The Path Forward for Offshore Renewable Energy and the Blue Economy

There are four takeaways from this short note:

1)???? It is mathematically impossible for a floating system hosting a single energy conversion source to compete economically with a combined energy/blue economy system

2)???? The current public/private investment structure both encourages the wrong focus and actively prohibits the correct one.

3)???? While the oceans could provide affordable power, fuel, food, and water, if the current approach is maintained it will not happen, and significant resources will be wasted building expensive power systems with no long term future as a prime component of the energy transition.

4)???? The systems that work do exist, but need financial incentives that are best initiated by the government sector, which will lead to private investment once a path to a profitable Blue Economy is proven.

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Our Background and Goal

Excipio Energy was founded by two offshore oil and gas development experts, each with more than 25 years of experience that spanned the full spectrum of offshore development from engineering and project management to economic analysis and asset valuation. In 2016 they jointly decided to lay aside their oil and gas careers to bring that offshore expertise into the renewable energy space.? The objective was to tap into the massive potential of offshore renewable energy and provide power that was cost competitive with a natural gas power plant and/or onshore wind and solar. The only way for the energy transition to succeed is if we can make renewable energy systems profitable at a cost comparable to that of fossil fuels.?? If we can achieve that goal, it will attract investment, not just because it is “green” but because it makes people’s lives better.? Making renewable energy a profitable business is the only way to meet or even exceed the government’s stated 2050 targets.

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Doing Our Homework

While both founders had kept up with the trends in offshore renewable energy, to form a profitable company a deep understanding of the available systems would be required.? The first task was therefore an intense study of the state of the art of the pillars of offshore renewable energy, namely:

• Offshore Wind – Large wind turbines, three or more times the size of onshore turbines.
• Marine Hydrokinetics –MHK for short – energy from moving water like ocean current, tides, or waves.
• Ocean Thermal Energy Conversion (OTEC) -which uses the temperature differential between the warm surface water and the cold deepwater to drive a heat engine.? A curious note here is that OTEC is counted as part of MHK in US Law.
• Offshore Geothermal – tapping the warm temperature below the seabed using a well to run a heat engine in a similar fashion to OTEC.
• Seawater Air Conditioning (SWAC) – uses cold seawater to provide cooling.
• Floating Solar – solar panels attached to floating mounts.

Identifying the Problem(s)

As we researched the diversity of existing technologies, starting our in-house database that now numbers more than 2000 devices, we kept a short list of those which we identified as promising based on our offshore technical and business experience.? Excipio then chose a technology we wanted to use as a tidal energy device, going so far as to test it in a tank.? As a parallel activity we ran simulated economic models and found a serious problem.? No matter how good our tidal machine got, the non-device costs involved were too high.? Without subsidies or a very high price-point for power sales, the company would not make money, and we certainly could not compete with a gas power plant.

?We abandoned the tidal machine and looked to wave energy and ran into the same problem.? The fixed costs and maintenance of the designs were too high to be profitable.? Similarly, OTEC has always been hampered by high capital costs and complex riser technology, so as with tidal and wave, the technology works (and makes continuous power) but it was too costly to compete head to head with fossil fuels.? Offshore geothermal we had put to the side as not yet ready for deployment, but as something to watch.? Floating solar carried a lot of complexity and storm risks we deemed too high, unless onshore locations were absolutely not available.?

?This brought us to offshore wind, the technology most think of when they hear “offshore renewable energy”.? Here too we found problems.? The way fixed offshore wind was being built raised questions that engineers with our backgrounds could not help but ask.? Why assemble them offshore being the big question.? In offshore development the golden rule is never do anything in port you can do onshore, and don’t do anything offshore you can do in port.? Why?? Because if it costs you $1 onshore it will cost $2 for the same thing in port, and $10 if done offshore, plus work done offshore carries with it a large weather risk.? So, if we were going to build offshore wind farms, we would assemble everything we could in port and take them offshore ready to install.? If the system is a floating design the offshore work is simplified even more.

