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Why wave energy upstarts are struggling to scale

September 28, 2021, 7:00 AM UTC

Wave and tidal energy technologies have been around for centuries, but a growing number of early-stage companies in recent years have been looking to scale existing and emerging forms of these technologies in order to accelerate the ocean energy market and move closer to net-zero emissions. 

A recent Department of Energy grant as well as greater public awareness of climate change are also focusing more attention on the sector, but analysts note that it’s going to take a lot more government support to mitigate cost restraints and grow a full-fledged market segment.  

The latest federal funding announced this summer aimed at the development of ocean energy projects is worth up to $27 million in total grants.

“The industry hasn’t moved forward much because investors typically find it hard to see a commercial return within a time frame that makes sense for them,” said Andrew Parish, the chief commercial officer of the IDLF Investment Fund and a former wave energy company executive. “As long as there’s cheaper forms of energy, wave energy will struggle to commercialize.”

The global market for wave energy hovered around $43.8 million in 2019, according to Allied Market Research, and is projected to reach $141.1 million by 2027. During COVID-19, transport restrictions imposed by various countries have slowed business growth, though the market is expected to recover as the pandemic subsides. 

Wave energy technology aims to capture movement on the ocean’s surface with hydraulic pumps, oscillating wave surge converters, or by other mechanical means. Tidal energy tech harnesses energy from underwater currents. These systems can be used for aquaculture, robotics, water desalination, and more.

The Energy Information Administration estimates the theoretical annual energy potential of U.S. coastal waves could be over 2.6 trillion kilowatt-hours—up to 64% of the country’s electricity. Yet, the prospect of this massive energy source is dulled by the hesitancy of investors to back it. 

Much of the allure of ocean energy technology relies on tapping into a practically unlimited energy resource and mitigating the use of other, more traditional energy sources. The vast potential energy of the ocean and the prospect of diminishing upfront costs appeals to investors with longer-term timelines.

“Wave energy is continuous, and tidal energy is really predictable,” said Erin Blanton, a senior research scholar at the Center on Global Energy Policy at Columbia University and a leader in the center’s ESG research. Unlike waves, which can fluctuate with above-surface weather, tides occur at regular, expected intervals below the surface. “It’s a reliable, constant source that can provide electricity to high-populated areas without taking up land space in those areas,” she noted.

Balky Nair, an entrepreneur who has worked in the energy sector for over two decades, founded Oscilla Power 15 years ago with the hope of disrupting the marine energy industry and developing a cost-efficient offshore solution. Like others involved in wave and tidal energy, he helps navigate his company through trial and error and often-sparse funding to design things that look like they’re from the future. 

“It’s a nascent market, but we believe there’s enough value there that the cost can be driven down and the market can take off rapidly,” Nair said. “We’re betting on that, and hope to be one of the leading providers.” 

A drop in the bucket

“[If the] government says something has potential, they’re going to put some money into it,” said Terry Tamminen, president and founder of 7th Generation Advisors. “Investors realize, ‘Oh, that could be a subsidy for my industry, which could turn something that’s questionable into something that is profitable,’ or ‘That’s going to help take some technology risk and give us the chance to come in behind them.’”

But according to Blanton, the DOE’s recent funding announcement is not nearly large enough to get the sector off the ground: “Private investors can help, yes, but more government funding is really the main way to bring these technologies up to speed and to scale.” 

If the government, as well as the private sector, cannot fund wave and tidal energy, even a dramatic uptick in mainstream, alternative resources may not be sufficient to mitigate the most dire climate concerns. 

Parish explained that oil and gas companies remain slower to adopt innovative technology because of operational concerns—they know older technology well, and it is cheap and reliable. Wave energy, on the other hand, is not yet price-competitive and stands comparatively untested, with much of its technology still in developmental stages and in need of funding. 

While federal approval of a wave energy testing site off the coast of Oregon promises larger-scale testing and the DOE’s summer grant has stirred competition among energy companies, Parish and Blanton both called these efforts a drop in the bucket. 

Oscilla Power’s Triton-C
Courtesy of Oscilla Power

The sector—part of the so-called blue economy—offers promise primarily for investors willing to wait longer for their returns. The wave energy market has an estimated compound annual growth rate of nearly 20% before 2027, and Nair believes ocean energy technology will follow the diminishing cost-trajectory of previous clean energy trends. 

“A lot of time and effort goes into the first of any device before it sees cost reduction, but once you demonstrate the tech can work, things develop very quickly and at scale,” Nair said. 

