The Department of Energy and Climate Change has decided that wave power is the future and is offering huge subsidies. But if money could be made from the surface of the sea, the private sector would have done so a long time ago
The surface of the sea is a surprisingly cold, hostile and unforgiving place. Although it covers 71% of the surface of the planet, nothing much bigger than a speck lives there. Obviously, lots of slimy and scaly things swim around beneath the surface but on the very top there’s pretty much zilch. Mother Nature has found niches for life in the desert, the arctic and deep underground but, after 4.5 billion years of trying, she is passing on the surface of the sea thanks all the same.
Now you would think that this very long experiment in trying to evolve life in a hostile environment would act as some kind of hint to the nice people at the Department of Energy and Climate Change (DECC). You would think that if Mother Nature cannot persuade even a simple plant to make its home there, then what chance does a lowly civil servant have of making a project happen?
You would think that given this, DECC would focus its subsidy efforts on the low-hanging and proven technology fruit of solar panels, wind turbines and waste to energy plants. You would think all of these things because you are sensible and bright, but you would be wrong.
Despite all the evidence to the contrary, DECC has decided that, heck no, the surface of the sea is just the place to build power stations and is cheerfully spending millions of pounds of taxpayers’ money trying to make this work.
I suspect the reason for the fixation is the blinding headlight of 10% of the UK’s base energy needs that is potentially available in the waves of the North Atlantic as they crash onto our shores. To turn this potential into reality, DECC is allocating an enormous subsidy of five Renewable Obligation Certificates (ROCs) per hour for wave energy. This is the equivalent of about £220 for every hour of electricity produced. To put this into context, the equivalent subsidy for boring, ground-mounted solar is only £61.
Despite the size of this carrot, industry is still not really biting when it comes to wave energy. There are a few brave stalwarts trying to make power with weird snake like things bobbing around on the surface, but the big boys of the engineering world are steering well clear. Making profitable electricity in a salty, wet and windy environment that constantly moves up and down is not the easiest engineering challenge in the world and maybe it’s better if somebody else has a go first.
However, despite the reluctance of pretty much the whole of the world’s engineering industry to play ball, DECC is cheerfully ploughing on and is now developing the snappily-titled Marine Energy Array Demonstrator (MEAD). In essence, this is a government-funded initiative where you get to prove that your bobby wave thing really can survive for long periods on the surface of the sea. Trust me. Honestly it will.
This illustrates two things; firstly, that despite its neo-liberal protestations the government and its civil servants still believe that, for most problems, the state knows better than the market.
Here we have a situation where both nature and industry are saying ‘this won’t work’, but the state thinks it will so we taxpayers are being asked to back their hunch. DECC may protest and talk about acting as a catalyst, early-stage incubator, provider of development capital and all of those platitudes, but fundamentally this is DECC saying ‘we don’t believe that markets are canny enough to spot the opportunity here but we in Whitehall are cleverer than you and we can’.
Such hubris is the starting point of wasting a lot of other people’s taxes. If you could make money from the surface of the sea, then the private sector would have done so a long time ago. That is what markets do – they spot opportunities, develop technology and make money. The fact that they can’t make this work on the sea even with the highest levels of renewable energy subsidy in the world means they probably can’t, full stop.
Secondly, I think it illustrates how to some extent the renewables industry is in danger of becoming subsidy junkies. The government recently commissioned a report on wave power and one of the most consistent messages coming from the market was ‘we need more subsidy’. Just one more ROC per hour then we will all be ok.
This is not just a criticism of wave-power technologies, it pervades a lot of the more marginal renewable technologies currently being developed. Whenever DECC issues a consultation paper on energy, industry representative groups clamour likes birds in a nest for the more juicy subsidy worms to be allocated to them. The more mature technologies like wind and solar have long since outgrown this neediness but their less mature siblings know they are still dependent upon DECC’s largesse to survive.
So, despite the apparently huge potential sitting on our doorstep, I am pretty sure that wave power is not going to transform this country into the Saudi Arabia of Western Europe. Blackpool is not going to look like Riyadh any time soon. The surface of the sea remains the least hospitable place on the planet to do anything, and all the best-intentioned but misguided state intervention in the world is not going to change that.
Michael Ware is corporate finance partner at BDO. @BDO_New_Energy
