SSI workstream - Accelerating the uptake of technology: Demonstrating the business case for new technologies and techniques


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SSI workstream - Accelerating the uptake of technology: Demonstrating the business case for new technologies and techniques

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SSI workstream - Accelerating the uptake of technology: Demonstrating the business case for new technologies and techniques

  1. 1. A step change in energy technology innovation and uptake
  2. 2. Challenge & vision Our approach Step change technologies • Findings • Recommendations Voyage Optimisation • Findings • Recommendations Pulling them together: towards a strategy for energy step change What’s next? Contents
  3. 3. Challenge & vision • The global shipping industry needs to achieve a step change in the way it uses energy, in the face of persistent energy price rises and the need for action on climate change • In our Case for Action in 2011 we noted the scale of the challenge: if the industry were to double in size by 2040, while playing its part in delivering global emissions cuts of at least 50%, it will need to cut its own emissions per tonne km by 75% • Incremental improvements will not be sufficient. We need an explicit, active and ambitious programme to shift industry energy efficiency. No one technology or technique is likely to do this alone; we will need a portfolio of technologies, operational approaches and a diverse mix of energy resources, which may apply differently to different ship types and trades • There are new technologies and techniques promising the double digit efficiency gains we need, but they often face difficulties being taken up at scale • This work stream aims to identify key opportunities and barriers associated with the innovation and uptake of new technologies and operational techniques. Together, we aim to accelerate the pace of change and identify ways of overcoming the barriers
  4. 4. Summary of the work stream The SSI wants to see widespread uptake of step change technologies and techniques that reduce ship energy consumption and dramatically cut greenhouse gas emissions. We have developed real world case studies which demonstrate: • There are step change technologies that offer the potential for cost effective double digit cuts in energy consumption, but many are stalled for the sake of fully scale trials • Collaboration works and is key to managing risk and unlocking potential • Supporting startup companies is key • Slow steaming still offers unrealised potential.
  5. 5. Our overall approach
  6. 6. Our overall approach The workstream has focussed on real technologies and techniques in its work, rather than on generic processes or barriers, in order to understand real-world challenges. We have focussed in parallel on two different approaches to a step change in energy use: • Step change technologies offering significant energy savings which are at, or nearly at the demonstration stage rather than proven technologies which need to scale • Voyage Optimisation (VO) techniques which may not lock in such significant efficiency gains, but are more flexible, have lower barriers to entry and may therefore be easier to scale. Techniques: Voyage optimisation including, weather routing, virtual arrival, slow steaming, trim optimisation. Barriers to entry: low Applicability to fleet: moderate-high Maturity: moderate Ambition: moderate Step change technologies:  Air lubrication  Wind assistance Barriers to entry: Moderate-High Applicability to fleet: moderate Maturity: Low Ambition: High (analysis from SSI Energy technology workplan, 2012)
  7. 7. Step change technologies: Findings & recommendations
  8. 8. Identifying promising step change technologies The workstream carried out research into and analysis of the range of technologies and techniques available to the industry to improve energy efficiency. This analysis included savings claimed, potential financial performance, applicability (retrofit/new build, ship type), and maturity. Based on the analysis, we identified two technological areas of focus: • Wind assistance such as kites and rotors • Air lubrication of hulls to reduce propulsive power needed. Again there were several potential suppliers Step change technologies
  9. 9. What we did SSI members subsequently evaluated the potential of step change technologies for specific vessels: • Air lubrication: DK Group Air Cavity System (ACS) and another technology • Wind assistance: a Flettner rotor system and Skysails (propulsion kite). Work on Skysails was based around a pre-existing relationship between Cargill and Skysails In each case one or two SSI members worked with the supplier to develop our understanding of the potential offering, and evaluate how the technology could work for their own operations, including risks arising and potential financial performance. This enabled detailed analysis of probable savings from the technology, and development of financial indicators in service. Some trials data was also reviewed by Lloyds Register. Step change technologies
