TABLE OF CONTENTS

COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT.......................

1........... Introduction.................................................................................................................. 5

2........... Procedural Issues and Consultation of Interested Parties............................................ 5

2.1........ Organization and timing............................................................................................... 5

2.1........ Consultation and expertise........................................................................................... 5

2.2........ Impact Assessment Board............................................................................................ 6

3........... Policy Context, Problem Definition and Subsidiarity.................................................. 6

3.1........ Policy Context.............................................................................................................. 6

3.2........ The ocean energy sector today..................................................................................... 9

3.2.1..... Ocean energy technologies and state-of-play............................................................... 9

3.2.2..... National policy support overview............................................................................... 11

3.3........ The Ocean Energy growth potential........................................................................... 11

3.4........ Problem Definition..................................................................................................... 12

3.4.1..... Cost, financial and profitability issues........................................................................ 12

3.4.2..... Infrastructure issues.................................................................................................... 13

3.4.3..... Administrative & regulatory issues............................................................................. 14

3.4.4..... Environmental issues.................................................................................................. 15

3.5........ Business as usual scenario........................................................................................... 16

3.6........ EU's right to act.......................................................................................................... 17

3.7........ Who is affected?......................................................................................................... 17

4........... Objectives................................................................................................................... 17

4.1........ General objective........................................................................................................ 17

4.2........ Specific objectives...................................................................................................... 17

4.3........ Operational objectives................................................................................................ 17

4.4........ Consistency with other EU policies............................................................................ 18

5........... Policy Options............................................................................................................ 18

5.1........ Option 1: Current Policy Framework ('business as usual').......................................... 19

5.2........ Option 2: Enhanced political and industry coordination............................................ 20

5.3........ Option 3: Targeted structural actions......................................................................... 22

6........... Analysis of Options.................................................................................................... 23

6.1........ Methodology and limitations...................................................................................... 23

6.2........ Analysis of individual measures/sub-options.............................................................. 24

6.2.1..... Cost reduction, financial and profitability issues....................................................... 24

6.2.2..... Infrastructure.............................................................................................................. 25

6.2.3..... Administrative barriers............................................................................................... 26

6.2.4..... Environmental issues.................................................................................................. 26

6.3........ Economic impacts....................................................................................................... 27

6.3.1..... Levelised cost of electricity (LCoE)........................................................................... 27

6.3.2..... Costs for electricity consumers................................................................................... 29

6.3.3..... Competitive position of the EU in ocean energy........................................................ 30

6.3.4..... Supply chains and ports, regional economic growth and development of clusters.... 31

6.3.5..... Synergies with other sectors....................................................................................... 32

6.3.6..... Benefits of energy diversification.............................................................................. 32

6.3.7..... Administrative burdens.............................................................................................. 32

6.4........ Environmental impacts............................................................................................... 32

6.5........ Social impacts............................................................................................................. 34

7........... Comparison of Options............................................................................................... 37

8........... Monitoring and Evaluation......................................................................................... 39

9........... Annex 1: Acronyms & Glossary................................................................................. 41

10......... Annex 2: References................................................................................................... 43

11......... Annex 3: Results of the Public Consultation.............................................................. 48

12......... Annex 4: Overview of Recent EU Funded Ocean Energy Projects.......................... 63

13......... Annex 5: Detailed Description of Ocean Energy Technologies................................. 73

14......... Annex 6: Resource Location...................................................................................... 76

15......... Annex 7: Current Deployment and Planned Capacity............................................... 79

16......... Annex 8: Policy Overview.......................................................................................... 84

17......... Annex 9: Support Schemes and their Impact on the Renewable Energy Market...... 91

18......... Annex 10: Scenario Modelling for Economic, Environmental and Social Impacts... 95

19......... Annex 11: Development of the Offshore Wind Industry........................................ 100

20......... Annex 12: Overview of Emission Factors................................................................ 102

21......... Annex 13: Environmental Impacts........................................................................... 103

22......... Annex 14: Job Creation Estimates............................................................................ 106

23......... Annex 15: Supply Chain........................................................................................... 107

24......... Annex 16: Overview of Marine energy technologies and their European potential 108

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying the document

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions

Ocean Energy Action needed to deliver on the potential of ocean energy by 2020 and beyond

Disclaimer: This report commits only the Commission's services involved in its preparation and does not prejudge the final form of any decision to be taken by the Commission.

1. Introduction

This Impact Assessment (IA) identifies and assesses the EU policy options available to support the growth of Europe's ocean energy sector. Ocean energy is one of the five pillars of the Blue Growth Strategy that was set forward in the Blue Growth Communication[1], adopted on 13 September 2012. Marine renewable energy resources not only have a role to play in Europe's energy portfolio but they can also provide the EU with new opportunities to stimulate technological innovation, commercial activity and competitiveness. Furthermore, the deployment of ocean energy could make a meaningful contribution to the EU's drive to become a low-carbon economy. As the EU contemplates its renewable energy and climate change objectives post 2020, it is opportune to explore future avenues that could assist in fulfilling them

Energy from the oceans and the seas can be derived from waves, tides, salinity gradients and thermal gradients. For the purposes of this impact assessment the term "ocean energy" is used to refer to the technologies used to harvest these energy sources. The term "marine renewable energy" is used more broadly to refer collectively to ocean energy and offshore wind energy. Ocean energy is at a much earlier stage of development than offshore wind, itself an offshoot of the onshore wind industry. While representing only a very small portion of the current renewable energy market, ocean energy technologies are getting closer to patented commercialisation[2]. Given the long investment time horizons for new technologies, it makes sense for the EU to already consider now all possible avenues for their support. This impact assessment therefore looks over the horizon at a promising new technology and considers how the EU could usefully support its development.

2. Procedural Issues and Consultation of Interested Parties

Lead DG: DG MARE. Agenda planning/WP reference: 2012/MARE/006.

2.1 Organization and timing

An Impact Assessment Steering Group (IASG) was formed in July 2012 and met on 4 July, 7 November and 10 December 2012 and 31 January 2013. The following Commission services were invited to participate: AGRI, CLIMA, COMP, EACI, EMPL, ENER, ENTR, ENV, JRC, MARKT, MOVE, SG, REGIO, RTD and TAXUD. Various bilateral meetings and consultations were held in particular with DG ENER, DG RTD and the JRC.

2.1. Consultation and expertise

DG MARE held an online public consultation on ocean energy from 14 June to 14 September 2012[3]. Questions related to technical assessment issues, research needs, training and employment, environmental and administrative issues and marine knowledge. 128 submissions from 16 Member States and 4 non-EU states were received. All the Commission's minimum consultation standards were met. The vast majority of submissions (82%) supported the need for a specific policy to support ocean energy at EU level. Annex 3 provides a detailed summary of the findings.

The Commission engaged in consultations with some Member States particularly in the context of the Atlantic Forum, regional representations, industry associations, regional organisations and individual stakeholders. A number of reports and studies by stakeholders and academics were used, including those funded under EU programmes. The JRC prepared a specific report on marine energy technologies and their European potential (see Annex 16) to support this impact assessment. Additionally, the Commission contracted an independent external study to assist specifically with the quantitative analysis of impacts[4].

2.2. Impact Assessment Board

The draft impact assessment report was presented to the Impact Assessment Board (IAB) on 21 February 2013 and a positive opinion was issued on 22 March 2013. The IAB asked to further strengthen and improve the impact assessment by i) clarifying the initiative's added value and objectives; ii) better presentation of the content of the options and the way in which they address the problems; iii) improving the assessment and comparison of options; and finally iv) better presentation of stakeholders' views.

The impact assessment has been revised to satisfy these requirements in the following way. In section 3.1, the scope of the various initiatives in the renewable energy and maritime policy fields was better defined and the value added of a new initiative, focusing solely on ocean energy as a promising new sector, was highlighted. The presentation of the options in Section 5 was redrafted to better clarify and specify the nature of the measures proposed. To show clearly how the measures were grouped into options, a table was included. This table also links the measures with the corresponding bottlenecks and expected outcomes to further illustrate the intervention logic. In Section 6, the regional impacts were explored in more depth and, where possible, examples given of equivalent measures already implemented and the impacts they had to underpin the analysis (the European Wind Initiative was used as one such example). Section 7, which includes the comparison of options, was redrafted to ensure better coherence with the impact analysis. Finally, references to stakeholders' views were strengthened throughout the text, indicating, where appropriate, which stakeholder groups the particular views pertain to. Complex technical language was avoided and a glossary was included to allow for easier navigation among the specific terms used.

3. Policy Context, Problem Definition and Subsidiarity

3.1. Policy Context

The Blue Growth Communication identified five areas of the blue economy where targeted EU action could stimulate economic growth and jobs in Europe. One of these was the ocean energy sector[5]. The Blue Growth initiative underpins Integrated Maritime Policy (IMP)[6] that aims to address the challenges of globalisation and competitiveness, climate change, energy security and sustainability by harnessing the untapped potential of Europe's oceans, seas and coasts. It also ties in with a number of the flagship initiatives of the Europe 2020 Strategy[7] for smart, sustainable and inclusive growth, notably the Innovation Union, Resource-Efficient Europe, Integrated Industrial Policy for the globalisation era, and Agenda for new skills and jobs[8].

