international management and executive search consultants
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International Management and Executive Search Consultants
allocate
“Stormy Weathers” in the European Wind Power sector – how to keep the pace?
Dr. Jörg Fabri allocate International, Managing Partner
Presentation at EcoSummit Düsseldorf, 15. November 2012
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Investment “hot spot”: more than $ 200 billion investment annually in Renewable Energy
Comments New investments in Renewable Energy by sector Q1 2004 to Q2 2012 in bn. $
Source: allocate, Bloomberg
Is the Renewables sector prepared for further growth if subsidization is decreasing?
• Global new investments in renewable energies is app. $ 200 billion annually
• Since peak in 2011 decreasing volumes • Share of wind investments is 33% • VC/PE share stable at low level $ 8 bn. • New class of investors entering rene-
wables markets: low interest levels for low risk assets directs attention to renewables with infrastructure characteristics
New investments in Renewable Energy
Initial growth to a large extend driven by subsidization and legal framework
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Capacity figures wind Europe in MW
Success story: wind power is becoming a significant pillar in the European power production
Source: EWEA, allocate
Breakdown European generation capacity mix (in %,2000 vs. 2011)
Annual on and offshore wind installations in MW, Europe, 2001 to 2011
Significant pillar in Europe - Germany alone plans to add 25-40 GW until 2030
Cumulative 94 GW
Absolute MW
2
10
2000 2011
other
PV
Wind
Large hydro
Fuel oil
Gas
Nuclear
Coal
However, recently significant challenges occurred to proceed with the projected pace in developing the wind power sector
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Investment needs Wind parks and grid connections
Status 4/2012
1 17.09.12 Studie "Daten zur Umwelt 2012” 2 Source: CO2 Newsletter, Umweltbundesamt, allocate
• Installation of 25 GW until 2030 planned
• More than 120 billion € total investment (based on 4,5 mn. €/MW)
• Planned/ approved offshore volume 50GW
• Central pillar of German power generation:
- 25 GW produce 17% of today‘s electricity demand (50 GW accounts for 33%)
- Key challenge: integration with the grid and transport to main consuming areas
Very ambitious plans but problems increase with the implementation….
Huge growth ambitions: Germany has planned to install 25 GW until 2030 offshore Wind parks German North Sea (German economic zone only, AWZ)
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Bandwidths in wind investments
Investors’ perspective: not all wind is the same – onshore and offshore wind investments with different risk-reward profiles
Attraction of different investors: infrastructure funds focusing on the low risk profile of Onshore Wind – PE investors on high IRR of Offshore Wind (if the risk can be managed)
KPI onshore
EPC Cost € ‚000/MW ~1400 ~30001
offshore
Capacity Utilization 20-35% 30-45%
Investment Cost €/kWh ~80 – 46 € c ~114 – 76 € c
Operating Cost 1.5 – 1.8€c/kWh 2.2 – 2.8€c/kWh
Debt Service Cover Ratio @ P90 1.25 1.3 – 1.5
Proj. Financial Leverage 70 – 75 % 55 – 65 %
Equity IRR @ P50 9 – 12 % 14 – 18%
1 Site dependent
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Investment uncertainties
Investors are becoming increasingly reluctant towards wind power investments
Technical
Subsidies
Grid connection
Operational
Obvious high first mover risks in deep water offshore wind, grid uncertainties and reduced subsidization currently reduce investors’ appetite
Risks Description
Source: allocate
• Near shore/ 40+km offshore experiences uncovers a magnitude of unexpected problems (foundations, ship & employee bottlenecks,…)
• Deep water pioneer project BARD with big financial problems
• Feed in tariffs guaranteed for 10 year, planning cycles are 25 years • Decreasing willingness to grant new subsidies, trend to reductions & caps • Government tries to avoid another „solar bubble“ due to over subsidization
• Sales risks, TenneT with problems to connect the wind parks to the grid • Planned state guarantees still have to pass the parliament • New annual grid plan will coordinate grid and generation build up
• Limited experience in „true“ operational costs esp. maintenance. (manufactures often guarantee for 20 years only)
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NEX Clean Energy Index, 2003 to 2012
Source: Bloomberg 2012, allocate
How can Renewable Energy companies regain the confidence and backing from the Capital Markets?
Capital Markets’ view: Clean Energy Stock index has come back to the level of 2003 Performance of renewable stocks
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Overview of investment per MW over exposure1)
Costs of offshore wind parks increase significantly with distance to coast & water depth…but do the profits as well?
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Source: Company web pages; allocate research Remark: other parameters such as turbine capacity not considered in this analysis 1) Exposure = distance to coast [km] + water depth [m]
Cost per MW installed [EUR m]
Exposure1)
1,5 1,8 1,9
3,3 3,5
2,2 2,7
3,7 3,6
4,2
3,5 3,5
0
1
2
3
4
5
6
10 20 30 40 50 60 70 80 90 100 110 120 130
Lill- grund
Thanet Belwind
Alpha Ventus
Global Tech 1
Horns Rev2
Nysted
Egmond am Zee „Official“
figures
Will this be sufficient?