  10. 10. Summary findings • The step change technologies we looked at do indeed offer the potential for double digit cuts in energy consumption, and can be cost effective, with some indicating payback times of 2 years or so • But many are stalled for the sake of full scale trials to prove savings • The start up nature of many of the companies offering these innovations adds additional challenges. Step change technologies
  11. 11. These step change technologies offer the potential for double digit cuts in energy consumption Technology Literature estimates pre SSI* Fuel savings indicated by SSI case studies Basis Air lubrication DK Group ACS 10-15% (tanker/bulker) 5-9% (container) 10% (bulker) Tank testing witnessed by GL, data reviewed by Lloyds Register Mitsubishi MALS Up to 10% depending on vessel type, speed & draft. 7% at light draft 2% at scantling draft Cost benefit analysis for new building vessel for delivery 2015 Wind assistance Flettner Rotor >15% (supplier expectation) Not yet available, work on- going Skysail 10-35% 20% Cargill analysis of weather vs. trading patterns * unless otherwise indicated literature claims are from Ship Effiiciency: The Guide. Fathom Shipping 2012 Step change technologies
  12. 12. … and can be cost effective One technology, the DK Group ACS (Air Cavity System), was taken through financial analysis by two SSI members. These members derived similar results – that the technology, if it performed in line with the case study results, would deliver an acceptable payback time of 2-2.5 years. In addition, prior to SSI an investment decision had already been made by Cargill for the Skysail. This is expected to be deployed at sea Q4 2013. The SSI members will then be able to analyse the full in-service testing data. The MALS system was not taken through the same analysis. While the MALS system has been shown to be effective for shallower draft, broad beamed vessels, for the SSI member the subject vessel’s deep draft and mainly fully laden operational profile were not ideally matched to the system’s strengths and the cost effectiveness of implementation would have been marginal at best. Step change technologies
  13. 13. But they are stalled for the sake of full scale trials to prove savings Despite these mainly positive findings on savings and payback, our members have not yet been able to make a new investment decision for any of these technologies. One reason is performance risk: the nature of these technologies, involving complex air and water flow, means that even the best tank testing and computer modelling can only offer so much, and the real performance of the technologies can only be proved by full scale trials. An investing owner/operator therefore has to take the risk that the technology does not perform in line with tests and so does not deliver savings which justify the investment. While the potential reward, if scaled across a fleet, might be considered large compared to the investment cost of a trial installation (eg of the order of $1m), it has to be remembered that, in the current depressed shipping market, investment tends to be in tried and tested technologies. By comparison operational risk, the risk that the new technologies might impede the delivery of goods/services to customers, did not emerge as a major problem. This critical demonstration/risk barrier is often known in technology development circles as the “Valley of Death” Step change technologies
  14. 14. The startup nature of many of the companies offering these innovations adds additional challenges With the exception of Mitsubishi’s MALS, all the case study technologies were offered by start up companies dependent on one product. This raises the following potential challenges: • These companies often find it difficult to fund testing, moving their product from drawing board to test tank/ computer modelling, and into trials • They may not have enough capital to offer cut price “first mover” deals as a way to profile, prove and refine their technologies – a way of overcoming performance risk, and gaining market penetration • They may not have enough experience to know what information is needed by potential customers at the various stages of technology evaluation and investment, or how to work up investable business proposals with them. Step change technologies
