Damian Kunko Remarks to the Oregon Wave Energy Trust Conference

Editors Note: The seventh annual Oregon Wave Energy conference went underway on the 26th and 27th of September in Portland, Oregon. In attendance was OREC’s very own Damian Kunko who gave a presentation on the current state of Marine Hydrokinetic Technology in the United States. For more information about the conference, visit Oregon Wave Energy Trust.

Damian Kunko Remarks to the Oregon Wave Energy Trust Conference

On September 26, 2012

Thanks for the introduction and inviting me to speak here at this great OWET meeting of the minds. As many of you know, I helped co-found the Ocean Renewable Energy Coalition in 2005. I have been lobbying for OREC and our individual industry members’ interests since then. OREC has over 60 members and is the leading advocacy organization in the U.S. for the promotion of ocean energy or MHK, Marine Hydrokinetics.

I want to share my perspective on how the nascent marine and hydrokinetic energy industry is working with our federal government’s senior leadership. I also hope to provide the lay of the land regarding OREC’s policy and federal funding initiatives in Washington D.C. and what challenges and opportunities we face in the U.S. The OREC team has been very active this year in our nation’s capital talking to Administration officials and Congressional staff about a lot of things – OREC’s technology roadmap, the DOE resource assessment reports, the DOE and U.S. Navy MHK R&D programs, the investments in marine energy made by our friends in Europe and across the globe, and what we can do to efficiently maximize available federal and private investments to capitalize on our significant MHK resources here in the United States. Investments that we know can build an industry and create thousands of jobs.

President John F. Kennedy once said that “All of us have in our veins the exact same percentage of salt in our blood that exists in the ocean, and, therefore, we have salt in our blood, in our sweat, in our tears. We are tied to the ocean. And when we go back to the sea – whether it is to sail or to watch it – we are going back from whence we came.” I think he was talking about a lot of our technology developers who have put in a great deal of blood, sweat and tears to get devices in the water. Kennedy also stated that “Man only needs to exercise his engineering ingenuity to convert the ocean’s surge into a national asset.”

Kennedy launched the U.S. space program in 1961 and committed around 4% of our GDP to getting a man to the moon within a decade. Those federal investments resulted in thousands of jobs and numerous technologies that changed our lives for the better – and get a man on the moon. So far, our nation has only committed around $175 million over the last 10 years to help develop these wave, tidal and current technologies – technologies that could meet up to 15% of our nation’s electricity needs. $175 million is less than the cost of one F-35 Joint Strike fighter plane or about a week’s worth of military operations in Afghanistan. To add more perspective on our spending habits, Americans are going to spend around $90 million on Halloween pet costumes this year.

So I’m going lay out my assessment, as frankly as possible, regarding the current status of the U.S. ocean energy industry: The good, the bad, and the ugly.

Good news, ORPC put their tidal turbine in the water last month making it the only grid-connected MHK device in the U.S. Verdant Power put a prototype of their commercial tidal turbine into the water over the summer. Bad news, our west coast tidal energy project in the Puget Sound is currently being held up by a foreign owned undersea telecommunications cable company. Good news, OPT is getting closer to deploying its commercial wave energy buoy into the water. Bad news, without more government and private investment – a utility Power Purchase Agreement would be nice, getting the next 9 buoys into the water will be a challenge. Good news, the OSU NNMREC mobile test berth is supporting the testing of a scale wave energy device from New Zealand. Bad news, we don’t yet have the funding for a grid-connected full-scale wave energy test facility in Oregon and most wave energy companies are looking to use the existing test facilities in Europe. The U.K is outspending the U.S. about 3 to 1 and counting the rest of Europe it’s around 4 to 1. Through an E.U. funded program, eligible European companies have access to these test facilities for free. Good news, there are three wave energy devices grids connected in the UK, so we know this stuff works; the bad news, major industrialMHK developers like Siemens, Rolls Royce, Alstom, Andritz, Hyundai, and others like Pelamis and Aquamarine are not here because they don’t yet see a market and they see unpredictable and somewhat disjointed U.S. and State government energy policies, funding support and incentive levels. I know of two wave energy developers from the U.K. that were looking to do a project in Oregon and decided to leave because of limited market pull mechanisms and a Territorial Sea Planning process that they feel will likely exclude the best sites for deploying their wave energy devices. So we take the good with the bad and consider this all progress as the industry matures.

With low electricity prices, thanks to relatively inexpensive hydropower and natural gas, in addition to the challenging regulatory environment, we have to ask ourselves whether the wave energy industry can eventually be competitive. I think it can, starting primarily in high electricity cost regions of the country. But until we figure out how and when to innovate our way to cheaper technology and manufacturing, improved regulatory and stakeholder processes, and federal government encouragement for wave energy, it will be an uphill battle. A battle that we continue to fight for our clients in Washington D.C. as we have made slow but steady progress on MHK policy and funding over the past eight years. For those that don’t know, in 2004, marine renewables or ocean energy wasn’t even recognized by our government as a renewable energy source. Through the efforts of OREC and our congressional champions, we were able to get Ocean Energy as a qualified, federally recognized, renewable energy source on par with other renewables in the Energy Policy Act of 2005. And more importantly, we were able to convince Congress to re-establish the Water Power R&D program in 2008 at the Department of Energy. By the way, the folks running the DOE Water Power program and the Navy MHK efforts are doing a great job with limited resources. If you see them walking around here at the conference, please tell them to keep fighting to help grow this industry.

