Between a ROC and a hard place: Could the UK lose its big shot?

Not having enough Renewable Obligation Certificates (ROCs) cuts off the stream of deal flow to the entire tidal energy supply chain, according to some, but there are other factors that are wreaking havoc on the UK’s once natural lead position. Elisabeth Jeffries speaks to industry executives and investors to get to the crux of a complex dilemma and perhaps even one step closer to a multi-faceted solution.

By Elisabeth Jeffries

After the public sector spending was axed in the UK in the 1980s, politicians talked about invigorating business with low interest rates and tax incentives.

Twenty-five years later, manufacturing has dropped to 10% of the UK’s economy as politicians repeat their pledges.

UK prime minister David Cameron in May 2010 said his new government would support growing industries, including low carbon energy, but tidal power entrepreneurs may justifiably be sceptical. Meanwhile, the concern that supply chains for UK projects develop elsewhere remains real.

In an article in the Aberdeen Press & Journal in September 2010, Dick Winchester asked: “why is it that Scotland – the UK – has such difficulty getting properly home-grown companies in tidal energy off the ground?” and blamed, not their respective governments, but the UK financial sector.

ROC solid?

The answer is actually a complex mix of issues.

But Peter Fraenkel, technical director of Marine Current Turbines, maintains that government incentives are the main problem.

“Not enough ROCs means no projects which means no turbines and hence nothing for the supply chain. Very simple!…many components we use come from the wind industry so Danish and German companies benefit disproportionately,” he states.

Fraenkel has been campaigning for five ROCs for tidal power, a call echoed by Martin Sloan, project manager at Hammerfest Strom in Scotland.

Gaynor Hartnell, CEO of the Renewable Energy Association, beats the same tune: “from my perspective the first thing to think about is the incentive regime.

“Get that right and investment in manufacturing will follow. It’s putting cart before horse otherwise,“ she says.

Marine clusters

Lucy Marcus, a venture capitalist and owner of Marcus Venture Consulting, argues that clusters make a huge difference:

“There are some places we know that if you put money there, you’ll get more for your bucks. Creating hubs/valleys can really help,” she states, citing famous examples like silicon fen in Cambridge.

Lucy Marcus, a venture capitalist and owner of Marcus Venture Consulting, argues that clusters make a huge difference:

“There are some places we know that if you put money there, you’ll get more for your bucks. Creating hubs/valleys can really help,” she states, citing famous examples like silicon fen in Cambridge.

Creating a marine cluster is, of course, what Scotland aims to do, but there are still barriers to overcome.

The theme of Scottish devolution and decentralised government hangs over the development of the industry, as Shona Robison, MSP for Dundee East, indicates.

Scottish campaigners have been arguing for a flat charge for all energy companies regardless of their location in the UK: “We are working hard…to ensure Dundee becomes a hub for manufacturing and maintaining offshore turbines.

“One obstacle presently hindering the development of renewable energy in Scotland is the inequitable charging system for energy generation transmission, which makes producers in Scotland pay tariffs to deliver electricity to the grid while companies in the south of England receive subsidies,” she says.

Yet, as marine power entrepreneurs well know, emerging companies usually need to jump through many hoops before they even get to the point of receiving ROCs or paying electricity tariffs.

Private sector’s role

The private sector’s role is crucial. The task is to ensure that prototypes develop into pilot projects, which only later get scaled up.

Sometimes, only private money will ensure an idea is transformed into a pilot project, or that it is converted into an array.

David Wasserstein, a venture capitalist and Director of Investments at I2BF, which runs the international Arbat Clean Technology Fund, suggests that different funding styles may be appropriate, citing cases he has seen arranged elsewhere.

“The kind of tenor of programme that’s needed could be a fund in which the government matched private investment; so for every dollar or pound invested the government would invest the same amount,” he states, adding that the UK has been “somewhat progressive” on venture capital compared to other countries.

Pointing to US financial structures that invest in innovative start-up companies, another investor suggests that UK investment structures could become more flexible to respond to the need for patient capital.

“You could also have investors that focused on different parts of the company’s life cycle, with some investors putting money in the first few rounds, before later stage investors came in on the same project,” suggests Wayne Keast, a cleantech investor at Consensus Business Group.

It’s a culture thing

Cultural influences also play a big role. Germany’s long term feed-in tariff regime is often cited as a reason for the successful incubation of its solar industry.

But Keast suggests other factors have had a major impact: “In Germany there is less private equity, but more of a lon- term family based manufacturing sector which doesn’t accept the same terms as businesses in other countries,” he observes.

Given that the UK’s enterprise culture will never be the same as Germany’s, its government may need to show even more commitment to build new low carbon sectors, as investors and tidal power developers indicate.

“It’s inherently a difficult market to play in,” says Keast.

In addition, the present financial climate creates tough international global competition that individual governments may not be able to handle.

“Wage arbitrage issues are as bad for the UK as anywhere else,” indicates David Wasserstein.

Date

13 October 2010

Organisation

Tidal Today

Between a ROC and a hard place: Could the UK lose its big shot?

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