These days, executives at Ocean Power Delivery have been more likely found bobbing along the coast of Orkney than in the drier confines of their Edinburgh offices.

The marine energy company has been sea-trialling the durability and performance of the Pelamis (named after the Greek word for sea snake) by hanging the prototype – the length of four train carriages – off the end of a boat. The team is now awaiting the right weather conditions to install the machine on its mooring system where it will connect through underwater cables to the local power grid.

Ocean Power Delivery (OPD) is the first company to test a wave-power generating device at the not-for-profit European Marine Energy Centre (Emec), which was officially opened last week. It is expected that the OPD prototype will be used in three small-scale pilot operations planned by ScottishPower, Portuguese utility Enersis, and English company Ocean Prospect.

As OPD project development engineer Andrew Scott explains: “We want to sell these things. As part of that we have to promise some kind of performance from the machine. With these studies, we can predict electrical output in different areas around the world. A potential customer would prefer some independent verification from a third party. It reduces the risk for them.”

Both the initial success of OPD and the establishment of Emec – the only independent wave energy testing facility in the world – have been held up as evidence of Scotland’s emerging prominence in the renewable energy sector.

Future prospects were also given a significant boost after gas and electricity regulator Ofgem gave the green light last week to a £360 million upgrade of the country’s transmission network – needed to fully enable the future delivery of renewable energy power to England and parts of Scotland.

The country’s abundant natural attributes make it an obvious geographical choice for future developments. Scotland boasts a quarter of Europe’s wind resource and the Pentland Firth is regarded by some as the best tidal area in the world.

A recent study envisioned that more than half of the 10,000 megawatts (MW) required for England and Wales to meet its 2010 renewable energy targets would actually be produced in Scotland. Given the maturity of the technology, most of that will be delivered through wind turbines. But there is a widespread belief that to meet longer-term renewable energy targets, power will have to come from a variety of sources. The higher cost of biomass and solar power has both politicians and private equity firms championing wave and tidal energy as the next logical winners.

But there is concern that countries such as Portugal are pulling ahead because their governments are willing to back ambitions with far more cash. Shiona Baird MSP, the Green Party’s spokeswoman on energy and enterprise, poured cold water on the recent Department of Trade and Industry (DTI) announcement that it would spend an additional £50m to kickstart Britain’s fledgling marine energy sector, by warning that Portugal had invested three times more than the UK in developing marine power.

Colin Burnett, investment director with venture capital firm 3i, believes that the government should have pledged between £100m and £150m towards marine energy development. He says: “There’s a lot of noise in the renewable market. But the one thing fundamentally lacking is access to capital. There’s scepticism in the private finance market at whether there’s an ability to get sufficient returns on investment.”

While venture capitalists tend to pile in during the outset of a new technology, says Burnett, only the very largest are taking the risk of backing tidal, wave, biomass and solar photovoltaic (PV) technologies at these very early stages.

There’s no doubt, he says, that the UK has become a centre of excellence for marine and tidal expertise. That’s why 3i has invested £3.5m in OPD and Inverness-based Wavegen, which recently started another £10m fundraising exercise to further develop and commercialise its technology.

The utilities have also waded in. ScottishPower has agreed to a pilot wave generation scheme with OPD that is likely to happen in 2005. And Scottish and Southern Energy partnered with Glasgow-based Weir Group a year ago to set up a £10m fund to invest in marine energy technologies. But after reviewing 20 ongoing projects worldwide, the companies have opted to pursue their own venture in tidal wave generation. “We’re trying to bring industrial might to this exercise,” says Brian Smith, head of project development for Scottish and Southern. “Up to now, there’s been small entrepreneurs working on marine technologies. I don’t think things can continue that way. If we’re going to generate the serious megawatts the government is talking about, we need to get serious players involved.”

But interest is limited, says Burnett. As one of the leading investors in renewables, 3i has still only spent up to £15m on the sector across all of Europe. As a result, he says companies like OPD have had their focus divided between science and finding more cash. It’s taken six and half years for OPD to get its prototype into the water. After initially scraping together the start-up capital from family and friends, the directors eventually accessed £2.5m in grants from the DTI. Four years into the project, 3i, Norsk Hydro and Sustainable Asset Management contributed £6m. Another £1.5m came from the Carbon Trust a month ago.

“It was hard for these guys to get their money,” says Burnett. “They were constantly watching their pennies. It takes a certain amount of resolve to work in that environment. Not everyone has that drive. There’s probably a lot of good ideas out there that have been stifled because people haven’t been able to get the funding.”

The next phase – commercialisation – could be even more costly and OPD is competing against 40 other wave and tidal projects in the UK and around the world.

“It’s an expensive business working offshore,” Scott explains. “Certainly the funding we’ve received has allowed us to get to where we are now. It’s no coincidence that the UK has the leading technology in wave power generation. The DTI support has been very good. But coming into the commercialisation phase, you face different challenges. One of the big unknowns is what the operating costs will be over the length of the project. You have to look at how you can mitigate the risk of those running costs. That’s where the UK has stumbled in the past.”

Scott is hopeful that the new £50m DTI fund will turn out to be a combination of capital grants (to start the projects) and a feed-in tariffs scheme similar to the one being offered in Portugal.