The blue economy received additional impetus in the 'Limassol Declaration' adopted by the Member States and the Commission on 7 October 2012[9]. A commitment was made to "contribute to the objectives of the Europe 2020 Strategy with respect to carbon emissions and renewable energy, and create new employment opportunities by increasing marine renewable energy production, so as to strengthen the EU's global leadership position"[10]. President Barroso reiterated that the Declaration represents a basis on which to develop the blue economy in Europe, which provides a strong maritime pillar to the Europe 2020 strategy[11].

The development of the ocean energy sector dovetails with the EU's renewable energy policy to achieve a sustainable and secure energy future. This includes various initiatives notably the 2009 Renewable Energy Directive[12] (hereafter "RES Directive"), which sets out legally binding targets for the EU to achieve a 20% share of renewable energy by 2020; the 2008 Strategic Energy Technology (SET) Plan[13] established to accelerate the development and deployment of cost-effective low carbon technologies; the 2011 Energy Roadmap 2050[14] which investigates possible ways to move towards a low-carbon energy system from 2020 to 2050 and the 2012 Communication on Renewable Energy[15], which, amongst other things, advocates higher priority to be given to ocean energy research. In 2013, the Commission published a Green Paper to launch a reflection process on the possible contours of a new integrated policy framework for climate and energy policies for the period up to 2030[16].

A number of European Industrial Initiatives[17] (EIIs) were developed under the SET-Plan, which is the technology pillar of the EU's energy and climate policy. An EII aligns the activities of the industry, the research community, Member States and the Commission in order to strengthen R&D, boost innovation and accelerate technology deployment, bringing added value to the EU. EIIs have been developed for a number of renewable energy technologies but not yet for ocean energy. Nonetheless, ocean energy featured in the 2009 and 2011 Technology Maps[18] of the SET-Plan.

Although ocean energy's contribution to the renewable energy mix up to 2020 is expected to be modest, its potential over the medium to long term has been recognised. The European Parliament and the Council have encouraged the Commission to undertake policy initiatives on ocean energy similar to the 2008 Communication on offshore wind energy[19] , which had sent a signal of political support to the sector which has since grown exponentially[20]. The Atlantic Forum[21] established by the 2011 Atlantic Strategy Communication[22] has highlighted the potential of ocean energy as a source of renewable energy and sustainable growth and jobs in that region. The 2013 Action Plan for the Atlantic[23] recognises the need to consider ways to accelerate the development of marine energy. Lately, the Communication on Energy Technologies and Innovation[24] highlights the need to accelerate innovation in low carbon technologies including emerging ones like ocean energy in the context of the SET-Plan and the proposed Horizon 2020 programme[25].

The EU is already supporting ocean energy through research and development (R&D) projects, pre-commercial demonstration projects, and market uptake projects notably through its 6th and 7th Framework Research Programmes (FP), the Intelligent Energy Europe programme and the NER-300 programme. Within the EU Cohesion Policy budget significant funding is dedicated to sustainable energy, with a strong focus placed on research and innovation[26]. The mandatory development by Member States or regions of national or regional research and innovation strategies for smart specialisation (RIS3) will represent a major opportunity for Member States and regions to design and implement strategies that include or are largely focused on innovation in the energy sector. Financial support for ocean energy is expected to continue under the Horizon 2020 Programme, for instance under the Societal Challenge 'Secure, clean and efficient energy'. Annex 4 provides an overview of the more recent ocean energy EU-funded projects.

As outlined above, a number of initiatives pertaining to the broader energy and climate policy area are already in place today and some are evolving. Nevertheless, based on stakeholder, industry and Member State input, the Commission believes there is scope to bring the various policy strands together into a sector-specific initiative on ocean energy at EU-level. As this impact assessment shows, the ocean energy sector has the potential to make an important contribution to the EU's long-term decarbonisation and its growth and jobs agenda. Furthermore, decreasing dependence on fossil fuel imports[27], while increasing the share of indigenous renewable energy sources, will enhance Europe's energy security and stability. While new and indigenous sources of fossil fuels such as shale gas may be increasingly exploited in the future in the EU, this could have an adverse impact on decarbonisation targets[28]. In this context, further diversification and expansion of the EU's renewable energy portfolio clearly has merit.

These are important considerations in view of the Commission's continued evaluation of the possible contours of a 2030 energy and climate change framework. A dedicated and operational ocean energy initiative focusing exclusively on the maritime policy component of a future renewable energy mix will complement the broader remits of other important initiatives such as the ETI Communication and the Atlantic Action Plan. The primary aim of an ocean energy initiative is to tackle the barriers constraining the growth of the sector in a coordinated manner by bringing the main stakeholders i.e., Member States, the industry and the Commission together. While the policy focus of this impact assessment is ocean energy, it is recognised here that offshore wind can also make an important contribution to the EU's overall renewable energy, climate and industrial objectives. There are important lessons that the ocean energy industry can take from offshore wind development as well as potential synergies that can be exploited to enhance blue growth.

3.2. The ocean energy sector today

3.2.1. Ocean energy technologies and state-of-play

A variety of technologies are under development to harvest ocean energy. Wave energy convertors (WECs) vary substantially in design depending on the way energy is absorbed, on water depth and location. The wave resource has most potential along the length of the European Atlantic coast, i.e., France, the UK, Ireland, Portugal and Spain. Tidal stream technologies are similar in principle and design to wind energy turbines. Energy is generated from the flow of water so the technology is best placed in high velocity currents in narrow channels. The UK, Ireland, France, Greece and Italy have high potential. Tidal range technologies (or 'tidal barrages') operate on principles similar to conventional hydro-power installations. Tidal water is captured in a dam across an estuary or a bay and is then forced through a hydro-turbine during low tide[29].

Ocean thermal energy conversion technologies ('OTEC') generate electricity from the temperature difference between surface and sub-surface water. It has the greatest potential in tropical areas, including the Outermost Regions. Salinity gradient power (or 'osmotic power') relies on the difference in salinity between salt and fresh water, which can be exploited for the production of energy. Favourable locations include the fjords in Norway. OTEC and salinity gradient technologies are much less developed than wave and tidal ones. More details can be found in Annexes 5 and 6[30]. Hybrid solutions present additional potential. Synergies might include offshore wind farms incorporating ocean energy devices[31], aquaculture facilities co-located with marine energy technologies and sea water desalination coupled with salinity gradient technology.

Over 100 different ocean energy technologies are currently under development in more than 30 countries[32]. Most types of technologies are currently at demonstration stage or the initial stage of commercialisation[33]. SETIS predicts that fully commercial systems could become available between 2015 and 2025[34]. Eight EU countries have included ocean energy in their National Renewable Energy Action Plans (NREAPs) – UK, Ireland, France, Portugal, Spain, Finland, Italy and the Netherlands. In 2020, the installed capacity of these plants is projected to reach 2253MW, representing 0.5% of the total installed electricity capacity in the EU-27 (JRC in Annex 16).

At the moment, the combined operational capacity in Europe is 10 MW[35], a three-fold increase from 3.5 MW four years ago[36]. The figure below shows the geographical distribution of currently operational installations. EMEC refers to the European Marine Energy Centre in Orkney.

Figure 1: current installed capacity in Europe

The progress that Member States have made towards achieving the above targets varies substantially. The UK is currently the European and international leader in terms of development and deployment of ocean energy technologies. Other Member States like France and Ireland[37] intend to upscale their ocean energy sectors in the coming years. Over 2GW of ocean energy projects are in the planning pipeline in Europe. Annex 7 provides a more extensive overview of projects in operation including the technologies they deploy.

Test centres are operating or are being developed in the EU. The most advanced is the European Marine Energy Centre (EMEC) in Orkney, in the UK. Others include Wave Hub in Cornwall, UK, the Biscay Marine Energy Platform (BIMEP) in Spain, SEMREV in France[38], the Atlantic Marine Energy Test Site (AMETS) and the Galway Bay Test Site in Ireland, Ocean Plug in Portugal, the Wave Power Project in Lysekil in Sweden, the Wave Energy Centre (DanWEC) and the Nissum Bredning Test Station for Wave energy in Denmark.

Until recently the ocean energy sector was populated by a large number of independent, entrepreneurial SMEs and university consortia[39]. Recently larger companies such as utilities and manufacturers have become increasingly involved in device development (e.g., EDF, ESBI, Iberdrola, Scottish Power, SSE, Vattenfall, RWE, Alstom, GdF, DCNS, Siemens etc.)[40]. Utilities play a key role as they provide financial support for demonstration of ocean energy technologies. Investment from the finance sector has, however, been limited so far.[41]

International initiatives supporting the industry have emerged recently. In 2011, the International Energy Agency launched the Ocean Energy Systems[42] (IEA-OES) technology initiative. Its aim is to coordinate the actors and help industry development. Ten of the 20 members are European (9 EU Member States and Norway). The European Ocean Energy Association (EU OEA)[43] is an industry association which currently has 70 members, including Alstom, Statkraft, DCNS, EDF, GDF Suez and Rexroth. It represents national government agencies, large utilities and industrial companies, national trade associations and universities. A Member States' Ocean Energy Interest Group, comprising the UK, Spain, Ireland, Denmark, France, Belgium, the Netherlands, Portugal and Sweden collaborates with the EU-OEA. Europe's global position in ocean energy is relatively strong. According to the OES[44] its share worldwide in 2011 (including plants under installation) is close to 50%[45]. Europe's share in ocean energy electricity generation is expected to remain very strong in the coming 20 years having a share of more than 55-65% worldwide[46]. This could translate into substantial export opportunities, both for technology and expertise.

