Stockholm, Sweden September 16, 2009 Marc Mühlenbach Analyst +34 93 272 6776

Page 1European Offshore Wind Conference 2009

Stockholm, Sweden

September 16, 2009

Marc MühlenbachAnalyst +34 93 272 [email protected]

www.emerging-energy.com

EU 2020: Offshore Wind Implications


EU commitment at the highest policy levels in the form of offshore stimulus funding has been granted for €565m with offshore wind clearly emerging as a

key piece to achieving the EU’s vision for 2020

EU 2020: Offshore Wind ImplicationsThe Reality on the Ground

Project Location CapacityProposed EU

Contribution (€m)

Baltic I and IIKriegers Flak I, II and III

Denmark, Sweden Germany, Poland

1.5 GW 150

North Sea grid developmentUK, Netherlands, Germany, Ireland, Denmark

1 GW 150

Alpha Ventus/Bard Offshore Germany460 MW 150

Aberdeen offshore wind farm UK250 MW 40

Thornton Bank Belgium 90 MW 10

Source: EU Commission


Offshore growth is expected in 13 EU markets + Norway, with key markets Germany and the UK adding a combined 18 GW by 2020

EU 2020: Offshore Wind ImplicationsUK, Germany to Anchor European Offshore through 2020

Market Maturity

Cap

aci

ty

Inst

alle

d (

MW

)

XMW Average MW additions/yr 2009-2020

79 86 52

132

708

113

241

70

772

113

56


To realise the role of offshore in the EU’s vision for 2020, these utilities must execute their North Sea and Baltic Sea project pipelines

EU 2020: Offshore Wind ImplicationsUtility Positioning to Realise Offshore Potential in EU 2020’s Vision


Overview of Key Policy Issues for Offshore Development

EU 2020: Offshore Wind ImplicationsTransmission, Stable Production Incentives Weigh on Industry Growth

• Offshore remuneration schemes have led to over 1.5 GW of developments in eight European markets to date

• Some key markets, particularly in Scandinavia, are yet to clearly define their incentive mechanisms

• Trend across the region has been for a recent increase in incentive mechanisms irrespective of type of support scheme

Issue 2:Offshore Incentive

Mechanisms

• No coherent offshore transmission build-out policy has led to varied results across the region

• Offshore transmission build-out has proved time consuming, particularly as it is largely taking place on a project by project basis

• Offshore transmission build-out challenge increases as projects move further out to sea

• Public support schemes have led to feasibility and offshore potential studies in new markets as well as the establishment of important research and development centres driving key markets forwards

• Pilot and key projects across the region have benefited from public support, assuring project flow across the region

Issue 1:Offshore

Transmission

Issue 3:Industry

Development


Transmission Build-Out and Potential Wind Capacity (est.)

Transmission build-out is not coherent across the region and will require pan-regional developments to realise the full-scale potential of offshore wind

EU 2020: Offshore Wind ImplicationsTransmission Pipeline Evolving, Varying Paths to Execution

• Total transmission build-out potential based on current developments is estimated at approximately 20 GW in Europe’s currently active markets

• Costly and time consuming pan-regional build-out necessary for full-scale offshore wind integration in the EU

• To reach EER’s forecasted 32 GW, new markets will have to activate projects and transmission hurdles need to be overcome

Comments

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000 Installed

Transmission Pipeline

EER MW Installed Forecast


Over 1.5 GW have been equally installed among Europe’s two main type of incentive mechanism. The trend for either has been an increase in support

EU 2020: Offshore Wind ImplicationsIncentive Mechanisms on the Rise

• Feed-in Tariff and Tendering processes have led to 722 MW of installations; GC mechanisms have led to 764 MW of installations

• Vast development potential in key Northern markets (Sweden, Norway, Finland) await full implementation or improvement of incentive mechanisms

• Recent changes in offshore incentives have led to increased activity in key markets such as Germany and the UK

CommentsFeed in Tariff/Tendering Process (722 MW)