  15. 15. Case study findings: Air lubrication Technology description, supplier DK Group ACS Air Cavity System (ACS) is an air hull lubrication system that reduces drag on the flat bottom of a ship using a series of air-filled cavities fitted to the flat of bottom which create a stream of micro-bubbles as a result of the vessel’s forward motion through the water Applicable to both newbuilds and retrofit. Literature quoted savings of 10-15% (tanker/bulker)l; 5-9% (container)* Mitsubishi MALS Air hull lubrication Compressed air from a blower is released through a series of openings in the forward flat bottom of the vessel to form a carpet of air bubbles which reduces the frictional resistance between the hull and sea water. Literature quoted savings of up to 10% depending on vessel type, speed and draft* Case study Company Case study process Under auspices of SSI:  Conclusion of joint NDA between DK Group, Gearbulk, Bunge, LR.  Access to and evaluation of test data conducted by HSVA  Further data review by LR as part of SSI  Development of MALS cost benefit analysis for planned 62500t vessel.  Meetings with management  Development of performance estimates for 63000t Gearbulk vessel  Meetings with management  Secure owner who would host (but not pay for) initial trial  Negotiation around alternative financing arrangements  Investment proposal Headline results: technical, financial  Fuel saving: 10% scantling draft, more at lighter drafts  Payback: 2.5 years  Cost: €1.1m  Fuel savings: 10% (bulker)  Payback: 2 years  7% at light draft (bulker)  2% at scantling draft Investment decision/ reasons Not able to proceed.  Implementation limited to a few yards, outside normal locations, due to IPR concerns – substantial additional drydock/deviation costs  Performance risk could not be reduced sufficiently without full scale trial. Not able to proceed.  Performance risk could not be reduced sufficiently without full scale trial  No alternative financial arrangements available  Greatest benefits for vessel in ballast  Gearbulk’s mostly fully laden operational profile would therefore not allow it to gain the maximum benefit from the technology. *unless otherwise stated, quoted savings are taken from the Fathom Shipping guide Case study findings are specific to the SSI member companies, their vessels and operations. Other applications of the technologies may get different results. Step change technologies
  16. 16. Case study findings: Wind assistance [insert full page table] Technology description Flettner Rotor Wind assistance technology that uses the Flettner rotors and the Magnus effect to help drive the vessel. Suitable for both retrofit and newbuild. Supplier expectation of >15% saving Skysail Wind assistance technology using a large automated kite to help tow the vessel. Literature quoted savings of 10-35%* Case study company Case study process (bullets)  Involvement of SSI members LR and Namura involved in evaluating design and integration into ship structure.  Results not yet complete – draft business case under review.  Frequent visits to supplier  Close liaison between vessel owner (on long term charter), Cargill and technology supplier.  Inhouse analysis of weather vs trading patterns  Fit with Business Unit and Corporate Responsibility goals  Purchase and retrofit of Skysails system to handy size vessel  Implementation of comprehensive MRV approach in trail vessel to ensure accurate baselining of performance. Headline results: technical, financial  Not yet confirmed  20% Investment decision/ reasons  No decision yet  Decision to proceed.  Implementation expected Q4 2013. Cargill are paying full cost of system. *unless otherwise stated, quoted savings are taken from Ship efficiency: the guide, Fathom Shipping 2012. Case study findings are specific to the SSI member companies, their vessels and operations. Other applications of the technologies may get different results. Step change technologies
  17. 17. Recommendations We have identified the following critical needs to enhance shipping energy technology uptake, which are candidates for SSI action in the next phase: • Risk management: crossing the “Valley of Death”. Shipping faces a similar barrier to that identified in land based clean energy innovation (below). Our work found the commercialisation (or demonstration) valley to be the key barrier, rather than the technological (or proof of concept) valley • Supporting technology suppliers – especially start-ups Bridging the Clean Energy Valleys of Death, Breakthrough Institute, 2011 Step change technologies
  18. 18. Recommendation 1: Horizontal risk sharing We recommend further work on the following risk management approaches, to help the industry cross the energy technology demonstration “Valley of Death”. “Horizontal” risk sharing – i.e. industry peers share both the investment and the performance findings for one or more step change technologies. This could be considered as a “technology club” of owner /operators. Technology trials could be carried out on a one-off basis where several interested owner/operators share the cost of implementation on one ship, and then share the results. Alternatively a group could test a basket of several technologies, sharing all the results. Advantages include: • increasing the chance of a successful outcome • Our experience is that collaboration increases confidence, and speed of assessment Barriers and potential solutions include: • Intellectual property: SSI members dealt with this successfully using a group NDA approach as part of this workstream • Comparability: a technology club would work best for members with similar vessels/operations • Split incentive*: this barrier is avoided for integrated owner/operators. Equally a technology club could be combined with the SAYS model (SSI Finance workstream), which is a form of vertical risk sharing (see below) Step change technologies *Split incentive occurs when the benefits of a new technology eg in fuel savings to charterer do not accrue to the party who makes the investment eg owner. This barrier has been addressed by the SSI Finance workstream, resulting in their SAYS (Save As You Sail) financial model