We have been very active in lobbying Congress to provide stable funding for MHK R&D. A couple months ago, both the House and Senate Appropriations Committees took action to provide funding to the Department of Energy for the upcoming fiscal year. And the good news is that the Water Power program was the only renewable energy research area at DOE that was increased from the low President’s budget amount by both the House and Senate, while every other RE program was cut.

Even though the water power program in the President’s 2013 budget request was reduced by 66%, we are hopeful that the program will, at minimum, be maintained at the FY12 levels. The President is responsible for submitting an annual budget, but Congress has to implement a funding plan, which we call the appropriations process. Congress always has the final say on what gets funded and what doesn’t. For FY13, the House included $25 million for MHK R&D, and the Senate included $44 million which, after the two legislative bodies negotiate their bills, should be around what the FY12 funding level is – hopefully $34 million for 2013. Potentially, a great result in a tough budgetary climate. A result that is completely dependent on how our elections turn out.

In addition, we continue to push the Marine Renewable Energy Promotion Act in Congress which will re- authorize the Water Power program at DOE at a higher funding level, create a new adaptive management program, and give priority for a device verification effort which would help accelerate commercialization. It would also go towards further supporting the OSU/UW Northwest National Marine Renewable Energy Center. Good news that just last week, Portland’s own Congresswoman Bonamici, who speaks at tomorrow’s luncheons, signed on as a sponsor and we hope that she’ll help take the lead in the next Congress to get it passed. Additionally, there is also companion tax legislation that includes a 5 year depreciation schedule on marine and hydrokinetic assets – which is currently enjoyed by other RE technologies.

This legislation currently has 11 sponsors in the House and 6 in the Senate and we are hoping that some or all of the provisions will be included in any energy package that might move through the next Congress in 2013.

We are also working with members of both the Armed Services committees and Defense appropriators to include language that would help the Navy formalize its MHK R&D efforts and provide additional funding for these activities under the Navy Energy program office. We are encouraged by the cooperation between DOE and the Navy to help build out the scale device wave energy test site at the Kaneohe Marine Corps Base in Hawaii. The House Defense appropriations bill included $95 million for the Navy’s Energy Program and the Senate included $55 million in its bill. We would expect this to conference out at around $70 million for 2013.

As mentioned before, we don’t expect final action on our energy legislation, tax credit extensions, or appropriations until after the election. A critical election that will determine the fate of not just government support for MHK, but for all clean energy R&D programs.

Besides being the least productive Congress since 1947, our friends on the Hill have been holding politically charged hearings on the DOE loan guarantee and DoD clean energy investment programs and now are withholding support for extending the renewable energy tax credits. There is a serious movement, especially in the House of Representatives, to eliminate most government support mechanisms for renewable energy, which is of great concern to us. Just a couple months ago, there was an amendment in the House to eliminate all Renewable Energy R&D programs at DOE. 113 House Republicans voted for it. They also voted for more fossil energy support and the oil, gas and coal industries are geared up to advance their cause. It is obviously a big challenge for the whole renewable energy sector to convince Congress that we are part of the future.

This is a critical time and we can’t let all the progress we’ve made go to waste! This progress carries into a larger theme about how our Congress and the next administration plans to govern our country. If it’s a Romney administration, we can expect further cuts to government funding and incentives for renewables. If Congress doesn’t somehow fix the sequestration issue in the 2011 Budget Control Act, there will be an across the board cut of 9.4% to all discretionary government programs starting January 2nd, 2013. I think we all can agree that taking a hatchet to government programs, when they should be using scalpels, is no way to manage our country. If they don’t have a plan to deal with taxes, most tax rates will rise, the payroll tax cut will lapse, and most credit rating agencies will downgrade our country’s bond ratings. Most economists have done analysis on sequestration and this “taxmageddon” and the general consensus is that congressional inaction will raise unemployment and put our country into a deep recession. I’m hopeful that this will all get fixed after the election.

Besides getting to work and governing responsibly, the message we need to send to Congress and the Administration is this: Do we want to dig, drill and burn our way to our entire energy independence? Do we want to tap all of our homeland resources including our ocean energy potential? Do we want the technology to be developed here or will we have to eventually import it from Europe and Asia? I think we all know what the answers are.

For ocean energy to be successful, we need stable research and development funding, Department of Energy Lab support, and a testing infrastructure that can get devices, cost-effectively, into the water to see if they work. We need a clear, regulatory regime that treats this industry fairly. We need the environmental and fishing communities to help this industry grow as successor to a carbon emitting generation. We need technology development that builds upon success and demonstrates the viability and future of MHK. We need industry support, and our utility, shipbuilding, and even our more progressive offshore oil and gas friends, to

communicate a common agenda in Congress that promotes the industry as a whole. We need more projects in the water as soon as possible so we can show the elected officials we work with that additional investments are needed for MHK. If we can get electrons on the grid as soon as possible, it will be a victory for everyone here – and when we go up to Capitol Hill to ask for more funding, we can show them we’re on the pathway to commercialization. We need you to help us grow this industry! If you are an OREC member thank you, if you are not please consider joining today. The more voices we have in Washington, the more successful we can be. Thank you for your time and get out and vote in November! I look forward to your questions.