation by 2025
provided security of supply is maintained (see Annex B).4
Despite changes in electrical usage due to new technology and increased energy
efficiency, demand by industrial and domestic consumers is predicted to rise annually
for the foreseeable future once the current recession has ended.5 Predictions of the
growth rate vary but, notwithstanding the effects of the recent recession and the
Christchurch earthquakes, the overall trends are broadly similar. The growth rates
are predicted at 1.0-2.0% per annum, requiring a 50–70% increase (20,000–28,000
GWh) in annual electricity generation demand by 2040.6
1
(Ministry of Business, Innovation and Employment, 14 September 2012).
2
(International Energy Agency, 2011).
3
(Coffman, June 2010).
4
(International Energy Agency, July 2011) and (Ministry of Economic Development, 2011).
5
Growth rates in electrical demand have reduced temporarily due to the lingering recession and the
effects of the Christchurch earthquakes; (Electricity Authority, 2012).
6
(Transpower, 2011).
24 October 2012 -3- 300184004

Possessing sufficient electrical generation capability to meet future demand is

strategically important for the economy. However, future hydro and geothermal
development is constrained by the technical complexity and high costs of hydro
schemes and the decreasing number of suitable high-temperature geothermal sites
available. Favourable wind conditions in New Zealand have seen large-scale
adoption of wind energy, and the total amount of installed generation capability is
increasing significantly, but this alone will be unable to fulfil future predicted demand.7
Hence, alternative solutions must be found to meet predicted future demand.
New Zealand’s geographical location in the “Roaring Forties” with its high winds,
associated sea states and energetic sites8 makes marine energy a good candidate if
the technology matures to the extent that it becomes economically viable.9
Development of marine energy devices is still maturing and, although power output
per device is broadly equivalent to many wind turbines, system integration is
probably at the stage that wind technology was at 15 years ago.10 Some
commentators have asserted that technical maturity and whole-of-life costs have now
reached a turning point, implying that deployment of marine energy may be
technically if not economically viable from 2025 onwards.11
The aim of this research project is to test the rigour of this assertion by researching
and developing the topic of marine energy in New Zealand, focusing upon
geographical considerations, technical development and commercial viability. The
key areas necessary to facilitate the deployment of marine energy include:
(a) Technical maturity and commercial developments in the New Zealand

market,
(b) Control of the driving factors influencing whole-of-life costs,
(c) Derivation of projected indicative costs and value chain analysis
for marine energy in the New Zealand market, and
(d) A coherent, integrated approach to marine energy that facilitates
and de-risks technological development, and provides sufficient
financial support to make it economically viable.
7
(International Energy Agency, July 2011) and (Parsons Brinckerhoff, 26 January 2012).
8
(Stevens, Smith, & Gorman, 2005).
9
(Carbon Trust, July 2011).
10
11
(Ocean Energy Systems, October 2011).
24 October 2012 -4- 300184004

3. LITERATURE REVIEW
3.1 New Zealand’s Tidal and Wave Characteristics and
their Impact on Marine Energy Viability
Marine energy comprises two main forms that can be utilised locally – wave and tidal,
and these have several advantages over wind energy in that ocean and tidal stream
currents are regular and predictable, and, consequently, the overall energy yields12
(and hence, revenues) are greater for a device of equivalent power rating.13
New Zealand’s geographical location in the “Roaring Forties” with its strong winds
and associated high sea states seductively entices the casual bystander into thinking
the future deployment of marine energy is a given. It is well known for its winds and
energetic wave sites, and the Cook Strait is infamous for its rough crossings as well
as the scenic beauty of the Marlborough Sounds. Extreme sea states occur relatively
close to shore as evidenced by the sinking of the Wahine ferry just outside
Wellington harbour in atrocious weather in 1968.14
Figure 1: Wave Power in the Chatham Islands
12
(Mueller & Wallace, 2008).
13
For tidal energy devices, the predictability of resource is such that electricity produced can be
supplied as a base load, ensuring greater financial yields. This concept is expanded upon in Section 7;
(Transpower, 2011).
14
(Ministry for Culture and Heritage, 20 April 2012).
24 October 2012 -5- 300184004

The burgeoning growth of renewable energy over the past decade plus heightened
sensitivities to maritime environmental effects have stimulated a plethora of
academic interest in this field. This includes Crown Research Institutes (National
Institute of Water and Atmospheric Research (NIWA) and Industrial Research Ltd
(IRL)), the University of Otago, the Aotearoa Wave and Tidal Energy Association
(AWATEA), and marine energy consultancies.
As an archipelagic nation heavily reliant on sea-based trade for the vast majority of
exports and imports,15 the sea conditions and prevailing weather patterns around the
New Zealand coastline have been well documented.16 Generic reference information
includes Admiralty charts17 and nautical almanacs.18 In addition, NIWA have
produced an excellent online, interactive tool that calculates the height of tide and
tidal stream velocity throughout the Exclusive Economic Zone (EEZ).19 However,
identifying suitable locations for tidal and wave energy sites requires a very stringent
level of analysis.20 This includes:
(a) Physical environmental attributes such as depth, tidal mixing,

bottom type and shape, ocean fronts, upwelling and eddies as
these affect the design, operational performance and installation
costs of marine energy devices,21
(b) A histogram or predicted spectrum of anticipated tidal stream
velocity / wave power, including seasonal variations. This is
required to ascertain the total amount of electrical energy that
can be produced per annum (in GWh). This is achieved by
mapping turbine output power characteristics versus tidal stream
velocity / wave power,22 and
(c) Accurate predictions of navigational shipping surface conditions
including tidal stream strength and direction, and height of tide.
These are required to facilitate installation, engineering and
logistical support dependent upon nautical access.23
15
(Ministry of Foreign Affairs and Trade, May 2010).
16
(Heath, 1985).
17
(Maritime New Zealand, 2010).
18
(LINZ, 18 January 2012).
19
(NIWA Tide Forecaster).
20
21
22
(Rovers, 05 July 2012).
23
(Carbon Trust, July 2011)
24 October 2012 -6- 300184004

Figure 2: New Zealand Exclusive Economic Zone
24 October 2012 -7- 300184004

3.1 (a) Tidal Energy

Tidal range energy is potential energy extracted from the ebb and flow of tides which
are caused principally by the Moon’s gravitational attraction, modified by the Sun’s
pull.24 Tidal stream velocity is dictated primarily by tidal range (difference in height
between high and low water) but is also affected by other factors such as extreme
weather events, including winds. The great advantage of tidal energy over other
forms of renewable energy is its greater predictability and higher electrical yields
(capacity factors), especially when compared to wind.25
Tidal energy is extracted using devices such as “horizontal-axis marine turbines”

analogous in concept to modern wind turbines.26 The rise and fall of a tide can also
be utilised to extract energy using barrage concepts across harbours or inlets, but
there are environmental consequences (including increased silting and possible
entrapment of marine wildlife) with this type of approach.27
The mean tidal range around New Zealand (2 metres) is not large by world
standards,28 compared to 10 metres for the Bay of Fundy, Canada (Figure 3 refers)
and 8 metres for the Severn Estuary, UK (Figure 4 refers).29
24
(Elliot, February 2009) and (New Zealand Government, 02 August 2011).
25
(World Energy Council, 2010).
26
(Power Projects Ltd, 30 June 2008) and (Omerdic, Toal, & Leahy, 2010).
27
Concerns have been raised regarding the effects of tidal barrages on estuarial water flows, including
increased silting and possible entrapment of marine wildlife;
(Kadiri, Ahmadian, Bockelmann-Evans, Rauen, & Falconer, 2012) and (Elliot, February 2009).
28
(The Encyclopaedia of New Zealand, 02 March 2009).
29
(World Energy Council, 2010).
24 October 2012 -8- 300184004

Figure 3: Bay of Fundy, Canada
24 October 2012 -9- 300184004

Figure 4: UK Mean Spring Tidal Range (Severn Estuary)
24 October 2012 - 10 - 300184004

Water flow through the naturally-constricting Cook Strait is enhanced by a confluence

of several different westerly sea currents meeting in the Tasman Sea. This has the
effect of funnelling water through the only significant gap in the New Zealand land
mass, causing high tidal stream currents.30 Consequently, the Cook Strait (in
particular, Cape Terawhiti) is one of the best physical locations for tidal energy
extraction around New Zealand.31
Figure 5: Cook Strait Tidal Current Speeds for Spring Tide Flows
30
(Stevens C. L., Smith, Grant, Stewart, & Divett, 2012) and (Walters, Gillibrand, Bell, & Lane, 2010).
31
(Stevens C. L., Smith, Grant, Stewart, & Divett, 2012) and (Black & Veatch, July 2010).
24 October 2012 - 11 - 300184004

A global perspective of tidal ranges and the associated strengths of tidal streams can be gleaned from the following: 32
Figure 6: Global Tidal Range Perspective

32
24 October 2012 - 12 - 300184004

There are also strong tidal currents in the vicinity of Cape Reinga, Kaipara Harbour,
the Tory Channel and the Fouveaux Strait.33 From an electricity generation
perspective, proximity to a major population centre (i.e., Wellington) is preferable as
transmission costs are lower as the electrical load is nearer the point of supply.34
Extensive modelling of tidal energy resource in various locations was conducted in