?That being the case we saw the potential of floating offshore wind as being the best option in part because:

• The best winds are farther offshore
• Farther offshore, viewshed issues are reduced or eliminated
• Floating systems impact the marine environment is reduced compared to fixed systems
• If designed properly a single mass-produced design can work anywhere
• Being farther from shore can lessen the impact on recreational issues, shipping, and/or fishing

So again, we ran the economics and found that while the numbers were better than wave, tidal, or OTEC, offshore wind would still make power that was too costly when compared with current energy systems.? Knowing that the focus for floating wind was to minimize the cost and maximize the constructability of the hull holding up the turbine we ran an extreme case.? What is if the hull cost was zero, in other words we had the “perfect” solution.? What would that do to the economics?? The answer was not much.? We estimated it would reduce the Levelized Cost of Energy (LCOE- a metric used to estimate the breakeven cost of power from anything be it a wind turbine or coal plant) by no more than 10%.? Added to this is the not inconsiderable risk that small “optimized” platforms can carry in a big storm.? Large, heavy, robust designs are required in areas with large storms like hurricanes and typhoons.? Light optimized designs may not fare so well.

Encountering the Watchtowers

While doing this work Excipio Energy was attending as many offshore renewable conferences as we could, and it was this that made us realize the root cause of offshore renewable energy’s failure to tap the massive potential of the oceans.? The problem was a watchtower mentality developed by each of the sectors of the offshore renewable energy industry.? For more than 40 years wind, wave, tidal, and OTEC saw each other as competitors fighting over a limited pool of R&D money.?? There were offshore wind shows, tidal energy meetings, wave energy conferences, and a very small OTEC community that would all hold separate events. ?Oddly the only places that had all of them present were the offshore technology conferences thought of as oil and gas focused, but which are general in nature (e.g., the Offshore Technology Conference and the Ocean Offshore & Arctic Engineering Conference).

The Broken R&D System – Private and Public

This division of technologies has become ingrained into the entire offshore renewable energy industry.? It started with the first oil crisis in the 1970’s with the US government setting up separate study groups for wind, wave, tidal, and OTEC.? When oil prices crashed in the mid 1980’s most research stopped.? Offshore wind was pushed forward by Europe, particularly Denmark starting in 1990, but real money only came back into the field with a combination of the oil price going above $140 per barrel in 2007 and the global recognition that climate change was real at about the same time.

Money started to pour into offshore renewable energy from governments and from energy companies, but there was a fundamental flaw in how it was all set up. Using the US as an example, it was system guaranteed to keep offshore renewable energy and the blue economy an economic failure.? In the US there are R&D Grants offered for wind energy, or for wave energy, or tidal machines, or even OTEC but only as standalone systems.? Not only is there no agency encouraging the co-development of systems, but the way it is organized virtually precludes even the possibility of an integrated concept.

The private sector does not make up for this in part because the large corporations follow the Government and renewable technology industry’s lead.? The large energy companies all have similar divisions within their own organizations.? There is a group looking into wind, another group looking into wave and tidal energy, another into offshore hydrogen production, and occasionally a group looking into OTEC.? Once created these groups become self-perpetuating as the directors do not want to give up what they see as “their turf”.? Both of the founders of Excipio come from large energy company backgrounds and have seen this firsthand.

There are large private funds that could also back offshore renewable energy and blue economy R&D but they tend to hire “experts” from within the industry, and their home address is invariably one of the Watchtowers.? The radical idea that what is needed is not so much a new wave energy machine but a new way to deploy the ones we have along with other systems is at best outside their knowledge base, or at worst perceived as the threat to their positions as an “expert”.

What the Problem is Not

This is not a scaling problem, or one that will change with mass production.? We have a simple test for any floating system.? Appendix A lists the 23 major cost items that cover more than 95% of the lifetime costs.? Many of them are already mature and as low cost as they are likely to get. They have been developed and optimized over 60+ years of offshore oil and gas development.? Excipio asks this of any watchtower company.? If your energy making device or platform was free (the new part subject to significant cost improvement), and you only had to cover everything else what is your cost of energy??

It is also not a problem of Excipio just not finding the best stand-alone options.? Even if a system can be built that is attractive on its own, the economics are immutable.? A floating combined system that includes the best choices must come out better than the best single stand-alone floating system.? This effect is exponential if the energy is used onsite to make value added products like fuel, seafood, chemicals derived from seaweed, or fresh water rather than selling commodity electrical power.