GC Mechanism (764 MW)

Mechanism Being Defined (24 MW)


Public support for industry development has led to key R&D efforts in new markets, pilot projects and transmission developments

EU 2020: Offshore Wind ImplicationsIndustry Development on National and EU Level

Country Project MWFunding

(€m)

SpainOffshore Mapping

4,000 (potential by 2020)

n/A

Germany Alpha Ventus 60 50

Netherlands FLOW 20 to 60 turbines n/A

Belgium Belwind 330 300

Spain Eolia n/A 34

GermanyCompetence Centre Rostock/WAB

n/A n/A

• National industry development has taken place in the form of technology development, project advancement and studies assessing offshore potential

• On a supranational level, funding from the EIB has led to rescuing key projects (Belwind, London Array, Greater Gabbard)

• Subsidies for manufacturers by local states, cities and ports have promoted the development of production facilities

CommentsSelect Public Support for Industry Development


Total offshore wind installed by 2020 is expected to be over 32 GW, accounting for 19% of total wind installations in Europe between 2009 and 2020

EU 2020: Offshore Wind ImplicationsOffshore Expansion to Secure Growing Share in EU Energy Mix

• Over 32 GW of total offshore wind installations are expected across 13 European markets

• This represents a total of 19% of total wind growth in the period from 2009 to 2020, or 7% of total capacity installed for all energy producing technologies

• Offshore wind will represent 27% of total wind installations by 2020, up from a current 5%

Analysis

Source: Emerging Energy Research

Offshore MW Installed and Forecast, 2000-2020

Page 10Europe Wind Energy Advisory – EW 955-090320

Wind Resources

Regulatory Mechanisms

Site Approval

Utility/Grid Issues

Competition

Key Data

•Projects under construction•Signed PPAs•Project financing secured•Construction phase complete•Fully permitted projects•Firm turbine orders •Confirmed project tenders

Market Maturity

Key Assumptions

•Project execution probability•Turbine delivery and erection lead times•Supply chain expansion onshore/offshore•Cost of energy•Energy mix evolution•Wind penetration level – grid take-up•Competition•Technology improvement•Industrial/ manufacturing build-out

Market Environment

Market Snapshot

EER defines the current market environment by examining historical

trends and market snapshots, and by mapping markets’ relative maturity

EER considers short-term, mid-term, and long-term market drivers and inhibitors gathered from primary research, assessing relevant market participants on a bottom-up and top-down, country-by-country basis

Key Data

•Projects entering permitting (onshore and offshore)•Developer CAPEX plans•Turbine production capacity•Component production capacity•Turbine framework agreements •Government targets and plans•Policy incentives•Existing grid capacity•Announced tenders

Key Data

•Long-term project pipeline•Grid penetration•Government targets•Energy mix evolution•Offshore and repowering •Total technical potential•Grid integration viability/storage technology•Overall political will

Short-Term InputsYear 1−3

Mid Term InputsYear 4−6

Long Term InputsYear 7−10

EER Base-Case Scenario

EER’s baseline market assumptions are

outlined in three- to five-year increments

1 2 3

• Component suppliers• Transmission system

operators (TSOs)

EER establishes base-case, high-growth, and low-growth scenarios

4

Key Assumptions

•Wind energy incentives•Energy mix objectives•Infrastructure planning •Cost of energy scenarios•Market saturation point•New technology impacts

EER Forecast Scenarios

Ongoing Intelligence Collection

• Government agencies• Permitting authorities• Project finance banks

Sources

• Developers• Utilities• Turbine suppliers

Yearly MW Added

0

5,000

10,000

15,000

20,000

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

Meg

aw

att

s High

Base

Low

Page 7European Wind Energy Advisory – February 2009

Market Component Energy mix Policy Transmission Development Supply

Key Inputs

• EU’s energy plans to prioriitise clean energy and reduce energy dependency

• The nuclear debate is on the table in several European countries

• Wind was already the single largest electricity-generating technology installed in the EU in 2008.

