Evolution of Wind Energy Markets and Implications for Manufacturers &...

8/8/2019 Evolution of Wind Energy Markets and Implications for Manufacturers & Suppliers_From_Pioneer_to_Mainstream_Feb 2010_32 Pages

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Evolution of wind energy markets and implications formanufacturers and suppliers

WindpowerChallenges2010.pptx

Hamburg, February 2010


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Contents Page

AContinuous growth and maturing of the wind energy market

expected

3

Wind turbine manufactures will need to get large and

20

2010 Roland Berger Strategy Consultants GmbH 2WindpowerChallenges2010.pptx


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A. Continuous growth and maturing of the market

expected

3WindpowerChallenges2010.pptx


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1 GLOBAL MARKET

Due to its technological maturity wind will continue to take amajor part of the growth market in the next decade

ExamplesWind Solar Marine ener 4,100 GW

2007

2008 2020 2008 2020 2008 2020Global capacity[GW]

242 GW

+60%

120 600 15 157 0.3 1.2

Long-term feasiblepotential worldwide[GW]

x~4

2,000-6,000 50,000-80,000 3,000-6,000

EUR 90-110 bn EUR 50-80 bn EUR 0.5-2.0 bnRevenue potentialin 2020

6,500 GW 970 GW

Current technologymaturity

Solar PV Solar thermal (CSP)

Current cost er MWh EUR 50-80 EUR EUR 190-270EUR


100-270 145-200Renewables RenewablesGas

Large Hydro Coal Nuclear

Source: E.on; IEA; BTM; California Institute of Technology; World Energy Council, World Energy Assessment; NEF; RBSC


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1 GLOBAL MARKET

Governments are establishing ambitious investment andgrowth plans for wind energy all over the world

Worldwide actual and potential wind power capacity 2008-2020 [GW]

EU countries> Proposed target of 20% of renewable energy sources by 2020 wind

contributing to 11-14% of electrical energy with 180 GW, including 40North America 202

Europe

+126

> Total investments between 2011-2020 accounting for EUR 120 bn

USA> Proposed target of 20% wind power by 2030> Economic stimulus bill including USD bn ~67 for clean energy,

includin extension of roduction tax credits and offerin of invest-38

169Asia/Pacific

+148

76

PotentialInstalled

ment tax credits> Investment plans include initiatives for the transmission system which

constrains the wind energy growth today

CHINA> -

Potential2020

Installed2009 41

189

RoW

+14 120 GW of wind power capacity by 2020

> "10 GW Size Wind Base" program planning large scale deployment of10 GW of wind power in four key regions until 2020

INDIA> Government lans for wind ower ca acit of 40 GW b 2022

o en a2020

ns a e2009

16

2

5WindpowerChallenges2010.pptxSource: EER, EWEA, GWEC

> Offshore wind, currently untapped in India, has significant potential

India has 7,000 miles of coast line

Potential

2020

Installed

2009


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1 GLOBAL MARKET

In spite of the slowdown expected in 2010, mid term expecta-tions for wind energy are buoyant 12% growth p.a. until 2013

Worldwide yearly added capacity [GW]

> Economic stimulus packages stronglysupport renewable energies, especiallywindOther

59

52+12% p.a. 15%

> Strong growth in 2009 mainly due tocapacity going online and accounted forWTGs already delivered in 2007/2008

> 6%25%

USA25%14%

13%37

44

37

intake and deliveries during 2009

> Strong growth share in countries less

dependant on financial markets (China)

9%

29%

26%28

26%Asia26%

28%

23%

27%

23%

m ous governmen goa s orrenewable energy share in core markets(e.g. USA, Europe, China, India...)

> Cost penalties for fossil energies in32%

29%

36% Europe34%37%37%28%


Europe (ETS)

> Offshore plans included2008 2012e 2013e2010e 2011e2009

Source: BTM; RBSC


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1 GLOBAL MARKET

Announced economic stimulus programs will further push windenergy

Announced governmental clean energy stimulus spending until 2013 [USD bn]

16322> USD 163 bn between 2009

28

47

an n c ean energy

70% of it in 2010-2011> By sector the stimulus target:

Efficiency 26%

66

enewa e n ustry Grid 20% R&D 20%

Other 15%

7WindpowerChallenges2010.pptxSource: NEF

EuropeChinaUSA TotalOther


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1 MARKET EUROPE

"20-20-20" targets bind EU countries to produce 20% of their powerwith renewables Wind best positioned to fill the supply gap

