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Think Differently about Mature Industries

Wind Services: New growth opportunities

Cleantech Forum Europe Munich, 18 April 2012

Carsten Bartholl, Taylor Wessing

Sven Oleownik, Deloitte

Agenda

European Wind Services Study 2

Characteristics of the European market

European wind services study - Why and how?

Profitability, cost levers & efficiency improvement potential

Competitive outlook

Success factors and industry challenges

Investors’ perspectives

Panel Discussion

The European wind services market is a € 2.1 billion market with strong growth prospects driven by ageing wind parks and an increasing installed base


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0

500

1,000

1,500

2,000

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3,000

3,500

4,000

GW

$m

European wind services market size and wind power capacity

Market size - Onshore ($m)

Market size - Offshore ($m)

Cumulative w ind capacity - Onshore (GW)

Cumulative w ind capacity - Offshore (GW)

Source: EWEA / GBI Research

Why wind services?

Large market with solid fundamentals

post-industrialisation wind turbine market is at or

near grid parity with strong ongoing growth. Wind

farm O&M is a significant cash cost of up to 25% of

the total cost of a wind farm

Good growth prospects

large and growing installed base, increasing age of

wind parks and “off-warranty” turbines. Market

CAGR of 7% to 2020

Positive regulatory environment with limited

volatility

57% and 70% of respondents view the regulatory

regime as conducive or strongly conducive for on-

shore and off-shore wind respectively

Dynamic business environment

efficiency improvements and technology changes,

differing business models and growth profiles for

offshore, new entrants / industry consolidation /

internationalisation

European wind services market size and wind

power capacity

Our European wind services study included responses from 175 participants as well as primary and secondary market research


15%

11%

27%3%

6%

11%

27%

European wind services survey - participants by cluster

Financiers

Product / Component Producers

Wind Farm Operators / Ow ners

Energy Supplier

Wind service provider - OEM

Wind service provider - Independent Service Provider (ISP)

Other

Source: Deloitte / Tay lor Wessing - European Wind Serv ices Study

Study overview

- Deloitte and Taylor Wessing undertook

a pan-European survey of wind industry

participants in Q1 2012

Survey focus across onshore and offshore wind services:

market development

competitive and regulatory environment

profitability, cost savings and efficiency gains

industry challenges

• 175 respondents across all stakeholders. Country responses follow relative importance of wind services

• GBI Research commissioned to undertake primary and secondary research

European wind services survey - participants by

cluster

The current market is focused on onshore (91%) and OEM suppliers (63%) with significant changes to 2020


Spain60%

Spain30%

Spain10%

UK68%

UK20%

UK12%

Germany55%

Germany33%

Germany12%

Europe63%

Europe25%

Europe12%

European wind services market shares by segment and country in 2011

OEM

ISP

WFO (In-house)

Source: GBI Research

European wind energy operations and maintenance market in 2011 and 2020

Onshore Wind O&M Market Offshore Wind O&M Market

Source: GBI Research

91%

9%2011

67%

33%

2020

European Wind Service Market Characteristics

Onshore vs. Offshore

• Onshore currently dominants (91%) but will

decrease to 73% in 2020. CAGR of 19% offshore

vs. 4% onshore

• Significant offshore experience gathered in

territories such as UK where offshore is more

significant than onshore already

• Offshore O&M revenue more than double per

MW serviced reflecting higher logistics costs,

scarcity of manpower, and harsher conditions

Service providers

• Market divided between OEMs, ISPs and In-

house providers

• OEMs currently dominate with 63% market share

in Europe but significant variation across

countries

• Increasing number of wind turbines coming off

warranty and aggressive ISP competition will see

increased market dynamics

European wind energy operations and maintenance

market in 2011 and 2020

European wind services market shares by segment

and country in 2011

Germany, Spain and the UK are the largest wind services markets but geographic shifts will require new service delivery footprints


• Germany, Spain and UK dominate the European wind services - 44%, 28% and 13% of the total. This

reflects the large installed base, continuous capacity installations, and increasing age of turbines

• European growth to 2020 driven by offshore markets in the UK and Germany and Italy (CAGR 6,2%),