200835 and the results correlate precisely with later NIWA modelling of the Cook
Strait.36 Indicative tidal stream flows in the Cook Strait at spring tides taken from the
MetOcean Solutions report are illustrated in Figure 5 (above).
Current marine turbines require tidal streams of at least 2 m/s (3.9 Knots) to be fully
effective,37 so the yellow and orange shading in the figure above demonstrates a
broad range of possible installation locations at spring tides. Before installation,
further detailed analysis would be required at each microsite to provide the richness
of data necessary to determine the technical feasibility and economic viability of each
specific location.38
Using this benchmark figure, research indicates that the Cook Strait possesses
suitable tidal stream characteristics for economically-viable wave devices.39
However, further detailed analysis is required to ascertain the implications of channel
depth (50 – 60 metres in some locations) and underwater topography, in particular,
type of sea bed and profile.40 Experience gained from marine energy development in
the Pentland Firth, Scotland (which has similar depth characteristics to the Cook
Strait) indicates that water depths of 50 – 60 metres are technically feasible and may
be economically viable for device installation.
33
(Heath, 1985).
34
(O'Sullivan & Dalton, 2009) and (Electricity Authority, December 2011).
35
(MetOcean Solutions Ltd, May 2008).
36
(Stevens C. L., Smith, Grant, Stewart, & Divett, 2012) and (Walters, Gillibrand, Bell, & Lane, 2010).
37
(Power Projects Ltd, 30 June 2008) and (Hibbert, June 2012).
38
(Rovers, 05 July 2012), (Electricity Authority, 14 December 2011) and (World Energy Council,
2010).
39
(Black & Veatch, July 2010), (MetOcean Solutions Ltd, May 2008), (Stevens C. L., Smith, Grant,
Stewart, & Divett, 2012) and (Walters, Gillibrand, Bell, & Lane, 2010).
40
(Carbon Trust, July 2011) and (World Energy Council, 2010).
24 October 2012 - 13 - 300184004

3.1 (b) Wave Energy

Ocean waves are a tertiary form of solar energy, caused by unequal heating of the
Earth’s surface which generates wind due to convection. Wind blowing over water
then generates waves by transferring energy to the marine system.41 Ocean currents
and large expanses of open sea contribute to the formation of open-ocean swells
from which wave energy can be extracted by a variety of technologies, including
“attenuator” or “point absorber” devices. Close to land, the impingement of ocean
swells on the seabed causes breaking waves which are also a source of energy that
can be extracted using “oscillating water column” devices.42
Wave power potential is related to the distribution of winds, and the strongest winds
occur between lines of latitude 40° - 60° in both hemispheres, with wind strength
steadily decreasing toward the equator and the poles. The highest concentrations of
wave energy in these main wind belts occur on the eastern sides of long ocean
fetches.43 Wave energy, although still intermittent, is more predictable than wind over
long periods of time, giving greater latitude for operational planning and scheduling of
high value, capital-intensive generation assets.44
New Zealand is ideally located for wave energy extraction. The strong westerly winds
and long fetches of the Southern Ocean build up large waves unimpeded by land
masses. This energy travels long distances to arrive and be dissipated on our
shorelines. A global perspective of wave power and the degree of extractable energy
can be gleaned from the following diagram:45
41
(WET-NZ (IRL / Power Projects Ltd), 2010) and (Voith Hydro).
42
(Power Projects Ltd, 30 June 2008) and (Omerdic, Toal, & Leahy, 2010).
43
(Harries, McHenry, Jennings, & Thomas, December 2008).
44
(Department of Energy and Climate Change, 2010).
45
24 October 2012 - 14 - 300184004

Figure 7: Global Wave Energy Perspective
24 October 2012 - 15 - 300184004

Extensive modelling and analysis of the wave energy resource around New Zealand
has been conducted over a 10-year period46 and a diagrammatic representation of
the resource is illustrated below:
Figure 8: Mean Spectral Wave Power (1998 - 2007)
46
(MetOcean Solutions Ltd, May 2008).
24 October 2012 - 16 - 300184004

Figure 9: Potential Wave Power
24 October 2012 - 17 - 300184004

The New Zealand wave resource is significant as the southern and western coasts
are exposed particularly to the dominant Southern Ocean wave source. Extensive
analysis47 shows that there are several excellent-quality, potential sites for wave
energy power generation situated on the west coast of the North and South Islands.48
Average annual wave energy density needs to be greater than 20 KW/m of wave
front to be economic.49 It is clear that New Zealand possesses a significant resource
in a variety of locations but the ability to extract this depends upon factors including:
(a) Wave energy device technical maturity,50
(b) Economically-viable electrical connectivity from sea to shore via

a substation into suitable transmission infrastructure,51 and
(c) Detailed bathymetric data on localised conditions to ensure

optimum device location as well as suitable access for
installation, maintenance and repair activities.52
Selecting an optimum location for wave energy devices will require a compromise
between maximising power (south-westerly location further offshore), accessibility to
population centres, and suitable transmission infrastructure.53
47
(NIWA, June 2009).
48
(Black & Veatch, July 2010).
49
(Black & Veatch, July 2010).
50
(Carbon Trust, July 2011) and (Teillant, Costello, Weber, & Ringwood, 2012).
51
(O'Sullivan & Dalton, 2009) and (Electricity Authority, 14 December 2011).
52
(NIWA, June 2009).
53
(Transpower, 2011), (Electricity Authority, 14 December 2011) and (Teillant, Costello, Weber, &
Ringwood, 2012).
24 October 2012 - 18 - 300184004

3.2 Marine Energy Technical and Commercial

Development
Marine energy technology is in the early stages of development compared with other
renewable technologies. Projects have only moved beyond the pilot project stage to
full-scale commercialisation since 2005, aided by government-funded development
and renewable energy credits in some countries (credits or subsidies aren’t available
in New Zealand).54 Prominent in the development and commercialisation of this
technology is the UK55 and, to a lesser extent, Portugal, Spain, Ireland, Spain, and
France.56 The Asia-Pacific region is the hub of a number of research and
development projects as well as some of the world’s first commercial-scale marine
energy projects. Leaders in the Asia-Pacific region include Australia, Korea, Canada,
and the United States.57
3.2 (a) Technical Development

There are many barriers to technological development. In particular, installations
need to be relatively large in order to withstand arduous offshore conditions. Other
barriers include the need for performance assessment guidelines and standards for
manufacture, installation and operation to be established.58 Such projects are costly
and risky, making commercial financing and insurance difficult to obtain in the current
financial climate without government support.59
Over the past decade, industry has managed to install and test 14 MW of capacity
via 50 pilot projects. There are currently over 100 projects under development
totalling 1 GW across 15 countries. Sixty per cent of this is wave; the remainder is
tidal.60
54
55
56
(IHS Emerging Energy Research, October 2010).
57
(Leary & Esteban, 2011).
58
(Roddier & Weinstein, April 2010).
59
60
24 October 2012 - 19 - 300184004

Tidal energy is more mature with a design convergence towards horizontal-axis,

axial-flow devices.61 These promise more predictable electricity supplies (which
enhances its premium in the wholesale market) and a standard design, attracting
major original equipment manufacturers into the industry’s supply side.62
Wave energy’s future remains more uncertain, with fewer full-scale devices operating
successfully, a wide range of technology designs under development, and no clear
technology leader yet established.63
In New Zealand, there have been several plans for local tidal and wave energy pilot
projects but progress has been frustratingly slow for a variety of reasons, including
lack of finance, resource consent delays and stalled contractual negotiations.64
These include tidal energy projects planned in the Cook Strait by Neptune Power and
Kaipara Harbour by Crest Energy,65 and the Point Durham wave energy project in the
Chatham Islands.66
The WET-NZ prototype wave energy (Point Absorber) device has been physically
deployed in Wellington harbour and has successfully generated electricity in a variety
of conditions. It has not been connected to a transmission network in New Zealand
although further testing is being conducted in Portland, Oregon (USA).67
Figure 7 gives a graphical indication of current tidal and wave device maturity
together with a breakdown of design concept by mechanical type.68 Annex C lists a
global breakdown of current and future marine energy projects 2011 – 2016,
including type, location and size.69 There is a relative dearth of tidal and wave
projects in New Zealand and Australia compared to leading markets such as the UK
where the availability of grants for technical development and subsidies to offset the
high Levelised Cost of Electricity have led to a boom in development.
61
(Boust, 07 October 2010) and (Legrand, 2009).
62
63
64
(AWATEA, June 2012).
65
(AWATEA, October 2011).
66
(Venus, 19/20 April 2012).
67
(WET-NZ (IRL / Power Projects Ltd), 2010).
68
Salinity Gradient and OTEC are alternative Marine Energy technologies but they are not considered
technically or economically viable in New Zealand (Black & Veatch, July 2010) and (IHS Emerging
Energy Research, October 2010).
69
(RE News, 10 May 2012).
24 October 2012 - 20 - 300184004

Figure 10: Marine Energy Technology Maturity Curves
24 October 2012 - 21 - 300184004