Impact of the EU ETS on utilities EU Climate and Energy Package, December 2008

> Utilities are responsible for around of CO2emissions of all branches of industry

Europe "20-20-20" targets 2020

2

as they have emissions allowances (certificates)> From 2013 on utilities will have to buy 100% of

their certificates1) in auctions and may trade-20% CO2 emissions of 1990 levels by 2020

them afterwards (EU ETS )

> By 2020 the total number of available certificateswill be reduced by 21%

20% renewables share of energy mix by 2020

-20% ener used -will have to be substituted wind is the mostmature renewable source to fill the supply gapand to reach the national quotas of renewable

of 2020 projected levels

8WindpowerChallenges2010.pptxSource: EU Council; RBSC

1) Utilities in East European countries are exempted and will get 70% of their required certificates for free after 2013 until 20202) Emissions Trading Scheme


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1 MARKET US

The current legislative environment in the US is clearly in favorof growth of renewable energy market

AMERICAN RECOVERY AND REINVESTMENT RENEWABLE PORTFOLIO STANDARD

Regulatory framework

> USD 20 bn tax incentives for clean energy

> USD 8 bn available as loans for renewable energy generationand transmission projects

> RPS commitments vary by state and range from 10-25% withtarget dates from 2010 to 2025

> USD 2 bn available for clean energy R&D

> Goal to unleash USD 100 bn in private sector co-investmentcapital

State renewable goal

Mandatory RPS

> RGGI states will distribute a set amount of

CO2 allowances through regional auctions,

> Production tax credit, PTC, was renewed for 3 years in

October 2008

Renewable energy

> Utilities will be forced to look at renewablesolutions as the CO2 allowances aredecreased 10 percent by 2018

, ,October 2008 for 8 years

> Allow PTC or ITC to be replaced with a grant from the USTreasury Department


CARBON REDUCTION INITIATIVE PRODUCTION AND INVESTMENT CREDITS

Participating States

Source: Washington Post, RGGI, PEW, AWEA, RBSC


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1 MARKET CHINA

The Chinese wind energy market will also continue to growstrongly Significant support of domestic manufacturers

Estimation of China cumulative installed capacity 2008-2013 [GW]

> Ambitious 120 GW target promoted in the "Wind Base Program"planning large scale deployment in selected regions

> 22% p.a.

Chinese wind industrys development is mostly directed by thestate with 80% of the market concentrated in large state-ownedenterprises

> Stron romotion of domestic manufacturin In 2008 local

55

players accounted for 75% of China WTG market up from 30% in2004 Higher taxes for importing wind turbines and key components

Specific incentives (cash subsidies pro MW) for the

25

+

manufacturing of turbines for domestic brands (>51%Chinese)

70% localization must be achieved in order to participate insupply to state-owned wind farm operators

12

10WindpowerChallenges2010.pptxSource: GWEC, RBSC

> owever, oca manu ac ur ng ase s curren y su er ng rom

overcapacity (over 40%) and significant fragmentation

2013e20092008


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2 UTILITIES

Wind energy production has increasingly become a largeutilities game

2008 Europe Top 10 wind portfolio additions [MW]

> Utilities are increasingly taking over the wind industry andpositioning themselves as consolidators

685

715

> Aggressive portfolio extensions through building of newcapacity or acquisitions, e.g. S&S Energy acquisition of Airtricity (327 MW) RWE acquisition of Urvasco (148 MW)

575

670

pu c serv ces company acqu s on o a coc& Brown' wind energy assets in Spain (420 MW)

Magnum Capital (PE) acquisition of Babcock & Brown

wind energy assets in Portugal (515 MW and 156 MW

460

525

> Several large mergers are as well restructuring the market Vattenfall-Nuon RWE-Essent

185

225


-

Source: EER; RBSC

180

Utility

IPP/Investor/Other


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2 UTILITIES

Six key factors are driving the utilities to further increase windin their portfolio, broadening their energy mix

>

OIL AND GAS RISK

> -

SHORT LEAD TIME OF WIND

increases the need for utilities to reduce theirexposure

> Wind broadens the energy mix cost-effectively Utilities' growth

in wind ener

each year

> Building a standard wind park takes only3-5 years, a much shorter lead time than thatof a conventional plant

market

> Problems for small and medium wind players

CRISIS "WINDOW OF OPPORTUNITY"

> General public increases awareness on

PROMOTE GREEN IMAGE

> Strong focus on

> Acquisition of locations, equipment and know-howat low prices relying on strong cash flow fromoperations

