Executive Summary CorPower Ocean AB High Efficiency Wave Power February, 2014 1
1. Executive Summary CorPower Ocean AB (CPO) is bringing a new type of compact high efficiency Wave Energy Converter (WEC) to market. The patent pending technology, inspired by the pumping principles of the human heart, can enable harvesting of energy from ocean waves with an energy density five times higher than currently known methods at less than a third of the expected cost per kwh. Wave power represents a huge opportunity for clean renewable energy supply. With an economically exploitable resource estimated to 2000-4000TWh, 10-20% of the global electricity can be provided by wave power 1, assuming a reliable and cost effective technology is demonstrated. Wave power offers high energy density and predictable output with power levels that can be forecasted 1-2 days in advance and a different timing of intermittency compared wind and solar, which is beneficial for grid balancing. Despite several attractive features of the energy resource, there are significant challenges that have so far prevented wave power from becoming a mainstream energy source. The main problem is the harsh ocean environment, with highly fluctuating power levels. Devices have to withstand loads in extreme waves that may have 30-40 times higher energy compared to the average waves. In order to survive extreme waves in storms, most WECs have designs that result in the following characteristics: 1. High CAPEX cost compared to the rated power output 2. Low capacity factors (average/max power ratio) due to poor performance in varying sea states 3. High Operation & Maintenance cost due to complex off-shore service scheme. CorPower Ocean s Wave Energy Converters address the challenges of cost effective electricity generation from ocean waves in a new way. A unique mechanical design, inspired by the pumping principles of the human heart, is combined with advanced control algorithms that make the WEC oscillate in resonance with incoming waves. Active phase control by latching enables 3-4 times increase in power absorption compared to conventional passive wave power buoys, resulting in high power output compared to its physical size and weight. It also gives a more stable power output over varying sea conditions, resulting in a high capacity factor. The device is designed to be fully submersed in normal operating mode, giving an inherent survivability advantage since the peak loads in storms are not significantly higher than the load from the design sea state that the device has been rated for. The systems are of point absorbed type, with a heaving wave buoy on the surface absorbing energy from ocean waves, Figure 1. CPO Wave Energy Converter overview, Figure 1: 1 Providing all global energy with wind, water and solar power, M.Z. Jacobson (2009), IEA-OES (2007) 2
The wave farm concept is based on combining hundreds to thousands of units in arrays, with a common grid export cable that connects the offshore wave farm to existing on-land grid. With a WEC rating of 100-300kW per unit this enables wave farms with 10-300MW capacity. The concept allows mass production to drive down cost per unit and an effective maintenance scheme based on replacement of entire units at sea. The service scheme offers significant improvement in farm uptime and O&M cost, and is enabled by the small physical size and limited cost per system. Key features, Figure 2: The combination of low CAPEX cost per rated kw, high capacity factor and an effective maintenance scheme results in an expected Cost of Energy below 0.15 EUR/kWh in volume. The near-term goal is to make this technology more competitive than offshore wind. Attractive business cases exist when locating wave farms in vicinity of offshore wind farms, sharing parts of the electrical infrastructure. Further cost reduction through volume manufacturing is expected to drive down LCOE over time to a level where it is competitive with established energy sources without subsidies. Summary of customer benefits, Figure 3: CorPower s team has extensive experience in the energy generation market, system design, manufacturing and marketing of advanced technology products. The company is run by CEO Patrik Möller, entrepreneur and technologist with experience from building VC funded startups from first idea 3
to >80 people with multinational operations. The inventor behind the technology is Stig Lundbäck, serial entrepreneur, M.D. and Ph.D. with background in heart mechanics, pumps, turbines and power generation technology. Board of Directors Gösta Lindh, Chairman of CPO. CEO of Stockholm Water. Former CEO of utility company Fortum. Per Winnberg, Partner at Hellström law, long experience from technology SME board assignments. Stig Lundbäck, founder and senior technical expert. Ingvar Eriksson, KIC representative. Founder of Novator AB, significant tech startup experience. Additional competence in wave power modeling, testing and benchmarking is provided through partnerships with the Wave-Energy-Center (WavEc) and IST in Lisbon, Marintek in Trondheim and KTH in Stockholm. Johannes Falnes, professor emeritus of NTNU, wave power guru and pioneer within phase control of WECs is a technical advisor to the company. CPO s technology builds upon the principles of latch control developed by Falnes and Budal in Trondheim since the 1970s. The company has been part of the KIC InnoEnergy Highway incubator since 2012, which provides a strong support offering for renewable energy startups, project funding and access to a network of major European industrial players within the field. Ocean testing will be performed during 2014-2016 in collaboration with infrastructure partner Iberdrola Engineering (IEC). The project consortia covers the key parts of the value chain with CorPower Ocean as device Supplier and Iberdrola Engineering as infrastructure & farm engineering supplier, jointly having the competence and resources to develop and supply integrated wave farm solutions at an industrial scale. The business model of CPO is based on selling the core Wave Energy Converter itself, with wave farm projects provided in collaboration with established infrastructure partners, such as Iberdrola Engineering. This allows CorPower to have a narrow focus on developing and selling most efficient wave energy converters, while the remaining components (moorings, grid connection, substations) as well as offshore operations and project development for a wave farm is supplied to utility customers