global opportunities in wind power

Frost & SullivanFrost & SullivanWind Power – Overview and Opportunities Wind Power – Overview and Opportunities

Helping Our Clients Accelerate GrowthThrough Best Practices in

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February , 2012

Table of Contents

1. Introduction to global wind power industry2. Drivers and recent changes 3. Competitive landscape: recent changes and 2012 -2013 predictions4. Value chain and adjacent markets5. Major technology developments 6. Concluding remarks

Asia, mainly, China has become #1 region for new installations and will continue to increase its capacity

Frost & Sullivan Conclusion:• Aggressive growth in installed capacity during last few years made China #1 market for new installations, the

government goals and plans will continue to drive new additions • The US is a “stop-and-go” market due to the policy mechanisms • Europe is still an important region for off-shore wind power development, leading the global industry in number of

installations and technology development

New annual installed capacity in MW, 2003-2010

2003 2005 2008 2010

5,440 6,339 8,641 18,956

2,608 2,424 8,351 9,307

1,685 1,799 6,298 5,021

1,372 1,765 1,737 2,140

408 1,430 1,655 1,527

99 502 1,595 1,438

Source: GWEA, 2011

Major market drivers for wind energy: long-term need is intact…

Frost & Sullivan Conclusion:• The long-term demand for renewable energy is likely to stay on the political agenda, thus giving at least some

certainty to investors and the industry • Wind power as the most mature large-scale renewable energy technology has a good chance to withstand the

current headwinds. More so, the cost of wind electricity is nearly on par with conventional power

Wind energy market: key drivers and restraints, 2011-2012 Availability of grid infrastructure enables integration of wind power in the European power system

Demand and supply imbalance of energy is driving effort for energy independence

EU 2020 target to meet 20 per cent of energy needs from renewable sources by 2020

Wind power generation technology advancement

Growth Drivers

Market Restraints

Lack of expertise in offshore wind technology

Weaker demand for wind energy leading to overcapacity in the market

Financial crisis has resulted in stricter lending terms, causing project financing issues

Planning and bureaucratic issues delay project permits and executions

Source: Frost & Sullivan, 2011

…short-term: declining macro environment - the cost of funding has increased

Strained national budgets; widening debt crisis in Europe

ASP pressure from ongoing supply/demand mismatch

Fiscal constraints

Demand is shifting globally from Europe to

Asia

Growth is slowing down

Factors of Influence New Market Trends

Heightened emphasis on bankable, qualified products and capacity

4

1

2

3

Revisions of renewable energy subsidies

Rising finance costs

Emergence of new players: “buy Chinese, borrow Chinese”, corporations

Exit of lower-tier players, consolidation of industry

Access to R&D and latest technology becomes vital

Frost & Sullivan Conclusion: While the new capacity additions will be curtailed in the near term (2011-2013), we still see significant longer term opportunities for wind energy worldwide based on country targets for clean energy and long-term demand. At near term, fiscal tightening aimed at alleviating the EU sovereign debt levels could impact subsidies at the time when the private sector is only starting to emerge as a source of funding.


Current policy developments increasingly put risk on subsidies

Key Wind Markets, Annual Installations MW, 2011-2012

\

Country Policy Development Impact on Wind

France Wind support hasn’t been changed, contrary to solar

Spain

Proposal to cut FIT by 35%, plus other measures translating into insufficient returns

UK

New system based on long-term fixed contracts is proposed, which may reduce return for wind farms.

GermanySolar FIT reduced, proposal to cap the market, Wind still supported.

US

Fed cash grant expires in Dec, Fed budget for clean energy programmes cut by the US Senate.

Neutral

Negative

Positive

India

1,460

2,900

EuropeUSA

5,000

6,000

4,000

China

2011 2012 Annual installations, MW

9,300

9,600

Frost & Sullivan Conclusion:The market conditions are putting extra pressure on the wind OEMs to reduce prices and bring wind power on par with conventional electricity

Note: The graph is not drawn to scale

Note: All figures are rounded. Source: Frost & Sullivan, 2011

19,000

17,000

Competition is fierce, the Chinese has got global ambitions

Cumulative installed capacity by manufacturer, 2010

Frost & Sullivan Conclusion:• Having inundated domestic market and running from the upcoming industry consolidation, the biggest Chinese

wind OEM announced plans for global expansion • While they managed to win a few contracts lately, it’s early to talk about the upcoming Chinese dominance similar

to the solar industry • Expansion by buying approved site for wind power development is more likely than large-scale sales of equipment

in the near term

Four largest Chinese wind OEMs

Will the Chinese conquer the global wind manufacturing?