> Utilities need to promote a green image

opposed to the traditional "polluter" one

> Global supply ofwind turbines

> Own project

> Utilities are forced to auction 100% of requiredCO2 certificates after 2013

EU "20-20-20" TARGETS FOR 2020

> Support by political initiatives making windenergy production more attractive

POLITICAL INCENTIVESmanagement and

O&M organizations

12WindpowerChallenges2010.pptxSource: RBSC

> Operation with CO2-intensive energies

(e.g. coal) will become more expensive

e.g. ax ncen ves, ee - n ar s


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2 UTILITIES

There will be strong demands from the utilities towardssystematic industrialization of the wind value chain

Origination, development &procurement

e.g.Contractual risk allocation

e.g.Process integration

e.g.Monitoring

> Suppliers provide lowguarantee level

> Asymmetric contracts (e.g. 50%paid back if total WTG1) failure)

> Suppliers consider gridrequirements out of scope

> Some key offshore constructionsteps still not tested

> Random monitoring> Reactive maintenance> Heavy delays in data

transmission and intervention

WIND

TURBINE

> Suppliers provide full guarantee > Suppliers meet all grid > Full monitoring and controlGAS

vs. vs. vs.

e.g. pa ac o aturbine failure)

requ remen s> Proven construction/installation

technology

> reven ve ma n enance

14WindpowerChallenges2010.pptxSource: E.on

1) Wind Turbine Generator


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3 OEMs

The wind turbine manufacturers' market is still heterogeneous final structure has yet to emerge

Overview WTG OEMs clustersLARGE INDUSTRIALS PIONEERS REGIONALS

PLAYERS

2008 MWinstalled

? ?

Unison

Large and established industrialcor orations which have entered the

Original WTG technology developerswhich have not been ac uired b a

Regional players developing withinrowth markets

BACK-GROUND

MARKET-SHARE1) 30% 53% 17%


WTG market mainly through

acquisition

large industrial

1) Installed capacity 2008 MW

Source: RBSC


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3 OEMs

Fragmentation of the OEM market has been observed in thepast years pioneers have been relative losers

Overview market shares 2005-08 [% MW delivered]

9%16%

6%

2%

Others

Sinovel

4%3%1%

Acciona

> Pioneers market share decreased from 64% to 49%in 3 years

64%

100% 100%

14%

8%6% 3%4% Goldwind

Nordex

Siemens

> arge n ustr a s as emens an ost re at ve y

low or no market share since 2005> Strong market competition with a fragmentation of

the overall the market

49%

18%11%

9%

Gamesa

Enercon Small players increased market share from 9 to16% between 2005-2008

Strong growth Chinese and American markets

28%18% Vestas

strengt en oca supp ers e.g. naSinovel/Goldwind and USA Clipper)

16WindpowerChallenges2010.pptxSource: BTM, EER, Companies, RBSC

20082005Pioneers Rest


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3 OEMs

Leveraging their strong home base Chinese manufacturers arepreparing to go global

Suppliers structure in ChinaWind turbine suppliers' market share in China

Market share of China annual installed turbine capacity

Development stage

Large capacity products

Companies

Gold Wind

2008 [MW %]

Others

8.4%Nordex

GE Wind Sinovel

Tier 2

w cense ec no ogy

Have prototype andpreliminary small

Sinovel

Dongfang electrics

Zhejiang WindeyXiangdianlocal

Mingyang 2.8%ShanghaiElectrics 2.9%

2.3%

2.3%Acciona

2.4%

Windey 3.7%

22.5%

Tier 3

GE Nordex

Tianwei baobianYuanjing EnergyChangzheng Electrics

Completed prototypedesign and plan to build

Forei n com anies with mature

Gamesa 8.1%18.1%

GamesaVestasSuzlon

design and process technologiesForeign

JVAcciona JV in NantongREpower, Honiton JV

Leverage foreign technology

Vestas

9.6%

Dongfang Electric

16.9% Gold Wind


top 3 market share57.4%Local and JVs

Source: RBSC


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3 OEMs

The financial crisis and the emergence of new OEM players hasled to structural overcapacity shift to a buyers' market

Expected overcapacity evolution (%; 2009 2013)

60.000

70.000 4035%

> Short-term: Maximize sales deals in an

[MW]

40.000

50.000 22%

14%

24%

20%

30%

manufacturers overcapacity,ensuring '10 production and beingready for the re-launch