by larger infrastructure companies. Manufacturing of the CPO device is 100% outsourced, with assembly and test done by CPO during early stages of market introduction. The approach increases supply capacity and credibility towards customers, and gives a short time to market and a limited capital need for CPO compared to typical new power generation projects. In additional to wave power additional industrial applications have been identified for the unique drive train technology of CorPower, which is being further explored and commercialized in partnership with SwePart Transmission, one of the largest suppliers of industrial gear boxes and transmission components in Scandinavia. The products address the global market for electricity generation, and compete with other ocean energy solutions as well as offshore wind. Sustainable supply of energy is a fundamental need for society and the economy. The Total Available Market (TAM) can be estimated by the commercially available wave energy resource of approximately 0,5TW, with a rated capacity of 300kW per unit, the available global resource could be harvested by 1,6 million devices. With an average sales price of 500kEUR per device in large volumes, this gives a rough estimate of the TAM of 800 billion EUR device market, excluding sales of spares, service & support. This TAM assumes the entire available resource is harvested with CPO technology, and should be divided over the course of time it would take to manufacture and install 1,6 million devices. Assuming it would take 50 years, the average annual TAM is 16 billion EUR (device market only). 4
The product development and market introduction plan has been aligned with the 5-stage structured verification program as suggested by IEA-OES as best practice for ocean energy technology. 2 The purpose is to address technical and economic risks in a managed way early on in the product development process, where costs are still limited due to smaller device scale and team size. Since the development started in 2009 two generations of functional prototypes have been built. During 2012-2013 the technology has been verified through IEA-OES Stage 1 and Stage 2. Bench-testing, dimensioning and lifetime investigations of the mechanical system has been performed together with KTH in Stockholm. Extensive numerical modeling of the hydrodynamics and verification with wave tank test has been performed in collaboration with WavEc and Marintek in Portugal. Close collaboration with universities, institutes and established supply chain gives CPO the advantage of working with a highly skilled team and access to expensive infrastructure at a limited cost. CorPower Ocean s market introduction plan, Figure 4: The tank tests campaign has confirmed the functionality of the concept, buoy design and robust phase control by latching in regular in irregular waves. Data confirms 3-4 times increase in absorbed energy as a result of CPO s active phase control technology compared to a conventional system. The verification work in Stage 1-2 has been financed by the Swedish Energy Agency, Vinnova, KIC InnoEnergy, ALMI and private capital. The company is currently preparing for ocean testing of a scale 1:2 system that will take place during 2014-15 at an established European test site, in a consortium with Iberdrola Engineering, WavEc and additional partners. The aim of the project called HiWave is to prove functionality and performance in ocean environment with a system having the highest power density demonstrated (>5kW/ton device) while gathering product data supporting a Cost of energy (LCOE) < 150 EUR/MWh. The HiWave project was ranked as #1 of all proposed European renewable energy projects in KIC InnoEnergy s 2013 call, and the project has been granted 2,35 MEUR funding from KIC InnoEnergy. After verifying functionality, operations and economy of full scale system by 2016, CPO expects to be in advanced pre-production IEA-OES Stage 5 by 2017, making pilot farm installations for multiple customers in 2017-18 leading up to a positive cash flow by 2018 timeframe. The Wave Energy Converter systems offer a high margin business, with expected gross margins above 60%. The financial forecast shows positive cash flow in 2018-19, generating the following profitability numbers in 2020-2021: 2020 EBIT = 15 MEUR, 65 systems in revenue (30MW installed in 2019, 0.006% of TAM) 2021 EBIT = 100 MEUR, 300 systems in revenue. (120MW installed in 2020, 0.025% of TAM) The capital needed to take the WEC products from current stage through successful market introduction is expected to be between 20 and 25MEUR. This capital will take the company from current 2 Guidelines for the Development and Testing of Wave Energy Systems, IEA-OES (2010) 5
IEA-OES Stage 3 in 2014 to completed IEA-OES Stage 5 (TRL 9) in 2018-19, from where the company expects system revenues according to the business model as described above to generate a strong cash flow. CorPower puts much effort into lean product and market development, as well as raising alternative funding. As a result the expected need for equity funding is relatively limited, in the range of 8 to 15MEUR to take the technology to market, depending on the success of raising public & customer funding. Summary of key milestones and estimated EBIT/capital need* for each IEA-OES stage, Table 1: * Assumptions: No revenues from industrial drive train products included, 1y delay on revenues after commissioning wave farms. For Stage 3 CorPower Ocean AB is looking to raise venture capital in the range of 1-2 MEUR, to be combined with public/alternative funding of 1,5-2,5 MEUR for the activities with pilot demonstration in 2014-2015. Stage 3 has been divided into two tranches with 3A of 0,3MEUR (target closing Q1-14) and 3B of approx. 1MEUR (target closing Q4-14). For Stage 4 additional capital of 4,5-6 MEUR will be needed during 2015-2016, out of which 50% is expected to be raised as public/alternative funding, giving a need of approximately 2,5 MEUR equity funding. The significant market potential, a competitive product with several use cases and capital efficient development makes an attractive business case. The financial analysis shows the potential for high IRR and NPV numbers, which combined with multiple exit paths provide the opportunity for a good ROI case for investors. For more information please contact: CorPower Ocean AB Osquars Backe 31, 4tr 100 44 Stockholm Sweden Patrik Möller, CEO Patrik.moller@corpowerocean.com +46 701 772101 6