Wind project developer/owner priorities, 2011

Frost & Sullivan Verdict:• An entire offer including on-the-ground servicing teams and support has to be taken into account when comparing

incumbent and Chinese turbine producers. While smaller developers, constrained by cost of capital, may be tempted to “buy Chinese, borrow Chinese”, we don’t anticipate utilities and large corporate investors choosing Chinese products in the near-medium term.

• One reason is that reputational risks from accidents with wind turbines are high, which hasn’t been discussed lately, in contract with cost advantages Chinese equipment can deliver.

• Technology improvement along with proven track record of faultless operations are the key pre-requisites, which Chinese manufacturers will still have to attain.

Reducing equipment, construction/operation costs

Increasing reliability of proven technology

More stable cash flows from geographic diversification

Bankable equipment

Access to low-cost finance

4

1

2

3

5

• In order to capitalize on these trends, successful wind turbine manufacturer will have to:

• Optimize inventory/plant utilization levels• Own proprietary and reliable turbine

technology • Balance cost cuts and warranty extension • Offer a range of equipment

• Can Chinese leading wind turbine producers deliver it?

• Or will increased concerns with wind turbine’s quality present a chance for international players to re-gain market share in China?


Weather warning: headwinds for wind industry in 2012-2013

Major market developments in 2012-2013

Uncertainty of demand

Raising financing costs cutting out smaller developers

Intensifying competition in equipment segment

Strong buyer’s market 4

1

2

3

Frost & Sullivan Conclusion:• 2012 will become a tough year for wind OEMs as a decline in wind turbine prices is likely, mainly due to

overcapacity in turbine production• Chinese players especially may be subject to declined profitability through falling ASPs. The wind turbine

manufacturing in China is likely to become consolidated. Even top 10 producers may be reshuffled


Tables of Contents

1. Introduction to global wind power industry2. Drivers and recent changes 3. Competitive landscape: recent changes and 2012 -2013 predictions4. Value chain and adjacent markets5. Major technology developments 6. Concluding remarks

Looking for investment opportunities… equipment production segment hardly presents any opportunities

Equipment Manufacturers

Production Equipment Suppliers

Project Developers/Owners

Component Suppliers

Planning and Construction

Service Providers

Traditional Approach to Value Chain

Extended Value ChainEquipment Manufacturers:

1

1

• Concentrated market with 10-15 major players globally. Examples: Vestas, GE Energy, Gamesa, Enercon, Suzlon, Siemens Wind, Nordex

• Opportunities: • Not abundant as the equipment

supply is concentrated and dominated by large multi-discipline industrial powerhouses

• Offshore wind power presents some opportunities but the competitions is fierce

• A potential market segment to look into: pure – play offshore wind technology developers: Bard Engineering, Multibrid (Areva Wind since June 2010), DarWinD, Scanwind, Clipper, DeWind (Daewoo) etc.

• Long-term opportunity - floating wind technology developers

X

X


Looking for investment opportunities… project development may have a few hidden gems, but still risky




Component Suppliers


Service Providers


Extended Value ChainProject development :

2

2

• Overall, this segment is in a slightly better position than OEMs, and is likely to benefit from ASP reduction and intensified competition among turbine producers

• However, uncertainty about the future of the government support in the short term may make it risky

• Market structure is less concentrated but utilities form a major force. However, there is a fair number of smaller developers

• Opportunities: • Mid-size and small size on-shore

wind project developers finding it difficult to finance their projects at present conditions

• Offshore wind development is dominated by utilities due to high Capex

X

X


Looking for investment opportunities… components are plenty but many major parts have been vertically integrated into wind OEMs




Component Suppliers


Service Providers


Extended Value ChainComponent manufacturers :

3

3

• Thousands of suppliers are present, with all critical components having been vertically integrated into wind OEMs

• Offshore wind could present opportunities in Europe, however, critical components tend to be manufactured by industrial powerhouses

• Opportunities: • HVDC cables may come in short

supply as offshore wind segment picks up in Europe. Major suppliers: ABB, Siemens, Nexans, Prysmian

• Off-shore installation vessels: A2Sea (49% bought by Siemens in 2010)

• Foundations: Burntisland Fabrications, BiFab, WeserWind

X

X


Source: EWEA & Frost & Sullivan

Component % onshore % offshore

Tower 26 40

Rotor Blades 22 25

Gearbox 13 19

Power Converter 5 5

Others 34 15

Wind Energy Market: Main Cost Components of a Wind Turbine (Europe), 2009

Wind Energy Market: Major Components of a Wind Turbine (Europe), 2009

1

2

3

Wind Energy Market: Main Components of a Wind Turbine (Europe), 2009

4

5

Foundation

Component Onshore Offshore

6

Bearings

Tower

Control System

Gearbox

Blades

Generator

Transformer

7

8

9

Power Converter

Relevant Irrelevant

Pitch

Rotor

Blades

Wind direction Brake

Low-speed shaft

Gear box

Generator

Controller

Tower

Yaw drive

Yaw motor High-speed shaft

Nacelle

Anemometer

Wind Vane

Looking for investment opportunities… scouting other components markets is worth a try …