3.2.2. National policy support overview

Policy support for ocean energy exists in a variety of forms, the six main categories being (1) capacity and generation targets, (2) capital grants and financial services, (3) market incentives, (4) industry development, (5) research and testing facilities and infrastructure and (6) permitting/space/resource allocation regimes[47]. There appears to be a clear correlation between the strength of the policy support given and the level of progress made in the sector[48]. Compared to other parts of the world, the policy support for ocean energy is relatively strong in Europe[49]. There is a broad agreement, in the literature as well as among the consulted stakeholders, that market-push (e.g. grant support) as well as market pull (i.e. revenue support) policies are needed at this stage. Over a dozen countries currently have dedicated support for ocean energy[50], with nine EU countries having some kind of a revenue support in place, mostly feed-in-tariffs[51]. Only four countries, however, have differentiated revenue support schemes. For a more detailed account of grant and revenue support in the EU see Annex 8.

3.3. The Ocean Energy growth potential

The global theoretical potential of ocean energy technologies has been estimated to be 7400EJ/year[52], which well exceeds present and future human energy requirements[53]. In Europe, the theoretical potential of the wave resource alone is estimated to be at least 2800TWh/year (corresponding to about 80% of 2010 EU electricity generation). Ocean energy resources are less variable and predictable to a much larger extent than some other renewable energy resources such as wind and solar. Moreover, the resource fluctuates in different patterns to solar and wind energy, which can help smooth out the electricity supply curve and facilitate network balancing. Another important benefit is the fact that ocean energy installations are likely to face much less severe space constrains for installation compared to onshore RES technologies.

The technical potential of ocean energy is much more modest compared to the theoretical potential predominantly due to current high technology costs. The estimates vary widely; the industrial goal set out by the IEA-OES is 337GW worldwide by 2050; the Carbon Trust estimates approximately 190GW of wave energy and 55GW of tidal energy in the best case scenarios by 2050; and Sims et al. (2007) propose 500GW for wave energy only, without specifying the timescale. In Europe, SETIS (2011) estimate the maximum potential capacity for wave energy to be up to 10GW installed capacity by 2020 and 16GW by 2030, which would equate to 0.8% and 1.1% of EU27 electricity projected consumption respectively for 2020 and 2030[54]. According to industry estimates[55] by 2020 the installed capacity could be 3.6GW and by 2050 100GW, which would satisfy 15% of European electricity demand. Whilst some of these estimates should be viewed with a degree of prudence, the overall picture emerging from independent assessments is that investments into ocean energy are likely to lead to a significant growth of the sector post-2020.

As a capital-intensive and relatively labour-intensive emerging industry, ocean energy has a high economic potential. According to the EU OEA, the industry could create around 314,000 direct jobs[56]. More optimistic academic sources claim 1 million jobs could be created worldwide[57]. The ocean energy industry has so far invested approximately €600 million in Europe over the last seven years and is willing to invest further[58]. On a more global level, the development of a leading EU ocean energy industry can serve an international market that may expand dramatically in the next few years[59]. The Carbon Trust estimated its total value to be approximately €575 billion, cumulative and undiscounted, between 2010 and 2050[60].

3.4. Problem Definition

The ocean energy sector is currently small but it can grow substantially in the future. A number of technological and non-technological bottlenecks that hamper the sector's development have been identified in various studies and through the Commission's public consultation. These are outlined below. Addressing these bottlenecks may go some way towards enabling the ocean energy sector to move closer to industrialisation and to demonstrate that it is a credible contender in the renewable energy market.

3.4.1. Cost, financial and profitability issues

The cost of electricity generated from ocean energy is currently high compared to that generated from other renewable energy sources or fossil fuels due to high technology costs. At present, the levelised cost of electricity generation from wave devices is around €0.37per kWh and €0.25 per kWh for tidal stream. In comparison, the levelised cost of electricity from offshore wind is €0.18 per kWh, from nuclear technologies €0.067/kWh, combined cycle gas €0.061/kWh, and coal without carbon capture and storage €0.052/KWh[61]. The relatively higher costs can be attributed, among other things, to residual technical uncertainties, lack of know-how and comparatively high operation and maintenance costs. An additional challenge facing the ocean energy sector is to find ways to scale down the high risk of damage to ocean energy devices due to extreme and adverse weather conditions. At this stage both capital (CAPEX) as well as the operational (OPEX) costs need to be reduced.

At the moment, the profitability of modern ocean energy technologies depends on sufficient grant and revenue support, without which ocean energy would be unattractive to investors[62]. Cost reduction can be assisted through various means such as funding through R&D programmes and market-pull policies. The provision of stable revenue support is an effective means of propelling the development of renewable technologies[63], as is proved by the success of solar energy and onshore and offshore wind. In these cases, the costs of technologies decreased rapidly[64]. See Annex 9 for examples of the link between support schemes and their success in different Member States. Due to the current economic downturn, several governments have substantially scaled back revenue support for renewables[65]. Such developments can erode investors' confidence thus undermining further development of the sector. A long-term political commitment by governments is decisive to helping emerging technologies successfully compete in the market.

Private and public banks play a vital role in financing renewable energy development[66]. The leveraging of funds through venture capital and the European Investment Bank, for example, can ensure financial sustainability for emerging technologies such as ocean energy. When assessing investment choices, however, ocean energy is perceived as 'high risk' by financing entities because of specific characteristics such as the novelty of the technology, small project sizes, high capital costs relative to operating costs, lack of full competitiveness on the market and, by implication, strong dependence on policy[67]. It is only once profitability is established in a longer-term timeframe that private investors will be drawn to the sector[68]. The ocean energy sector has been traditionally dominated by SMEs; utilities are relatively new to the field[69]. For an industrial scale-up, the endorsement of utilities, which are in a better position to raise capital off their balance sheets, will be essential.

Another factor which complicates access to finance is the fact that the industry is characterised by a diverse range of technologies[70]. While a certain degree of variety is desirable as it allows for the exploitation of diverse resources in different locations, the complexity of the technological landscape leads to a dilution of R&D efforts, which slows down the progress toward capital cost reduction for the sector as a whole.

3.4.2. Infrastructure issues

The uncertainty and high cost of grid connection is considered to be a significant constraint on ocean energy development[71]. The resources available to generate power from wave and tidal energy are often located in low population density and peripheral regions. The grid capacity in these locations is limited as is the transmission network, which transfers electricity further to centres of high demand[72]. Investment in grid infrastructure is often undertaken solely based on existing requests without sufficient consideration of future needs. Given the current small scale and low profile of the ocean energy industry, grid connections may not be planned in the areas where they are likely to be needed. As in the case of other renewables, the expansion of deployment of ocean energy would also be facilitated by strengthening grid interconnections in Europe[73].

Besides the physical constraints, there are also financial and administrative difficulties. The question as to who bears the costs of connection is a particularly important one to clarify, as practices on sharing grid connections as well as access costs differ substantially between Member States[74]. The lead times[75] remain long and the costs borne by project developers tend to be substantial. The developers also have to bear the commercial risk of permits not being granted or not granted on time. The experience of the offshore wind sector shows, for example, that the administrative costs faced by offshore wind park developers can be higher than those involved in the construction of onshore wind projects[76]. From an investor's point of view, reassurance on timely availability of the necessary grid infrastructure is seen as a crucial factor.

Another infrastructural challenge relates to the availability of suitable port services and specialised vessels. These are required for the transportation, assembly, installation and repair of devices and foundations, the installation of underwater cables and connectors, and operations and maintenance (O&M) services[77]. Europe has a number of ports that are already being used for offshore marine energy installations in the Irish Sea and North Sea[78], while other ports are being remodelled ports to service the offshore marine energy industry[79]. However, suitable port facilities are often lacking in the areas where the potential for ocean energy development is the highest and therefore further investments in port facilities will be needed to underpin growth in the ocean energy sector.

3.4.3. Administrative & regulatory issues

Managing the sustainable use of the marine space requires the implementation of different legal and administrative policies ranging from authorisation procedures, maritime spatial planning as well as environmental regulations and SEA and EIA requirements. Respondents to the Commission’s public consultation highlighted various administrative barriers that hinder the development of ocean energy such as lengthy and complex regulatory and consenting procedures, insufficient coordination amongst public bodies responsible for reviewing applications, as well as a lack of knowledge of ocean energy[80].

