Morgan Stanley, International Power Win Tidal Project

A venture owned by Morgan Stanley, International Power Plc and Atlantis Resources Corp. won a contract to develop a tidal power project in U.K. waters off northern Scotland.

The Crown Estate, which owns the seabed in British waters, awarded the contract to MeyGen, a group that includes the three companies, according to a statement released in London today. The site is at the Inner Sound in the Pentland Firth.

Atlantis, a tidal turbine maker, has 10 percent of the venture, with the investment bank and the independent power producer owning an equal share of the remaining part of MeyGen.

The project, if it receives permits necessary for construction, could eventually generate 400 megawatts of electricity, the equivalent needed to power 400,000 homes, the statement said.

The project will be built in six phases by 2020, with the first of these being 15 megawatts Oliver Williams, a spokesman for MeyGen, said today by e-mail. MeyGen aims to obtain planning consent in the first half of 2012, with the first turbines going into the water in that year or 2013, Williams said. The initial phase will focus on assessing environmental impacts and in the final stage MeyGen expects to have installed up to 400 turbines.

Morgan Stanley Role

Morgan Stanley said it’s a “long-time supporter of tidal power” and that the contract represents a “significant” step in the evolution of marine power as a viable renewable generation asset.

The Inner Sound is known as the “Crown Jewel” of the Pentland Firth, according to the statement, due to the quality of the tidal surge and its proximity to the mainland for grid connection.

The Crown Estate started the Inner Sound leasing round in March this year in response to the high number of bids it received for the site during its first commercial marine energy leasing round. Four companies were invited to tender at the end of June.

Irish tidal technology developer OpenHydro didn’t bid for the Inner Sound project, Frans van Cauwelaert, a spokesman for the company, said today by e-mail. Bristol-based Marine Current Turbines Ltd. was also not among the four shortlisted companies.

RWE Innogy GmbH, which is developing tidal projects with technology developer Voith Hydro Ltd., declined to comment on the project, saying only that cooperation between the industry and key bodies such as the government and Crown Estate is “critical” to harnessing the power of new technologies.

‘Hottest topic’

The “large majority” of MeyGen’s project costs will be met in the initial phases by Morgan Stanley and International Power, Dan Pearson, chief executive officer for MeyGen, said today by phone. As confidence grows and the technology develops, MeyGen hopes to secure other sources of financing, including debt financing, he said.

“One of the advantages of having Morgan Stanley and International Power on board is that they provide the market with confidence and excellent access to external finance,” said Pearson.

Funding for marine energy is one of the “hottest topics” surrounding the industry because the industry remains in its infancy, with high development costs, Pearson said.

Research Required

Much of these costs relate to installation and “balance of plant” issues which require further work, Pearson said. Following work on a project at the European Marine Energy Center in Orkney, he says these costs could be reduced “quite significantly.”

Aside from installation costs, Pearson said a reduction in turbine prices should be seen once production starts at scale. “Over 200 megawatts you should start seeing returns you would expect with a project of this risk and at the five Renewable Obligation Certificate support levels,” he said.

Tidal power currently receives three ROCs per megawatt-hour in Scotland, which has as much as a quarter of Europe’s potential offshore wind and tidal resource, and two in England. The U.K. Department of Energy and Climate Change is in talks to increase the number in line with Scotland.

Assuming that the number of ROCs is increased to five, once about 800 to 1,000 megawatts of tidal energy has been installed, Pearson said ROC levels may start to be reduced. This installed capacity should be sufficient to get the industry off the ground, he said.

“We would hope to see by 2020 the industry being competitive with offshore wind,” said Pearson.

Source: Louise Downing, Bloomberg
Story from: http://www.bloomberg.com/news/2010-10-26/morgan-stanley-international-power-win-tidal-power-project.html