3.2 (b) Commercial Development

There has been some government support during the period 2008 - 2012 consisting
of a Marine Energy Deployment Fund of $8 Million intended to provide 40% of new
project costs.70 With the economy still suffering from the combined effects of the
lingering global economic crisis and the Christchurch earthquake, there has been no
further funding allocated specifically for marine energy.71 There is government
funding available to support technical innovation72 but this is spread across the whole
industrial sector, of which electricity generation comprises a small part.73
In 2011, an industry development proposal was submitted to the Ministry of Science

and Innovation by a consortium jointly supported by AWATEA, the Heavy
Engineering Research Association (HERA) and Grow Wellington. This sought $8
Million towards the estimated start-up costs ($15.7 Million) of a marine energy device
testing facility to be located in Wellington.74 A combination of timing (prior to a
general election, retiring Minister) and taut government finances saw this initially
rejected. However, it was recommended that this be resubmitted in a revised format
in 2012 and this is anticipated by December 2012.
It was evident from the literature review that marine energy commercial development
is heavily reliant upon grants and subsidies, at this stage. Derivation of accurate
business cases, including predicted cash flows based upon whole-of-life costs are
somewhat subjective and feature high statistical variances. The developmental
nature of marine energy projects thus far makes it difficult to extrapolate accurate
LCOE, including a precise breakdown of whole-of-life costs, but the following
diagram from the Carbon Trust is instructive:75
70
(International Energy Agency, July 2011).
71
(AWATEA, June 2012).
72
(Ministry of Science and Innovation, 2010).
73
(Ministry of Science and Innovation, 2011).
74
(New Zealand Marine Energy Centre, 2011).
75
24 October 2012 - 22 - 300184004

Figure 11: Indicative Levelised Cost of Energy Components
24 October 2012 - 23 - 300184004

4. RESEARCH DESIGN
The nature of this study requires a philosophical approach that allows the scope of
commercial and technical developments within the rapidly developing area of marine
energy to be ascertained. The literature review highlighted diverse political,
economic, social and technological (PEST) influences in this area 76 and, as a
consequence, an epistemological approach that investigates the nature, grounds,
limits and validity of human knowledge is pertinent.77 An interpretivist paradigm is
predicated on the assumption that inter-subjective and common meanings are ways
of experiencing societal action which can be expressed in the “language and
descriptions constitutive of institutions and practices.” Hence, by adopting this
paradigm, the study can focus on the processes by which these meanings are
“created, negotiated, sustained and modified” within the context of the main
influences on the New Zealand electricity generation sector identified by the literature
review. These have been summarised in the form of a PEST analysis (Annex D). 78
The majority of the information and data gleaned during the literature review has
been qualitative in nature, reinforcing the interpretivist paradigm. However, these
empirical observations also require financial analysis, including attributes such as
Levelised Cost of Electricity (LCOE), whole-of-life costs, and metrics for justifying
investment, including Internal Rate of Return (IRR) and Net Present Value (NPV).
This meant that a qualitative methodology incorporating some aspects of a mixed
approach was followed (qualitative perspective with acceptance of quantitative
data).79
76
Political – New Zealand government target of 90% Renewable Energy by 2025;
Economic – very high Levelised Cost of Electricity (LCOE) for marine energy with no subsidies for
electricity generation companies to make this competitive with other technologies;
Social – increasing public awareness of and demand for environmentally-friendly and sustainable
energy policies;
Technological – rapid technological development in tidal and wave devices is occurring, enhanced by
significant subsidies in some countries (in particular, the UK). This is leading to significant decreases
in manufacture, installation, and whole-of-life costs over time as a result of advances in design,
manufacturing techniques, use of materials, size (power) of devices, installation and maintenance.
77
(Lancaster, 2005, p. 35).
78
(Schwandt, 1998, p. 225).
79
(O'Leary, 2010, pp. 104-106).
24 October 2012 - 24 - 300184004

Research goals can be placed on a continuum from building a broader

understanding, through paving the way for change, action change within a system to
exposing and changing the dominant system. This study, due to its developmental
and long-term nature (as evidenced by the high current LCOE) is attempting to pave
the way for change, which implies a strategy of applied/evaluative research. 80
Content analysis is a research technique for the objective, systematic, and
quantitative description of the manifest content of communication.81 The interpretivist
paradigm and qualitative nature of the data sought ensures a good fit with content
analysis methods as it has the following characteristics:82
 Close reading is required of a relatively small amount of textual data,
 The study involves the interpretation of given texts into new narratives that are
sometimes opposed to positivist traditions of inquiry, and
 The participants (interviewer and respondents) acknowledge working within

hermeneutic circles in which their own understandings constitutively
participate.
Krippendorf’s seminal text on content analysis listed six questions to be addressed

whilst ensuring that data examined through this process must be durable in nature
due to possible replication.83 The questions are:
 Which data is to be analysed?
 How is it defined?
 What is the population from which it is drawn?
 What is the context relative to which data is analysed?
 What are the boundaries of the analysis?
 What is the target of the inferences?
80
(O'Leary, 2010, pp. 136-140).
81
(Lavrakas, 2008, pp. 141-142).
82
(Krippendorf, 2012, p. 23).
83
(Krippendorf, 2012, pp. 27-31).
24 October 2012 - 25 - 300184004

The iterative nature of development projects and personal experience gained during
the literature review and previous work and academic studies indicates that
structured interviews84 with key stakeholders using open-ended questions85 is the
most effective way to reinforce and expand upon the project findings thus far.86
Classical reasons to use open-ended questions include building rapport and
encouraging participation, obtaining factual information, expanding a list, explaining a
prior answer, establishing knowledge, clarifying terminology and exploring new
topics.87 This approach is supported by the prototypical nature of the majority of
marine energy projects as the emerging and technically immature status of the
industry lends itself readily to informal discussion and communication between
actors. This is in addition to the plethora of renewable energy conferences that assist
in the cross-fertilisation of ideas and knowledge dissemination.
Primary data collection was undertaken by conducting interviews using open-ended

questions based upon the broad themes identified during the literature review. These
themes are (a) technical and commercial developments in the New Zealand market,
and (b) a more detailed understanding of the driving factors influencing whole-of-life
costs. Each of these was then expanded upon to provide the requisite richness of
data. The advantage of interviews over self-administered questionnaires is a
reduction in data errors as the interviewer guides the respondent and a significant
improvement in the richness of data obtained due to the enhanced fidelity and
communication of face-to-face interaction.88
When conducting interviews, it is important to avoid (a) biased answers as a result of

leading probes, (b) answers given in order to provide socially desirable responses
and (c) inaccurate verbatim recording. These factors were mitigated by interviewer
training and experience, pre-scripted questions covering the required topics giving
scope to probe if the answers provided were inconclusive or lacking in detail, and
coding of verbatim responses.89
84
(Rugg & Petre, 2007, pp. 138-139).
85
(Lavrakas, 2008, pp. 141-142).
86
(O'Leary, 2010, p. 139).
87
(Lavrakas, 2008, p. 548).
88
(Miles & Huberman, 1994, p. 10).
89
(Lavrakas, 2008, pp. 548-550).
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The scope of study and the nature of development in the power generation industry
(a competitive market with technically immature, high value capital assets) means
that the dominant actors are comprised of those types / examples listed in Table 1.
To ensure comprehensive coverage across all aspects and balanced data collection
when selecting respondents for interview, all organisation types listed below were
represented. Due regard was also taken of any bias, noting that device
manufacturers, for example, may be more optimistic in their estimates of device
capabilities, ease of installation and whole-of-life costs than a power company.90
Organisation Type Indicative Examples

Government Departments NZ: Ministry of Science and Innovation and the
and Agencies Ministry of Economic Development (recently
amalgamated into the Ministry of Business, Innovation
and Employment
UK: Department of Energy and Climate Change
Government-owned and NZ: Industrial Research Limited (IRL) and National
Private Research and Institute of Water and Atmospheric Research (NIWA)
Development Organisations UK: European Marine Energy Centre (EMEC) and the
Carbon Trust
OECD: International Energy Agency (IEA)
Industry Associations NZ: Aotearoa Wave and Tidal Energy Association
(AWATEA) and Heavy Engineering Research
Association (HERA)
Energy and Resource NZ: Power Projects Ltd
Consent Consultancies UK: TNEI Services (subsidiary of Petrofac).
AUS: Black & Veatch (B&V)
Wave and Tidal Device UK: Marine Current Turbines and Pelamis Wave
Manufacturers Power
Norway: Hammerfest Strøm
Germany: Siemens
AUS: Oceanlinx
Renewable Energy Power NZ: Meridian Energy and Todd Energy
Companies UK: Scottish Power Renewables and RWE npower
Table 1: Examples of Organisation Types involved in Marine Energy
Human Ethics Committee approval was obtained from Victoria University of

Wellington before the interview phase of the research project commenced.
90
(Fontana & Frey, 2005, pp. 712-713).
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5. DATA COLLECTION AND ANALYSIS