Given that the sector is a relatively new player, Member States tend to deal with projects on a case-by-case basis, using existing regulatory requirements applicable to other sectors such as oil and gas, aquaculture or offshore wind[81]. Some Member States (e.g. Belgium, Germany and Sweden) apply different processes in their territorial seas to those applied in their Exclusive Economic Zones (EEZs). Additionally, multiple consents for a project may be required if the marine and coastal (terrestrial) zones overlap or if they fall under the responsibility of a number of public bodies with different competencies. This patchwork of national administrative and regulatory rules and procedures can be time-consuming and ultimately financially costly for project developers. 'Blue tape', as it is referred to by the IEA-OES, translates into years of delays and millions of euros of additional costs[82]. The recent Windbarriers report[83], dealing with wind energy, found that the total administrative costs for offshore wind (excluding those related to grid connection) are comparatively much higher than onshore wind, at nearly 14% of total project costs. Similar observations can presumably be applied to the ocean energy sector, which is, relatively speaking, less developed.

It should be noted that a few Member States have already made efforts to simplify procedures, for example, by designating "one-stop-shops" to deal more effectively with consenting processes (e.g. in Scotland and Denmark)[84]. Furthermore, in some cases, test sites (e.g. EMEC in Scotland and AMETS in Ireland) are “pre-consented”, which means that developers do not have to go through the full consenting process themselves thereby saving time and reducing costs[85].

Maritime Spatial Planning (MSP) comes into play when determining offshore site developments for marine renewables. The majority of Member States practice some form of MSP. A few, notably Germany[86], Portugal, Sweden, the Netherlands and the UK, have quite advanced MSP systems in place while others are in the process of developing MSP regimes e.g. Ireland, Denmark and Italy. Nevertheless, so far there are few MSP regimes that specifically take ocean energy development into account[87]. Indeed, there was broad agreement amongst respondents to the public consultation that ocean energy should be included in national MSP so as to mitigate conflicts over the use of marine space. Taking ocean energy deployment into account would also help to alleviate some of the negative environmental impacts resulting from ocean energy installations. The recently concluded Seanergy 2020 project[88] examined the need to develop MSP instruments to take offshore generation technology and related grid infrastructures into consideration and made policy recommendations to develop such instruments.

3.4.4. Environmental issues

As ocean energy technologies approach commercialisation, the need to take account of their impact on the environment becomes increasingly important. The majority of the negative environmental impacts related to ocean energy deployment are equally relevant for all marine energy technologies, including offshore wind, but also other marine infrastructure installations. The most frequently quoted environmental costs include destruction of habitats, killing of fish through direct 'blade strikes', underwater noise, electromagnetic effects, or the entanglement of diving birds and marine mammals. The uncertainties about the environmental impacts of specific ocean energy technologies combined with the need to apply environmental requirements in an appropriate manner affect the authorisation process.

The data on the environmental impact of ocean energy currently available is limited. A full assessment will only become possible as larger commercial arrays come on stream, and the results of environmental monitoring become available. The lack of information about the marine environment more generally is argued to be an important problem[89], especially given that the seabed remains relatively unexplored compared to terrestrial ecosystems. Yet, the research is often too expensive for project developers to undertake alone[90]. More R&D and a better flow of information will, therefore, be required to understand and mitigate the adverse environmental impacts of ocean energy installations.

The Habitats Directive[91] and the Birds Directive[92] are key pieces of legislation safeguarding environmental quality in the EU and as such are vital to ensure ocean energy is deployed sustainably. The relatively high environmental quality standards legislated in Europe should therefore, in theory, support the development of this emerging industry. Yet, uncertainties on the application of some EU environmental legislation, given that national authorities prefer to err on the side of caution, can in some instances disproportionally prolong the consenting procedures and place an additional administrative burden on project developers.

3.5. 'Business as usual' scenario

In the absence of a sufficient degree of internal momentum within the industry itself and without political support at national and EU level, the ocean energy share of the renewable energy mix and its contribution to growing electricity demand will likely remain small. The rate of cost reduction will be limited and the potential to contribute to the EU’s 2050 decarbonisation objective will be curtailed. The horizon for full commercialisation of the sector will be long term (2050) rather than medium term (2030). Economic, export and employment opportunities will not be fully exploited.

If no additional action is taken, the ocean energy sector would likely be limited to implementation of ocean energy targets in existing NREAPs. The sector's growthpath will be adversely affected by the current unfavourable economic climate where investors and authorities may prefer to rely on more developed renewable energy technologies and even on unconventional or cheaper 'traditional' fossil fuel generation. Despite this, it can still be assumed that activity in the sector would continue, perhaps in anticipation of more a favourable economic environment as well as increased support at EU level e.g., financial support for R&D projects under current and future research programmes. Efforts to foster consolidated and joint Member State activities and to move to larger projects will be made e.g., through an ERA-NET (European Research Area Network) on ocean energy. Although technology refinement will occur, the path to technological convergence will likely be substantially slower.

Infrastructure improvements such as grid connections will continue at their current rate but the future needs of ocean energy will not necessarily be taken into consideration because the deployment rate is presently too slow to warrant factoring it into the equation. Given that ocean energy uptake is likely to be quite small in the short term, its integration into national planning and management strategies, including MSP, is not likely to be a priority compared to more traditional offshore activities or even of offshore wind. Nonetheless, the adoption of a proposal for a MSP Directive[93] may help the situation to some extent. Similarly, the proposal for a revised EIA Directive[94] could assist in reducing some of the administrative burdens involved in scoping out offshore marine energy sites. At the current deployment rate, however, knowledge of the environmental impacts of ocean energy may not be so readily available or extensive.

3.6. EU's right to act

The EU’s competence in the area of energy is set out in the Treaty on the Functioning of European Union, Article 194 (energy), Article 114 (internal market) and Article 192 (environment). While duly considering their respective competences, action in this area by both the EU and Member States would provide better opportunities to develop ocean energy resources and make best use of R&D budgets. Large scale investments for renewable energy technologies are more feasible and cost-effective in EU-wide markets while large R&D budgets can be mobilised and organised more effectively at European level especially to enable the rapid development of key energy technologies for which barriers, scale of investment and risk can best be addressed collectively.

3.7. Who is affected?

Development of ocean energy will affect the energy industry at all points of the supply chain, including device developers and manufacturers, project developers, service providers and investors; marine industries, including SMEs in areas such as shipbuilding, ports, marine operations, mechanical, electrical and maritime engineering, R&D and logistics; consumers through changes in electricity prices (which will depend on national support and on installed capacity); government bodies through their involvement in the selection of optimal policy to support ocean energy, allocation of research funding, administrative procedures and a broader engagement with stakeholders; and other users of the marine environment.

4. Objectives

4.1. General objective

The general objective is for ocean energy to contribute to sustainable economic growth, jobs and innovation in the EU in line with the Blue Growth Strategy and the Europe 2020 Strategy, to assist in the achievement of the EU's renewable energy and decarbonisation goals in the medium to long term and to increase energy security.

4.2. Specific objectives

This initiative aims to bring together policy makers, technology developers, investors and other stakeholders to foster the competitiveness of the ocean energy sector through coordinated actions to enhance technological innovation, including reliability and efficiency; to facilitate the industry's access to finance and to improve administrative practices and environmental monitoring.

4.3. Operational objectives

The operational objective over the short to medium term is to consolidate R&D activities to enable cost reductions; improve the efficiency of planning and licensing procedures; enhance synergies with other industries, such as offshore wind, including on grid planning matters, and assist with monitoring of environmental impacts as well as the application of environmental protection legislation.

4.4. Consistency with other EU policies

This initiative complements the Europe 2020 flagship initiatives and the Blue Growth initiative that envisaged a follow-up Communication on ocean energy in 2013. It is consistent with and complementary to the Commission’s 2050 Energy Roadmap and to on-going initiatives on renewable energy, including the SET-Plan, energy efficiency and climate change mitigation and adaptation.

5. Policy Options

This section outlines three policy options to tackle the challenges identified in Section 3.4. The table below summarises these options and shows the link between the individual policy measures as a response to the specific bottleneck together with their expected output to help the development of ocean energy. The measures deemed most feasible would be formulated in a Communication in the form of an action plan. Option 1 relies on the current policy framework to support ocean energy while Options 2 and 3 suggest a series of non-legislative measures. Certain sub-options, such as those relating to administrative or environmental guidelines, may be more feasible at a later stage, as argued in the impacts section, but are included here for the sake of completeness. An unambiguous statement of support for an EU policy on ocean energy was called for by numerous stakeholders, including the industry association, utilities and certain regional representations in the Member States (e.g. in the UK and France).

Discarded Option: at the initial stages of the impact assessment preparations, consideration was given to a review of EU energy and environmental legislation in order to examine if there were any specific provisions that hampered the development of ocean energy. Upon further internal reflection and discussions with concerned Commission services, including in the IASG meetings, it was concluded that pursuing this option was not feasible or desirable due to several reasons. Firstly, this option would weaken the stability of the legislative framework, which could be potentially detrimental to the renewable energy sector, including ocean energy. Secondly, a wholesale review of existing legislation to accommodate a particular sector was considered unwarranted and disproportionate. Thirdly, any potential legislative review would have to be accompanied by in-depth consultation and assessment that was beyond the scope of this impact assessment. For these reasons it was decided to discard this option and instead to examine the feasibility of alternatives such as developing guidance on the application of certain directives.

