business and climate change series: the creation and growth of aquamarine power - richard round, ...

Oyster – Green energy out of the blueEdinburgh University – Business School

This teaser document (the “Document”) is a discussion document and does not constitute and should not be construed as a prospectus or offering memorandum or an offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities in any jurisdiction and is not intended to provide the basis for any credit or other evaluation of any investment in Aquamarine Power Limited ("Aquamarine Power" or the “Company”) and should not be considered as a recommendation that any investor should subscribe for or purchase any investment in the Company. This Document is strictly private and confidential and intended solely for the information of the persons to whom it is issued. The contents of this document have not been verified and therefore there can be no reliance or assurance that the statements made are accurate. Any person interested in acquiring an interest in the Company is recommended to seek its own independent financial advice.

No representation or warranty, express or implied, is or will be given by the Company, or its directors, partners, employees or advisers or any other person as to the accuracy or completeness of this Document or any other written or oral information made available to any prospective investor or its advisers and, so far as permitted by law and except in the case of fraudulent misrepresentation by the party concerned, no responsibility or liability is accepted for the accuracy or sufficiency thereof or for any errors, omissions or misstatements, negligent or otherwise, relating thereto and any such liability is expressly disclaimed.

Certain statements in this Document constitute forward-looking statements. The words “forecast", “anticipate”, “estimate”, “project”, “intend”, “expect”, “should”, “believe”, and similar expressions are intended to identify forward-looking statements although not all forward-looking statements are so identified. These forward-looking statements involve, and are subject to, known and unknown risks, uncertainties and other factors which could impact the Company’s actual results, performance (financial or operating) or achievements to differ from the future results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements. Forward-looking statements are necessarily dependent on assumptions, data or methods that may be incorrect or imprecise and that may be incapable of being realised and in some instances are based on consensus estimates of analysts not affiliated with the Company. All forward-looking statements attributable to the Company herein are expressly qualified in their entirety by the above-mentioned cautionary statement. The Company disclaims any obligation to update forward-looking statements contained in this Document, except as may be required by law.

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Disclaimer

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Aquamarine Power is a technology company that has developed a product called Oyster which produces electricity from ocean wave energy.

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Survivability

Wave energy in the UK

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• Exploitable wave resource– Estimated at 80,000TWh/yr (world

electricity consumption x 5)

• Size of market– 600GW raw resource– 64GW global commercial Oyster resource– 14GW European commercial Oyster

resource– £192bn global Oyster market

• Enhanced national energy security• Diversified/enhanced renewable

portfolio– Reduced variability– Enhances system stability– Lowers balancing costs

Wave energy advantages

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• UK could capture almost a quarter of the global marine energy market

• Potential to generate up to £76bn to the UK economy by 2050

• Potential to generate over 68,000 UK jobs

• Source: Carbon Trust (July 2011)


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Market


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2005•Company established

2007•SSE invests

2009•1GW SSE agreement

2009•Oyster 1 grid-connection

2010•Oyster 1 >6000 operating hours

2010•ABB invests

2011•Crown Estate seabed leases (240MW)

2012•Oyster 800 operational testing

2013•Oyster 800 producing power. Improve availability

Aquamarine Power milestones

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•ABB Technology Ventures•Global power and automation group•Operations in over 100 countries with 145,000 staff•Engineering and R&D expertise

•UK’s leading generator of renewable electricity•Over 3,500MW renewable energy capacity in operation, under construction or with consent in UK and Ireland

•Government agency charged with fostering economic growth

•Active equity investor and provider of R&D funding

•Managed by well-respected fund manager – Scottish Equity Partners

•Institutional investor support•Strong financial expertise

Key shareholders

Environmental Energies Fund

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Strong shareholders


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Oyster – Key benefits

• Simple• Survivable• Shore-based electricity generation

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• 315kW demonstration device• Manufactured 2008• Installed 2009• Grid-connected 2009

• >6000 operating hours• Peak power close to 300kW• Operation through two winter seasons

– meeting two year design life requirement

Oyster 1

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• 800kW demonstration device• Manufactured 2011• Installed Sept 2011• Operational testing and first

electrical power June 2012

• Significantly improved power generation

• Reduced cost of power• Simplified marine installation

process• Easier routine maintenance

Oyster 800

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Oyster 800 onshore site

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Oyster 800 - milestones

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Deballasting• 12 February 2013

1st power to the grid• 14 February 2013

1st 24-hour Generation• 27 February 2013

• Executed a campaign over the summer months– Learn!– Replace/repair/upgrade hydraulic components– Replace/repair/upgrade control and instrumentation

• Product Improvement Plan – In last few days – Expect to bring Oyster 800 back into operation by mid October

• Seeking sustained reliable performance– Monitor performance against wave resource monitoring devices

Product Improvement Plan 2013

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• Lower cost machine – reduced materials requirement• Simpler to install – monopile replaces two piles• More efficient – improved hydro-dynamic shape• More economic – lighter and cheaper than Oyster 800• Route to value – fabrication from FRP materials takes

advantage of weight-saving properties

Next Evolution Oyster 801

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Technology concept proven


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• Electricity production

• Desalination

Market Opportunities

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Other potential markets


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• Two sites secured from The Crown Estate– 200MW Orkney– 40MW Lewis – fully consented

• Permitting sites today for Oyster sales tomorrow– Parallel technology development and site development– Strategic partners – JVs to share experience and risk– Full site consent service – permitting sites 2/3 years in advance– Creation of additional value

Customer and market development

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Lewis 40MW Oyster wave farm

Key assumptions

Total installed capacity 40MW or 50 devices

Fully consented (40MW) Q2 2013

Target date for first operation (3MW phase 1) 2017- 2018

Value milestone Site development progress Target date

Seabed lease 10 MW and 30MW agreement for lease secured Complete

Grid connection 40MW transmission offer accepted (available 2017)

3MW distribution offer accepted Complete

EIA EIA completed Complete

Consents Full consent received for 40MW

Onshore ‘Planning in Principle’ received

Complete

Complete

Land agreement Heads of Terms signed, Lease documents being finalised Q4 201323

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Business Plan – Timeline for technology development

Route to market

Grid?


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Global market incentives (2013)

Location Market pull incentives Market push incentives

Scotland 5 ROCs + wholesale price (~£270/MWh total) to March 2017 thereafter Contract for difference – Minimum £305/MWh

Scottish Investment Bank£18m Marine Renewable Commercialisation Fund (grants)£103m Renewable Energy Investment Fund (equity/debt)

Rest of UK 5 ROCs + wholesale price (~£270/MWh total) to March 2017 thereafter Contract for difference – Minimum £305/MWh

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Strong government support

Uncertainty on Electricity Market Reform?


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• Commercialise Oyster technology• Identify and permit sites to deploy Oyster technology• Joint venture with utilities to carry out early stage

development of sites• Sell down ownership of permitted sites to utilities prior to

full scale construction• Supply technology and maintenance services to utility

customers

Business model

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Business Plan


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So why no queue of investors?


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• Potential huge market• Next big untapped renewable resource • Strong shareholders• Technology concept proven• Survivability proven• Route to market• Other potential market• Business Plan

• But.........

Funding / Ownership

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But............• Competition for funds eg Offshore Wind• High technology risk?• Which is the right technology to back?• Can it be done commercially?• Long development timelines?• Capital intensive?• Need for large industrial support – not just money• Electricity Market Reform risk• Grid risk

Funding / Ownership

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Who should own and fund this business?

Question

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