There were three data sources utilised during the research project – the literature
review, interviews with key industry stakeholders from New Zealand, Australia, and
the UK, and attendance at conferences. These included the annual AWATEA
Conference in Wellington in April 2012 and the bi-annual International Conference on
Ocean Energy in Dublin in October 2012. Data collection during the formal interview
phase after completion of the literature review was undertaken using structured
interviews with questions based upon the broad themes identified in the literature
review. All respondents were approached in the early stages of the project to ensure
they were willing to participate and they all indicated their willingness, contingent
upon work pressures and availability.
To ensure a statistically-significant number of views were taken into account, 12

respondents were formally interviewed, representing a broad cross-section of the
organisation types listed in Table 2. This was in addition to a number of informal
information gathering and clarification meetings held during various stages of the
project as a result of information arising (8 respondents). The combination of these
offered a balanced view, reinforced by the additional credibility of testimony obtained
from experienced, well-respected practitioners. Particular emphasis was placed upon
representatives of power generation companies in New Zealand and the UK. This is
because they are considered to offer the best holistic view of the commercial and
technical benefits of marine energy compared to current renewable energy types in
use (in particular, wind, hydro and geothermal) as well as future proposed
technologies (for example, solar photovoltaic, concentrating solar power and offshore
wind).91
Contingency planning had included the option of using the Delphi technique92 to
obtain some form of consensus in the event of widely divergent data; however this
was not necessary as there was good correlation between all of the respondents and
the general themes identified during the literature review. In addition, the practical
difficulty of interviewing respondents based in the UK and Australia was overcome by
regular e-mail contact prior to conducting interviews by telephone and Skype.
91
Concentrating Solar Power and Offshore Wind have no applicability in New Zealand due to weather
conditions but they are the subject of considerable development and investment in other countries;
92
(Lewis-Beck, Bryman, & Liao, 2004, pp. 244-245).
24 October 2012 - 28 - 300184004

The ultimate aim was to inform and educate stakeholders as to the potential benefits
and pitfalls of marine energy device deployment in New Zealand combined with the
derivation of a financial model illustrating its economic viability (or otherwise).
Quantification of these benefits was assessed using aspects of the following forms of
analysis (loosely based upon Porter’s supply chain93) – value chain, cost drivers and
competitive advantage.94
93
(Porter, 1985, p. 118) and (Lysons & Farrington, 2006, pp. 106-109).
94
(Viljoen, 1994, p. 272).
24 October 2012 - 29 - 300184004

6. DISCUSSION
The high level subject headings covered during the formal interview phase were (a)
technical developments, (b) commercial developments, (c) New Zealand projects,
and (d) driving factors for whole-of-life costs. It became rapidly apparent that there
was good correlation between the vast majority of the discussions and expert
testimony arising from the interview questions and the broad themes identified during
the literature review. The wide cross-section of industry stakeholders interviewed
adds credence to the quality of data and elimination of bias. The data collected has
been treated as anonymous but not confidential, as specified in the Human Ethics
Committee approval for the research project. The main findings from plus
explanatory commentary and associated deductions are detailed below.
6.1 Technical Developments

6.1 (a) Tidal Devices
Tidal devices are exhibiting a strong design convergence on horizontal-axis, axial
flow turbines with maximum power outputs in the range 500 KW – 1.5 MW and
increased rotor diameters of 20 - 25m. Marine Current Turbines (now owned by
Siemens) installed the market-leading 1.2 MW SeaGen device in Strangford Lough,
Northern Island in 2008. Other developers of note for future reference include Andritz
Hydro Hammerfest, Voith Hydro and Atlantis Resource Corporation.
It was strongly felt by many of the respondents that many designs are still
developmental and that more emphasis needs to be placed upon:
(a) Simplicity of design,

(b) Reduction in the number of moving parts,
(c) Decreased weight (assists with installation by lessening the need for
expensive ship-borne lifting equipment and size of vessel, and reduces
manufacture raw material costs), and
(d) Use of materials better suited for the marine environment that will
reduce through-life maintenance requirements and, hence, costs (e.g.,
Spheroidal Graphite Iron).
(e) Site as many of the key components (including ancillary support
equipment and electrical switch gear) out of the water (ashore)
wherever possible.
24 October 2012 - 30 - 300184004
Figure 12: MCT’s 1.2 MW SeaGen Device at Strangford Lough
Three areas of system design perceived as crucial for tidal devices include
composite material (e.g., Carbon Fibre) turbine blades (to meet design life, strength
and fatigue requirements), shaft sealing arrangements (to protect the generator from
inadvertent water ingress) and generator cooling arrangements (to permit heat
dissipation from a hermetically sealed environment).
6.1 (b) Wave Devices

The generic design principles listed above apply equally well to wave energy devices,
although there are some subtle differences in the magnitude and type of
environmental conditions that the two different types will see in service. There is less
design convergence, leading to a variety of different concepts seen under
development including (examples of device types with key developers of note for
future reference in brackets):
24 October 2012 - 31 - 300184004

(a) Oscillating Water Column (Wavegen, Oceanlinx),
Figure 13: Oscillating Water Column Principles
(b) Attenuating (Pelamis P2),
Figure 14: Pelamis P2 Attenuator
24 October 2012 - 32 - 300184004

(c) Point Absorber (OPT PowerBuoy, Aquamarine Power Oyster, WET-NZ), and
Figure 15: Oyster Wave Energy Converter
24 October 2012 - 33 - 300184004

(d) Wave-Driven, High Pressure Water Pump (Carnegie CETO).
Figure 16: Carnegie CETO Device Principles
Maximum power outputs for Wave Energy devices are in the range 500 KW – 1 MW,
and this is considered a credible size for farm construction consisting of multiple
device arrays.
24 October 2012 - 34 - 300184004

6.1 (c) Technical Standards

It is evident that marine energy technical development is still relatively immature and
this manifests itself in the lack of international technical standards and specifications
available for device manufacturers and farm developers. The International Electro-
technical Commission (IEC) under the auspices of Technical Committee 114 is in the
process of formalising these for both wave and tidal energy, but these are urgently
required. The benefits of these include helping these technologies to become
marketable by providing a foundation for certification systems, promoting
international trade of uniform high quality products and supporting transfer of
expertise from traditional energy systems.95
Technical areas that will ultimately be addressed include system definition,

performance measurement of wave and tidal energy converters, resource
assessment requirements, design and survivability, safety requirements, power
quality, manufacturing and factory testing, and evaluation / mitigation of
environmental impacts.
From an economic perspective, the principle benefits of delivering standards can be

summarised as:96
(a) Economic (growth, employment, trade),

(b) Mitigation of risk (in its various dimensions),
(c) Health (safety), and
(d) Improving the capacity to innovate.
In the interim, the European Marine Energy Centre based in the Orkneys has
established itself as a key player in the communication of high quality technical and
commercial guidelines that effectively fill the void until TC 114 publishes its
standards. These were highly recommended by several of the respondents.97
95
(International Electrotechnical Commission, 2008).
96
(Innovation & Systems Ltd, August 2005).
97
(European Marine Energy Centre, 2012).
24 October 2012 - 35 - 300184004

6.1 (d) Prototype-to-Production Changes

The vast majority of the marine energy developments thus far have consisted of
single developmental devices or small arrays of devices (< 10). Whilst further
technical device maturity is important, the system integration learning that needs to
accrue from installation of arrays of devices is profoundly important as well. This
applies to the generic area of transmission as well as the design and installation of
robust, fit-for-purpose electrical balance-of-plant switch gear. It is important that each
deployed device can be electrically isolated independently to permit maintenance
and electrical fault diagnosis to be undertaken without rendering the whole array
unserviceable.
Other technical areas of development that will benefit as device manufacture

progresses along the continuum from prototype to production include power output,
and improved techniques for device anchoring / mooring in deeper waters (for tidal
devices, in particular). These will all assist in reducing the LCOE as technology
matures.
24 October 2012 - 36 - 300184004

6.2 Commercial Developments

The UK is undoubtedly the global market leader in marine energy, supported by the
availability of grants and subsidies from regional authorities, the UK government and
the EU, despite fiscal restraints imposed by the global financial crisis. Despite this,
some respondents felt there were mixed messages arising from the UK government
about the composition of the renewable energy component of the UK’s future
electricity.98 What is clear is that the UK government is extremely keen to reduce
reliance on fossil fuels for two reasons – isolation of the economy from the shock
effects of potential oil price increases and compliance with international political
pressure to reduce the production of greenhouse gases. These high-level strategic
requirements are universally applicable.
6.2 (a) Industrial Assimilation and Technical Alliances

Numerous examples were provided of a change in the status of many marine energy
device manufacturers, with an associated shift in the market dynamic, as a significant
proportion have now been subsumed by or formed alliances with larger engineering
conglomerates. This includes companies such as Siemens (Marine Current
Turbines), Lockheed Martin (OPT / WaveBob), Alstom (Tidal Generation), Andritz
Hydro Hammerfest (Hammerfest Strøm), Voith Hydro (WaveGen), and ABB (AWS
Open Energy / Aquamarine Power).99 In addition, Japanese and Korean multinational
companies such as Kawasaki are also entering the market.
This growth will ultimately drive cost reductions due to a proliferation of diversity of
technical development, additional financial resource, and economies of scale and
scope as large organisations leverage off similar technological applications within
their product ranges. Table 3 includes a list of wave and tidal device manufacturers.
As a spill-over from the marine and shipping industries, Classification Societies

including Det Norske Veritas (DNV), GL Garrad Hassan (part of the Germanischer
Lloyd group), and Lloyd’s Register (LR) have all established positions in the marine
energy supply chain, leveraging off their technical and commercial expertise in
closely-related fields.
98
This sentiment is supported by the comments expressed recently by a number of industry leaders;
(Tidal Today) and various Renewable Energy websites; (Renewable Energy Focus.com, 30 July 2012)
99
(RenewableUK, March 2012).
24 October 2012 - 37 - 300184004

