Trends in Market Segments - Norm Enerji Sistemleri Limited In Solar Energy03… · · 2012-09-07Trends in Market Segments Towards More Solar Parks or Individual Installations? EPIA

Trends in Market SegmentsTowards More Solar Parks or Individual Installations?

EPIA2nd International Conference on Solar Photovoltaic Investments

EuPD ResearchFrankfurt, February 19th, 2008

2

Agenda

A. Concept of Market Segmentation1. The Need for Market Segmentation2. Requirements of Market Segments3. One-Dimensional Market Segmentation for PV4. Multi Dimensional Segmentation for PV5. PV Market Segments in Europe

B. Market Segmentation Data1. Customer Segmentation in 20072. IPP vs. Individual Installations in 2007 (Cum. Market Volume and Annual Investments) 3. IPP vs. Individual Installations in 2010 (Cum. Market Volume and Annual Investments)4. Conclusion

C. Implications for IPP Investment Decision Making1. IPP Factors of Success in Country Markets2. Investment Allocation via Portfolio Theory

D. Summary

Editorial

3

The Reason Why Helps to identify different market portionsAllows companies to satisfy potential customer needs

Results of Market SegmentationInternally homogenous and externally heterogeneous segment membersBeing as similar as possible within the segment, and as different as possible between the segments

The Need for Market Segmentation

Mass marketing refers to a treatment of the market as a

homogenous group and offering the same marketing

mix to all customers.

Target marketing recognizes the diversity of customers

and does not try to please all of them with the same

offering.

No segmentation Segmentation

vs.

A.1.

4

Requirements of Market Segments

For a segmentation to be practical, the respective groups should be evaluated against the following criteria:

The differentiating attributes of the segments must be measurable so that they can be identified.

Identifiable

The segments must be reachable through communication and distribution channels.

Accessible

The segments should be sufficiently large to justify the resources required to target them.

Substantial

To justify separate offerings, the segments must respond differently to the different marketing mixes.

Unique

The segments should be relatively stable to minimize the cost of frequent changes.

Durable

A.2.

5

One-Dimensional Market Segmentation for PV

Customer type

Appliance

Flexibility

System size

Technology

Private customers

Commercial customers

Agricultural customers

IPP/Solar funds

Public customers

Rooftop Open space Building Integrated PV(BIPV)

0-10 kWp 11-20 kWp 21-100 kWp101-1,000

kWp> 1,000 kWp

Monocrystalline Polycrystalline Thin film New materials

On-grid Off-grid Mobile

Portfolio of PV Market Segmentation

A.3.

6

Multidimensional Segmentation for PV

TYPE X

PV Appliance

PV Customer type PV System size

If marketing activities are to be oriented towards certain market segments, it is advisable to combine the identified one-dimensional segmentation criteria.

A.4.

7

PV Market Segments in Europe

Private person investing on his own behalf in solar power by installing a PV plant on his own residential building Typical system size: < 10 kWpRooftop, BIPV

Type A Private

Customer

Commercial body or company installing a PV plant on own buildings such as warehouses, supermarkets, factories etc. Typical system size: 10 - 100 kWpRooftop, BIPV

Type B Industrial Customer

Person – in particular a farmer – investing in PV installations on barns or stables or land areas not agriculturally usedTypical system size: 10 - 100 kWpRooftop, BIPV, open space

Type C Agricultural

Customer

Public entity that invests in PV installations on public buildings such as town halls, schools, hospitals or theaters etc.Typical system size: 1 kWp - 100 kWpRooftop, BIPV

Type D Public

Customer

Professional investors such as investment banks bundling capital of contributors to invest in large-scale PV systemsTypical system size: > 500 kWpOpen space, rooftop

Type E IPP/Solar

Funds

A.5.

8

Agenda




D. Summary

Editorial

9

According to theresults of theEuropean Business Climate Index (quarterly inquiryamong expertsand marketparticipants) theshare of customersegments variesacross Europe.

Possibleexplanations are:Historicaldevelopment, diffusion stage of segments, architecturalfeatures, feed-incharacteristics, objective targetsof market playersand last but notleast the different absolute size of markets.

What are the current shares of each customer segment in European markets? l

Customer Segmentation in 2007 (%)B.1.

45.4

8.8

35.6

27.4

26.3

29.7

41.4

49.3

12.7

1.4

4.4

6.3

2.5

5.7

6.6

10.1

13.4

3.0

8.7

57.0

19.7

3.4

11.3

36.1

34.0

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Germany

Spain

Italy

France

Greece

private customer commercial customer agricultural customerpublic customer IPP/ solar funds n = 41

Source: EuPD Research 2008

10

Customer Segmentation in 2007 (MWp)B.1.

14 percent of the total installed capacity in Europe or roughly 600 MW are installed in solar funds.

The relation between IPP and individual installations in Europe is dominated by the situation in Germany.

In MWp, the following allocation of segments is valid for total Europe:

14.0%

6.0%

11.1%

27.7%

41.1%

private customer commercial customer

agricultural customerpublic customer IPP/solar fundsn = 41


1828 MW

1230 MW

495 MW

269 MW

624 MW

86% (3822 MW)

11

As the focus of this presentation is only the relation between IPP and individual installations the previous shown segmentation reduces to a minimum.

Nevertheless, the clear domination of the individual installation sector remains strong.

The same is true for annual investments: Roughly 15 percent of the annual invest-ments , which corresponds to 1.152 billion Euro, were spent for IPP installation.

IPP vs. Individual Installations in 2007 (Cum. Market Volume and Annual Investments) B.2.

For 2007, the allocation between segments and corresponding annual investments … will approximately amount to…?