  19. 19. Recommendation 2: Vertical risk sharing “Vertical” risk sharing – i.e. technology suppliers and shipping technology customers collaborate on sharing risk, potentially with the participation of other relevant players like financiers and class societies. Approaches include: • First mover deals, and performance guarantees: These are the best established sales aid approaches for innovative products, suitable for suppliers with the financial resources to offer them and deliver on guarantees. However, many new technological innovations, including all but one of the technologies investigated by the SSI, are from startups who lack these resources • Financial collaboration such as equity participation by the first mover customer, or an equity for technology deal. This helps provide a startup company with finance in return for supply of the technology to the customer/investor, and of course the customer then gets to share in any subsequent financial success by the startup. The barriers to this approach are that a) shipping customers, being relatively risk averse, do not see themselves as venture capitalists either, and b) the startup shareholders may not wish to dilute their shareholdings. One of our members suggested equity participation in a startup as part of a deal for the first implementation of their technology, but this was not taken up • Third party guarantees: even if a startup cannot offer performance guarantees on their own account, there may be others who will, if they are in possession of enough information about the technology. Insurers should therefore be involved in work in this area Step change technologies
  20. 20. Recommendation 3: Supporting technology suppliers Supplier checklist • Based on our case study experience, we have developed a checklist and innovation flowchart for suppliers in preparing for and working with potential technology buyers (see Resources). Buyers group • There is the potential for a “one stop shop” grouping of shipping industry buyers seeking step change technologies, who can act as a focal point for technology suppliers, share data and provide feedback etc. This could dovetail with a horizontal risk sharing group as in recommendation 1. However, scope would have to be set carefully to minimise resource requirements for the Buyers Group companies. R&D Proof of concept Business proposal Pitch preparation Commercialisation Pilot / demonstration Step change technologies Innovation process summary. An expanded version with key supplier / client actions required, will be available as the
  21. 21. Other approaches The following also have potentially important contributions to make, although their development is likely to be led by other bodies than SSI. • Grants or other 3rd party funding for demonstrations of technologies • Market Based Measures : These have far reaching consequences beyond demonstration stage technologies, and are of course already in established discussion in key industry fora such as IMO Step change technologies
  22. 22. Voyage Optimisation Findings & recommendations
  23. 23. What we did • Objective: establish to what extent Voyage Optimisation (VO) measures are a worthwhile focus in reaching the SSI vision of a step change in energy performance • Our Voyage Optimisation focus included slow steaming, virtual arrival, weather routing and trim optimisation. However, slow steaming (and virtual arrival as an enabler) is the only one to promise step change potential and a key focus was assessing benefits, remaining potential and barriers • Our start point was a detailed case study analysis of VO implementation, energy savings and barriers for one member, BP Shipping • This was followed by a summary assessment of VO implementation, savings and barriers for our other owner/operator members: Bunge; Cargill; Gearbulk, Rio Tinto and U-Ming. This included specialist analysis of some of the data to filter the impacts of local sea and weather conditions Voyage optimisation
  24. 24. Summary findings • Implementation of VO measures may be falling short of its potential, with a range of barriers keeping implementation of slow steaming in particular down to a minority of many fleets • Slow steaming is a special case: SSI members reported data indicating significant energy savings where implemented, but a range of barriers mean that implementation levels are in many cases below 50% • There is reasonable source data availability, but potential for more and better analysis to ensure adequate understanding of VO benefits • There are significant and legitimate concerns over the “lock in” potential of slow steaming in the face of changing market conditions • Slow steaming will not be commercially viable for all vessels or voyages. But with energy savings potentially double (or more) those of some “step change” technologies, maximising the potential of slow steaming, and measures to lock them in, are too good to pass up and should be a priority for the industry • For other VO measures except slow steaming and virtual arrival, energy savings are hard to separate out from wider operational variances. Nevertheless their low cost and cumulative effect makes further action worthwhile Voyage optimisation
