Leading the global development of tidal power generation


Atlantis is a tidal power generation company involved in the development of tidal power projects globally and the supply of tidal power generation, fixation and subsea power evacuation equipment.

It is estimated that in the United Kingdom, there is a technical resource of 29 terawatt hours (TWh) of energy per year available in tidal currents, of which 11TWh is found in the tidal flows in the Pentland Firth in the far north of Scotland.

The lease area that was awarded in 2010 by The Crown Estate to a consortium led by Atlantis, lies in the channel between the island of Stroma and the north easterly tip of the Scottish mainland.  The site encompasses almost 3.5km2 of fast flowing water and its capacity is almost twice as large as the next biggest site awarded by The Crown Estate.

The MeyGen project is 85% owned by Atlantis and ultimately will deliver a fully operational renewable energy plant of almost 400MW powered purely by the tide.  The demonstration phase (Phase 1a) of the project is now fully financed and the project has commenced construction. First power is expected in 2016. Phase 1a has been financed using a combination of debt, equity and grants from a funding syndicate which includes The Crown Estate, the Scottish Executive, the Department of Energy and Climate Change and Highlands and Islands Enterprise.

For further information please visit http://www.meygen.com/

Background

On 21 October 2010, The Crown Estate (“TCE”) awarded the MeyGen consortium, led by Atlantis and comprising International Power GDF Suez and Morgan Stanley, an Agreement for Lease for the Inner Sound of the Pentland Firth for up to 398 MW of installed tidal stream energy generation.  This was the first competitive seabed leasing round for wave and tidal projects in the UK and was designed to develop the industry on a commercial scale.  Through the Pentland Firth and Orkney Waters leasing round, TCE has agreements for 11 sites with a potential capacity of 1,600 MW.  These sites are shown in Figure 1 below.

Figure 1: Pentland Firth and Orkney Waters Round 1 Development Sites

The location of the Inner Sound offshore site is between the north eastern tip of Scotland mainland (Caithness) and the island of Stroma, as shown in Figure 2.

Figure 2: Location of the Inner Sound and MeyGen site

The MeyGen site comprises the offshore site for the tidal turbine installation, which is leased from TCE, and an onshore site, leased from a private land owner, to locate the power conversion equipment and the grid connection.

In October 2013, APPL acquired Morgan Stanley and International Power GDF Suez’s stakes in MeyGen, such that prior to financial close of Phase 1A, MeyGen was wholly owned by APPL.

On financial close of the Phase 1A project, the Scottish Executive (“SE”) committed to subscribe to acquire equity in MeyGen through a holding company, Tidal Power Scotland Holding Limited (“TPSHL”), sufficient to provide SE with a 14.1% equity stake in TPSHL. 

Consents, Leases and Electrical Interconnection

MeyGen undertook a process prior to financial close of Phase 1A to convert the Agreement for Lease with The Crown Estate (“TCE”) to a lease.  MeyGen signed a 25 year lease with TCE in September 2014 for the Inner Sound site covering the full planned 398 MW of generation capacity at MeyGen.

MeyGen also completed a very rigorous environmental impact assessment that resulted in it securing all consents necessary for deployment of the first 86 MW of capacity on the MeyGen site.  Under the terms of the consents, MeyGen is required to continue to monitor the impact of the project on the environment, but it does not anticipate any issues with expanding the environmental consents to include the full 398 MW of planned generation.

In relation to electricity transmission, MeyGen has already secured 14.9 MW of capacity through the medium voltage distribution network, and a further 237 MW through the high voltage transmission network.  The capacity secured through the distribution network is sufficient for Phases 1A, 1B and 1C, and that through the high voltage transmission for Phase 1D and Phase 2.  MeyGen will submit applications for the transmission capacity required for Phase 3 of the project at such time as is necessary to secure transmission capacity in line with the project roll out.

Phase 1A

Phase 1A of MeyGen is the demonstration phase, which comprises four 1.5 MW turbines.  Three of the turbines will be supplied by Andritz Hydro Hammerfest (“AHH”) and one turbine by Atlantis Operations (UK) Limited (“AOUK”), a wholly owned subsidiary of Atlantis. 

 

Figure 6: Overview of MeyGen project

Financial close of Phase 1A was achieved in September 2014, with first equity drawn and funding committed by SE, TCE, HIE and the DECC.  All relevant contractors were provided with a notice of commencement in September 2014, enabling final design and initial procurement works to commence.  First drawdowns of debt and the HIE grant were completed in December 2014, after satisfaction of a number of conditions precedent, which included the subscription and expenditure of defined amounts of equity.

