Rob:
“...capital intensive clean energy technologies can still be very profitable for entrepreneurs and project financiers once the technology reaches a critical point of maturity. But expect VCs to mostly wait on the sidelines until there’s more standardization around a couple of key form factors. The current capital gap, therefore, would be better addressed by government and other funding sources.”

Judging by the LCOE data in the summary, 0.35 $/kWh for a 10 MW installation does not seem to be too different from solar PV technologies. I have to read the report, but exactly how much more capital intensive are these technologies compared to, say wind/solar PV ? Does the VC experience with funding wind and solar PV projects help to distinguish early forerunners in the ocean power business? Comparing the case of solar PV, where two principal technologies (silicon/CIGS) dominate, I would be interested in following how ocean power technologies develop.

One point I like about the LCOE values is that they seem to include the capacity factor, which often gets overlooked (solar panels can have low capacity factors depending on the weather).

Would love to hear more information about the business model that VCs favor.  From what I can tell, many developers are moving forward with utility scale plants to reduce costs and attract investment, though at present, the technlogy has barely been proven to sustain 1 MW plants.  Also, lots of criticism over a need for a stable streamlined regulatory process.  Would public funding for siting and environmental studies give VCs more incentive to invest early if they knew they didn’t have to pay regulatory costs.  And what kinds of tax incentives do VCs prefer - REC and offset credits?  A PTC (which in my personal view, isn’t real helpful right now), accel depreciation?  Investment tax credit? 

Anyway, this was a terrific post - there are lots of myths out there; this helps clear things up.

Carolyn Elefant
http://www.renewablesoffshore.com

Hi Carolyn,

Cost reductions are certainly important, but that will come with scale production and installation. Generally I think investors look at the ocean power industry and see a lot of risk, both in terms of technology development and test deployment and in terms of regulatory limitations, resource availability, and other environmental and economic siting concerns. In a lot of ways this is similar to the nuclear industry. Plant developers are really unwilling to commit because they don’t want their projects tied up in regulatory proceedings, technology failures, or even protests - a six month sit-in is enough to kill even a well-planned project. 

I think the British have demonstrated a great model for industry roll out. Providing wave and tidal testing facilities, streamlining siting regulations and requirements, and getting stakeholders and the government involved in a constructive removes a lot of the planning risk associated with bringing these technologies to market. Power sector buy-in is also important - investors want to know that their portfolio companies will have end markets. These assurances give VCs and technology developers the space to focus solely on innovation, cost reduction, and scale-up.

-Daniel

Thanks, Daniel.  And Carolyn, another critical point to bear in mind is that I’m giving the venture capital perspective, not the project finance perspective.

VCs are backing the development of the innovative technology itself.  With some spectacular exceptions, VCs typically do not provide equity to back projects.  So the VC will put equity into the startup that develops an ocean power technology, and then project financiers will back the individual projects deploying the startup’s technology.

From that perspective, I hope it makes it clear that siting, etc., are somewhat tangential to the VCs’ thought process.

Supportive policy environments in general help draw VC interest.  And that’s why overall stability of policy regimes is important as well—need to feel comfort that the rug won’t get pulled out from under an entire sector.  But the particulars are of much less importance to a VC than they would be to someone considering a particular project.  So my VC answer to you is “all of the above, please.”

My policy wonk perspective is that I personally favor PTCs instead of ITCs, since I think it’s more important to reward actual produced power than simply to incent putting dollars into systems regardless of efficiency, etc.  And siting, access to RECs, etc., could all be streamlined.  But I don’t encounter these issues very much in my day job.