ComponentTechnological

complexityCompetitive

structureProcurement

practicesBarriers to

entrySupply-

demand gap

Bearings High Consolidated Outsourced Very high Shortening

Blades Moderate ConsolidatedTrend towards

in-house High Low

Control System Moderate Consolidated In-house High Very low

Foundation (offshore) Moderate Consolidated Outsourced Moderate Very low

Gearbox High Consolidated Outsourced Very high Shortening

Tower Low FragmentedTrend towards

in-house Low Very low

• It is by virtue of the complexity of the technology, long-term agreements with turbine manufacturers and the utmost focus on quality that makes most wind turbine component markets difficult to enter, with the exception of towers.

• From the analysis, it can be seen that as the onshore wind energy market has been maturing, the components market has become more consolidated either through companies dropping out or through mergers and acquisitions.

• The opportunity for new entrants lies in the growing offshore wind energy market as well as component markets such as towers that do not require complex technology.

Wind Energy Market: Summary of Market Attractiveness of Wind Energy Components (Europe), 2009

Looking for investment opportunities… however, procurement practices have to be taken into account …


Looking for investment opportunities… vibrant wind services industry is set to flourish as wind plant owners strive to max output




Component Suppliers


Service Providers


Extended Value ChainService providers:

4

4

• Traditionally dominated by wind OEMs, the service industry is changing as ISPs are increasingly active and see their market share rising (28% in 2009)

• OEMs form alliances with ISPs to outsource certain jobs

• Key independent service providers in EU: GES,

B9 Energy, Voith Industrial Services Wind

• Opportunities:

• Regional ISPs having good relations with OEMs and servicing a number of wind farms. Usually started by engineers, such companies can benefit from a private equity investor’s growth oriented mindset

• Offshore wind services is a growing sector as evidenced by a few O&G services Cos diversifying into it

X

X


Looking for investment opportunities… vibrant wind services industry is set to flourish as wind plant owners strive to max output




Component Suppliers


Service Providers


Extended Value ChainService providers:

4

4

• Traditionally dominated by wind OEMs, the service industry is changing as ISPs are increasingly active and see their market share rising (28% in 2009)

• OEMs form alliances with ISPs to outsource certain jobs

• Key service providers: GES, B9 Energy, Voith

Industrial Services Wind

• Opportunities:

• Regional ISPs having good relations with OEMs and servicing a number of wind farms. Usually started by engineers, such companies can benefit from a private equity investor’s growth oriented mindset

• Offshore wind services is a growing sector as evidenced by a few O&G services Cos diversifying into it

X

X


Research is focussed on cost-reduction technologies and offshore turbines

Compared to offshore wind, onshore wind is considered mature. Many established turbine manufacturers are operating in this market. Barriers to entry are very high giving leeway only for breakthrough technologies either in turbine technologies or in turbine components.

Offshore Technologies

Offshore wind is the future of wind energy in Europe. Considering the strong head start they have compared to other regions, they are likely to lead the market.

Onshore Technologies

Gearbox

Generators

Turbines

Towers

Blades

Planetary gear solutions, gearless turbines.

Permanent magnet generators, high-temperature superconducting generator.

Multi-megawatt power rated turbines, individual pitch control turbines.

Taller towers moving close to hub heights up to 150 mts.

Longer blades, stall-regulated blades, variable pitch blades, carbon fiber to replace fiberglass.

Energy Storage Technologies

Pumped Hydro Storage

CAES Flywheels Battery Storage (Lithium-ion)

Stage of Development

Developed

NascentSource: Frost & Sullivan

Deepwater Turbines

Floating wind turbine generators, higher rotor speeds, lower torque, downward facing turbines.

Planetary gearing and medium speed generators

Leaders in research and development are primarily large wind OEMs and component manufacturers

Emerging Technologies Companies Operating in this Sphere

Direct drive permanent magnet generator

High-temperature superconducting generator

Advanced converters (higher wind speed cut-offs) (Areva’s Multibrid GmbH)

Deepwater wind turbines

Blade designs (alternative to fiber glass)

Source: Frost & Sullivan

Wind Energy Market: Companies Involved in Emerging Technologies (Europe), 2009

Converteam acquired by GE in September, 2011.

Contact Details

“The Growth Partnership Company”

Alina BakharevaResearch Manager – Renewable Energy, Energy & Power SuppliesTel: +44 207 915 7829

Email: [email protected]

Frost & Sullivan

www.frost.com

Rachel Hutchinson Director, Business Development Tel: +44 207 343 8344

Email: [email protected]