Scaling challenges

Since many companies remain in a proof-of-concept stage, investors are often more inclined to back different technologies, according to Blanton. 

Oscilla Power, which has received close to $16 million from previous Department of Energy funding, plans to apply for a share of the recent grant. New funding would allow the company to build out new prototypes and refine previous designs.

Most wave and tidal energy companies have smaller scale prototypes that now await funding for full-scale builds. “We have something that works,” said Trey Taylor, founder and CEO of Verdant Power. “Now we’re raising money to scale up.”

Verdant Power’s RITE Project in the East River in New York, which was installed in October 2020, represents the first U.S.-licensed tidal power project. The pre-commercial demonstration is meant to set the stage for future, full-scale commercial models.

Verdant Power’s RITE project being tugged through the East River.
Courtesy of Verdant Power

The company, according to Taylor, is on target to produce 150 gigawatts of power by 2040. That would represent approximately one-third of the market share for tidal energy. Verdant has raised over $46 million for research and development—about half of which has come from government funding—and has plans to build full-scale models of its tidal technology in the English Channel and Northern Ireland in the coming years. 

But designing something that can withstand ocean conditions is tricky—unpredictable and uncontrollable sea behavior can often nullify models built in controlled research settings. 

“Working offshore is notoriously difficult and exceptionally dangerous,” said Ocean Power Technologies CEO Philipp Stratmann, who has a background as a naval architect and engineer. “The barriers to entry for maritime technology are just so much higher [than onshore technology].”

Stratmann’s company builds devices to monitor sea conditions hundreds of miles offshore for years at a time. This demands integrating safeguards that can withstand extreme weather, which Blanton says present expensive, logistical challenges. 

Ocean Power Technologies in the North Sea.
Courtesy of Ocean Power Technologies

“There’s a huge challenge in constructing offshore systems,” Blanton explained. “That means really high upfront costs, especially compared to other alternatives.”

“The environmental conditions where wave extraction has the greatest potential—where the waves are high and long—are harsh,” said Patrick Lynett, professor of environmental engineering at the University of Southern California. “Designing objects to function under these conditions is challenging. The engineering and design must be robust and creative, which usually means complex and expensive.”

Lynett sees wave energy’s potential in its application in areas where solar and wind options are not viable, or where the ocean currents are particularly energetic. Still, no amount of energy potential has been able to mitigate investor skepticism. 

“It’s difficult to ask investors to back a technology that may take another decade to mature,” Parish said. “Most investors look for returns within five to seven years, but wave energy doesn’t deliver that quickly, so investors often turn elsewhere. But impact venture funds may take a longer term view, and that’ll be important for wave energy.”

To Stratmann, the market for smaller scale wave energy has potential but is still in its infancy, as different applications are at different stages of development. Some of Ocean Power Technologies’ units are already commercialized, while other early-stage technologies remain years away from release. 

“Wave energy’s not quite mainstream yet, but it’s becoming an accepted alternative, especially for smaller scale applications,” Stratmann said. “The ocean really is the future, the final frontier.”

Many companies that initially envisioned energy as their commercial product have pivoted to other segments. 

Bill Staby, founder and CEO of Resolute Marine, focuses his technology on a narrow application: water desalination. 

“We target island communities, the places that can’t afford regular desalination systems,” Staby said. “They rely on diesel systems which are actually very expensive when you add the cost of fuel to run them. With our technology, developing communities will pay much less for clean water.” 

Resolute Marine focuses on water desalination.
Courtesy of Resolute Marine

Staby’s priority is delivering clean water to the island nation of Cape Verde, off the coast of Africa, where 85% of the area’s fresh water comes from desalination plants. “Our system can cut the cost of water there by at least half, if not down to a third, by using renewable energy from waves,” Staby said.

If their companies received a significant injection of funding, these CEOs believe wave energy converters can be developed at price points competitive with other green energy options—with the potential for even greater energy yields.

According to Parish, it will take monumental efforts from private investors and venture capitalists for ocean energy to become mainstream without government assistance. Even then, he predicts the industry may need a champion with deep pockets to grow.

“Traditional private equity funding won’t cut it,” Parish said. “To really develop the market, it may take someone to invest for nonfinancial reasons, someone who doesn’t have his personal balance sheet in mind.”

“If we have to get to net zero, we cannot be so selective about which technologies we use to get there,” Blanton said. “Everything has to be on the table, wave and tidal included. We have to use all the tools we can.”

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