Options Bottlenecks || Option 1 - Current policy framework || Option 2 - Enhanced political and industry coordination || Option 3 - Targeted structural actions || Expected outcomes

Cost reduction and financial issues || Strengthening research coordination between Member States through an ERA-net on ocean energy Raising awareness about EU funding opportunities || Industry roundtable with Commission facilitation feeding into a Strategic Roadmap Reinforced support for ocean energy under EU R&D programmes (Horizon 2020, NER300) and European Investment Bank instruments Member State guidance on financial incentives || As in option 2 Possible inclusion in the SET-Plan and a European Industrial Initiative || Easier access to research funding and more efficiency in R&D, leading to acceleration of cost reductions Positive impact on the bankability of projects

Infrastructure || Investment in offshore grid infrastructure through Projects of Common Interest Continued support for the European Electricity Grid Initiative || Promoting a dialogue between ocean energy industry and grid planning authorities in the context of existing initiatives. Mapping out needs related to port services and infrastructure and other supply chain issues || As in option 2 Setting up a dedicated sector-specific platform to discuss strategic grid planning needs and non-grid related infrastructure needs (e.g. ports and vessels) || Shorter lead times, with a positive impact on the bankability of projects Spill-over economic and social benefits

Administrative barriers || Adoption by the Commission of a MSP directive Continued discussion on the Commission's proposal on a revision of the EIA Directive || Voluntary best practice sharing amongst MS Identification of the specific needs as regards the integration of ocean energy into MSP. Promoting results of EU-funded projects. || As in option 2 Guidance document to assist with the implementation of Art. 13 of the RES Directive Specific guidance on MSP for ocean energy projects || Wider uptake of best practice in Member State planning and market support Shorter lead times, with a positive impact on the bankability of projects

Environmental issues || Research and monitoring of environmental impact through existing projects e.g., SOWFIA || Encouraging the sharing of environmental monitoring data Industry exchange of experience and best practice in conducting EIAs || As in option 2 Assessing need for ocean energy guidelines to promote sound implementation of relevant EU environmental legislation || Lower cost of environmental monitoring and facilitated compliance with environmental legislation compliance

5.1. Option 1: Current Policy Framework ('business as usual')

This option entails a continuation of policy initiatives at EU level that are already in place and which affect ocean energy either directly or indirectly. No supplementary EU action in favour of the ocean energy sector is envisaged.

EU funding for R&D projects under the existing FP7 programme as well as the second call under the NER300 programme will continue. An ERA-Net on ocean energy is expected to be established in 2013 which will strengthen research coordination and encourage joint calls for funding amongst Member States thus capitalizing on national and regional research efforts to accelerate ocean energy development. The Commission, Member States and stakeholders will continue discussions on the future priority areas for renewable energy under the new Horizon 2020 programme.

Option 1 sees the continuation of on-going EU projects such as SI Oceans (2012-2014), which is, inter alia, examining policy and other non-technological barriers that impede the growth of the ocean energy sector and developing a market deployment strategy to accelerate the deployment of wave and tidal devices. This activity will interface with the 2013 Industry Vision Paper which outlines a plan to develop a unified strategy to manage technical, project-related and financial risks. Other relevant on-going projects include the SOWFIA project dealing with research and monitoring of environmental impacts. Additionally, the InnoEnergy KIC[95] is expected address ocean energy following its inclusion in the 2012 Strategy and Roadmap for Renewable Energies.

In terms of grid infrastructure developments, the Northern Seas Countries Offshore Grid Initiative provides a framework for regional cooperation to find common solutions to grid infrastructure developments in the North Sea and Baltic. It promotes coordinated planning and grid investment, albeit with a focus on the more advanced offshore wind sector. The technological development needed for realising the offshore grid is programmed in the framework of the European Electricity Grid Initiative, which receives and will continue to receive EU funding support through FP7 and Horizon 2020.

On spatial planning, the Commission's proposal for a Directive aims to establish a framework for MSP and coastal management in the form of a systematic, coordinated and trans-boundary approach to integrated maritime governance. The Commission's proposal amending the EIA Directive aims to strengthen the quality of EIAs as well as to simplify the procedures and reduce unnecessary administrative burdens e.g., it proposes a 'one-stop-shop' allowing for the coordination of procedures under the EIA Directive. Both these proposals are currently going through the legislative process in the Council and the European Parliament so their final contents and potential impacts on the ocean energy sector are not yet known.

This option would not be in line with the views expressed by a majority of respondents to the public consultation; only 4% considered additional action at EU level in support of ocean energy unnecessary mostly because they favour a more holistic approach to energy generation without a support for any particular technology.

5.2. Option 2: Enhanced political and industry coordination

The overarching measure envisaged in Option 2 is the setting up of an industry-led roundtable to promote innovation by bringing together technology developers, researchers, utilities and investors as well as Member States as appropriate. The Commission would play a facilitating role. The objective would be to evaluate viable solutions to the challenges facing the industry by formulating a cost reduction, financing and technical innovation strategy. It would take the form of a strategic roadmap which should also take into account matters relating to infrastructure and administrative challenges and set out industrial development milestones within a clear timeframe (up to and beyond 2020) as well as an indicative implementation plan. The results of the SI Ocean project should provide valuable input into this exercise.

To enable the integration of research priorities identified in the roundtable, Option 2 would include awareness-raising about upcoming funding proposals. This could be carried out, e.g., through information workshops or presentations by the Commission to the roundtable. A more informed and targeted use of EU funding based on specific stakeholder needs will avoid a 'dilution' of efforts. The roundtable would also assess the possibilities for private-public partnerships in R&D projects to share investment risk. Technology developers would also be encouraged to publish performance data as far as this is feasible to help investors make more informed decisions. Implementation of the Atlantic Action Plan could also provide opportunities to enhance cross-border cooperation, in particular through European Territorial Cooperation programmes.

Properly designed revenue support schemes send a strong signal to investors and are an important element in leveraging private investment in renewable energy development. To support diversity in the renewable energy portfolio there is a need for a differentiation in revenue support according to maturity. Yet, differentiated production-based support, taking account of the emerging status of ocean energy technologies, is currently in place in only four Member States[96]. The Commission's formulation of clearer guidance for Member States on how to determine the level of financial incentives for different renewable energy technologies as announced in the 2012 RES Communication is therefore an important component of Option 2. State aid rules, including the guidelines on state aid rules for environmental protection[97] must be taken into account in this context.

As existing initiatives to tackle the grid infrastructure bottleneck do not yet take ocean energy needs into account, a more pro-active dialogue between the ocean energy industry and the parties responsible for grid planning is needed; this would also involve the offshore wind sector. To make its case, the industry must have a clear vision of its needs in the short- as well as in the longer-term. As a first step, option 2 therefore proposes that the industry roundtable includes a thorough assessment of grid-related needs. Other infrastructural needs such as those pertaining to port services and the supply chain would also be identified. Lessons learnt from the results of relevant on-going and recently concluded EU-funded projects should provide valuable input into the process. Particularly relevant here are SI Ocean, ORECCA, Waveplam, SOWFIA, EquiMar and RES Legal[98]. Taking ocean energy into account in grid planning was highlighted as important by several stakeholders in the public consultation, including by Member States' regional representations.

In order to tackle the administrative barriers, option 2 envisages voluntary best practice sharing amongst Member States' authorities to make use of their experience on ocean energy permitting and consenting practices. This would be part of the industry roundtable. Mainstreaming of ocean energy -specific issues in existing fora such as Concerted Action (CA-RES)[99] is also possible. Additionally, as a part of the roundtable discussions the industry could identify its specific constraints and needs in order to encourage improved integration of ocean energy in national MSP. Site selection for ocean energy installations can be optimized through increased research, monitoring, knowledge-sharing and better use of marine spatial planning which will also help to ensure minimal negative effects on the surroundings and ecosystems. The industry could also be encouraged to exchange experiences and best-practices on EIAs.

The individual elements of this option were sourced from consultations with stakeholders; in the public consultation several stakeholders noted that it would be beneficial to emulate successful practices in certain Member States and thus accelerate deployment.

5.3. Option 3: Targeted structural actions

Option 3 builds on option 2 so as to further strengthen industrial cohesion and Member State involvement. To consolidate stakeholder cooperation and give the industry a robust support framework, a European Industrial Initiative (EII) would eventually be set up in agreement between the Member States, the Commission and the industry. This particular instrument was demanded by a wide range of stakeholders including the industry association, concerned regions (e.g. Lower Normandy and Scotland), the Member State ocean energy Interest group, utilities and the academia.

The strategic roadmap outlined in Option 2 would form the basis for the development of an EII which normally requires the elaboration of a technology roadmap and implementation plan. These forward-looking action plans aim to align the efforts of the EU, Member States (in the context of the SET-Plan Steering Group[100]) and industry to achieve common goals and accelerate the development of technologies to enable them achieve larger market share over time. As evidenced by the experience from other sectors, such as wind and solar energy, an EII can deliver progress in research and enhance access to finance through risk-sharing, ultimately helping the technologies to become more competitive. An EII could also provide a forum in which to communicate the benefits of ocean energy as a clean technology and contribute to increased public acceptance.

Regional cooperation on infrastructural developments has a clear cost-cutting potential. Option 3 proposes the setting up of a dedicated grid-planning platform, with the sole purpose of advancing the grid-planning interests of the ocean energy industry. Other infrastructural bottlenecks could be addressed through a sector-specific body or sub-group tasked with identifying and assessing the specific needs and exploring possible synergies with other sectors, notably offshore wind, in a bid to rationalise costs and enhance efficiency.