6.2 (b) Marine Energy Device Testing

The European Marine Energy Centre (EMEC) in the Orkney Islands has been hugely
successful in attracting tidal and wave device testing, and there have been
considerable economic benefits to the local economy as a result. This is in addition to
the wider contribution to the marine energy knowledge base and supply chain in
Scotland and the UK as a whole. This is an excellent example of the benefits that can
accrue from an expansive approach to investment to promote technological
development in an immature industry. Financial and political support has been
provided by a series of coherent and sufficiently-funded grants and subsidies at local
(Orkney Islands), regional (Scotland), national (UK) and international (EU) levels.
As the number and geographical diversity of organisations developing devices has

increased, there has been a commensurate increase in the requirement for testing
facilities, and a number of countries including the USA, China and Korea are starting
to leverage off this. An example includes recent testing of the WET-NZ device in
Portland, Oregon (Section 6.3 and Annex F cover this in more detail).
Table 2: Contact Details for Marine Energy Device Manufacturers
24 October 2012 - 38 - 300184004

6.3 New Zealand Projects

Two main areas of focus were initially identified during the literature review (Section
3.2(b)), and further testimony sought during the interviews. These were the Marine
Energy Deployment Fund and associated projects, and the New Zealand Marine
Energy Centre initiative, and both of these have been assisted by financial support
from the Energy Efficiency and Conservation Authority (EECA). During the
interviews, it became clear from the evidence obtained that the critical determinant
for successful projects was the presence of grants and/or subsidies to ameliorate the
high costs and risks associated with marine energy development.
6.3 (a) Marine Energy Deployment Fund (MEDF)

The MEDF (Annex E refers) was established in 2007 by the Ministry of Science and
Innovation to advance the development of marine energy by providing grants to
support the deployment of wave and tidal energy devices.100 A total of $8 Million was
set aside for grants which were to be allocated in four successive annual rounds
commencing in 2008.
Strict conditions were applied to grant recipients and, by the completion of four
annual rounds of funding, just over $4 Million had been paid out from an original fund
size of $8 Million. One project that had been awarded $1.85 Million to install 3 MW of
tidal energy devices in Kaipara Harbour had to return its funding as it was unable to
meet its projected deadlines, even though resource consent had been achieved.
Support was also provided for the planned installation of two 110 KW Oscillating
Water Column wave energy devices in the Chatham Islands, although this project is
currently on hold due to contractual issues.101 One of the most successful projects to
receive MEDF funding has been for the WET-NZ wave energy (Point Absorber)
device.102
This has previously been tested at two New Zealand locations (Akaroa, Banks
Peninsula and Moa Point, Wellington Harbour) and is now being subjected to further
tests (including connection to a dummy electrical load bank) at the Northwest
National Marine Renewable Energy Centre in Portland, Oregon (Annex F refers).
100
(Energy Efficiency and Conservation Authority, 2012).
101
(Venus, 19/20 April 2012).
102
(WET-NZ (IRL / Power Projects Ltd), 2010).
24 October 2012 - 39 - 300184004

Feedback from UK-based respondents highlighted the importance of government

funding to support technical and commercial development, and the lack of any further
funding now that the MEDF has expired is perceived as a significant impediment to
future progress.
6.3 (b) New Zealand Marine Energy Centre

In 2011, an industry development proposal was submitted to the Ministry of Science
and Innovation seeking $8 Million towards the estimated start-up costs ($15.7 Million)
of a marine energy device testing facility to be located in Wellington. This was initially
rejected but AWATEA intend to resubmit this in an enhanced format by December
2012.103
This initiative aims to emulate the huge success of the European Marine Energy
Centre in the Orkney Islands and would raise the international profile of the New
Zealand marine energy industry significantly, in addition to providing a multitude of
associated economic benefits. Support has been offered by the UK in the form of
advisory visits by key marine energy experts to the 2012 AWATEA conference, and
sponsored hosting of visits by New Zealand personnel to key UK locations to share
knowledge and expertise. The perceived benefits from this technology spillover
include:104
(a) Demonstration Effects - local firms may adopt technologies

introduced by multinational firms testing devices through imitation or
reverse engineering.
(b) Labour Turnover – workers trained or previously employed by
multinational firms testing devices may transfer important information to
local firms by switching employers, or may contribute to technology
diffusion by starting their own firms.
(c) Vertical Linkages – Multinationals may transfer technology to firms
that are potential suppliers of intermediate goods or buyers of their own
products.
103
(New Zealand Marine Energy Centre, 2011).
104
(Charles River Associates, 22 August 2003).
24 October 2012 - 40 - 300184004

The other major benefit is the potential for agglomeration economies. Models of
regional development that are based on agglomeration and capital mobility
essentially model economic development as a path dependent process. 105
Agglomeration economies are relevant to clustering and this principle is coherent
with the proposed Advanced Technology Institute to be formed from parts of the
Ministry of Business, Innovation and Employment and Industrial Research Ltd.106
The government funding required is relatively small but this initiative has already
been delayed due to the timing of the New Zealand electoral cycle and a significant
reorganisation of key departments (in particular, the merger of the Ministry of Science
and Innovation with the Ministry of Economic Development). If government support is
not obtained once the proposal has been resubmitted, alternative methods of funding
(for example, venture capital) may be required for this worthy cause to proceed. If
this project is not commenced in the next two years, it is highly likely that this
initiative will pass New Zealand by as device developers and electricity generation
companies will look elsewhere in the Asia-Pacific region for device testing capacity.
6.3 (c) Energy Efficiency and Conservation Authority107

The Energy Efficiency and Conservation Authority (EECA) has provided continual
support to the betterment of renewable energy in New Zealand, including marine
energy, mainly in the form of funding for specific projects.
Examples of this include joint funding of the report “Development of Marine Energy in
New Zealand”,108 continuing sponsorship of the Aotearoa Wave and Tidal Energy
Association (AWATEA), and a sizable contribution towards the development costs of
the Point Durham (Chatham Islands) wave energy project.109
105
(Markusen & Venables, 1993).
106
(Ministry of Business, Innovation and Employment, 24 September 2012).
107
108
(Power Projects Ltd, 30 June 2008).
109
(Venus, 19/20 April 2012).
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6.3 (d) Lessons Learned (Critical Success Factors)

Feedback from a number of the respondents highlighted the critical importance of
site identification, through resource analysis and good transmission access in
developing a successful project. In addition, funding availability, fit with strategic
direction, electricity demand growth and commercial viability were all cited as
considerations for capital expenditure decisions that may change with time due to a
variety of circumstances.
Previous experience of a multitude of renewable energy projects in New Zealand

across a number of technology types highlighted critical dependencies upon ongoing
access to the “public” resources of water, wind, space and transmission. This makes
the following key matters fundamental to a potential developer’s ability to access,
consent and technically develop a site:110
(a) Resource regulation,

(b) Planning and consenting practices and outcomes, and
(c) Transmission policy and regulation.
As a consequence, at an operational level, site identification, resource analysis, good

transmission access,111 and deft management of resource consent issues112 were
highlighted as critical success factors.
110
(Meridian Energy Limited, 2012).
111
(Transpower, 2011).
112
Resource consenting for inland waters (including lakes, rivers and harbours) and offshore (up to 12
nautical miles from the coast) is governed by the Resource Management Act, 1991 and is
administered locally by district and regional councils;
(Ministry for Primary Industries, December 2009) and (Grierson and Simpson, 11 August 2005).
24 October 2012 - 42 - 300184004

6.4 Driving Factors for Marine Energy LCOE

6.4 (a) Installation Costs
Given the harsh environment within which marine energy devices have to be installed
and then remain operational for a 20 - 25 year life cycle, it is intuitive that installation
costs form a significant part of the LCOE. The respondents who had been most
closely involved with business case development and project management of marine
energy device deployment were all adamant that reducing installation costs was
pivotal to reducing LCOE.
Tidal devices, once installed, are not subjected to the fierce impact loading of high
energy wave systems, but the high tidal stream currents and small slack current
windows of opportunity for installation and maintenance compound the physical
difficulties of installation. Wave devices will be subjected to regular, high impact
loading, leading to extreme requirements for fatigue life and survivability, increasing
overall costs of manufacture and maintenance. Some potential strategies for
reductions in installation costs are eloquently described in the influential Carbon
Trust report “Accelerating Marine Energy” (Annex G refers).113
Another significant component of installation costs arise from the support vessels
required to deploy and install devices, particularly for tidal turbines (high tidal stream
currents and limited slack currents, sometimes requiring dynamic positioning
vessels). As the market grows, increased availability of dedicated vessels will lower
charter rates and provide dedicated, bespoke capabilities that should speed up
installation schedules. New Zealand’s “tyranny of distance” currently makes
chartering of suitable vessels (often sourced from Australia or Singapore) incredibly
expensive.114
113
114
(Obren & Howell, 21 November 2010).
24 October 2012 - 43 - 300184004

6.4 (b) Operation and Maintenance Costs

The requirement for regular Operation and Maintenance (O&M) activities to maintain
operational availability at a high level (>95%) is a significant cost driver, and a
reduction in these was cited by many as crucial to the success of marine energy. The
offshore environment presents a tough challenge to designers who need to be able
to simultaneously increase individual device power outputs, ensure high availability
and reliability, and extend device working lives to at least 20, and preferably 25 years
using the principles outlined in Section 6.1(a).
Simplicity of mechanical design, use of materials that can cope with the arduous and
corrosive environment, and incorporation of underwater engineering principles to
eliminate, reduce or facilitate ease of maintenance in the water are all vital in
achieving this aim. Engineering out any costly requirement for mid-life overhauls will
have a dramatic effect on LCOE due to significant O&M cost reductions
accompanied by increased availability (and hence, revenues).
6.4 (c) Electrical Balance of Plant and Transmission