• EU’s 2020 RES targets

• National targets to meet EU’s global targets

• Panregional grid improvement plans like the SuperGrid, Baltic network reinforcement and interconnectors

• Most of the larger markets for wind have put in place grid improvement/ development plans to incorporate wind

• All the major utilities in Europe have announced large development initiatives.

• Offshore developments will be the cornerstone of the development of utilities including E.ON, Centriica, DONG, Vattenfall or RWE

• New turbine and turbine components manufacturing facilities announced

• Development of larger multimegawatt turbines for both onshore and offshore

Core Assumptions

• Nuclear: EER anticipates that for large net importers of energy such as the UK as well as countries with aging coal and nuclear plants requiring decommissioning, nuclear energy will see an increase in new capacity in Europe toward the end of the forecast period.

• Natural gas and oil: CCGT will continue to account for a significant portion of new build across Europe as a means to increase base load capacity.

• Countries are including the EU’s new 20% by 2020 RES targets in their national renewables capacity planning. To comply with these goals, the countries are devising grid development plans for the long-term integration of wind into the systemwhile redefining its support schemes. Wind is expected to become the single largest contributor of RE sources before the end of the forecast period.

• EER assumes that grid systems will be reinforced to increase wind penetration above 10% in most large, high-growth markets to manage new wind capacity. Substations and undersea transmission connections will be built for offshore plants, especially in the North Sea and Baltic areas where the bulk of Europe's mid-term offshore capacity is planned. However, some short and midterm bottlenecks will continue mainly in the UK and Eastern Europe.

• Most of the larger countries for wind development are experiencing a concentration process through which utilities are amassing important pipelines .

• Over 29 GW of new wind capacity will be added in the region by offshore projects, contributing to 19% of the region’s growth

• In the near future European project developers will not experience turbine shortages as the financial crisis and the consequent demand drop have made a lot of capacity available from OEMs. EER expects this situation to begin to change after 2010-2011as the sector recovers the growth path with over 9.5 GW of new capacity installed yearly. In addition, suppliers are expected to ramp-up capacity for multi-megawatt turbines, increasing turbine supply competition.

2008-2010

2011-2015

2016-2020

Driver Inhibitor Limited ImpactSource: Emerging Energy Research

European Wind Energy Market ForecastsEER Europe Wind Forecast Key Inputs & Assumptions – Base case Scenario

Page 9Asia Pacific Wind Energy Advisory – October 2008

-

2,500

5,000

7,500

10,000

12,500

15,000

2005 2008 2010

An

nu

al S

up

ply

(M

W)

Announced annual China-based assemblycapacityMW Installed

Announced turbine orders for delivery

China Taps Explosive Growth Potential Production Capacity, Turbine Orders, and Demand Aligning for >10GW Market

Analysis

• Turbine production capacity is rapidly accelerating to outpace demand

– An import-driven market in 2005 is rapidly shifting to a well-supplied, booming domestic market by 2010 based on announced assembly capacity investments

– Building out component supply beyond assembly will be crucial to meeting order book demand. Several hundred million US$ in investments are planned for blades, gearboxes, bearings, controls, towers, and other key components.

Order flow is strong, increasing in TSA scale with steady shift to local production

– ‘Big five’ announcing turbine orders of 500 MW or larger with individual suppliers

– Flagship concession projects such as Gansu ‘wind power base’ awarded to local players to build up local industry

Excess assembly capacity, component supply by 2010-2012 likely to create export opportunities

Wind Power Supply Overview

Component-secured supply and demand for local wind power supply will reach equilibrium by 2010, likely driving domestic production toward export.