A guidance document to address administrative barriers could be considered in particular to assist Member States with the implementation of Article 13 of the RES Directive. According to this provision, Member States should ensure that national authorisation and licensing rules applied to RES installations are "proportionate and necessary". Clearer guidance would help Member States strike the right balance between the obligations of public authorities and the interests of the different stakeholders, including the ocean energy industry. As many of the challenges relating to permitting and consenting procedures are ‘structural’, i.e., they derive from specific jurisdictional features, the development of any form of guidelines would have to be deeply rooted in national experience and developed in close collaboration with Member States.

With regard to MSP, it may be beneficial to build on option 2 (identification of specific needs and constraints) and develop sector-specific guidelines for ocean energy in view of the potential development of the sector. Given that the offshore wind sector encounters similar challenges, the scope for coordination between the two industries in identifying common challenges should also be considered.

As shown by the stakeholder consultation, administrative delays can sometimes be linked to sub-optimal implementation of EU environmental directives and overlap with various national administrative procedures on permitting. To mitigate some of these administrative issues, it may be appropriate to develop guidance to promote the sound implementation of the relevant environmental directives such as the Marine Strategy Framework Directive[101] and Habitats Directive[102].

6. Analysis of Options

6.1. Methodology and limitations

This section analyses the economic, environmental and social impacts of the 3 policy options. The analysis is proportionate to the nature of the policy document proposed i.e., a Communication. This analytical exercise has various limitations: (1) given that all of the measures proposed in this impact assessment are 'soft', their marginal impacts are difficult to assess and quantify; (2) empirical data and evidence-based source material on ocean energy is limited due to its early stage of development and its current low level of deployment; (3) there are many external factors affecting the industry's development which are difficult to predict e.g., development of other RES, the post-2020 RES framework, the evolution of fossil fuel prices, political appetite to support RES in a period of economic downturn and the readiness of the industry to cooperate and coordinate its activities.

Section 6.2 is purely qualitative. It considers how the individual measures help to unlock the four corresponding bottlenecks identified in Section 3. This evaluation will be presented in broad terms; assessing the specific economic, social and environmental impacts of the individual measures or sub-options in isolation is not possible as tackling one bottleneck without addressing the others is not likely to deliver a tangible effect. This qualitative evaluation will nevertheless feed into the final comparison of options in Section 7.

Sections 6.3 to 6.5 will present an additional, partially quantitative, assessment of the possible impacts that a more concerted policy intervention in support of the ocean energy industry can have at the EU level. To allow for this analysis, indicative market uptake scenarios were developed for each policy option in an attempt to show the possible different levels of uptake of ocean energy resulting from different levels of intervention. The possible impacts were then extrapolated. 'Low market uptake' and 'high market uptake' scenarios were established demarcating a range of installed capacity which is theoretically possible to achieve by the measures proposed. Annex 10 provides a full explanation for the scenario modelling. The modelling is to be approached as an illustration, complementary to the qualitative assessment of individual measures. The three options and the market uptake scenarios are tentatively linked based on the general assumption, supported by a wide range of literature, that supportive policy intervention is likely to play an important role in stimulating emerging industries, all other things being equal. It is appreciated, however, that the supportive measures presented here can fail to deliver increase in the uptake of ocean energy, if other landscape factors, such as the price of fossil fuels, are unfavourable.

It should be noted that even the 'high market uptake' scenario is very conservative; the available estimates from the IEA and from certain academic sources present a much more optimistic picture, predicting a steep growth of the industry in the next two decades similar to that experienced by the offshore wind industry from 1990 - 2010[103]. However, founding the scenarios on the development of offshore wind was considered overly optimistic for several reasons, as explained in Annex 11. At the present stage of development a more cautious approach seems appropriate, in line with the assumptions of the 2050 Energy Roadmap.

6.2. Analysis of individual measures/sub-options

6.2.1. Cost reduction, financial and profitability issues

In Option 1, the effect on cost reductions from the just-published Industry Vision Paper 2013 will not be immediately felt but is a tangible step forward to collectively streamline and rationalise industry efforts to accelerate market uptake. Once available, the results of the SI Ocean project on market deployment and resource and technology assessment are expected to pave the way for a more agenda-driven approach to tackle certain bottlenecks, including cost reductions and technological convergence.

R&D efforts will be strengthened through the anticipated ERA-Net on ocean energy that will foster collaboration amongst more Member States. An increased focus of research calls on larger projects, to optimise technologies to increase capacity and improve reliability, could lead to greater convergence and larger-scale pre-commercial deployment of ocean energy arrays with increased capacity. If implemented successfully, the three ocean energy projects under the NER-300 programme are expected to have a positive impact on increasing investor confidence, improving and optimising technological performance and reliability, lowering costs and managing risks. A modest level of direct employment creation (manufacturing, installation and O&M) could be expected as well as some scope for indirect job creation (increase in opportunities for collaborative research).

The industry roundtable set up under Option 2 would be tasked with developing a strategic roadmap to improve competitiveness. Although the precise impacts of this action cannot be quantified, establishing a set of deliverables within a set timeframe will stimulate the industry to tackle common challenges in a coherent way (e.g., through investment commitments and increased R&D coordination) thereby avoiding fragmentation and duplication which should result in cost reductions and increased investment in the longer term. Wider political buy-in and commitment from both Member States and the Commission can help to achieve this objective by mitigating some risk and facilitating the industry’s access to finance. Setting up a roundtable will entail a level of administrative effort for all parties involved. As R&D coordination and awareness-raising about funding opportunities will be strengthened under this option, the expectation is that political, investor and public awareness of the opportunities available will increase as will confidence in the sector.

Issuing Commission guidance for Member States with respect to financial incentives for different RES technologies could reduce uncertainty and enhance project bankability, provide the industry with incentives to become more competitive and help Member States keep overall support costs under control. This is important, as supporting new high cost technologies can lead to higher costs for consumers and/or taxpayers, at least initially, and will therefore impact on public acceptance if not appropriately managed. Guidance on authorisation procedures or MSP and including ocean energy in the debate on strategic grid planning could result in lowering lead times in constructions and enhancing synergies with other sectors which will contribute positively to market uptake and to overall cost reductions and profitability.

Voluntary publication of performance data, particularly when publicly funded, will have a positive impact on investors and developers in that lessons learnt from device performance will contribute to improved innovation, convergence and standard-setting. On the other hand, developers may be reluctant to openly provide such information until device performance and reliability is sufficiently improved or due to a reluctance to share proprietary information.

The evaluation of the Intelligent Energy Europe programme[104] suggests that 'soft' measures similar to those outlined under option 2 can effectively help to pull new energy technologies into the market.

Option 3: According to several stakeholders, an EII would go the furthest in fostering private-public partnerships, enhancing investor confidence and increasing opportunities for collaborative projects between technology developers, utilities and manufactures, all leading up to larger-scale commercial ocean energy deployment. For example, the Wind EII, despite only being launched in 2010, has already yielded a number of achievements including the establishment of the main EU Programme for wind energy R&D and improved allocation of relevant EU and national public funds on priorities identified by the sector (through TPWind). According to the EWEA (2013)[105], the Initiative contributed to technology cost reductions[106]. It seems reasonable to assume, therefore, that cost reductions will be achieved through increased design optimisation, increased economies of scale and lessons learnt from production, constructions, installation, operation and maintenance fostered via the EII. Increased market penetration of ocean energy will bring with it additional economic and employment activity. However, an EII does come at a financial cost to implement as private and public investments are required to support the programmed activities. It is not possible to quantify the amount required for an ocean energy EII at this stage but indicative costs for the wind sector for the period 2010-2020 were estimated at €6 billion. Associated administrative costs to set up, implement and monitor the EII are also expected.

Increased awareness-raising of funding opportunities in the context of the forthcoming Atlantic Action Plan and the industry roundtable will provide a structured framework within which Member States could leverage the benefits of inter-regional cooperation on joint projects.

6.2.2. Infrastructure

A number of initiatives relevant to this bottleneck are already implemented within the current policy framework (Option 1). The Northern Seas Offshore Grid is formally recognized as a one of the priority corridors in the new TEN-E Infrastructure Guidelines. Its development, including finding regulatory solutions for integrated infrastructure, is supported through the cooperation of national governments, regulators, TSOs and the Commission in the framework of the Northern Seas Countries Offshore Grid Initiative. The technological development needed to develop the offshore grid is programmed in the framework of the European Electricity Grid Initiative and supported through the successive EU RTD framework programmes (to be continued in Horizon 2020). Due to early stage of development of the ocean energy industry and lack of visibility on roll-out of commercial scale devices, the main focus of the above fora and initiatives is, however, on the development of offshore wind so the impact on ocean energy is negligible.

Option 2 enables a better engagement of the ocean energy industry in the grid planning process. A thorough assessment by the industry of its needs and its accommodation in existing bodies could be a cost-effective way of addressing the bottleneck. Given the very nature of strategic grid planning it can in any case be assumed that more cost-efficient solutions will emerge if ocean energy producers will consolidate their requirements and feed them into the on-going grid planning process within existing structures. Discussions about appropriate approaches towards anticipatory investments as e.g. planned within the Northern Seas Countries Offshore Grid Initiative may also provide scope to begin to anticipate ocean energy needs.