Feedback from some of the respondents indicated that the minimum economically-
viable size (power output) for a production marine energy farm is 60 – 80 MW. This
figure is predicated by the significant capital costs of electrical balance of plant
equipment. This theory was supported by anecdotal feedback from current wind and
hydro projects.
In addition, transmission is a critical cost driver of any project scope. More

specifically, the following all need to be considered:
(a) Length of the cabling route (none of the UK projects discussed had
been greater than 3 nautical miles off the coast),
(b) Suitable access to a transmission network node, and
(c) Any transmission limitations imposed by the local network and the
Electricity Code.115
115
(Electricity Authority, 2010).
24 October 2012 - 44 - 300184004

6.4 (d) Capital Cost and Power Output

As an essential developmental step towards building multiple device arrays,
individual device power outputs need to be large enough to reduce the overall
requirement for capital-intensive electrical switchgear and protection devices to an
economically viable level.
Increased power outputs and reduced device capital procurement costs will occur as
a result of continued development of and investment in second and third generation:
(a) Gearboxes,
(b) Generators,
(c) Shaft Sealing arrangements, and
(d) Turbine blades (tidal devices).
24 October 2012 - 45 - 300184004

7. VALUE CHAIN ANALYSIS

Porter states that there are two ways in which an enterprise can gain a sustained
competitive advantage: first, cost, and, second, differentiation.116 Wholesale
electricity is a homogenous commodity therefore a strategy of differentiation requires
special consideration. The main ways in which marine energy can differentiate itself
in New Zealand is (a) by virtue of its predictability and, hence, base load
characteristics,117 and (b) by niche use in remote locations with high wholesale
costs.118 This could include isolated locations such as Stewart Island and the
Chatham Islands where other renewable energy forms are unsuitable (for example,
wind and solar) and marine energy can displace expensive ($400-500/MWh119)
electricity currently produced by diesel generators.120
Generated base-load electricity121 is much easier to sell on the wholesale market as

the system operator will always chose base-load before peaking electricity when
selecting generation options to meet predicted demand.122 Therefore, this is a
positive differentiation attribute. However, there is no point attempting to differentiate
marine energy on account of its renewable energy heritage as this category already
commands approximately 75% of the market.
Porter identifies ten major cost drivers that determine the value or cost of activities:
(a) Firm’s Policy of Cost or Differentiation. Very high LCOE currently

predicates a strategy of differentiation, and not cost. In the long run, the strategy will
need to switch to cost; otherwise marine energy will not be able to enter the market.
(b) Economies or Diseconomies of Scale. Device manufacturers will

achieve economies of scale with attendant reductions in price as technological
development reaches a point that deployment of production devices in large arrays is
economically viable. Similarly, electricity generators will benefit when devices mature
and possess sufficient power output enough to permit array deployment sufficient to
amortise the required capital investment in transmission and balance of plant.
116
(Porter, 1985).
117
(Archer & Jacobson, November 2007).
118
(Porter, 1985, p. 118).
119
(Holzman, December 2007).
120
(Rajgor, 2012) and (Philp, 2012).
121
(IPENZ Engineers New Zealand, March 2010).
122
(Electricity Authority, December 2011) and (Transpower, 2011).
24 October 2012 - 46 - 300184004

(c) Learning and Spillovers. Internationally, this is starting to

occur with techniques and practices from both the marine, and the oil and gas
industries impacting upon marine energy. This phenomenon will increase in scale as
offshore wind becomes more prevalent. From a local perspective, the key enabler will
be the New Zealand Marine Energy Centre if the project gets government backing.
(d) Capacity Utilisation and Supply Chain . This will affect the
supply chain more than the electricity generation companies, who already operate
and sell a number of different technology types in the wholesale market. As the
number of deployments increase, an expansion in support will be required to facilitate
continued O&M of existing assets as well as design support services for future
assets. A similar analysis in Ireland identified the following areas as critical for supply
chain analysis:123
Figure 17: Significant Supply Chain Support Areas

123
(SQW Energy, July 2010).
24 October 2012 - 47 - 300184004

(e) Linkages between Activities. The relatively small size of the

New Zealand economy and its engineering design and manufacturing base presents
additional challenges to any future prospective developers. Synergies and
economies of scale could be explored with equivalent Australian enterprises to
resolve this.
(f) Inter-relationships. As described in Section 6.2(a), this facet

of the industry is starting to develop, with many of the original device manufacturers
now subsumed within large engineering conglomerates, which will drive device costs
down. A good example locally has been the WET-NZ Wave device with collaboration
between IRL and Power Projects Ltd proving beneficial to both parties as well as
ensuring the continued success of this prototype development.
(g) Degree of Vertical Integration. The small scale and immature status
of the marine energy supply chain, despite the best efforts of AWATEA and HERA is
a limiting factor on the degree of vertical integration currently possible. A key enabler
will be the New Zealand Marine Energy Centre if this initiative gains traction.
(h) Timing of Market Entry. This will be predicated by two factors; the
overall LCOE for a development in comparison to the Price Path estimates (supply
component), and overall capacity in the wholesale market (demand component).
Current and future predicted LCOEs are so high, despite the impact of cost reduction
measures, that this cannot be anticipated before 2030 at the earliest.124
(i) Geographic Location. Under normal conditions, the proximity

of suppliers would often drive the geographical location. However, as outlined in
Section 3.1, the location of the resource takes precedence (e.g., Cook Strait for tidal,
West coast for wave).
(j) Institutional Factors. As described within the PEST analysis

(Annex D), there are no subsidies for electricity generation companies to encourage
the development of marine energy in competition with other renewable energy
technologies. The Emissions Trading Scheme does give a slight commercial
advantage to renewable energies over fossil fuel-based electricity generation
technologies.
124
(Bloomberg New Energy Finance, 18 July 2012).
24 October 2012 - 48 - 300184004

8. INDICATIVE MARINE ENERGY LCOE

Indicative UK-sourced baseline costs for tidal and wave energy devices at today’s
prices and projected forwards to 2020 and 2030 are listed below, assuming a 20-year
life cycle, a 15% discount rate, and an exchange rate of $1.0 = £0.50.125 These costs
were identified during the literature review and subsequently validated during the
data collection and analysis phase. The figures are the average of three independent
reports126 and have been compared to the Ministry of Economic Development Price
Path which predicts wholesale electricity market prices over a 20-year period.127
Year Tidal Energy Price Wave Energy Price NZ Wholesale Electricity

($NZ/MWh) ($NZ/MWh) Market Price ($NZ/MWh)
2012 580 - 660 760 - 960 93
2020 346 - 400 400 - 480 104
2030 240 - 300 260 - 350 112
Table 3: Indicative Marine Energy Prices (2012, 2020, 2030)
Wholesale Electricity Price ($/MWh, including Carbon, Real 2010)

120
Projection
100
80
60
$/MWh
40
20
0
2014
2030
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2016
2018
2020
2022
2024
2026
2028
Figure 18: MED Price Path Estimates for NZ Electricity Prices
125
(XE Quick Cross Rates, 15 July 2012).
126
(Black & Veatch, July 2010), (Department of Energy and Climate Change, 2010) and (Carbon
Trust, July 2011).
127
(Ministry of Economic Development, 13 June 2012).
24 October 2012 - 49 - 300184004

As a confidence check, these figures were then compared against the indicative
LCOE calculated using discounted cash flow analysis for a 76 MW tidal energy array
located in New Zealand. Permutations included calculations with and without UK
subsidies (5 Rocs / MWh up to a maximum of 30 MW), and a 20-year design life
versus 25-years,.with reasonable correlation between the results and the report
figures listed in Table 3. The estimated IRR (0.72%), NPV (-$358.6 Million) and
LCOE ($451/MWh) reinforce the deduction that marine energy is not currently a
viable proposition in the New Zealand market without significant grants and
subsidies, or some other form of direct government support to encourage investment.
Project Results
NPV (m) -358.58 Installed Cost ($m
IRR (real) 0.72%
IRR (nominal) 2.98%
Unit Cost or LCOE ($/MWh) 451.02
Project Details
Project Name Tidal Device Array
Scheme Design 2
Generation Details
Scheme Design 1 2 3 4 Selected
Installed Capacity (MW) 76 76 76 76 76
Avg Generation pa (GWh) 266.3 266.3 266.3 266.3 266.3
Construction Period (Mths) 24 24 24 24 24
Project Life 20 25 20 25 25
Subsidy ($/MWh) 375 375 0 0 375
Line Losses 0.0% Capacity Factor 40%
Availability loss 5.0%

Planned Outage 0.0%
Net Capacity Factor 95.0%
Revenue Details
Price Path MED price path
GWAP/Nodal Factor 100%
MW eligible for subsidy 30
24 October 2012 - 50 - 300184004

Capital Costs ($m)

Total Capital Cos t 760.0
Civils 25.0%
Electrical 12.5%
Mechanical 62.5%
Operating Expenses ($m pa)
Total O&M 26.60

Com pliance,Safety, Other
Trans m is s ion m aintenance
Include HVDC Charge?
HVDC Charge ($m )
Ins urance
Contingency
Project Timing
Project NPV Calc Starts (July) 2013