Status Country

State, Province,

RegionCounty, Subregion Project Name Developer

Installed Capacity

(MW)

P USA AZ Mohave Steel Park I Western Wind Energy 15.00

P USA AZ Navajo Snowflake PPM Energy (up to 99 turbines)

P USA AZ Coconino Sunshine Wind Park Foresight Wind Energy 60.00

P USA AZ Mohave Steel Park II Western Wind Energy 200.00

P USA AZ Coconino 128.00



Page 2

Brazil Wind Energy OverviewMarket Snapshot

• Overall grid quality:

•Significant investment in infrastructure needed in windy northeast

•Stronger grid infrastructure in Southern Brazil

• Project specifics:

•Many projects require extensive transmission build out or low voltage lines due to distance from load centers

• Siting difficulty:

•Relatively few barriers to siting in sparsely populated Northeast

•More challenging permitting process in Southern Brazil, however better grid connection available

• Process:

•Few projects installed, relatively untested bureaucracy for siting however with initial Proinfa projects siting has not been problematic

•5,000MW of project applications registered with energy regulator, roughly 1,200 MW licensed with longer term construction plans

• Energy sector context:

•Need for energy (capacity crunch 2010-2012 due to underinvestment)

• Increasing environmental awareness to diversify from thermal plant

• Renewables policy:

•National government trying to stimulate renewables investment with Proinfa program – stage I supports 1400MW of wind (already contracted)

•However, project economic model faces several challenges:

• Feed-in tariff considered low ($86/MWh)

• High local interest rate

• 20 year PPA with 70% guaranteed purchase

• 60% local content requirements

• Studies:

•Preliminary map of entire country 1999

•MME sponsored map reports total of 143 GW of potential, avg winds of 7m/s in 2001

•Detailed map of Northeast (CBEE), Parana (COPEL), Minas Gerais, Southeastern states

•Multiple private developers conduction site-specific studies, mainly in Northeast

•CRESESB study completed in 2002 supporting government resource study

• Key site areas:

•Ceará ,Pernambuco, RG do Norte in the North

•Santa Catarina in the South

• Developer competition:

•Several foreign competitors present / looking to enter the market (Iberdrola, Janus HCL, Pacific Hydro, Theolia, Econergy, etc.)

•Problematic turbine supply due to local content requirement (60%)

• Turbine supply competition:

•Wobben Windpower (Enercon) has virtual monopoly on turbine supply with local production

•Suzlon entry may increase competition assuming meets local content requirement

•Several announced plants in the process of establishment (Fuhrlander, Impsa, other)

Regulatory Mechanisms

WindResources

Site ApprovalUtility/

Grid Issues Competition

Key Drivers: Brazil’s PROINFA program has created a framework for tendering and licensing wind power in a large market with increasing demand and strong wind resource, with strong international players buying into pipelines.Key Inhibitors: Reaching financial close on projects is still challenging due to level of investment required, limits on equipment imports, high interest rates, insufficient PPA price

Time

Remaining ResourceClass II, III

Repowering, Offshore

High Resource SitingClass I focus

Next Best Resource SitingClass I, II focus

% P

oten

tial R

esou

rce

Dev

elop

ed

USAOffshore

Spain

Germany

France

Canada

Italy

Portugal

AustraliaNew Zealand

Size indicates total forecasted MW installations 2008-2020

EU 2020: Offshore Wind ImplicationsForecasting Methodology


EU 2020: Offshore Wind ImplicationsKey Takeaways

Offshore wind will assume a growing role in achieving the EU’s vision for 2020 by contributing to more than one fourth of total wind growth by 2020 and growing to nearly 33 GW installed

Key European Players, including EPC companies and utilities, are well positioned across mature markets in Northern Europe to realize offshore wind potential

It has taken a coherent EU vision for 2020 renewable energy targets to spur the offshore wind sector. This has led to member states creating conducive market environments to encouraging pipeline development

Ongoing industry expansion through continued influx of utility, turbine and EPC players will create stable industry environment alongside near-term, targeted EU funding support

EU set to lead global offshore expansion with 80% of global offshore wind installed between 2009 and 2020

Documents

Stockholm, Sweden September 16, 2009 Marc Mühlenbach Analyst +34 93 272 6776