023   Vestas annual report 2014 · Group performance

Service business outlineThe service market is expected to grow by 10 per cent in volume annu-ally over the next six years, and the installed base is expected to reach 600 GW in 2020.1) With an expected 44 GW of wind turbines installed each year and an intensified focus on service, the potential of the ser-vice business is significant.2)

The service business requires in-depth knowledge about the wind tur-bines’ performance depending on wind conditions and grid types, but only ties up a relatively low amount of capital. The outcome is predict-ability, strengthening the certainty of the customer business case.

Strategic position and directionThe global wind power plant service market is looking for new ways to create value. To capitalise on this opportunity, Vestas’ new global ser-vice strategy is built on three distinct advantages:

· The wind power industry’s largest installed base of more than 66 GW. · The global footprint of Vestas’ service organisation, which today operates in more than 50 countries.

· Vestas’ unmatched ability to analyse wind turbine data and predict wind conditions anywhere in the world.

Vestas has a strong and historic market presence selling service offer-ings but intends to reinforce this competency even further, e.g. by build-ing sales excellence capabilities in regional service sales functions. With an increased focus on cost optimisation, improved sourcing and leaner work streams, Vestas will be able to further utilise the capacity

and the potential of the service business. In addition, Vestas will im-prove delivery performance of its spare parts through optimisation of its distribution network, better forecasting, and local sourcing.

Ambitions for the future Vestas initiated a reshaping of its service business in 2014. As part of the Profitable Growth for Vestas strategy, the company created a new global service organisation reporting directly to the Group President & CEO. The ambition is to grow the service business by more than 30 per cent over the mid-term, thereby fulfilling Vestas’ strategic objective of capturing the full potential of the service business.3)

Vestas will continue to reduce costs and create additional value for its customers by providing new service solutions and improve sourcing and business excellence.4) Operational improvements will speed up business processes, enabling smoother cooperation across service regions. Stronger customer collaboration will create the foundation for making the necessary commercial changes to fully exploit the potential of Vestas’ service business.

As Vestas aims to capture additional market opportunities, its ambi-tion is to become a fleet-wide service solution partner. This means closer integration with strategic customers to optimise entire fleets of wind turbines with matching service and maintenance strategies. By developing innovative and scalable solutions and best practice in col-laboration with its customers, Vestas will fully utilise its global service organisation across regions and functions.

Sales and market development – service

1) Source: MAKE Consulting: Global Wind Turbine O&M. June 2014. 2) Source: IHS Emerging Energy Research (EER): Global Wind Power Market Forecast 2014-2030 – Fall Update. December 2014 (base case). 3) Read more: Strategy – Profitable Growth for Vestas. Vestas annual report 2014, page 010.4) Read more: Technology and service solutions. Vestas annual report 2014, page 026.

“ The global trend is toward long-term service agreements. We have made adjustments to the service portfolio to match customer demand for greater flexibility, contributing to making 2014 a year of continued growth and performance.”

Christian VenderbyGroup Senior Vice President of Global Service

024   Vestas annual report 2014 · Group performance

Service market share in 2014 Vestas’ service business holds a strong global position, characterised by a full-scale service portfolio and highly skilled personnel.

The majority of Vestas’ wind turbine sales contracts include service agreements, typically running for five to ten years.

Market trends such as in-sourcing maintenance and asset manage-ment have led to more focus on flexibility in the commercial and opera-tional approach. With a comprehensive knowledge database, Vestas is able to forecast both customer output and operating costs, which ensures an important competitive edge. Also, Vestas has improved the tailor-made service solutions and thereby maintains a very strong posi-tion in the market.

Moreover, increased supply chain efficiency, more up-tower repairs, and improved use of predictive and preventive maintenance when the wind is not blowing, will lead to reduced service costs and less lost energy production for the customer.

Regional market share results in 2014In 2014, Vestas’ service order backlog increased by EUR 0.3bn to EUR 7.0bn, and the average duration of the backlog is seven years. Vestas expects the service business to continue to grow with stable margins in 2015.

During the year, Vestas renewed 80 per cent of its expiring service agreements in Europe and Africa, compared to 75 per cent in 2013. In Americas 78 per cent were renewed, compared to 80 per cent in 2013, and in Asia Pacific the share was 49 per cent, compared to 68 per cent in 2013.

In October 2014, Vestas announced a new strategy to secure profit-able growth in China. Along with new wind turbine variants ideal for the Chinese market, Vestas initiated a new and more flexible approach to service. Tailor-made service packages are to be designed and refined in close collaboration with the Chinese customers, for instance by reshap-ing the work flow and increasing flexibility of the delivery model.

Service solutionsIt is increasingly important for Vestas to be able to plan, build, operate, and service complete wind power plants for its customers. Vestas sees a strong demand for, and potential in, tailor-made solutions that pro-vide maximum output and involve minimum risk during the lifetime of the wind power plant.

To reach this objective, Vestas will continue to lower the cost of energy and increase the value of its service offerings through a number of initiatives.

An example is the Vestas’ PowerPlus™ upgrades introduced in May 2014. PowerPlus™ optimises the performance and increases the power output of existing wind power plants by up to 5 per cent, directly ben-efiting Vestas customers’ bottom line. The Vestas PowerPlus™ technol-ogy solutions are part of Vestas’ overall strategy of growing the service business and responding to a strong customer demand to increase power output while maintaining high reliability.5)

Accumulated MW under service agreements

AmericasVestas provides service on 13,630 MW in 10 countries in Americas.