The proposed dedicated grid-planning platform under Option 3 would send a stronger signal to investors and other market players; the extent of the beneficial impact on supply chains and financiers' interests is nevertheless difficult to predict. This option might, however, not only involve additional substantial administrative costs, but could also be less effective as to its outcome than option 2 as it would risk creating a separate and competing forum. The setting up of dedicated platforms and bodies for the promotion of ocean energy interests in the grid planning procedures, as well as the development of guidance documents to complement certain EU directives (option 3) is likely to increase administrative burden at the EU and possibly also at the national and regional levels. Option 2, which proposes to use existing platforms and initiatives to a highest possible degree, could deliver a better overall result.

In Options 2 and 3 a concrete formulation of the industry's port and supply chain needs coupled with a wide endorsement of the key players could stimulate the supply chain thereby creating job opportunities and more economic activity. Sections 6.3.4 and 6.3.5 provide additional information on economic impacts.

6.2.3. Administrative barriers

The administrative barriers are partially addressed within the Option 1 e.g., the proposed MSP Directive, while sector-neutral does call for a consideration of renewable energy when developing national MSPs. It can be assumed that administrative costs as a proportion of the total project costs would decline over time even without additional intervention as the relevant authorities become better acquainted with the technology; nevertheless, the process could be expected to be relatively slow. In the meantime, administrative hurdles would take their toll in terms of longer construction times and undermining investor confidence.

In option 2 the exchange of best practice in the framework of the roundtable is potentially an effective first step to tackle administrative barriers. National authorities would be given access to information about effective practices from other MS, which could yield improvements over time. A structured exchange of views would in any case be a necessary first step to enlarge the knowledge base before further steps can be taken. Option 3 goes further to tackle some of the issues related to the implementation of Article 13 of the RES Directive by proposing the development of implementation guidelines. However, the current lack of experience on the authorisation process for ocean energy means that the guidance documents could not be developed at this stage but rather once experience is available from several commercial-scale plants. It remains to be seen whether these are indeed necessary and when, if at all, they should be developed.

A similar guidance document could be devised to address the sector-specific issues related to MSP to relieve the institutional risk aversion stemming from limited familiarity with the sector. In the case of MSP it would be necessary to re-evaluate the need for specific guidance once the outcomes of negotiations on the proposed Directive are known. Reducing the bureaucratic burden would facilitate the transition from pilot projects to commercial deployment, provided the other bottlenecks are also addressed. Consideration should be given to a stepped approach whereby a decision on whether or not to provide explicit guidance is made in view of the experience gained under option 2, and for MSP, the outcome of the Directive.

6.2.4. Environmental issues

Under option 1, the lack of data regarding environmental impacts of installations would be partially resolved by the gradual accumulation of data by the industry itself, but this implies a substantial burden on the project developers. Sharing of privately acquired data will likely be limited, and the process slow and inefficient. As for issues relating to implementation of EU directives the revision of the EIA Directive in particular should contribute to a simplification of the EIA process and consequently reduce the costs borne by developers as well as alleviate some of the administrative burden on the Member States authorities. The SOWFIA project is expected to make a contribution by taking the stock of the European experience of consenting processes, EIAs and SIAs relevant for wave energy.

Under Option 2 a more integrated approach at promoting data-sharing and collaborative working between the industry and academia/research organisations could result in an accelerated accumulation of information on the environmental impact of ocean energy devices. The industry would be also encouraged to share experience and best practice in conducting EIAs which would hopefully lead to better outcomes for the responsible authorities as well as for the developers. Yet these actions would be undertaken by the stakeholders on a voluntary basis and therefore their results are uncertain. The evaluation of the Intelligent Energy Europe programme[107] has nevertheless shown that best-practice exchange can be an effective means of tackling non-technological barriers such as this one.

Option 3 proposed the development of implementation guidance documents to complement the relevant environmental directives. This measure was called for by several stakeholders in the public consultation. Whilst these guidelines could potentially alleviate the administrative bottlenecks by giving the authorities targeted information and instructions, they involve a certain degree of additional administrative costs to both Member States and the Commission. In addition, the current lack of data on the environmental impact of ocean energy means that the guidance documents could not be developed at this stage but rather once data is available from several commercial-scale plants. It remains to be seen whether these are indeed necessary and when, if at all, they should be developed. It may be more appropriate to opt for these measures as a second step, following the measures outlined under option 2. The outcome of the discussions on the revised EIA Directive, which ultimately has a higher legal value than guidelines, will also have a bearing on this process.

6.3. Economic impacts

6.3.1. Levelised cost of electricity (LCoE)

This section draws on the market uptake scenarios provided in Annex 10. It is assumed here that additional supportive action could stimulate market uptake, which would lead to accelerated cost reduction through learning effects and economies of scale. A learning curve approach is used to determine the future cost reductions of ocean energy [108] to see how the different policy options would impact on the LCoE[109] of ocean energy over time. Learning curves normally display the relation between costs and production/installed capacity; the modelled market uptake scenarios in this impact assessment will instead link installed capacity to time[110]. Learning rates (LR) range from 0% to 20% in academic sources; at the same time it is noted that the cost of small, modular products tends to decrease more rapidly than the cost of large, non-modular units or plants[111]. Since tidal and wave energy technology cannot be considered particularly small and modular, a learning rate of 5-10% is considered realistic for ocean energy investments. This is comparable to learning rates for the development of the investment costs of offshore wind, ranging from 2.5-10%[112].

As costs depend strongly on the numbers of devices installed, a practical difficulty in discussing current costs is the present industry status. The most robust evidence of costs and performance comes from large-scale prototypes.[113] 2.2 GW of ocean energy capacity are expected to be installed in European waters by 2020 (based on NREAPs), and the assumptions regarding the lowering costs due to learning experiences will therefore be applied from that basis. The indicative modelling of LCoE reduction over time based on the market uptake scenarios presented in Annex 10 is shown in the figures below for both wave and tidal energy. Two different learning rates were used to derive a range.

Figure 2: Wave Energy Levelised Cost of Electricity, source Ecorys (2013) based on JRC (2013)

Figure 3: Wave energy estimated cost decrease under options 1, 2 & 3

Wave energy LCoE || Option 1 (€/kWh) || Option 2 (€/kWh) || Option 2 / Option 1 || Option 3 (€/kWh) || Option 3 / Option 1 || Option 3 / Option 2

2020 || 0,208 || 0,208 || || 0,208 || ||

2035 (LR=0,95) || 0,157 || 0.153 || 97% || 0,148 || 94% || 96%

2035 (LR=0,90) || 0,149 || 0.1411 || 94% || 0,131 || 88% || 93%

Figure 4: Tidal Energy Levelised Cost of Electricity, source Ecorys (2013) based on JRC (2013)

Figure 5: Tidal energy estimated cost reductions under options 1, 2 & 3

Tidal energy LCoE || Option 1 (€/kWh) || Option 2 (€/kWh) || Option 2 / Option 1 || Option 3 (€/kWh) || Option 3 / Option 1 || Option 3 / Option 2

2020 || 0,151 || 0,151 || || 0,151 || ||

2035 (LR=0,95) || 0,127 || 0,123 || 97% || 0,119 || 94% || 96%

2035 (LR=0,90) || 0,120 || 0,114 || 94% || 0,106 || 88% || 93%

Ocean energy technologies are relatively young and therefore their technological development and the related progress in cost reduction can be expected to be faster compared to conventional technologies. Based on increasing fossil fuel cost and decreasing technology costs, it can be assumed that the gap between conventional and new renewable electricity generation technologies will eventually close and a break-even point will be reached. When this will occur depends to a large extent on the policy support provided[114].

Figure 6: LCoE of Ocean Energy v. Fossil Fuel Technologies: Ecorys (2013) based on JRC (2013)

Figure 6 above shows that in 2035 the cost of electricity generated from wave and tidal sources will still be above the electricity costs generated from fossil fuels but there is a converging tendency. No definitive conclusion can be made as to when and how fast ocean energy can be cost competitive with other forms of energy generation. It can be said, however, that option 3 could lead to an accelerated LCoE reduction thus narrowing the gap between wave and tidal with other alternatives such as offshore wind in the period up to 2035. The accelerated cost reduction under option 3 is to be attributed primarily to the establishment of an EII and inclusion of ocean energy in the SET-Plan, as well as to the alleviation of non-technological barriers through other measures. According to the JRC analysis (2010)[115], the SET-Plan does not only play a key role in reducing technology costs but also in ensuring their availability and reliability. Option 1 shows that if there is no additional action, the likelihood of ocean energy becoming cost competitive lies further ahead in the future. As stated earlier, the approach in the impact assessment is conservative compared to some other sources. Esteban and Leary (2011)[116] predict that wave and tidal energy will be cost competitive around 2021, with an LCoE of around 0.06 €/kWh.