265 327 624200

3430

3824

84

374

1152

684

374

4910

632

6082

0 MWp

1000 MWp

2000 MWp

3000 MWp

4000 MWp

Greece France Italy Spain Germany Sum

0 m €

1000 m €

2000 m €

3000 m €

4000 m €

5000 m €

6000 m €

7000 m €

Cum. Market Volume (IPP) Cum. Market Volume (Individual)

IPP Investments Individual Investments


12

Assumed that the relation between IPP and individual installation remains constant until 2010, the annual investment volume for IPP would increase to roughly 1.8 billion Euro, while individual installations reach nine billion Euro.

In case of IPP doubling overall shares (30%), roughly 2.8 billion Euro IPP invest-ment volume per year is possible.

IPP vs. Individual Installations in 2010 (Cum. Market Volume and Annual Investments) B.3.

For 2010, the allocation between segments and corresponding annual investments … will approximately amount to…?

723 1.930

7589

9525

993 749

1316

5004

7727

457

1788

5988

9026

2833

1244

296373 446

0 MWp

1000 MWp

2000 MWp

3000 MWp

4000 MWp

5000 MWp

6000 MWp

7000 MWp

8000 MWp

9000 MWp

10000 MWp

Greece France Italy Spain Germany Sum

0 m €

1000 m €

2000 m €

3000 m €

4000 m €

5000 m €

6000 m €

7000 m €

8000 m €

9000 m €

10000 m €

Cum. Market Volume (IPP) Cum. Market Volume (Individual)

IPP Investments (moderate) Individual Investments (advanced)

IPP Investments (advanced) Individual Investments (moderate)


13

ConclusionB.4.

Share of customer segments non-uniform in Europe: German market mostlydriven by individual installation while Spain as the second biggest market has a focus on IPP

Share of IPP in total in Europe is only 15 percent which corresponds to an annual investment volume of roughly 1.2 billion Euro.

Assuming that customer segmentation will not change in the mid-term, annualinvestments of roughly 1.8 billion Euro are expected in 2010. In case that IPP-share in total might double in Europe, 2.8 billion Euro annual investments arepossible.

Further questions: Which factors are most influential for further IPP growth? What are country-specific factors? How is the optimum portfolio to beconstructed concerning the risk-return profile?

Market segmentation opens up investment opportunities

14

Agenda




D. Summary

Editorial

15

IPP Factors of Success in Country MarketsC.1.

Energy import dependence

Opportunity costs

Economic welfare conditions

Institutional investor body

Bureaucracy

Experience and qualifications of market participants

Long-term political support

Public support

Investment grants and promotion programs

Attractiveness of feed-in tariff

Total rating

Natural conditions

Germany

low medium high

Attractiveness of country markets

Spain

low medium high

Italy

low medium high

France

low medium high

Greece

low medium high

Source: EuPD Research 2008 The evaluation of investment opportunities in different countries requires not only the consideration of obvious factors like solar radiation and feed-in tariff, but also an analysis of the degree of bureaucracy, the experience and qualifications of market participants, the possibility of investment grants and opportunity costs.

As far as market segments are concerned, it is to be kept in mind that IPP is highly cost-driven.

What determines the attractiveness of country markets?

16

IPP investments across Europe follow a different risk-return profile. Therefore and on account of small correlation coefficients the efficient portfolio of investments can be found using portfolio theory.

1,000 simulations of investment combinations lead to the efficient frontier (blue line) as the geometricallocation of all efficient portfolios.

Question: Which portfolio to choose?

Efficient frontier concerning five assets (country markets)

Investment Allocation via Portfolio Theory IC.2.

Efficient Frontier Simulation ResultsCountry Risk-Return Profile

1.0% 2.0% 3.0%

Standard Deviation


MinimumRisk Portfolio

DE

IE

0%

5%

10%

15%

20%

25%

GR

4.0% 5.0% 6.0%

F

Exp

ecte

dR

etu

rn

17

Answer: It depends on your utility function and the question if you are risk averse, risk loving or risk neutral.


Investment Allocation via Portfolio Theory IIC.2.

U1

U2

U3U4

Efficient FrontierUtility Function

Simulation ResultsCountry Risk-Return Profile

DE

IE

F

GR

0%

5%

10%

15%

20%

25%

1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Standard Deviation


Exp

ecte

dR

etu

rn


18

The osculation point between your utility function and the efficient frontier will lead you to the portfolio to choose, which is P.

This example clearly demonstrates the risk and return improving function of diversification.


Investment Allocation via Portfolio Theory IIIC.2.

U1

U2

U3U4

PxE(Rp)

Ϭp

Efficient FrontierUtility Function

Simulation ResultsCountry Risk-Return Profile

DE

IE

F

GR

0%

5%

10%

15%

20%

25%

1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Standard Deviation


Exp

ecte

dR

etu

rn


19

Agenda




D. Summary

Editorial

20

SummaryD.

Market segmentation is on the one hand a necessity to address and satisfypotential customer needs, on the other hand it is the opportunity to quantifyinvestment volumes.

In contrast to capital markets where diversification across countries is not as promising as in the past, the diversification of investments into the photovoltaicmarket across Europe can lead to better risk-return profiles than investing onlyin one country.

As far as future perspectives are concerned, the differentiation between only two segments is not all-embracing. Especially the potential of industrial customers is promising (roof-exchange). Incorporation of off-grid systems will lead to further heterogeneity.

Market Segmentation allows for transparency

21

Editorial

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Contact

Markus A.W. HoehnerManaging [email protected]

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Volker RuhlHead of Economics and Financial [email protected]

Documents

Trends in Market Segments - Norm Enerji Sistemleri Limited In Solar Energy03… · · 2012-09-07Trends in Market Segments Towards More Solar Parks or Individual Installations? EPIA