Construction of the onshore works is on schedule to commence in January 2015.  The first turbine is expected to be installed on site in early 2016, with the remaining three installed over the remainder of 2016.  The project is expected to be fully operational by the end of 2016.

Turbines

Following an invitation to tender process, MeyGen selected AHH as its preferred third party turbine supplier on the basis that AHH turbines could satisfy the MeyGen technical specifications and had accumulated a significant operating record – first with a 300 kW prototype in Norway and subsequently with a 1 MW at EMEC.  Additionally, AHH was prepared to commit to limited turbine warranties backed by an Andritz parent company guarantee. 

The four turbines to be installed at MeyGen in Phase 1A will each have a generating capacity of 1.5 MW.  This capacity was selected after extensive resource modelling and financial optimisation in order to provide the lowest possible cost of energy for the project.  Both AHH and Atlantis have extensively tested 1.0 MW turbines in an ocean environment at EMEC and on test benches, and the increased capacity to 1.5 MW is not considered to pose any significant technical or engineering challenges.

The AHH and Atlantis turbines appear relatively similar, with three blades, similar to wind turbines, a pitching system for these blades and a yaw mechanism to turn the turbine through approximately 180⁰ when the tide changes direction.  The nacelles themselves contain a generator and gearbox, but the power conditioning equipment is housed in the onshore facilities.

 

Atlantis’ AR1500 turbine (left) and AHH’s HS1000 turbine (right)

Project revenues

Atlantis anticipates that the MeyGen project will benefit from ROCs for Phases 1A and 1B, and the CfD mechanism for subsequent phases.

Renewables Obligation Certificates

The ROC system was introduced in 2002 and is currently the main support mechanism for renewable electricity generation projects in the UK.  Under the ROC regime, UK electricity suppliers are required to source an increasing proportion of the electricity they supply from renewable sources.  Eligible generators are able to produce ROCs which they are able to trade with other parties.  If an electricity supplier is unable to surrender a sufficient number of ROCs to meet its obligation for a given period, it must instead pay a penalty into a ‘buy-out fund’.  The penalty is set in conjunction with the ROC targets which each generator must achieve for the period, and has been fixed at £43.30 per ROC for 2014/15.  Any excess in the buy-out fund (after deduction of administration costs for the scheme) is distributed back to electricity suppliers in proportion to the number of ROCs they provided.  Therefore, a supplier which satisfies its ROC targets not only avoids the penalty payment but also benefits from redistribution of the penalties paid by non-compliant suppliers.

An eligible generator may generate ROCs for 20 years from commissioning and a tidal energy project is eligible to generate 5 ROCs for every MWh of generation.  The ROC scheme is to be replaced and will be closed to new capacity from 31 March 2017; from 2027 DECC will fix the price of ROCs from the remaining qualifying assets and buy the ROCs directly from generators as the market winds down.

ROC prices have historically been relatively stable, ranging between £42 and £54 per ROC (both nominal) from 2002 to 2011.  From March 2017, this volatility is expected to reduce further as no new projects will be eligible to generate into this scheme.  ROCs are expected to contribute approximately 70 – 80% of the revenue for Phase 1A.

Contracts for Difference

The Electricity Market Reform recently undertaken by the UK government is designed to facilitate increased investment in the UK’s electricity infrastructure through the provision of two mechanisms: the CfD and the capacity market.

The CfD is intended to reduce the risks faced by low-carbon generators by setting a fixed price for different generation types.  Where the wholesale power price falls below this level, generators will receive a top up payment, and should the power price exceed the threshold generators would pay back the difference.  This mechanism effectively removes the exposure of generators to prevailing electricity market prices which are driven by volatile fossil fuel prices, but also provides an element of protection to consumers by recouping payments in times of high wholesale prices.

The CfD will be a contract between the generator and a government-owned counterparty, and will provide the generator with clear contractual rights, improving investor certainty.  This increased pricing certainty should translate into reduced borrowing costs for generators, and ultimately therefore a lower overall cost of generation.

The CfD price for tidal stream energy has been set at £305/MWh (real, 2012£); by comparison, offshore wind, a substantially more established technology, is entitled to a CfD price of £155/MWh (real, 2012£).  The government has indicated that a minimum of 100 MW of capacity under the CfD and ROC regime will be set aside for tidal and wave generation.