6.3.2. Costs for electricity consumers

Increasing the burden on consumers due to development of renewable energies and of the relatively more expensive ocean energy technology in particular is an important concern. Indeed the 'High RES' scenario on which Option 3 scenario is based would entail a rise in electricity prices compared to the 'business as usual' scenario. Only a minor part of this increase would, however, be directly attributable to ocean energy generation as this will only make a relatively small contribution to the energy mix compared to other renewables, even in the most optimistic scenarios. It should also be noted that electricity prices will rise compared to the status quo even under the 'business as usual' scenario due to the need to replace generation infrastructure in the next 20 years[117]. It is cautious to assume, however, that a higher installed capacity of ocean energy (option 3) could be projected in a proportionally higher electricity price than lower installed capacity (options 1 and 2), at least in the short term, all other things being equal.

Whilst the design of revenue support schemes remains within the exclusive competence of Member States, the measures proposed in options 2 and 3 could stimulate a wider uptake of ocean energy under schemes which follow 'best practice in the design, structure and reform'[118]. In theory, such support would be digressive (i.e. reduced with time) to reflect the cost reductions resulting from lessons learnt, avoiding overcompensation. Assuming that the measures proposed under options 2 and 3 are successful in promoting best practice, the cost reductions resulting from accelerated learning would be reflected in a proportional decrease in the support given. This would at least partially offset the price increase caused by growth in installed capacity. In the literature, it is indeed often argued that the increase in electricity prices attributable to renewables is relatively minor, because of the digressive nature of revenue support[119]. According to the Energy Roadmap 2050 "substantial RES penetration does not necessarily mean high electricity prices".

The extent to which a wider uptake of digressive support schemes would offset the rising electricity prices due to increased proliferation of renewables is, however, uncertain. Taking a conservative and precautionary approach, it is assumed, as mentioned previously, that a 'high ocean energy uptake' scenario would lead to an increase in electricity prices for consumers. The negative impact on consumers from higher electricity prices is considered to be proportionally higher under Option 3 than under Options 1 and 2.

6.3.3. Competitive position of the EU in ocean energy

The development of a leading EU ocean energy industry can serve an international market that could be worth up to €575 billion in the period 2010–50, reaching up to €50 billion/year by 2050[120]. The size of the EU's share of this market will depend to some extent on its ability to strengthen the link between the research community and the industry. The EU possesses a strong research basis, as evidenced by the fact that 44% of the marine energy-related publications have been released in the EU between 2001 and 2010[121]. The amount of global ocean energy -related patents has been constantly growing (664% between 2001 and 2010) which is a higher rate than in any other marine sector[122]. Yet, the EU only accounts for a 20% share of the patents registered[123].

Under Option 1, the EU could be expected to maintain the current low rate of conversion of scientific research into patented technology and could lose its share of the global market. More conscious R&D programming with stronger industry involvement under Options 2 and 3 will allow the EU to move ahead and maintain or even increase its share in the emerging global ocean energy market. This trend would be enhanced through the establishment of an EII which will foster strong relationships between the industry and the research community. The impacts of the proposed measures on export potential cannot be easily quantified but they can reasonably be expected to be relatively larger under Option 3 than under option 2. Enhanced cooperation in R&D activities could potentially lead to competition problems between individual companies, however, as borne out in the public consultation, the majority of stakeholders favour coordinated collective approaches in recognition of the individual gains incurred through increased efficiency of R&D spending.

6.3.4. Supply chains and ports, regional economic growth and development of clusters

The number of dedicated suppliers currently remains limited due to the relatively small scale of the industry and uncertain future growth. Large equipment suppliers can, however, develop their capabilities and change their existing products/services to supply the ocean energy sector provided the market grows in a similar fashion to solar and wind. With a leading position in the high value/high complexity segments of shipbuilding and offshore platform development, European-based equipment manufacturers would benefit from the increased demand for components and specialised ships. The higher the uptake of ocean energy the greater the impetus for strong supply chains to develop. Option 3 offers a relatively more robust support to the sector and therefore could be expected to provide the better opportunities for suppliers, compared to Options 1 and 2.

Provided that options 2 and 3 lead to a faster development of ocean energy, positive consequences for ports in the affected areas can be expected. According to the ORECCA Roadmap, opportunities exist to develop ports on the coasts of Scotland and Ireland. Several ports have already transferred into major hubs for servicing the construction process of offshore wind parks and continue to play a role in providing O&M services.[124] A planned ocean energy project in West Normandy is expected to help revitalize the port of Cherbourg; it is estimated that more than 150 SMEs will provide their expertise and around 17 000 jobs will be created by 2030[125]. Investments are also being made to expand various port facilities in the Orkney Islands to service the needs of the offshore renewable energy sector. There are obvious synergies with the offshore wind sector in this domain as the construction and O&M needs of ocean energy can potentially be met by ports that are geared up for the offshore wind sector[126].

From consultations with regional representatives it is evident that ocean energy can play a very important role for local economies. The region of Lower Normandy, general council of La Manche and the urban community of Cherbourg, for example, collectively established a dedicated body for the promotion of ocean energy. Whilst the impact on regional and local economies is difficult to predict at this stage, some estimates are available for the contribution of ocean energy into national economies. For instance, it is estimated that if the UK successfully competes in the global market then ocean energy could contribute £1.4 - 4.3bn3 to UK GDP up to 2050[127]. Over time, it can be expected that supply chains become more established, products and components, especially those that are large and heavy, will be sourced regionally or locally to shorten lead times and reduce costs. Local and regional industry can develop on the back of local ocean energy installations, and it may lead to establishment of specific regional clusters of ocean energy industrial and R&D activity as can be observed in offshore wind sector.

6.3.5. Synergies with other sectors

Apart from building supply chains, future developments of the wave and tidal energy sector will be linked with developments in other sectors such as offshore wind energy, oil and gas, and hydropower. There will be significant opportunities for co-location of technologies; e.g., for wave, tidal and offshore wind energy and utilizing common platforms. Mutual learning processes, shared infrastructure and innovations from a shared supply chain will be of great benefit to the future expansion of both the ocean energy sector and related sectors[128]. Industry cooperation initiatives as pursued under options 2 and 3 can also pave the way for increased cross-supply chain cooperation and knowledge sharing with other marine sectors. Initiatives previously taken in the shipbuilding sector, which now acts as a supplier to many marine sectors including offshore energy, are a good example in this regard.

6.3.6. Benefits of energy diversification

Electricity generation from ocean energy sources is less variable and more predictable than other renewable energy sources such as wind and solar. Benefits can especially be expected from combining ocean energy and other variable RES such as wind due to the complementarity of their output[129]. This has the potential to reduce the requirements for backup and reserve capacity, allowing for higher RES production levels with less installed capacity and reducing the amount of "spilled energy". For the UK this effect has been quantified to yield annual cost savings of as much as 3.3% of the annual wholesale cost of electricity under specific assumptions[130]. On a broader level, a more diverse mix of energy at EU level will contribute to the goals of increasing energy security and a better integration of the internal market.

6.3.7. Administrative burdens

The interventions proposed under option 2 and 3 are likely to lead to an overall decrease in administrative burdens compared to the current policy scenario. In particular, the best practice exchange on authorisation and licensing procedures proposed in Options 2 and 3, and the guidance documents to complement the MSP and environmental directives in Option 3 aim to facilitate the implementation of ocean energy project by reducing red tape. This is particularly important for SMEs, which constitute an important part of in sector today. Due to their size and scarce resources, SMEs are badly positioned to deal with long lead times, which substantially increase the costs of projects and threaten their bankability.

Given the non-legislative nature of the measures proposed, the additional administrative costs their implementation imposes on stakeholders are expected to be small. Measures under option 2 and 3 are predominantly voluntary and therefore stakeholders who judge the costs of participation to be higher than the benefits can decide not to take part. Whilst the organisation of roundtables, for instance, entails costs e.g., staff costs, travelling expenses, etc., these are likely to be minimal compared to the potential benefits that can be reaped through increased effectiveness in R&D spending or reductions in financing costs, for example.

6.4. Environmental impacts

Like other renewable energies, ocean energy has the potential to contribute to a reduction in greenhouse gas emissions (GHG). The real extent of ocean energy's contribution to GHG reductions will depend on a variety of factors such as the carbon intensity of the energy mix in a given country. Projected estimates for the CO2 avoidance potential of ocean energy vary greatly in the literature mainly because they apply different methodologies and carbon intensity factors. These estimates are collated in Annex 12. The potential contribution of ocean energy to GHG reductions until 2035 under the 3 policy options proposed is estimated here using the carbon intensity indicators of the Current Policy Initiatives (CPI) scenario available in the Energy Roadmap 2050[131].

As shown in Annex 10, the total installed capacity in 2035 is tentatively projected to be 4.3GW (option 1), 6.4GW (option 2) and 10.5GW (option 3). To estimate the CO2 abatement, assumptions about the capacity factors were made[132]; two different capacity factors of 25% and 35%[133] are used to illustrate the range of possible savings. The lifecycle emissions were not included in the calculation as they are known to be very low; see Annex 12 for more detail.

Figure 7: annual CO2 reduction in million tons/year using capacity factors of 25% & 35%, source Ecorys (2013)

As shown in figure 7 above, the annual range in CO2 reduction could potentially vary from 0.01-0.02 Mt/year in 2012 to 1.09-1.52 Mt/year in 2020 (for all three options), to 1.47-2.05 M