Year Cons truction Starts 2013
Year Cons truction Com plete 2015
Cons truction Starts Jul-13

Cons truction Ends Jun-15
Cons truction Years 2.00
Build Profile: 2
Year Starting
Jul Build Year % This Yr
2013 1 50%
2014 2 50%
2015 3 0%
2016 4 0%
2017 5 0%
2018 6 0%
2019 7 0%
2020 8 0%
Total 100%
TRUE
Project Life (yrs ) 25
Table 4: 76 MW Tidal Array – Calculated NPV, IRR and LCOE
The effect of cost reduction pathways over time due to technology maturity can be
visualised using the graphs below:
24 October 2012 - 51 - 300184004

Figure 19: Cost Reduction Pathways for Wave and Tidal Energy
24 October 2012 - 52 - 300184004

Based upon these projections, even though costs will reduce significantly as the
technology matures and worldwide deployments grow, the supply price for both tidal
and wave energy will remain above the projected wholesale market price until after
2030. For marine energy to be a credible alternative to other forms of Renewable
Energy in anything other than a niche market, it will have to demonstrate significant
commercial and technical benefits to enter the market, as it cannot compete currently
on Levelised Cost of Electricity (LCOE).128 In the long term, it may be able to enter
the market as an option to supply peak demand electricity. There is market potential
for a niche application to displace diesel-powered electricity generation in locations
such as the Chatham Islands and some Pacific Islands (i.e., Tonga, Samoa, Niue
and Norfolk Island). There is also considerable potential for marine energy in parts of
Australia, but the market forces and dynamics are different from the New Zealand
market, and this is outside the scope of this research project.
Additional high quality reference sources identified during the project that contributed
to the ability to undertake accurate economic assessments included the Bloomberg
New Energy Finance series of datasheets129 and quantitative economic modelling
data produced in a comprehensive economic study for marine energy development in
Ireland (Annexes H and I refer).130
128
(Denny, 2009).
129
(Bloomberg New Energy Finance, 18 July 2012).
130
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9. CONCLUSIONS
(a) Future Demand for Marine Energy Capability. Possessing sufficient
electrical generation capacity is strategically important for the economy. It is
predicted that an additional 20,000 – 28,000 GWh per annum will be required by
2040, and further hydro, geothermal and wind development will be unable to meet
future predicted demand. In the long term, marine energy is a potential method to
meet increased electrical demand and a challenging government target of 90%
renewable electricity generation by 2025.
(b) Excellent Wave and Good Tidal Resource. New Zealand’s

geographical location in the “Roaring Forties” with its strong winds and associated
high sea states means it possesses favourable resources for tidal and wave energy.
The Cook Strait has high tidal stream currents and is classified as a good resource
(in particular, Cape Terawhiti) due to the confluence of several different westerly sea
currents meeting in the Tasman Sea and its funnelling effect. The southern and
western coasts possess energetic wave sites due to the dominant Southern Ocean
wave source and, consequently, there are several excellent-quality, potential wave
energy sites situated on the west coast of the North and South Islands.
(c) Expertise for Site Assessment (NIWA). NIWA offers an excellent

pool of expertise that could assist in identifying specific tidal and wave energy sites.
Further detailed analysis is required to ascertain detailed bathymetric data on
localised conditions including physical environmental attributes, channel depth and
underwater topography (including type of sea bed and profile). Detailed analysis is
crucial in determining optimum site selection that will then permit technically feasible
and economically viable device deployment.
(d) Technical Maturity from 2025. Marine energy technology is

still in its infancy but improving technical maturity and decreasing whole-of-life costs
indicate that adoption for production arrays may be technically, if not economically,
viable from 2025 onwards. Development of, and adherence, to comprehensive, well-
proven technical standards must form a vital part of any future development.
24 October 2012 - 54 - 300184004

(e) Maturity of Tidal Versus Wave. Tidal energy is more

technically mature with a design convergence towards horizontal-axis, axial flow
devices. Wave energy’s future remains more uncertain, with fewer full-scale devices
operating successfully and no clear technology leader yet established.
(f) Improvements in Device Design. Continued technological

development will be required to increase device power output, simplify mechanical
design, reduce weight and provide robust, fit-for-purpose electrical switchgear that
will survive continued operation in the harsh marine environment. Specific areas of
focus for improving device design include gearboxes, generators, shaft-sealing
arrangements and turbine blades (for tidal devices).
(g) Priorities for Cost Reduction Pathways. Installation costs and

Operation and Maintenance Costs are marine energy’s two biggest cost drivers, and
reductions in both of these areas are critical for future success. Dedicated support
equipment availability (for example, local access to ship-based device deployment
and maintenance support vessels) is a key component in this strategy.
(h) Limited Government Financial Support for Marine Energy. There are
no subsidies for marine energy in the wholesale electricity market and limited grants
available to support developers. Dedicated government support during the period
2008-2012 consisted of a Marine Energy Deployment Fund of $8 Million intended to
provide 40% of new project costs (this has now expired and there is no further
funding allocated specifically for marine energy).
(i) Barriers to Technological Development. There are many

barriers to marine energy technological development. Projects are costly and risky,
making commercial financing and insurance difficult to obtain in the current financial
climate without government support.
(j) Limited Local Development. There have been several plans

for local tidal and wave energy pilot projects but progress has been frustratingly slow
for a variety of reasons, including lack of finance, resource consent delays and
stalled contractual negotiations. The one significant exception to this is the WET-NZ
device which has undergone testing in New Zealand waters and in the USA.
24 October 2012 - 55 - 300184004

(k) New Zealand Marine Energy Centre. This local initiative (supported
by AWATEA, HERA, EECA and Grow Wellington) is aiming to emulate the huge
success of the European Marine Energy Centre testing facilities in the Orkney
Islands. If successful, it would raise the international profile of the New Zealand
marine energy industry significantly, in addition to providing a multitude of associated
economic benefits. These benefits include demonstration effects, labour turnover,
vertical linkages and agglomeration economies.
(l) Value Chain Analysis. Value chain analysis of the New Zealand
market highlighted the fragility and missing supply chain elements necessary to
support a marine energy infrastructure, despite the best efforts of organisations such
as AWATEA and HERA. A significant proportion of this would be remedied in the first
instance by successful incorporation of the New Zealand Marine Energy Centre
initiative.
(m) High LCOE until at least 2030. Using indicative UK-sourced

baseline costs for tidal and wave energy devices at today’s prices and projected
forwards to 2020 and 2030, the effect of cost reduction pathways over time due to
technology maturity are evident. These costs were compared against the Ministry of
Economic Development Price Path which predicts wholesale electricity market prices
over a 20-year period. These show that the predicted supply price for both tidal and
wave energy will remain above the projected wholesale market price until at least
2030.
(n) Niche Market Application. Marine energy has the potential

to be a credible alternative to other forms of renewable energy in a niche market
where it can displace diesel-powered electricity generation. It cannot compete on
cost in the New Zealand wholesale market (using LCOE as the assessment metric)
and will remain uncompetitive until at least 2030. Dependent upon the effect of cost
reduction pathways, it may be able to enter the market as an option to supply peak
demand electricity after this date.
24 October 2012 - 56 - 300184004

(o) Lessons Learnt from Market Leaders. There is a significant

body of knowledge that has already accrued from the experience of tidal and wave
energy development in the UK, USA and Asia thus far. Future marine energy
development in New Zealand and surrounding Pacific areas will be enhanced
significantly by the adoption of good technical and economic practice as
demonstrated in these markets. This is particularly important in the New Zealand
market due to the lack of subsidies and the challenging financial environment for new
developers.
(p) Critical Success Factors for Marine Energy Developments. Site

identification, resource analysis, good transmission access, and deft management of
resource consent issues are all critical success factors in the development of a
technically feasible, economically viable and environmentally friendly marine energy
generation development project.
(q) Government Support Required for Marine Energy. Economic

analysis of the marine energy market indicates that it will be unable to enter the
market until at least 2025 as further technological development is required and the
LCOE is very high compared to the MED Price Path. The predicted costs at this
juncture are so high that without some form of dedicated government financial
support, there is a risk that marine energy will never be able to enter the market as
other renewable energy forms (for example, solar photovoltaic) may gain a
sustainable competitive advantage.
24 October 2012 - 57 - 300184004

10. RECOMMENDATIONS
(a) AWATEA to Continue Promoting Marine Energy. AWATEA should
continue its pathfinding role in promoting and supporting marine energy within New
Zealand, working with relevant organisations in other countries (for example, EMEC)
to leverage off their expertise.
(b) Government Support for Marine Energy. The economic barriers to

entry for marine energy in the unsubsidised, competitive New Zealand market are
such that government support will be required for it to succeed. It is recommended
that a mechanism is established to formalise political and financial support for marine
energy development by the Ministry of Business, Innovation and Employment. This
should include the funding for the New Zealand Marine Energy Centre, and should
also link through to the soon-to-be-formed Advanced Technology Institute to assist in
supporting innovation to get ideas to market quicker.
(c) Research into Critical Cost Reduction Pathways. The quality of the
academic research thus far in various supporting areas underpinning marine energy
should be expanded to include the cost reduction pathways (including installation
techniques, operations and maintenance strategies, and improvements in device
design to increase power and improve reliability.
(d) Further Research into Resource Analysis and Site Selection. There
has been some excellent historical modelling of tidal and wave energy sites around
New Zealand, by NIWA and MetOcean Solutions in particular. Further research will
be required to take this level of modelling and analysis to the stage that a commercial
developer would need to be able to microsite and optimise specific locations of
multiple devices as part of an array.
(e) Funding Support for Second Generation WET-NZ. Development and

testing of the WET-NZ wave energy device has successfully demonstrated a number
of key learning points that are applicable to future device development and site
selection. This project should be funded further to commercialise the current
prototypical form to increase the power output and work towards a design that would
lend itself more readily to conventional manufacture and assembly techniques.
24 October 2012 - 58 - 300184004

