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WIKI ANALYSIS
Ocean Power Technologies' PowerBuoys use the kinetic energy found in the ocean's waves to produce electricity. The company's technology is not yet competitive in the larger energy market, which is why it spent more on research and development than it made in revenues in 2007.[1] But in a world where traditional sources of energy are getting more expensive, more difficult to access, and more harmful to the environment, governments are turning to sources of renewable energy like OPTT's wave power systems. Government R&D funding allows technology developers like OPTT to continue to operate at a loss, as well as mandating that utilities add them to their energy mix.
Ocean Power has already served a contract with the New Jersey Board of Public Utilities, driven by New Jersey's mandate to get 22.5% of its energy from renewables by 2021.[2] The company calls its technology cheaper than any other renewable resource except wind[3], but it has not yet released PowerBuoys with enough capacity for large-scale (say, 100 MW) generation. Until that happens, its technology will only be viable for groups with large budgets, like the U.S. Navy or Total, the oil major who, along with a Spanish electric utility and two Spanish government agencies, is contracting OPTT to build a 1.39 MW wave farm off the coast of Spain.[4]
Though there are ideas for wave power systems flooding the market, OPTT is the only publicly traded wave power company in America. It is also one of the only companies to demonstrate the long-term viability of its power system, proving that its 40 kW PowerBuoy can still generate after 18 months in a harsh sea environment battered by hurricane winds and winter storms.[5]
Business and Financials
Ocean Power Technologies builds oceanic buoys that use the kinetic energy of the ocean's waves to generate electricity. The company has two types of buoys:
- Utility PowerBuoy: As yet, Ocean Power only produces utility-scale PowerBuoys with 40 kW capacities, though the company is planning on releasing a 250 kW buoy by the end of 2008 and a 500 kW buoy by 2010.[7] These utility-scale generators have the ability to be wired to the grid, and in March 2008 the company announced that a test buoy had survived 18 months so far off the coast of New Jersey, despite a hurricane and repeated winter storms.[8]
- Autonomous PowerBuoy: These buoys are designed to provide independent power to offshore systems, like subsea monitoring systems, offshore platforms, and scientific data collection units.
| 2005 | 2006 | 2007 | |
|---|---|---|---|
| United States | 96% | 91% | 59% |
| Europe | 4% | 9% | 39% |
| Australia | - | - | 2% |
Since the end of the contract with the New Jersey Board of Public Utilities ended, OPTT's revenues fell by over half. The company's revenues increased from 2006 to 2007, from $1.7 million to $2.5 million, thanks to a new project in Spain, which also increased Ocean Power's presence in Europe; operating losses still increased, however, from a loss of $7.7 million to a loss fo $12.6 million, because of an increase in the cost of production added to a $2 million increase in R&D costs and a $1.7 million increase in SG&A costs.[10]
Trends and Forces
OPTT's Wave Generators are Expected to be Cost-Competitive with Other Forms of Electricity Generation
Ocean Power is betting that a utilities-scale installation of its buoys will be cost-competitive with traditional energy sources like coal, and cheaper than renewables like solar. As early as 2001, OPTT made projections that a 100 MW installation of 50, 200 kW buoys (not yet developed, but planned for 2009) would cost just $2,300 per kilowatt installed[13]; in 2008, a coal power plant with all the required emissions retrofitting costs $2,200 - $3,700 per kilowatt installed.[14]
As of 2008, wind turbines have the lowest installation costs of any of the renewables when taking advantage of economies of scale (i.e. in large "wind farms); their installation costs reach lows of $800 per kilowatt installed.[15] Solar, on the other hand, still costs as much as $8,000 per kilowatt installed[16], though companies like First Solar sell installations at costs as low as $2,450 per kilowatt.[17] Both wind and solar are far less reliable than wave power, though; OPTT has estimated that wave power is available 80-90% of the time, while wind and solar are only available 20-30% of the time (these estimates were made in 2001; modern solar cells and wind turbines have probably increased these estimates by a few percent).[18] The only source of renewable energy that is as or more reliable is geothermal energy, which costs around $2,500 per kilowatt installed[19] and only generates in the tens of megawatts.
Though OPTT's technology may seem like the panacea to modern energy woes, it has yet to be fully developed and commercially implemented. By the end of the third quarter of 2008 (OPTT's fiscal year ends April 30th), the company had just showed that its first utility PowerBuoy, with a capacity of 40 kW, could survive 18 months at sea, through a hurricane and several winter storms, and still generate.[20] Ocean power intends to develop a 250 kW buoy by the end of 2008 and a 500kW buoy by the end of 2010[21], both of which would make large, utility-scale offshore electrical generation possible and efficient (the company estimates that its 500 kW buoys will enable offshore power stations that are less than 10% the size of an offshore wind farm with similar capacity[22]). The company's success rests on whether or not it can deliver on these big plans, as wave power is still a very young technology.
Government Support for Renewable Energy is Lifting the Wave Power Boat
For reasons ranging from rising energy prices to the desire for energy security to fears of climate change, governments around the world are passing legislation supporting the adoption of renewable energy.
