The business model for a Wave Energy Park is structured around a three key players: 40South Energy Group, the Machine Owners and the Park Owner.

The machines are installed in a Wave Energy Park, and the Wave Energy Park owner is the focal point of the business model. The machine owners can be a financial institution, and can be even located on the opposite side of the Earth with respect to the Park, while the Park owner needs to be locally involved. 40South Energy Group administers monitoring and second level Operations and Maintenance.

Approach process

The process is as follows:

WAVE ENERGY PARK PROMOTER The potential park owner contacts 40South Energy, with a general idea on the possible location for a Wave Energy Park (WEP for short)  and an expression of generic interest in the setup of this economic activity

PRELIMINARY FEASIBILITY STUDY 40South Energy makes a preliminary feasibility assessment, identifying more specific locations where it is technically viable to install the WEP, and performs a preliminary economic estimate of the productivity and economic productivity of the activity.

FEASIBILITY STUDY If the numbers match with the promoter’s expectations, a mandate for a more in-depth feasibility study is given to 40South Energy. This more in-depth study will include a preliminary Impact Assessment, a preliminary installation and O&M cost estimate, a preliminary legislative roadmap and a preliminary profitability estimate for the machine owners and for the Park owner.

MACHINE OWNERS, PARK DEVELOPER AND EPC CONTRACTORS Using the documentation prepared by 40South Energy, the promoter (with the support of 40South Energy if required) looks for parties interested in installing their own Wave Energy Converters in the forthcoming WEP, and signs with them preliminary agreements containing all the economic conditions. It also looks for a Park developer (which could coincide with the promoter), a Park operator (which could again coincide with the promoter) and EPC contractors (which could in part coincide with 40South Energy) which will build all the components of the WEP. The Park developer sets up the project, including its financial structure, and helps the potential machine owners (if required) in structuring their side of the deal from a financial point of view.

CONTRACTS With a complete set of preliminary documents, the WEP promoter signs the development agreement with the Park developer, the EPC contracts, the O&M agreements for first level maintenance (with the Park operator) and second level maintenance (with 40South Energy), and signs the initial contracts with the machine owners (which can be leasing agreements with financial institutions) and the financing packages where present. In parallel 40South Energy signs the sales contracts with the machine owners.

CONSENTING PROCESS AND MACHINES CONSTRUCTION The consenting process is started, and in parallel the WEP construction is initiated. This process can take between 4 months and 18 months depending on the specific jurisdiction. In the meantime, once the key development milestones for the WEP are reached, 40South Energy builds the Wave Energy Converter(s) which will go in the WEP.

FIRST ELECTRICITY is produced, and the WEP is ready to accept further machines (in case it was built with spare capacity)

Business case

The Internal Rate of Return (IRR) of the investment is different between the machine owners and the park owner, because they have different risk profiles and different capital requirements. Typically the machine owners can be individual or companies, using bank loans to leverage their equity, or leasing companies. The Park owner can be moved by either one or both of the following goals: to start an anticyclical business activity, or to supplement a lacking energy supply. In either case, the typical figures are entrepreneurs, enterprises or local authorities. It should be stressed that the machine owners can be completely separated from the local reality (they could be a financial institution on the opposite side of the Earth), while the Park owner needs to be based locally, and needs to know the dynamics of the local communities on which the Wave Energy Park has an impact.

The IRR for the machine owners will typically vary between 7% and 15%, depending on the risk profile of the WEP; for example, in certain developing countries it might be possible to obtain World Bank guarantees, which will lower significantly the risk. The risk profile of the WEP depends also on the logistics of O&M, on the financial solidity of the Park owner, and on the margin that it can extract on the WEP activity. Typical IRR for the Park owner are between 15% and 30%.