France (11,8%) and Turkey (20,9%) onshore

Reconfiguration of market into new geographies and increased focus on offshore will provide

opportunities for new entrants as well as regional expansion

European wind services revenues by country

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

$m

European wind services revenues by country

Spain Germany UK OtherSource: GBI Research

-0,8% CAGR (2012-2020)

4,3% CAGR (2012-2020)

14,4% CAGR (2012-2020)

12,7% CAGR (2012-2020)

-0,8% CAGR

(2012-2020)

4,3% CAGR

(2012-2020)

14,4% CAGR

(2012-2020)

12,7% CAGR

(2012-2020)

The off-shore wind services market has higher profitability expectations and the strongest expectation for efficiency improvements


Profitability and efficiency improvement

• Future profitability trends strongly bifurcated

between onshore and offshore

• Onshore: Expectation of constant to declining

margins

Likely to reflect a more mature industry, lower

barriers to entry, and higher competition

• Offshore: Strong view of constant to rising

margins

Possibly driven by higher bariers to entry &

supplier concentration as well as stronger cost

reduction potential & margin capture

• Good scope exists for ongoing efficiency

improvements. 31% and 61% of respondents

saw strong to heavy scope for efficiency

improvements for on and offshore respectively.

High potential in both areas. Offshore has

significant scaling and learning curve potential

Source: Deloitte / Taylor Wessing - European Wind Services Study

0%

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50%

strongly declining declining constant rising strongly rising

Pe

rce

nta

ge o

f re

spo

nd

ents

What expected changes to EBIT margins in the future?

onshore offshoreSource: Deloitte / Tay lor Wessing -European Wind Serv ices Study

9%

30%

50%

11%

barely moderate strongly heavily

14%

69%

17%0%

Onshore9%

30%

50%

11%

Offshore

What expected changes to EBIT margins in the

future

What potential for margin improvement through

efficiency improvements?

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10%

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50%

Technology improvements of

the turbines

Spare Parts / material costs

Transportation-and logistic costs

Data Monitoring / SCADA / IT-

costs

Personnel fees

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What offers the highest potential for service cost redection?

onshore offshoreSource: Deloitte / Tay lor Wessing -European Wind Serv ices Study

O&M cost reduction potential from technological improvements and offshore transport and logistics


Cost reduction potential

• Onshore cost reduction focus on turbine

technology and spare parts whilst offshore is

most strongly in the area of transportation and

logistics followed by technology

• Direct drive turbine technologies have significant

scope for cost savings by eliminating gearbox

maintenance and up to 50% in parts - particularly

attractive for larger turbines and offshore

Poses a services revenue threat due to lower

maintenance requirements in particular in the

high growth offshore

• Spare parts and material cost savings are likely

to be driven by scale effects. Heavy engineering

and high raw material component add uncertainty

to overall cost saving potential

• Offshore logistics savings are likely from

improved specification and availability of

maintenance vessels and more effective planned

maintenance

What offers the highest potential for service cost

reduction?

strongly (Onshore) heavily (Onshore) strongly (Offshore) heavily (Offshore)


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100%

Perc

enta

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f re

spondents

What are the most important service company requirements?

Serv ice quality and speed of reaction

Pricing and price adjustment

Duration of contractServ ice scope

The most importment requirements for successful services companies are price, quality and responsiveness


Success factors

• The key success factors have a high uniformity

between onshore and offshore – optimum turbine

availability through quality and speed of service is

paramount

• The focus on quality, reaction speed, and scope

of service is likely to reflect the significant cash

cost of downtime and focus on maximising

availability rates

For ISPs to gain market share they will need to demonstrate a service delivery footprint with associated

logistics that has the same performance parameters as incumbents but offered at lower cost – efficiency

opportunities will be paramount

What are the most important service company

requirements?

Increasing competition is expected but OEMs will continue to strongly dominate offshore


-40%

-20%

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20%

40%

60%

80%

Perc

enta

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f re

spondents

Onshore: How will market share change over the next five years?

decrease equal increase strong increase

Source: Deloitte / Tay lor Wessing -European Wind Serv ices Study

In-houseISPsOEM

-30%

-20%

-10%

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enta

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spondents

Offshore: How will market share change over the next five years?

decrease equal increase strong increaseSource: Deloitte / Tay lor Wessing -European Wind Serv ices Study

In-houseISPsOEM

Competitive outlook

• 46% of survey participants expect a strong to

heavy decoupling of the services business from

the OEMs in their onshore home markets over

the next five years

• This reduces to 26% for offshore possibly

reflecting the higher barriers to entry, capital

intensity and risk profile

• OEMs are countering the threat from ISPs with

an increased drive towards long-term contracts of

up to 20 years

• In-house market share gains are likely to be from

energy companies with significant experience in

managing large wind parks

The ongoing dominance of OEMs in offshore

would not preclude new entrants engaging as

OEM sub-contractors

Onshore: How will market share change over the

next five years?