- Renewable Portfolio Standards that set varying targets for the amount of energy to be obtained from renewable sources by certain dates have been enacted by 24 states plus D.C.[23] These standards don't provide funding for renewable energy adoption; they force power generators to adopt renewables through threats of financial penalties.
- The European Union has stated that its goal is to get 21% of its energy from clean sources by 2010.[24]
- The U.S. Energy Independence and Security Act of 2007 has committed, among other things, to provide funding for the development of viable wave power solutions.[25]
These government initiatives all have or will benefit Ocean Power in some way. To meet its Renewable Portfolio Standard, for example, New Jersey's Board of Public Utilities contracted a 40 kW PowerBuoy from October 2005-2006. To contribute to the EU renewable energy goal, Spain's Iberdrola, France's [{Total S.A.]], and two Spanish government agencies are contracting with OPTT to build a 1.39 MW wave power system off the coast of Spain. Once the U.S. Energy Independence and Security Act kicks in, Ocean Power will receive as-yet-unspecified funding for R&D, helping it realize its technological goals. As more government support emerges for wave power, Ocean Power will benefit both from government funding and increased demand for its technology.
Until its Technology is Truly Viable, OPTT is Dependent on its Largest Customer: the U.S. Government
| Fiscal 2005 | Fiscal 2006 | Fiscal 2007 | |
|---|---|---|---|
| U.S. Navy | 57% | 61% | 54% |
| New Jersey Board of Public Utilities | 7% | 5% | - |
| Iberdrola and Total | 4% | 9% | 35% |
| Lockheed Martin | 32% | 22% | - |
Over half of Ocean Power's revenue comes from the U.S. Navy, who use the company's utilities buoys to power the Marine Corps Base in Oahu, Hawaii. The Navy also uses one of OPTT's autonomous buoys to power the Department of Homeland Security's Deep Water Acoustic Detection System, which monitors for possible underwater threats.[27] With so much revenue coming from one source, and the rest coming from less than five other sources, the loss of any of these customers would mean the loss of a significant source of company revenue.
Competition
The wave power industry is a very young industry; most of OPTT's competitors are independent research labs and privately-owned companies like Finavera Renewables, who contracted for a 2 MW wave farm with PG&E off the California coast.[28] The market is currently flooded with innovative, albeit untested ideas for using wave power to generate electricity, but OPTT is one of the only companies that has demonstrated the long-term viability of its systems in harsh, real-life conditions.[29]
References
- ↑ OPTT 2007 10-K, Page 43
- ↑ Descriptions of State Renewable Portfolio Standards
- ↑ Ocean Power Technologies Inc. Presentation to U.S. Senate, May 30th, 2001
- ↑ OPTT 2007 10-K
- ↑ SeekingAlpha: "Ocean Power Technologies F3Q08 (Qtr End 01/31/08) Earnings Call Transcript". Page 2
- ↑ OPTT 2007 10-K, Page 43
- ↑ OPTT 2007 10-K, Page 4
- ↑ SeekingAlpha: "Ocean Power Technologies F3Q08 (Qtr End 01/31/08) Earnings Call Transcript". Page 2
- ↑ OPTT 2007 10-K, Page 46
- ↑ OPTT 2007 10-K, Page 43
- ↑ Ocean Power Technologies Inc. Presentation to U.S. Senate, May 30th, 2001
- ↑ http://www.telosnet.com/wind/future.html
- ↑ Ocean Power Technologies Inc. Presentation to U.S. Senate, May 30th, 2001
- ↑ Gristmill Post by GreyFlcn, July 19th 2007
- ↑ http://www.telosnet.com/wind/future.html
- ↑ http://www.wind-works.org/Solar/SolarPVCurrentInstalledPricesperkWinCaliforniaElsewhere.html
- ↑ First Solar, Inc. Announces 2007 Fourth Quarter and Year-end Financial Results
- ↑ Ocean Power Technologies Inc. Presentation to U.S. Senate, May 30th, 2001
- ↑ U.S. Department of Energy, Energy Efficiency and Renewable Energy: Geothermal FAQ
- ↑ SeekingAlpha: "Ocean Power Technologies F3Q08 (Qtr End 01/31/08) Earnings Call Transcript". Page 2
- ↑ OPTT 2007 10-K, Page 4
- ↑ OPTT 2007 10-K, Page 6
- ↑ Descriptions of State Renewable Portfolio Standards
- ↑ Renewable Energy World: " EU to Fall Just Short of 2010 Renewable Target"
- ↑ SeekingAlpha: "Ocean Power Technologies F3Q08 (Qtr End 01/31/08) Earnings Call Transcript". Page 3
- ↑ OPTT 2007 10-K, Page 16
- ↑ OPTT 2007 10-K, Page 17
- ↑ CNET: " Wave power to go commercial in California"
- ↑ SeekingAlpha: "Ocean Power Technologies F3Q08 (Qtr End 01/31/08) Earnings Call Transcript". Page 2
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