Clean Technology as a Service: Bridging the CapEx Barrier in Shipping

by Tuomas Riski, CEO and partner, Norsepower Oy Ltd , first published in Ship Efficiency Review, June 2016

Given shipping’s cyclical nature, any investment a shipowner or operator makes is a calculated risk, yet there can be few eras where this statement has rung so true as in the current marketplace. Freight rates and commodities remain in a state of flux and uncertainty and low bunker prices mean ROIs for efficiency technologies aren’t as financially attractive as they were just 18 months ago.

The consensus market analysis is that rates will rise as a slowdown in newbuilds and an increase in ship recycling takes hold, while crude, and therefore bunker prices, are also expected to rise over the near to long term. In the world of energy efficiency technology, this means that savings achieved will increase again and paybacks for fuel payers, including shipowners and charterers (that pay for 70% of bunker fuel costs) reduce.

In addition, there is a high probability that from 2020 and the introduction of the global emissions control area (ECA), that bunker fuel prices will rise significantly as vessels are likely to shift from heavy fuel oil (HFO) to cleaner, more expensive fuels such as liquefied natural gas (LNG) – shortening paybacks further.

For many shipowners and charterers focused on the day to day markets, medium to long-term planning is not on the agenda, however, despite arguments to suggest that it is good to plan further ahead. Investment in innovative solutions often requires a significant capital expenditure and in a risk-averse market for both owners and financiers – even for technology that has been proven in commercial operation by third-party verification – these stakeholders need to be able to share the risk and guarantee their investment.

Taking learnings from clean technology companies in other industries, Norsepower views “paying” for the technology as an old way of thinking. It relies on the idea of fuel savings technology being sold as a product; charging the fuel payer for initial outlay and installation. Conversely, Norsepower has introduced ‘Technology as a Service’, similar to other initiatives gaining traction in the industry. Rather than pay for a technology up front and install it on a vessel, costs are billed monthly at an amortised fee base on the achieved fuel savings – reducing the barrier to entry, and providing the added benefits of a service agreement rather than a one-off purchase.

The service delivery approach guarantees that the owner will not pay out unless the technology functions as promised, giving an added layer of assurance for Norsepower’s rotor sail technology on top of the verified and confirmed savings in active commercial applications already released to the market.

In order to achieve this, the technology company needs to demonstrate consistent savings based upon robust data, over a sustained period. The Norsepower Rotor Sail Solution is the first data-verified and commercially operational renewable energy-powered vessel technology for the global maritime industry. The first commercial application of the technology is installed aboard the MS Estraden, a 9,700 DWT Ro-Ro carrier. The vessel was installed with two of Norsepower’s smaller rotor sails which produce wind-assisted propulsion, and have been proven to reduce fuel consumption by 6.1%. This saving was measured and independently verified by NAPA, the leading maritime data analysis, software and services provider.

For interested owners or charterers, ‘Technology as a Service’, allows the shipowner or charterer to absorb the initial cost of outlay and invoice the customer based on current bunker prices and real-time measured fuel savings from an independent third-party measurement and verification software provider like NAPA or BMT.

The rotor sails are particularly suited for cruise, ferry, tanker, Ro-Ro and bulker vessels and can be installed without any off-hire time. In addition, they are fully automated to ensure optimal savings with limited crew training.

With charter rates for some shipowners failing to cover the running costs of vessels, the installation of Norsepower Rotor Sail Solutions – with proven renewable energy savings of up to 20%, and de-risked service model financing – could mean the difference between profit and loss.

The ability to harness the wind as an additional power source and enable a reduction in fuel consumption is a natural next step for shipping as it looks to play its role in transforming to the low carbon economy. The world’s first renewable wind energy powered vessels have arrived, but this is only the beginning of the journey.