Offshore: How will market share change over the

next five years?

^

European firms are expected to be well positioned to counter international market entrants


2% 7%

37%

41%

13%

How do you rate the competitiveness of your home country's service companies in comparsion to foreign firms?

Very badly positioned

Badly positioned

Comparable positioned

Well positioned

Very w ell positioned


In-sourcing of condition monitoring will allow

operators to more actively steer maintenance

programs and still allow service delivery

flexibility

International players and in-sourcing

• 92% of survey participants see European firms

as comparably well positioned to very well

positioned

• Asian competitors are likely to be OEMs gaining

medium term market share principally in Eastern

Europe and onshore

• An increasing trend towards insourcing is

expected with a focus on condition monitoring

activities

How do you rate the competitiveness of your home

country's service companies in comparsion to

foreign firms?

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50%

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enta

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spondents

In your opinion, where will your home market's strongest competitors come from in the next five years?


In your opinion, where will your home market's

strongest competitors come from in the next five

years?

Challenges for the overall industry focus on the availability of infrastructure and qualified personnel


strongly (Onshore) heavily (Onshore) strongly (Offshore) heavily (Offshore)


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100%

Perc

enta

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spondents

What are the most important industry challenges?

Qualif ied employ ees

Growth & related inf rastructure

Access to know-how (e.g. technology )

Liability /Risk Economies of scale/scope

Industry challenges

• Challenges identified by respondents revolve

around issues often ascribed to fast growing

sectors:

Qualified employees – in particular with

engineering and logistic backgrounds

Managing growth and the scaling up of the

required infrastructure (e.g., maritime vessels)

Extracting cost savings through economies of

scale and scope

• For offshore in particular, the additional operating

environment issues heighten the importance of

access to the right know-how and ensuring that

the risk / return parameters are appropriate

• Financing, availability of spare parts, wages, or

technical standards were not viewed as issues

What are the most important challenges?

0%

20%

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100%

Perc

enta

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f re

spondents

Which elements of the sector make it interesting to you as an investor?

interesting (Onshore) very interesting (Onshore) interesting (Offshore) very interesting (Offshore)


Secure cash f lowGrowth perspectiv eScaling/consolidation ef f ects

Risk-earnings ratio

Investors view wind services favourably compared to other renewables sectors - growth prospects and internationalisation opportunities are attractive


• Investors view wind services favourably

compared to other renewable energy

investments

• Offshore is viewed attractive as a result of its

high growth potential and potential for realising

scale economies

• Onshore’s secure cash flows and risk return

profile are particularly attractive

• Aspects which matter most in evaluating wind

services targets are: low market risk, clearly

defined regulatory regimes, lower technological

risk and experienced and successful

management teams.

• Value creation strategies focus on

internationalisation and buy and build activities.

This is likely to include leveraging capabilities

developed in the more traditional wind markets

into Eastern Europe as well as taking offshore

wind expertise into new jurisdictions

31%

8%

61%

Which value creation strategy are you pursuing for a wind services acquisition?

Buy and build Consolidation International expansion


Which elements of the sector make it interesting to

you as an investor?

Which value creation strategy are you pursuing for

a wind services acquisition?

Sven Oleownik,

Partner

Deloitte

Henrik Olsen

Partner

Environmental Technologies Fund

Jamie Vollbracht

Head of New Ventures, Innovations

Carbon Trust

Javier Barcena

Head of Origination, Analysis and Activation

Gamesa

Think Differently about Mature Industries

Wind Services: New growth opportunities

Documents

Think Differently about Mature Industries Wind Services ...events.cleantech.com/munich/sites/default/files/Carsten_Bartholl_Sv… · MW serviced reflecting higher logistics costs,