20.000

30.000

11%10%

-1%

a n a n marg ns an paymenconditions during current turbulenttimes (as far as possible; potential

buyer will ask for significant price

0

10.000

2010E 2011E 2012E 2013E

-10

2009E2008

reductions from 10 to 20%)

> Mid-term: Pre are the sales or anization for

18WindpowerChallenges2010.pptxSource: BTM; Macquarie; RBSC

OvercapacityAggregated capacityAggregated demand

a "buyers' market" environment


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CONCLUSION

Conclusion: The WTG market is changing from being a"pioneering" market into a mainstream industrial market

PIONEERING MARKET (UNTIL 2008)

MAINSTREAM MARKET (EXPECTED AS OF 2011)Main market growth in a few Western European markets(Germany, Spain, Denmark) US starting with delay

Growth broadening to all large and non fossil fuelexporting markets (Rest of EU, USA and China)

Technology development occurring in parallel to WTG Product development following standard industrialmanufacture with fast evolving model ranges bottlenecksin component development and supply capacity

practices and speeds supply chains more stable andlocal

s were ma n y purc ase y eve opers or nanc ainvestors who primed delivery capability over price

es are ncreas ng y ecom ng uyers, w o app ysimilar price/performance criteria as for conventionalgeneration equipment price squeeze is expected

WTG industry was dominated by pioneers like Vestas andGamesa

Large industrial players (Siemens, GE) and localplayers (Goldwind, Sinovel, etc.) are increasing theirmarket share at the expense of the early pioneers overcapacity will trigger consolidation


"Get large and industrially lean or exit!"

Source: RBSC


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industrially lean Suppliers must follow suit



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OEMs need to develop along four axis support from suppliersrequired on all of them

OEM development needs and key requirements to suppliers along the value chain

MARKET

TECHNOLOGY OPERATIONS

PRESENCE

OEMDEVELOP-

> Contribute to overall > Support OEM access> Support complex-

> Build up global

NEEDS

OEM-

reduction> Support further

flexibility andindustrialization of

markets and clients> Support OEMs going

for a a full-servicevalue ro osition

focusing on life cyclecosts

> Support faster time-to-market for new

> Contribute to theestablishment of localsupply chains on alobal scale

MENTS TOSUPPLIERS

operations along thevalue chain

> Achieve processexcellence, especially

WTGs> Contribute to

standardization andmodularization


for global, regional

and local logistics


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TECHNOLOGY1

Complex technological challenges ahead Close collaborationwith supplier base is required

OPPORTUNITIES FOR SUPPLIERS

Main technical challenges Towards improved reliability, life-cycle-costs and yield

> Position as a critical partneractively supporting OEMs

GENERATOR

> Lighter and more compacthousings (e.g. integration of drive

> Introduction of new materials(e.g. CFRP)

> Manufacturing constraints> Endurance to environmental

technical challenges on criticalcomponents

> Pursue risk sharing and

> Simplification and new design

solutions for drive trains (e.g.reduction of bearings and rollerparts)

> Integration of new generator

damage (e.g. weather,

lighting)

developments of proprietarytechnology

> Support reduction of

ec noog es e.g. supercon uc orgenerators)

GRID CONNECTION &TOWER AND

FOUNDATIONmanufacturing costs byestablishing industrializationrequirements early in thedevelopment

> Adaptation to grid requirements(e.g. stability, voltage fluctuations)

> Industrial customization andmodularization of wind turbines

> New foundations design,construction techniques andmaterials, specially forOffshore


Source: RBSC


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GLOBAL PRESENCE2

Large industrial players are systematically expanding theirfootprint

Example Siemens global footprint

Boulder(Wind & Ft. Madison

Keele (UK, Delft (NL),Aachen (DE)(Mechanics, grid offshore) Underlying rationale

First:> Establish an industrially lean

USA

(planned fornacelles/hub)

(blades)

Orlando

Indialanned

China(planned fornacelle/hub/blades)

processes n t e ome ase

Then:> Transfer (duplicate) industrialset up to international locations

Engesvang(blades)

Igod

(hubs)

Aalborg

(blades prod. & R&D

Expectations towards suppliers

> Follow international moves ofOEMs

blade design)Taastrup(Aerodynamics, structuraldynamics, electrical systems)

Hamburg(Europe HQ)

Bremen

Su l chain Sales hubs

improve lean manufacturinglocally while benefiting from thevolumes generated by the OEM

24WindpowerChallenges2010.pptxSource: Siemens, RBSC

Other sales R&D


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LEAN OPERATIONS3

Strong pressure on reducing the cost of wind turbines willsubsist

Typical life cycle costs of a 2-MW onshore wind turbine [%]

