young company finance YCF Special Report Renewable Energy in Scotland Sponsors Young Company Finance is grateful to the sponsors who made this publication possible: Grant Thornton Hillington Park Innovation Centre ITI Energy Scottish Oceans Institute University of Strathclyde young company finance YCF Special Report Renewable Energy in Scotland We are determined to ensure that Scotland harnesses our vast renewables potential to make Scotland the green energy capital of Europe. Our potentially cheap, green energy sources – such as wind, water, biomass, wave, tidal and solar - are estimated at more than 60 Gigawatts, ten times Scotland’s peak electricity consumption. These are the foundations for sustainable economic growth and a greener deal for Scotland. We have a fantastic competitive advantage and the economic opportunities in moving to a low carbon economy, especially for young and innovative companies, are huge. There are opportunities in our rapidly expanding onshore and offshore renewables industry, in new energy efficiency and microgeneration industries and in the development of clean fossil fuels technologies. These are areas where Scotland can excel, develop exportable technology, intellectual property and skills, while boosting our economy and playing our part in the global fight against climate change, while giving future generations a legacy of which we can be very proud. Jim Mather MSP, Minister for Enterprise, Energy and Tourism Contents Introduction 3 1 Global energy 4 The Scottish Oceans Institute Focus for excellence in marine related research 8 2 Current status of renewables 10 University of Strathclyde Training engineers for future UK wind industry 16 3 Scotland’s current strategy 18 Grand Thornton Who we are 22 4 Investment in renewables 24 ITI Energy Igniting innovation and wealth creation 28 5 Research & development 30 Hillington Park Innovation Centre Switched on to renewable energy companies 36 6 Landmark projects 38 7 Scotland’s emerging companies 44 © 2009, Jonathan Harris, YCF Design: Omnis Partners, Cumbernauld Print: The Print People, Glasgow Introduction Young Company Finance is very pleased to present this survey on the near-market research in academic institutions and the of the renewable energy sector in Scotland. emerging companies which are beginning to make their mark on the sector. The ‘showcase’ of young company profiles in The renewable energy sector stands at the threshold of an chapter 7 is intended to give a flavour of how Scotland is prepar- exciting period of development. The argument in favour of ing to capitalise on what Scotland’s First Minister Alex Salmond reducing carbon emissions to combat climate change is almost recently called a “second energy windfall”, after North Sea oil. universally accepted, and countries around the world are taking steps to accelerate the generation of energy from renewable This report is one of a series intended to cover different market resources. The technology, both to harness new energy sources sectors in which Scotland can boast world-class strengths. Previ- as well as to reduce carbon emissions, is fast catching up with ous titles in the series have covered Life Sciences and Digital the considerable demands facing it, and political and physical Entertainment. For the past ten years, Young Company Finance barriers to generation and transmission are gradually being has been tracking early stage companies in Scotland from tackled. conception through start-up and development to full maturity, with special emphasis on how such companies are financed – It is Scotland’s stated ambition to become the world leader in there is more about YCF on page 60. The investment reports in clean, green energy. The country has compelling credentials for our monthly publication are in effect excellent case studies of such aspirations; not only in its vast potential in offshore and businesses at different stages of development, and of the issues onshore wind power (Scotland has a quarter of Europe’s wind they must address to attract external investment. This knowl- energy potential, as well as a quarter of Europe’s tidal resource), edge base underlies the conception and detail of this report. but also in terms of its proven capabilities in academic research and development, engineering excellence, and crucially in the We are extremely grateful to our sponsors, listed on the inside extensive experience gained from the exploitation of offshore front cover, without whom this publication would not have oil and gas over the past four decades. been possible. The renewable energy sector is dominated by large scale, headline-grabbing projects which extend the boundaries of Jonathan Harris, Editor the possible, and we give profiles of some of these in chapter Young Company Finance – May 2009 6. However, to meet carbon reduction targets it is necessary for progress to made at every scale, and some of the most interest- ing developments in Scotland are in micro-energy projects and community developments. Young