  25. 25. Implementation of VO measures may be falling short of potential • VO measure implementation by our members is broadly in line with industry rates, apart from slow steaming, which is being used to some extent by all our members. • However, a range of barriers (next page) is limiting slow steaming to a minority of voyages in many cases. This means there may be significant unrealised potential. Voyage optimisation Measures used/ performance SSI members % Industry with some implementation * 1 2 3 4 5 6 Weather routing ● ● ● ● ● ● 75% Virtual arrival ● ● 50% Trim optimisation ● ● ● 55% Slow steaming 40% (of voyages) 25% (of vessels) 20% (of voyages) 45% (of sea days) ~75% (of vessels) 60% (of sea days) 55-75% (of companies) Fuel savings with slow steaming (estimated) 16% n/a 16% n/a 10% (for whole fleet) 39% 19-36%** Notes • Analysis based on at least a year’s recent data for all voyages reported by members. Additional analysis in some cases. Baseline approach for savings may vary: both standard speed/consumption rates and calculated baseline filtered for other factors have been used. Therefore savings data is not directly comparable between companies. • * Survey data from UCL Energy Institute, 2012. Data is % of respondents implementing to some level, not necessarily % vessels/voyages • **IMarEST 2010, quoted by Fathom guide, for 10 and 20% speed reduction. • Dot sizes indicates wider implementation vs. small scale/trial
  26. 26. Slow steaming is a special case • The energy saving potential of slow steaming is well known and our findings suggest SSI members are achieving indicative savings of 16-39% when doing so, in line with industry estimates • With slow steaming still only applied to a minority of many fleets, there is still major unrealised potential, including potential from Virtual Arrival • These savings are being realised under current market conditions and exceed those available from other technical solutions. Increased freight rates could wipe them out, and increase industry CO2 emissions significantly. But given the urgency of action on climate change, they are a valuable short- medium term contribution • Our work found difficulties in deriving implementation and savings data, with different approaches and existing data going unused. The industry needs a more accurate understanding of savings, to maximise potential. This approach will also benefit understanding of other VO measures Voyage optimisation Speed/CO2: Smith et al. (2011) • The challenges in identifying true savings include: • Measurement and reporting errors • Defining the baseline: what is the “normal” speed? E.g. standard vessel fuel consumption data vs. a “counterfactual” analysis which estimates what the vessel consumption would have been in the real weather sea state conditions prevalent • Depending on market conditions, slow steaming may require more vessels in a fleet, which may involve additional embedded carbon
  27. 27. Slow steaming (2) • The most significant barriers to scaling slow steaming are*: • Charter parties • Logistical constraints (e.g. navigation, tides etc, customer needs) • Monitoring, reporting and verification (MRV) limitations undermining robustness of savings data • Technical limitations (engines) and commercial viability (fuel saved vs. vessel cost) • Virtual arrival (Just in Time arrival) allows a vessel to slow steam to meet a port schedule, and as such is less vulnerable to market conditions. BP Shipping has pioneered this approach and developed charter party clauses (see Resources) to help scale. Virtual Arrival has been effective for 1% of BP voyages, delivering fuel savings of 14% for those voyages Voyage optimisation * Identified by both SSI members and industry survey (UCL, 2012)
  28. 28. The performance of other VO approaches needs further work • As part of the workstream we looked at members’ use of other VO approaches, principally Weather Routing and Trim Optimisation • Weather routing (WR) is the most widely used. However members have not been able to definitively relate fuel savings to WR, and fuel saving is often not its main purpose, with safety, cargo care and performance claims also key considerations • Trim optimisation is only in limited/trial use by members: • Literature sources suggest savings generally 1-5%. • There are some technical barriers which may need to be addressed, such as changes in vibration and crew comfort. Conclusions: • These measures arguably do not amount to step change techniques. • However, they are relatively low cost with a cumulative effect, and not subject to the same market vulnerabilities as slow steaming. • The same Monitoring, Reporting and Verification (MRV) focus recommended to maximise slow steaming potential will enable better identification of other VO benefits Voyage optimisation