24% 100%> Current over capacities in the market

are putting strong pressure on turbine"Wind turbines prices have dropped by 18% forcontracts signed in late 2008 and 2009" [NEF]

5%7%57%

7% 76%

> Wind turbine acquisition costs is themain lever for operators to reduceoverall wind energy costs

Turbine Grid Found- Other Total O&M Total

26WindpowerChallenges2010.pptxSource: NEF, EWEA, DEWI, Eon, RWE, RBSC

(ex works) connec-

tion

dation up-front

costs

capex


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LEAN OPERATIONS3

OEMs have engaged in systematic "lean operations"programmes and expect suppliers to contribute

Example Siemens "Lean as driver of transformation" IMPLICATIONS FOR SUPPLIERS

Bench-

KaikakuStepwise changes

> Double productivity> 90% red throughput

KaizenContinuous Improvement

> Double productivity> 50% red throughput

> Suppliers will be required to contributeto increase capacity flexibility and costperformance of OEMs

mark > 50% red injuries> 50% faster to market

OEM manufacturing activities will beextended to the overall value chain

> Launch of joint improvement projects

Pull

> Adaptation of supplier footprint to OEMneeds will be a key factor to a lean

overall industrial set-up

Value stream


1-2 years 3 years

Source: Siemens, RBSC


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LEAN OPERATIONS3

Bottlenecks on lower-tier levels need to be pro-activelymanaged

CONTEXT CHALLENGE FOR SUPPLIERS

Context and challenges of bottlenecks on lower tier levels of the supply chain

Symptoms Causes

- -

> Dynamically growingindustry with CAGR > 20%

> Increasingly qualityproblems of components

> How pro-actively identify bottlenecks at Tier-2 level?

> Lack of predictability of

sales plan> Lack of commitment

> Lack of communication

> "Blame game" betweendifferent parties involved Bottle-necks inlower

tiers of

> How to mitigate them?

> How to avoid sandwich positioning (OEM directly controllingTier-2)?

regar ng requ remen sand volumes (reactiverather than pro-active)

the

supply

chain

Main challenge for OEM

Build a com rehensive su l chain ca acit model to


upp y c a n ramp-up quan y an qua y n mes o

difficult prediction of own market shareidentify hidden bottlenecks early on

Source: RBSC


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MARKET4

Sales will become the key priority for OEMs Indirect supportwill be a key factor of success for suppliers

> Establishing industrial setup in target marketshelping to contribute the OEM with local

CLIENT

> Lobbying> Reputation of components reliability and

performance

(e.g. Utility, IPP)Direct sales

> Joint operational performance optimizatione.g.:

Cost reduction New products time to market

Service

Logistics

Indirect salessupport



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BACKUPMARKET4

New after sales value propositions and contractual offers needto be developed between OEMs and suppliers

Transition from selling to full service model

Operatormodel

Full-servicecontract

Value for the client SUPPLIERS

> Access and

Maintenance &repaircontract

Investmentand operationof machineryMaintenance,

capture new

businessopportunities

>Maintenance

contractInspection

services

contract

reparsubstitutionof wear parts,provision of spare

arts

Maintenance, repairand substitution of

wear arts

infrastructure costsby partnering withOEMs on joint

setu sContinuous statuscontrols

Periodicalstatus controls Typical major

OEMs today


Services value chain

Source: RBSC


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CONCLUSION

Conclusion OEMs requirements to suppliers are changing asthe market goes mainstream on a global scale

PIONEERING MARKET (UNTIL 2008)

MAINSTREAM MARKET (EXPECTED AS OF 2011)

Supplier R&D and production footprint essentiallyEuropean based

Global footprint to serve OEMs international network oflocal production clusters

Technology development of critical WTG components Development of critical components for new and largerdriven together by specialized suppliers and the OEMs WTGs driven by the OEMs (incl. ownership of IP).

Low end and smaller turbines make use of industriallystandardized components

g pro t marg ns a ong t e manu actur ng va uechain fueled by the ever increasing demands and capacitybottlenecks

apac ty uctuat on an pressure on pro t marg nspush for flexibility, an efficient industrialization and costperformance from supplier to OEM

ragmentat on o t e mar et ue to t e cont nuousflow of new entrants Experienced suppliers for criticalcomponents in demand

ar et w conso ate as t matures upp er positioning with successful OEMs will be key not to beleft out of the big game


"Actively support OEMs achieving a sustainable global growth or exit!"Source: RBSC

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