Asia PacificVestas provides service on 6,084 MW in nine countries in Asia Pacific.

Europe & AfricaVestas provides service on 27,398 MW in 32 countries in Europe & Africa.

 Europe & Africa

 Americas

 Asia Pacific

5) Read more: Strategy – Profitable Growth for Vestas – Capture full potential of the service business. Vestas annual report 2014, page 014.

025   Vestas annual report 2014 · Group performance

Vestas PowerPlus™ consists of three product offerings:

· Power Uprate: A modification to the wind turbine control parameters that allows the wind turbines to increase their maximum power output from 1.8 MW up to 2.0 MW and from 1.65 MW up to 1.8 MW. The result is an increased Annual Energy Production (AEP) – generally 1.0-4.0 per cent, depending on wind turbine type and site conditions. Power Uprate is designed for the V82-1.65 MW, V90-1.8 MW and V100-1.8 MW turbines.

· Extended Cut Out: A modification of the wind turbine control parameters that allows wind turbines to capture more wind at higher speeds by extending the maximum wind speed limit from 25 m/s up to 30 m/s. The result is an increase in AEP – generally 0.5-2.0 per cent. Extended Cut Out is designed for the V90-3.0 MW and V100-1.8/2.0 MW turbines.

· The Aerodynamic Upgrades: Vortex Generators, which are a cost-effective solution using small fins that optimise air flow over the blades to improve the aerodynamics and increase AEP of a wind power plant – generally up to 0.8 per cent. Aerodynamic Upgrades are designed for the V82-1.65 MW turbine.

Vestas PowerPlus™ has been well received by customers, and Vestas has already sold upgrades to more than 1,300 wind turbines across the world.

Another example is Vestas Forecasting™. Backed by more than 30 years of wind experience, Vestas has developed advanced forecasting solutions to help make wind power more predictable by delivering more accurate, site specific forecasts at wind turbine, wind power plant, and portfolio level.

Vestas’ climate library and big data processing tools enable Vestas Forecasting™ to deliver a portfolio of forecasting products that maxim-ises Vestas customers’ business case certainty. This service enhance-ment includes power forecast, weather forecast, and seasonal forecast.

Active Output ManagementWind turbines need to be continually serviced to perform consistently at their best. Harsh weather conditions over the course of a wind tur-bine’s typical 20-year lifetime can reduce the overall performance of a site, resulting in a loss of earnings and a poor return on the customer’s investment.

Vestas Active Output Management® service programme (AOM) ensures the highest possible output at all times, so the customer’s return on investment is achievable and more secure.

AOM is tailored to suit desired customer risk profiles and consists of the following five concepts:

· AOM 1000: Without charging a basic fee, Vestas offers the customer a range of services on a pay-as-you-go basis.

· AOM 2000: The wind turbine is regularly serviced, and the customer has an option to buy additional services.

· AOM 3000: A full service solution which includes spare parts and labour. Wind turbine reliability is maximised through both scheduled and unscheduled service.

· AOM 4000: A full service solution aimed at maximising output and uptime, including all required components and a guarantee of traditional time-based availability. The service contract typically runs for up to ten years and may be extended by up to five years at a time.

· AOM 5000: A full service solution designed to minimise production loss. The service contract typically runs for up to ten years and may be extended by up to five years at a time. Under the AOM 5000 service concept, Vestas guarantees a minimum exploitation of the available wind.

Power Plant SolutionsPower Plant Solutions is a collective term for Vestas’ services in the area of planning, projecting, operations, servicing and the constant op-timisation of complete wind power plants.

In its Power Plant Solutions initiative, Vestas transforms many years of experience in monitoring wind turbines and wind power plants into ser-vices that directly increase the return on the customers’ investments.

The range of Power Plant Solutions products include:

· SiteHunt®: Based on input from 35,000 meteorological stations and a comprehensive wind data library, wind resources around the globe are mapped, and the best sites are selected.

· SiteDesign®: Once the site has been selected, Vestas helps its customers identify the most suitable wind turbines and the best on-site position.

· Electrical Pre-Design: Vestas ensures that electricity generated by the wind power plant constantly delivers the maximum output, meeting the requirements and codes of the local power grid.

· Power Plant Controller: Real-time wind power plant control enhances production and increases the level of reliability. This allows the customer to control production and to meet the requirements of the local power grid.

· Vestas Performance Manager: Online or via a smartphone application, the customer gains an overview of how the wind turbines are performing and when they are scheduled for service.

· PowerForecast: Comprehensive historical data for weather conditions and power production are used to calculate the future power production, allowing customers to fulfil grid requirements all across the globe and enhance revenues on the energy markets.

· PowerPlus™: Optimises the performance and increases the power output on existing wind power plants by up to 5 per cent. The Vestas PowerPlus™ technology solutions are a direct response to a strong customer demand to increase power output while maintaining high reliability.6)

By continuously developing new tools, solutions and services, Vestas will expand its service offerings to match the still more diverse cus-tomer requirements to further grow its service business.

6) Read more: Strategy – Profitable Growth for Vestas – Capture full potential of the service business. Vestas annual report 2014, page 014.