Previously we have emphasized the importance of understanding the market risks inherent in attempting to develop and commercialize a new renewable energy source. Not isolated to the wave energy community, recent troubles in biofuel technology development should also serve as a warning sign to developers to heed market risk before barrelling ahead.
A market risk analysis starts with a firm understanding of the intended market a product will serve. An obvious target market for devices producing electricity from the renewable power of ocean waves will be US states with Pacific Ocean coastlines. These geographies show high potential due to a large wave energy resource, proximity of urban population centers to the resource, aggressive renewable energy legislation, favorable cultural attitudes towards renewable energy and relatively high consumer electric rates in some cases.
Currently Alaska, California and Oregon have enacted Renewable Portfolio Standards (RPSs) requiring a transition to 50% of electricity from renewables by 2025, 2030 and 2040, respectively. It is important to note that in those cases electricity produced by traditional hydroelectric dams is not applicable in meeting RPS requirements. That Washington will follow with similar targets seems a safe assumption given the tone of recent discussions. Meanwhile, Hawaii has been even more aggressive with a RPS requirement for 100% renewable electricity by 2045.
By comparing the current penetration of renewable energy into these geographic markets with their RPS mandates we can calculate the deficit required to be filled by 2030 with new renewable generating capacity. That net capacity growth required is monetized using approximate capital costs of $4,500/MW in line with recent estimates.
Summing the bottom line, we find a total market size of $230B. Presuming the addition of approximately 3 GW of capacity in 2016 across the target region results in a total annual market size increasing from ~$9.6B in 2016 to ~$23B in 2030 at a rate of 6%. Though these results are admittedly "ball-park" they do clearly indicate the substantial size of the pacific coast new renewable energy capacity market.
In next week's post we will take a closer look at what portion of this market can be addressed by wave energy technology by investigating the conditions under which a customer would prefer wave energy to other forms of renewable energy. Stay tuned.