Companies there are being offered €0.23/kilowatt hour (KWh) for energy produced by wave devices. This figure is set for the first 20MW of connected power but discussions are underway to raise this to the first 50MW.

The advantage of such feed-in tariffs is that it gives potential manufacturers and financiers confidence the market will exist even though wave technologies could initially be more expensive than wind and traditional fossil fuels. The Irish government is currently considering introducing a market enablement scheme that would offer a tariff of between €0.22 to €0.28/KWh. Spain also has a much smaller tariff for wave energy which is reviewed annually and could be increased in line with Portugal.

Burnett says that a support scheme or framework that ensured the possibility of future income for these small wave development companies could encourage more venture capitalists to invest in early-stage research and development.

Jonathan Johns, who wrote an Ernst & Young report on the attractiveness of countries best placed to exploit renewable energy , agrees that additional incentives will be necessary to accelerate the development of biomass, wave and tidal energy. But he adds: “That incentive has to be carefully thought through so it doesn’t risk the existing tariff regime that has provided a stable environment for investment in wind farms.”

However, Johns says a more troublesome barrier is the capital required to strengthen the existing Scottish grid to handle the additional power that will be generated to supply England and Wales.

“The grid issue will become a constraint in the near term if not addressed. It’s a particular issue for wave and tidal. When it comes on stream, the existing grid will have been used up [by wind energy production].”

Most industry players believe the political desire does exist to address these issues. Both Westminster and the Scottish Executive are determined not to repeat mistakes made in the 1970s and 1980s that allowed Germany and Denmark to dominate the wind power industry. The DTI has had a £350m renewable energy capital grants scheme running from 2002/3 to 2005/6 for biomass, solar PV, wind farm and marine projects. The Scottish Executive has contributed on a far smaller scale, spending £4m per year on renewables. It has also invested £2.125m in the European Marine Energy Centre and will likely give more towards extending the centre to include tidal facilities.

However, the Marine Energy Group, whose membership is drawn from industry, academia and government, concluded this month that these efforts weren’t nearly enough. Nevertheless, there has been no indication from the Executive that additional commitment on a much larger scale could be in the pipeline.

When asked by the Sunday Herald about the possibility of introducing a tariff scheme for marine energy schemes, Jim Wallace, deputy first minister, said: “We are doing everything possible to ensure Scotland becomes a world leader exploiting the power of the sea.

“Portugal has a tariff system in place to support marine energy development off its coasts, but it will be some time before the success of this system can be judged.

“Scotland possesses a far greater potential resource, a stronger academic base, and years of relevant manufacturing and engineering experience in marine environments. These factors, coupled with the facility offered by Emec and the announcement of a new £50m support scheme for marine renewables, will be vital in ensuring that Scotland takes and sustains a strong lead in this growing sector.”

Wallace added: “We are working closely with the DTI and the industry to work up details behind the new support scheme, as well as looking at ways in which Executive might help alleviate costs of grid connection for early marine developments in Scotland.”

That work and the decisions made will be crucial to the future of Scotland’s energy sector and economy.

Storm brewing over wind farms

MEMBERSHIP of the anti-wind farm lobby has been growing daily with the latest high-profile recruit Prince Charles himself. The Prince of Wales has reportedly told senior aides that wind farms are a “horrendous blot on the landscape” and if used at all should be sited well out to sea rather than ruin the countryside. He adds his name to a list of judges, Tory politicians and even millionaire publisher Angus MacDonald who have called the towering wind turbines inefficient, an environmental hazard and a threat to the pristine landscape that is integral to the tourism industry and rural economies.

Dr Brian Smith, head of project development for Scottish and Southern Energy (SSE), says the rising “vocal minority” has created doubts that his company will meet its 2010 renewable energy targets.

He said: “A year ago, I would have said, yes we will meet the targets. Today, I’m not quite so sure. It was a very big target to meet when it was set. We would have had enough time if things had gone smoothly. There have been significant delays through this vocal minority that has developed.

“I am now a bit more apprehensive that the target will be met. If we don’t meet it, then we will be fined. The general population will still see their bills go up because we will pass those costs through to the consumer. The more that these anti-wind farm groups stop these farms from being built, [the more] people will see an increase in their bills but without the renewable energy benefits.”

According to Smith, electricity bills are expected to creep up by 8% over the coming years to pay for the infrastructure and grid improvements required to meet the UK’s 2010 renewable energy targets. SSE – which must supply 1000 megawatts (MW) in Britain by 2010 or face fines – estimates that 90% of its projects will be sited in Scotland. That could equate to more than 400 wind turbines. At the moment SSE is the largest renewable energy generator in the UK with 1300MW coming from hydro and 200MW from wind. That’s out of a company total of 10,000MW.

Smith says that most of its farms are being sited in Scotland to take advantage of the better wind resource, thus producing more power from fewer turbines. But new projects have been slow to come online. SSE recently received planning permission for a wind farm in Perthshire but only after a three-year process.

Nevertheless, Ernst & Young recently rated the UK as the most attractive country for wind energy development due to its abundant wind resource, an attractive capital allowances regime and the availability of capital grants for round one offshore wind projects. Jonathan John, one of the authors of the report, said that any form of new economic development tended to provoke controversy. He also said that planning guidance issued by Westminster last week which said planners should “promote and encourage rather than restrict the development of renewable energy” should prove helpful.

15 August 2004