What Needs to Change

First is a recognition that no singular offshore energy technology will be economically attractive enough to draw the level of investment needed to meet the global Energy Transition goals.? There is no escaping most of the fixed costs associated with working offshore.? This means a change in focus from single source solutions to creating the best blended systems.? Funding should be allocated for coming up with the most value per installation and the misguided focus on hull cost or hosting a larger device should be scrapped.? Besides being attractive investments, integrated solutions also use fewer initial resources per MWh and create circular resource cycles.

Second, the funding levels required for offshore work are not fully appreciated.? Offshore offers a very high return on investment, but with a higher return comes a higher risk.? As an example, in the offshore oil and gas world a typical budget allowance to have a small service vessel called up for an offshore repair would start at $2 million.? That $2 million is to show up at the dock and load the required equipment.? To that would be added the cost of the days working, fuel, consumables, dock fees, staff, etc., which ran between $15 thousand and $55 thousand a day.? Then to that you add any replacement parts or equipment and specialized personnel.? For larger installations those numbers grow exponentially.

Using Excipio’s platform design as an example we would need at least $5 million in Series A and $50 million in Series B funding to get to a small demo scale installation.? If an institution really wants innovation in Offshore Renewable Energy and Blue Economy, levels of $10 million for and $100 million for Series A & B would not be wasted.? That kind of money would both attract innovation and would get the large energy companies to break down the silos they have built to submit integrated concepts.

Why would that be a good investment? Because the potential returns run into the tens of billions per year.? Returns in Investment of 20% or more would not be unreasonable, and renewable resources by definition never run dry.

The Techno-Economic Solution

Once you build a floating platform, for any purpose, what you put on it does not change the overall cost significantly.? To carry an extra ton of weight you only need to increase the hull displaced volume by one cubic meter.? As mentioned before, there are 23 major capital costs (CAPEX) and operating cost (OPEX) items in a typical floating platform.? Within limits other than the cost to make the hull bigger, the CAPEX does not change if a platform is carrying only one system or ten systems.? Once this is clear, the math gets simple, the more devices you can include the better.? More diverse power generation improves performance, and while more devices increase the operational complexity, as they are independent devices this increases the system reliability and power production up-time.? While total CAPEX increases, the “cost per megawatt-installed” decreases.? OPEX is similarly improved.? Per the US National Renewable Energy Laboratory (NREL), up to 80% of the OPEX for an offshore renewable energy system is the cost of transporting personnel and equipment to and from the platform.? If a trip for maintenance is required, this transport cost will be shared among more systems.? With multiple systems, if any one system goes down it may not require an urgent trip to keep your field online (i.e. revenue-generating) and non-emergency trips are much more cost effective.? The result being a reduction, not an increase in the OPEX per MWh for combined systems.? Appendix B shows a high level cost analysis run using the latest available data. The value is apparent as is the significant decrease in required resources per MWh, both in terms of cost and carbon load.

Something interesting happens when the focus shifts from “how cheap can a hull be built” to how much value can be obtained from a single platform.? The platform required to host multiple systems also then has space for other activities that could never afford to build a platform of their own.? Open water aquaculture, desalination stations, brine mineral extraction, power to fuel, and hydrogen production are just some of the value-added possibilities.?

Within the confines of these floating energy and blue economy system, located out in deep waters, commercial fishing by factory ships would not be practical due to the moorings, but this would just create safe havens for marine species and improve the overall health of the oceans.? Fleets of these platforms off a countries coast would become a type of artificial Great Barrier Reef.

Why It is Worth the Trouble

There is enough recoverable offshore renewable energy in the Exclusive Economic Zone of just the continental US to power the world several times over.? Offshore platforms that integrate energy, fuel, food, mineral, and water production will have a transformative effect on every coastal nation.? It would turn locations as diverse as Puerto Rico and Japan into net energy exporters and eliminate the need to use fossil fuels for energy.? Imagine if California did not need to import energy, had all the freshwater it could need, and could put an end to illegal fishing off its coast?? Or if the Gulf Coast, with its low level winds and currently cheap electricity, could build integrated platforms offshore to revitalize the Gulf of Mexico economy and export clean energy in chemical form using the very infrastructure built for oil and gas?? Appendix C shows the significant possibilities presented by these types of platforms.