(f) Research into Demonstration Tidal Device Installation. Building

upon the success of the WET-NZ project, it is recommended that a research project
is funded and established with the ultimate aim of installing and testing a tidal device
at a suitable location (for example, the Cook Strait or Kaipara Harbour), including
connection to the national grid.
(g) Marine Energy Device System Integration and Transmission. The

literature review highlighted that system integration of multiple numbers of devices
and design of electrical balance of plant to facilitate transmission has taken a back
seat. To commercialise marine energy, a work stream should be set up to establish
the precise requirements for and optimum design of electrical balance of plant to
facilitate array transmission, based upon the technical requirements of the Electricity
Code.
(h) Marine Energy Strategic Roadmap. A coherent programme is

required to drive the collective effort necessary to link all of these recommendations
and disparate work streams together. To plan and manage this effectively, together
with adequate resource allocation, a marine energy strategic roadmap is required,
overseen by a designated lead authority. If government support is to be provided, this
should be managed ideally by the Ministry of Business, Innovation and Employment,
with assistance from AWATEA, IRL and NIWA.
24 October 2012 - 59 - 300184004

11. ACKNOWLEDGEMENTS
The author acknowledges with gratitude the expertise, advice, assistance and data of
the following:
Victoria University of Wellington (Dr David Stewart and Dr Paul McDonald)
Meridian Energy (Renewable Development)
Todd Energy
Scottish Power Renewables
Siemens AG
Power Projects
Argo Environmental
Black & Veatch
TNEI Services
Industrial Research (IRL)
National Institute of Water and Atmospheric Research (NIWA)
Heavy Engineering Research Association (HERA)
Aotearoa Wave and Tidal Energy Association (AWATEA)
New Zealand Energy Library
24 October 2012 - 60 - 300184004

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24 October 2012 - 67 - 300184004

ANNEX A – New Zealand Electricity Generation Statistics131
Figure 20: Net Quarterly Electricity Generation Statistics
131
(Ministry of Business, Innovation and Employment, 14 September 2012) and (EM6 Information
Exchange, NZ Electricity Market - Continuous Live Updates).
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Figure 21: Total Electrical Demand over a 24-Hour Figure 22: Breakdown of 24-Hour Electrical Demand
Period by Type
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ANNEX B – Renewable Electricity Generation

Target132
Figure 23: Breakdown of NI / SI Electrical Demand by

Type 132
(Ministry of Economic Development, 2011).
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ANNEX C – Global Marine Energy Project Breakdown133
133
(RE News, 10 May 2012).
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ANNEX D – New Zealand Marine Energy PEST Analysis
Political
New Zealand government target of 90% renewable energy by 2025 (in an average
hydrological year), providing this does not affect security of supply.
Commentary - despite New Zealand’s apparent abundance of renewable energy

resources, the majority of the country’s renewable energy is critically reliant on water
storage in South Island lakes. This can lead to significant fluctuations in available
quantities of hydro (and hence overall renewable energy totals) in dry years. This
has a consequential impact upon wholesale electricity prices. 2012 has been the
driest year for 80 years, and there have been 5 dry years since 1992.
Economic
Marine energy has a very high Levelised Cost of Electricity (LCOE) with no
subsidies for electricity generation companies to make this competitive with other
renewable energy technologies. The Emissions Trading Scheme does give a slight
commercial advantage to renewable energies over fossil fuel-based electricity
generation technologies.
Commentary – with such a high percentage of renewable energy already prevalent,

and an abundance of resources, there is no imperative for the government to
change this policy. The high LCOE will continue to make mainstream development
of marine energy difficult in most markets, with the exception of niche, until the cost
of manufacture, installation and operation / maintenance costs starts to drop
significantly.
24 October 2012 - 73 - 300184004

Social
There is an increasing public awareness of and demand for environmentally-friendly

and sustainable energy policies.
Commentary – New Zealand’s society and economy has a large rural influence and
large swathes of beautiful countryside, and environmental considerations are
politically important to a significant proportion of the electorate (for example, the
Green Party currently has 14 of the 121 Members of Parliament, and Wellington’s
Mayor belongs to the Green Party).134 Hence, it is felt that this trend will continue.
Technological
Rapid technological development in tidal and wave devices is occurring, enhanced

by significant subsidies in some countries (in particular, the UK). This is leading to
significant decreases in manufacture, installation, and whole-of-life costs over time
as a result of advances in design, manufacturing techniques, use of materials, size
(power) of devices, installation and maintenance.
Commentary – the majority of developments so far have been prototypical in nature

and deployments have often comprised singleton devices or comparatively small
arrays. In order to become competitive, arrays will need to increase in size to 60-80
MW (this is currently the minimum power necessary to economically justify the
required electrical balance of plant infrastructure necessary to be able to export
electricity of the requisite standard into the national grid). Reduction in installation
costs and through-life maintenance are the key drivers.
134
(New Zealand Government, 2012).
24 October 2012 - 74 - 300184004

ANNEX E – Marine Energy Deployment Fund135
135
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ANNEX F – WET-NZ Testing in Portland, Oregon136
136
(Northwest Energy Innovations , 04 September 2012), and (New Zealand Infrastructure, 01
October 2012).
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ANNEX G – Carbon Trust Report – Installation Techniques
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24 October 2012 - 79 - 300184004

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ANNEX H – Economic Modelling Parameters (Tidal)137
137
24 October 2012 - 81 - 300184004

ANNEX I – Economic Modelling Parameters (Wave)138
138
24 October 2012 - 82 - 300184004
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MBA Business Research Project - A Study into Commercial and Technical

Thesis · December 2012

Marine Energy in New Zealand View project

Acoustic Emissions View project

The user has requested enhancement of the downloaded file.

A Study into Commercial and Technical

Presented to: David Stewart

Simon Fleisher 300184004

Date: 24 October 2012

1. EXECUTIVE SUMMARY ................................................................ 1

3. LITERATURE REVIEW .................................................................. 5

3.1 New Zealand’s Tidal and Wave Characteristics and their

3.1 (a) Tidal Energy ............................................................ 8

3.1 (b) Wave Energy ......................................................... 14

3.2 Marine Energy Technical and Commercial Development 19

3.2 (a) Technical Development ....................................... 19

3.2 (b) Commercial Development.................................... 22

4. RESEARCH DESIGN ................................................................... 24

5. DATA COLLECTION AND ANALYSIS ........................................ 28

6.1 Technical Developments .................................................... 30

6.1 (a) Tidal Devices ........................................................ 30

6.1 (b) Wave Devices ....................................................... 31

6.1 (c) Technical Standards ............................................ 35

6.1 (d) Prototype-to-Production Changes ...................... 36

6.2 Commercial Developments ................................................ 37

6.2 (a) Industrial Assimilation and Technical Alliances 37

6.2 (b) Marine Energy Device Testing ............................. 38

6.3 New Zealand Projects ......................................................... 39

24 October 2012 - ii - 300184004

6.3 (a) Marine Energy Deployment Fund (MEDF) .......... 39

6.3 (b) New Zealand Marine Energy Centre .................... 40

6.3 (c) Energy Efficiency and Conservation Authority .. 41

6.3 (d) Lessons Learned (Critical Success Factors) ..... 42

6.4 Driving Factors for Marine Energy LCOE.......................... 43

6.4 (a) Installation Costs.................................................. 43

6.4 (b) Operation and Maintenance Costs ...................... 44

6.4 (c) Electrical Balance of Plant and Transmission.... 44

6.4 (d) Capital Cost and Power Output ........................... 45

7. VALUE CHAIN ANALYSIS........................................................... 46

8. INDICATIVE MARINE ENERGY LCOE ........................................ 49

11. ACKNOWLEDGEMENTS ............................................................. 60

12. BIBLIOGRAPHY .......................................................................... 61

ANNEX A – New Zealand Electricity Generation Statistics ............ 68

ANNEX B – Renewable Electricity Generation Target .................... 70

ANNEX C – Global Marine Energy Project Breakdown .................. 71

ANNEX D – New Zealand Marine Energy PEST Analysis ............... 73

ANNEX E – Marine Energy Deployment Fund ................................. 75

ANNEX F – WET-NZ Testing in Portland, Oregon ........................... 76

ANNEX G – Carbon Trust Report – Installation Techniques .......... 78

ANNEX H – Economic Modelling Parameters (Tidal)...................... 81

ANNEX I – Economic Modelling Parameters (Wave) .................... 82

Figure 2: New Zealand Exclusive Economic Zone............................ 7

Figure 3: Bay of Fundy, Canada ......................................................... 9

Figure 4: UK Mean Spring Tidal Range (Severn Estuary) .............. 10

Figure 6: Global Tidal Range Perspective ....................................... 12

Figure 7: Global Wave Energy Perspective ..................................... 15