  29. 29. VO Recommendations With industry leaders achieving 75% or so but many others well below 50%, it is clear more can be done. The key measures to achieve this are: • Better analysis of vessel data, to get clarity and precision on implementation and savings. In many cases the data is there already, but needs consistent analysis and better baselines. This may be a suitable activity for the next SSI phase, and may be supported by: • Standardisation of reporting structures will contribute to this process: this may apply both within and between fleets. BP Shipping is already implementing this measure • The EEOI* as a consistent format for actual data (but not baselines) • Charter Parties need to be reviewed, to allow the addition of clauses which aid the use of slow steaming, Virtual Arrival etc. (see Resources for BP clauses) Voyage optimisation * EEOI: Energy Efficiency Operational Indicator, developed under IMO auspices
  30. 30. Pulling them together: How might step change technologies and VO combine? • Combining step change technologies and VO techniques may be more complex than just “do both” • While step change technologies may offer significant locked-in efficiency improvements, they have a significant capex requirement, and may face “rebound” effects – e.g. where an operator takes the benefits in higher speed rather than reduced fuel use, as the enhancements may benefit from higher freight rates: • VO techniques have a much lower barrier to entry. Slow steaming may offer benefits of 20% or more, perhaps exceeding those of step change technologies • But these benefits are not locked in, and may be abandoned in different market conditions • Therefore the optimum choice between step change technology, VO or a combination of the two is likely to depend on vessel/voyage including age, and market conditions • We have not tested interactions between the two approaches in the workstream, but as they move to scale, the industry needs to consider these interactions Step change technologies Voyage optimisation
  31. 31. Pulling them together: towards an integrated strategy for energy step change • There are potential interactions between step change technologies and VO, as outlined in the table • An integrated strategy would therefore need to prioritise investment and VO application, e.g: 1. All vessels use VO techniques to some extent, given low barriers to entry 2. Step change technologies may be most appropriate for the newest vessels and fastest routes; whereas: 3. Slow steaming could deliver the greatest benefits for older vessels with higher fuel consumption 4. There may be particular interactions – e.g. combining wind assistance with sophisticated Weather Routing Developing such a strategy is likely to be a future need after proving the capabilities of step change technologies. Possible interaction with step change technologies Slow steaming  Technology delivers benefits but absolute financial savings may be smaller than at standard speeds  Enhanced energy technology may increase vessel value / freight rate, reducing or eliminating financial benefits of slow steaming. Virtual Arrival  As for slow steaming Weather routing  WR likely to be key to optimum performance of renewable technologies like wind, solar. Trim optimisation  Some technologies may have specific trim needs. Synergy or cannibal? Possible interactions between step change technologies and voyage optimisation techniques Step change technologies Voyage optimisation
  32. 32. What’s next?
  33. 33. Next steps The following actions are already under way: • Cargill Skysail implementation due in Q4 2013. Full before & after data will be made available to SSI members. This is the kind of critical “first mover” action that can transform technological uptake in the industry • Completion of investigation of Flettner rotor technology. Rio Tinto is reviewing the technical and business case and subject to satisfactory completion will move to a trial installation. If so test data will be shared with SSI members • BP Shipping is implementing measures to standardise reporting structures, identified as a result of the SSI VO case study Candidate collaborative actions for the next SSI phase: • Development of vertical or horizontal risk sharing approaches • Development of more sophisticated, consistent voyage data analysis to improve understanding of VO savings. This may not require collection of additional source data from vessels
  34. 34. Resources • Case studies in technology evaluation created by SSI members • An evidence base for voyage optimisation • Supplier checklist and technology innovation process • BP Shipping Virtual Arrival clauses • Full performance data for the Cargill Skysail will be shared with SSI members after its implementation in late 2013 To access the resources visit To express interest in the SSI contact
  35. 35. Thank you Prepared by Rupert Fausset and Ben Ross of Forum for the Future