Company Finance focuses, as its name implies, on early stage businesses, and there is considerable scope for them to benefit from the opportunities which the renewable energy sector is creating. While not overlooking the large scale develop- ments in Scotland, this Special Report concentrates particularly Renewable Energy in Scotland 3 1 Global energy Most people will be aware by now that economically and socially – they can and of World Energy is a comprehensive and energy consumption is subject to a must be altered. Rising imports of oil and authoritative source. For oil, the June number of conflicting market drivers. gas into OECD regions and developing 2008 Review gives a reserves to produc- Asia, together with the growing concen- tion ratio of 41 years, based on proven The demand for energy is rapidly tration of production in a small number of reserves. This does not however paint the expanding, in part due to the high rate countries, would increase our susceptibil- full picture. of economic development in countries ity to supply disruptions and sharp price such as China and India. Although this The oil industry bases its forecasts on hikes. At the same time, greenhouse-gas growth rate has been dented by the proven oil reserves, and indeed reduces emissions would be driven up inexo- recent tribulations of the global economy, these to ‘recoverable’ reserves when rably, putting the world on track for an there is little reason to suppose that these reporting its financial results; a couple of eventual global temperature increase of setbacks will alter the medium-term rate years ago the world’s stock markets took up to 6°C.” of increase in energy demand. Shell and other oil majors to task when Although one does not have to believe they failed to make enough reduction The International Energy Agency (IEA) doomsday scenarios about fossil fuels in estimates of recoverable reserves to projects that world energy demand will running out within a lifetime, the need to reflect political risk. increase by 45% from 2006 to 2030, on increase energy output from every avail- the assumption that current laws and The US Geological Survey (USGS) is an able source must be acknowledged. policies remain unchanged throughout independent and reliable commenta- the projection period. China and India ac- On top of the potential imbalance tor on energy. Its most recent World count for over half of incremental energy between supply and demand is the threat Petroleum Assessment in 2000 found demand to 2030 while the Middle East of climate change. According to Shell’s that 539 billion barrels of oil equivalent emerges as a major new demand centre. energy scenarios to 2050, the limiting of had been produced worldwide up to greenhouse gas (GHG) concentrations 2000, with 859 bboe remaining, 612 bboe The IEA has revised its forecasts down- to 450 ppm carbon dioxide-equivalent is available growth in reserves and, based wards a little in response to the global expected to limit temperature rises to no on carefully judged geological principles, economic slowdown, but nonetheless, the more than 2°C above pre-industrial levels, 649 bboe undiscovered. In other words, current recession is a relatively small step a level that scientific evidence suggests is at 2000 there was almost five times as backwards in the overall trend of eco- necessary to reduce significantly the risks much oil potentially available as had nomic growth over the past few decades, of climate change. This will be well-nigh been produced to date. For natural gas, and it will be difficult to step up current impossible to achieve on any of the the USGS figures are even more startling, supplies of energy to meet this demand. projections being currently debated, but it with potential reserves amounting to AS Nobuo Tanaka, executive director of is a necessary target. almost 15 times production to date. the IEA comments, “Current trends in There is no shortage of statistical data for Coal like oil and gas is not about to run energy supply and consumption are pat- present energy sources and consumption, out. The World Coal Institute states “coal ently unsustainable – environmentally, and for example BP’s Statistical Review reserves are available in almost every 4 YCF Special Report the source is one such; coal for example is more difficult to handle and transport than oil, and these factors must be reflected in pricing. Nations are usually willing to develop energy resources such as coal mines for multiple reasons, including the benefits of creating local employment, the security of supply for national consumption, and the ability to earn valuable export revenue. However, once infrastructure has been built, whether in the form of oilfields and coal mines, nuclear power stations and hydroelectric schemes, or even an elec- tricity transmission system, the nation is to a greater or lesser extent ‘locked in’, and less able to respond flexibly to such developments as price changes following new production coming online elsewhere.