Regards

Roy Robinson, CTO Excipio Energy, Inc.?

Cell: +1(832)720-4190

Email: [email protected]

Excipio Energy, Inc.

4200 San Jacinto Street

Houston, TX 77004

www.excipioenergy.com

MAKING OFFSHORE ENERGY WORK

APPENDIX A Major Offshore Installation Costs

The following are the major cost items for any offshore installation, large or small.? Only those underlined increase in total when the hull is made larger and more energy systems are included, all decrease on a per MW basis.? Added to this is the cost of the actual devices themselves.

CAPEX

1.?? Permitting & Legal fees – in the USA permitting will be more complicated but won’t require more personnel

2.?? Project Management -shared cost

3.?? Engineering – shared cost

4.?? Insurance – greatly reduced execution and cable risks which dominate insurance claims (80% or more).

5.?? Finance Charges – initially more until banks are satisfied that systems are less risky than floating wind alone.

6.?? Surveys – geotechnical, geophysical, environmental – cheaper combined than separate

7.?? Assembly/Construction -Slightly higher overall, significantly less per MW.

8.?? Installation and hook-up per platform – 1 hook up per platform, 16 if required if devices installed separately.

9.?? Transmission to market – shared cost

10. Substation – shared cost

11. Hull and deck material costs – more, but every 1 ton of steel adds 14 tons of carrying capacity.

12. Logistics – shared cost

13. Certification – shared cost

14. Stakeholder and Community Management – anchored systems farther from shore simplify stakeholder buy-in

15. Owners Costs – no change

16. Block Auction Costs – no change expected

17. Resource Evaluation – cheaper combined than separate

19. Energy Storage (if any) – shared cost, reduced need due to multiple systems and increase capacity factor

OPEX

20. Planned Maintenance -more total cost, less per MW

21. Inspections (Hull, Moorings, Cables, Equipment) – shared cost, much less than separate systems

22. Decommissioning (if any – the resources never give out) -shared costs

23. Block Royalties (if any) -shared cost, no change if not tied to energy production

?APPENDIX B Combined LCOE (2021 basis)

The below shows a reduction in LCOE of 25% compared to Floating Wind Alone.? The reduction is even more pronounced compared to all the technologies on their own, with a 42% reduction in the equivalent LCOE and less than 50% of the capital expenditure needed for the same power.? These values do not reflect the LCA effects of reduced resources used and much lower installation risk associated with 30 deployments vs 480.? The table only includes the effect on power generation, a key advantage of large platforms is their ability to host value added activities.? Possibilities include aquaculture, desalination, fuel production, mineral extractions, marine security monitoring, and research facilities.? These will be Blue Economy Platforms, not just renewable energy platforms.

?COMBINED SYSTEM

STAND ALONE DEVELOPMENTS

1)????? LCOE Definitions and calculation per USA National Renewable Energy Laboratory definitions

2)????? LCOE is shown both for single device type fields and the effective LCOE of all the devices deployed separately to equal the power output of the Combined case.

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CAPEX and OPEX Values are from the NREL System Advisor Model ,? Is bigger always better? Designing economically feasible ocean thermal energy conversion systems using spatiotemporal resource data and the Guide to a Floating Offshore Wind Farm , modified by in house data.

APPENDIX C THE EFFECTS OF COMBINED SYSTEMS

The below is based on NREL resource values (OCS Study BOEM 2020-017 Survey and Assessment of the Ocean Renewable Energy Resources in the US Gulf of Mexico) and assumes a 10 MW wind turbine installation.

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The difference comes from using a V3 Turbine (a technology out of Dallas Texas), capturing the wave energy NREL discount because “recovery is not economic”, and adding the OTEC which NREL see as too cost intensive.? Those statements are correct if they are deployed on their own, but NREL makes no allowance for and has no model of combined systems.