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Ocean Power Technologies, Inc. (OPTT) Is “One To Watch”

|Includes: Ocean Power Technologies, Inc. (OPTT)

Ocean Power Technologies has developed what is arguably the most impressive utility-scale wave energy harvesting system on the market today, the PowerBuoy®, as an array deployable solution for producing hundreds of megawatts of endless clean energy directly from a given patch of the ocean's waves. With a track record of successful deployments here in the U.S., starting with standalone unit prototyping off the shore off Atlantic City, New Jersey back in 2005 through 2008 and progressing to the Oahu, Hawaii deployment in 2009 to 2011 of a grid-connected utility PowerBuoy at Marine Corps Base Hawaii (Kaneohe Bay), OPTT has rapidly established their proprietary wave power designs at the very forefront of the industry.

The Autonomous PowerBuoy (NYSE:APB) design offered by OPTT is very interesting as a power and operational platform solution as well, presenting a single node design for advanced defense-related maritime surveillance and communications, as well as tsunami or other weather detection functions, or even for discrete scientific study applications and commercial fish farming. Success with this design was demonstrated as early as late 2011 with the US Navy's Littoral Expeditionary Autonomous PowerBuoy (LEAP) program deployment of an APB 350 system off the coast of New Jersey. The LEAP deployment tied into the land-based radar network operated by Rutgers University that does ocean current mapping for NOAA (National Oceanographic and Atmospheric Administration) and provided superb benchmarking of the APB's capabilities for persistent remote ocean power, in this case serving as a vessel detection platform. This is just one striking example of the remote power at sea platform applications possible for these smaller APB systems and investors should take note of how well the company has the overall playing field covered between their APB solutions on the one hand and their utility-scale array deployments of the larger PowerBuoy systems on the other.

The recent (reported Oct 1) in-ocean demonstrations of an APB-350 Autonomous PowerBuoy integrated with an acoustic sonar system, as part of a program with the U.S. Department of Homeland Security, heavily validated the company's APB approach for maritime surveillance applications and, given the simplicity of PowerBuoy installation, as well as the rugged, simple steel construction, APB solutions look to be a real winner in this particular category. Both sensor platform and power generator in one, such APB systems could close the net on multiple maritime security concerns and this entire vector will be an increasing source of revenue for OPTT outside of the more obvious, scalable 100+ MW arrays used for generating grid-connected power.

The company's first deployment of their upgraded utility-scale Mark 3 PowerBuoy system (866 kW peak generator) was done in early 2011 off Scotland's North East coast and everything went extremely well, from power take-off system performance to the robustness of the unit's structure and mooring design. Results of these sea trials vastly exceeded expectations and output from the unit itself peaked over 400 kW, pulling on average 45kW on waves as low as six and a half feet. Energy conversion efficiency of the PowerBuoy take-off system was demonstrably above expectations, especially considering the irregularity of ocean/wave conditions and this testing also confirmed OPTT's ability to correctly predict unit performance levels to within a high degree of accuracy.

DOE has graced the Mark 3 PowerBuoy with highest-rated wave energy system for commercial readiness status (TRL 7-8) and whether we are talking an APB 10 MicroBuoy (10 W) or the upcoming utility-scale Mark 4 PowerBuoy, these systems have already established a glowing reputation. The company landed a $1M award from DOE just two months ago (reported Sept 9) to advance the float and spar design of the PowerBuoy, advancing the cost/efficiencies (primary end points are to maximize power-to-weight output ratios and bring down installed capital costs) of the system even further as they approach broader commercial deployment volumes; again marking a clear indicator for investors of underlying receptivity to this technology in general and OPTT's systems in specific.

One of the best aspects to the company's designs is the use of conventional, well-established mooring systems, a fact which has proven essential to overall robustness in the face of punishing ocean conditions. The Mark 3 PowerBuoy structure and mooring systems have received certification by renowned independent assurance firm Lloyd's Register for survivability in harsh wave conditions. Moreover, the company's design approach lends itself naturally to fabrication of the core structural and mooring components at or near the deployment location, something which is essential to the cost-effectiveness of rolling out such technology.

Taking the same hardcore approach to prevailing design as executed in previous incarnations of their proprietary technology, OPTT has set out to make their next generation Mark 4 PowerBuoy, the PowerTower™ (engineered around a 2.4 MW peak generator), the king of all systems built so far and they are backed up by the UK Government as well as our own DOE for several of the developmental stages. The Mark 4 takes everything the company has learned so far and kicks it up a notch, sweetening the cost/performance metrics of utility-scale grid-connected arrays even further.

DOE has been extremely bullish on wave power for quite some time now and their 2011 EPRI-assisted (Electric Power Research Institute) report, driven by NOAA's extremely dense Wave Watch III database, conservatively indicated that as much as 15% of total electrical demand within the U.S. could be satisfied by deploying wave power arrays on coastal wave and tidal stream energy, mapped out to 50 nautical miles from shore. The Mark 4 PowerBuoy would significantly expand the available market areas for the company's utility-scale solutions and dovetails nicely with DOE's own ambitions. The company's patented technologies form a strong IP position for OPTT moving forward and with coverage on many aspects of the design from electronics and energy conversion to hydrodynamics and computer control systems, shareholders stand to benefit mightily in coming years as technology adoption advances.

Some recent success stories for OPTT shed ample light on where this company is going as well. The major contract announced at the end of last month (Oct 31) from world-class maritime industry fabricators, Mitsui Engineering & Shipbuilding, valued at $2.6M, rounds out the collaboration between the two companies and will quickly see a PowerBuoy at sea in early 2015, testing the local conditions off the shores of Japan. This major contract follows preliminary work completed earlier in the year and was provided under an agreement between the two companies that will eventually place OPTT systems into utility-scale power production throughout Japan, as well as in six other international markets. Once again the cost metrics of OPTT's design shine through here, as Mitsui will be handling fabrication of the primary structural element, the spar, as well as a significant portion of the PowerBuoy system, while OPTT primarily handles the power take-off component.

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