Borkum West II
London Array Thornton
Banks Ph. 2+3
BARD Offshore 1
EUR 250m for 60 MW
With more distance to coast the operational (wind) hours increase – thus the higher investment might pay back by higher energy output per installed MW (but risks increase)
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Changing rules of the game
Decreasing subsidies and entering new life cycle phases change success factors in the wind industry significantly . . .
Operational Excellence - Go to Market Strategy - Cash optimization are becoming key to stay in the game and to proceed with the growth
Comments Life cycle wind industry by segment –illustrative -
Introduction Growth Maturity Saturation
Euro
Sales Profit
Time
Offshore
Onshore
• Readiness and willingness of governments to subsidize renewables decreases (esp. in Germany)
• New success factor need to be mastered due to the progress in life cycle - Onshore entering maturity phase - Offshore leaving pioneer phase
• Financial crisis has dramatically increased the equity required in the industry
New strategies and operational concepts required to stay competitive Innovation Production Operational
Excellence Sales
Life cycle phase
Critical success factors
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Implications for manufacturers suppliers and operating/service companies
…with significant implications for the industry
Main implications
Industry Concentration/ Consolidation i.e. reduction of the number of competitors
Adaptation of Business Systems required
Operational Excellence becomes “key ” to sustainable profitability
The wind power industry has to adopt consequently to the new conditions to maintain the attractiveness for required investments
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Market concentration by selected industries – Herfindahl index , 2011
Industry structure: Herfindahl index indicates that significant industry consolidation might be required to secure profitability
Remark: maximum Herfindahl-Index is 10.000
266
358
737
Solar Modules
Airlines
Wind Turbine
Degree of industry concentration not concentrated moderate high
1600
Scenarios indicate that top 3 wind players have to double its market shares to reach moderate industry concentration / competitive rivalry
Scenario assumption: Top 3 players double their market shares
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Example: Owner-/ Operator stage of value chain
Business systems: industry players need to redefine their role in the wind power value chain
Different business models are applicable – which require a match with their specific key success factors
Service businesses
Development and Planning
Identification &
Feasibility Study
Owner- & Operatorship Building
very high very high high moderate
Existing strategy
type
Integrator e.g. RWE
Extended Operator e.g. DONG
Operator e.g. EnBW
Pure owner e.g. Insurances
Lever
Developer e.g. PNE
Owner- & Operatorship
Hardware e.g. turbines Other e.g. finance Services
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Example with selected offshore KPIs
Operational Excellence: future “key ” to sustainable profitability in wind power
Huge deviation of manageable OPEX – Operational Excellence with huge impact on profitability
1 includes contingencies Source: KPMG , allocate international
3,8 3,3 Mio € / MW CAPEX1 3,5
max min
Target Project
Average
3,6
36,7 20,1 € / MWh OPEX 35,0
25,5
52 41 in % Wind yield 49%
44
Projects Offshore
Limited bandwidth
Mana-geable
Site depen-dent
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Example: Maintenance strategy wind parks
Operational Excellence: Minimizing total operating cost in wind power operations by a tailored maintenance strategy
Optional maintenance strategies Downtime by reason / components
Source: IWES, DEWI, allocate
Total operating and maintenance cost Cost of repairs
• State based strategy • Time/periodic based
strategy • Event/crash based strategy • Mix
Strategy 1 Strategy 2
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Activities
allocate International supports clean energy companies across the whole set of their key challenges
Investment planning
CF1 CF2 CFn
1+r + + + …
1+r2 1+rn NPV =
Structures and processses
Financing
Business planning
‘13 ‘08 ‘09 ‘10 ‘11 ‘12
equity Total value
Portfolio development
/
+
x
x
x
-
Real value added ratio
Turnover
Real value added
Total waste
PHEK PCB ECU
plant
PHEK PCB ECU
plant
Fixed costs PHEK fix PCB ECU
Cost of inspections
Variable waste +
Cost of rework
Cost of shipping
errors
Cost per inspection employee
# of inspections
Average cost per shipping error
# of shipping errors
Cost per direct employee per hr
Time for reworking PCB ECU
Operational Excellence
Combining and implementing different key success factors in Wind Power
Success in Clean Energy businesses
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Anton J. Setter Partner Management Consulting allocate International GmbH Plange Mühle 3 (Medienhafen) D-40221 Düsseldorf Tel.: + 49 211 137 233 21 Fax.: +49 211 137 220 87 Mobil: +49 177 8387611 E-Mail: [email protected] www.allocate.de
Dr. Jörg Fabri Managing Partner Management Consulting allocate International GmbH Plange Mühle 3 (Medienhafen) D-40221 Düsseldorf Tel.: + 49 211 137 233 21 Fax.: +49 211 137 220 87 Mobil: +49 177 340 5095 E-Mail: [email protected] www.allocate.de
Arnd Fabri Managing Partner Executive Search allocate International GmbH Plange Mühle 3 (Medienhafen) D-40221 Düsseldorf Tel.: + 49 211 137 220 88 Fax.: +49 211 137 220 87 Mobil: +49 179 204 3328 E-Mail: [email protected] www.allocate.de
Thank you for your attention – we would be pleased to discuss with you! Contact details for further discussions