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The Risks of Market Relocation: Addressing the Challenges of a Global Industry

European Wind Energy Advisory

Zaragoza, Spain 25 September 2008

Eduard Sala de VedrunaSenior Analyst+34 93 467 [email protected]

ID#EW 975-080925

European Wind Energy Advisory – September 2008

The Risks of Market RelocationAgenda

– The Wind Power Market Today

– Wind Turbine Supplier Manufacturing Presence

– Relocation considerations: Wind Power Demand, Component Supply, and Policy

– Wind Turbine Supplier Major Expansion Plans

– Addressing the Key Challenges of a Globalised Industry

– Conclusions


The Risks of Market RelocationWind Power Installed Base by Region

56.7 GW18.8 GW

507 MW

597 MW

17.4 GW

Source: Emerging Energy Research

Europe remains the leading wind power region, accounting for 60% of the global installed base, although the US and China have surpassed Germany and Spain as

largest growing markets, accounting for nearly 45% of capacity added in 2007


The Risks of Market RelocationMain Wind Turbine Supplier Manufacturing Presence

USA:AccionaClipperDeWindFuhrländerGEGamesaMitsubishiSuzlon RepowerVestas

Spain:Acciona, AlstomEozen, GE, GamesaM-Torres, Vestas

China:Acciona, Dongfang, GEGamesa, Goldwind, NordexSewind (Shanghai Electric)Sinovel, Suzlon Repower, VestasWindey, Winwind

BrazilEnercon

Turkey:Enercon

GermanyEnercon, FuhrländerGE, Multibrid, NordexSuzlon Repower,Vestas

ScandinaviaEnerconVestasWinwind

CanadaGEAAER

IndiaEnerconSuzlon RepowerVestas

Denmark:Siemens

JapanMitsubishi

AustraliaVestas

UK:Vestas

Italy:Vestas

1-5 players

5-10 players

>10 players

Key

Source: Vendors, Emeging Energy Resesacrh

In the past two years, wind has become a global industry with leading players establishing a transnational presence to serve booming demand in new markets

Source: Vendors, Emerging Energy Research


While Europe will remain the largest wind power region, demand will become increasingly diverse with North America and Asia accounting for a growing share

of global installed base

The Risks of Market RelocationMarket Demand by Region

Source: Emerging Energy Research* EER April 2008 forecasts with US June 2008 revision

0

100,000

200,000

300,000

400,000

500,000

600,000

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

Meg

awat

ts

ROW

North America

Asia Pacific

Europe

Cumulative Installed Capacity by Region *


The Risks of Market RelocationTurbine Supplier Component Sourcing Strategy

Gearbox

Bearings

Controls

Generators

Blades

Castings

Towers

In-house Production Outsource Production

Consensus Positioning among top 20 suppliers Key Pinch Point


Regional diversification and component shortages are forcing turbine vendors to reconsider procurement models - establishing relationships with

new suppliers, considering acquisitions, or adopting hybrid-sourcing models


The Risks of Market RelocationPolicy Driving Relocation

Favorable customs duties/export credit assistance/financial and tax incentivesLocal content requirement/ high import duties

Combination of “carrot” and “stick” policiesSource: Emerging Energy Research

Policy has played an important role in relocation, with governments using carrot and stick mechanisms for stimulating the creation of a local wind manufacturing

industry


The Risks of Market RelocationTurbine Supplier Major Capacity Expansion Plans

XXX

X

X

X

X

X

X

North AmericaEurope Asia ROW

Source: Vendors


The Risks of Market RelocationAddressing the Key Challenges of a Globalised Industry

Political Challenges

•Increased exposure to wind policy framework changes i.e. end of PTC in US

•Corporate environments with diverse patent, labor, tax regimes

ManagementChallenges

Level of Risk*

•Lack of local know-how, skilled labor force

•Controlling and maintaining standards of quality across regions

•Managing international workforce

•Relocating home market talent to start foreign operations

•Training programs•Recruiting from top local engineering/business schools for skilled jobs

•If negative change impacts local market, export to other countries in region

•Rely on local admin. and support team with experience in local operations

Low to medium level of riskMedium to high level of riskHigh level of risk

*Level of risk changes over time in each market and as the industry matures


Wind turbine suppliers must address a number of challenges associated with running a transnational operation …


The Risks of Market RelocationAddressing the Key Challenges of a Globalised Industry

Supply chain management and

Logistics Challenges

Level of Risk*

•Component supply value chain management

•Transportation and cost issues•Location choice•Exacerbated component supply bottlenecks

•Assure quality levels•Maintenance, repair of critical components

•Component suppliers following in footsteps of clients (OEM) setting up production sites in new regions

•Local component suppliers emerging

Low to medium level of riskMedium to high level of riskHigh level of risk

*Level of risk changes over time in each market and as the industry matures


… among which logistics and supply chain management are critical


The Risks of Market RelocationConclusions

• Europe remains the largest wind power region, although global demand is shifting to North America and Asia, creating new opportunities and challenges for industry players

• Wind turbine suppliers expanding their manufacturing presence to meet regionally diverse demand, following different levels of delocalization

• While geographic diversification of demand has played a key role in market relocation, policy has also played a part in driving wind turbine suppliers to establish manufacturing operations in key markets

• While leading vendors like Vestas, GE, Enercon and Gamesa lead the way in regional expansion, smaller players like Acciona, Nordex, Multibrid are now looking to increase their share of the global market by moving to new wind power demand hubs

• Although regional diversification represents significant benefits, wind turbine suppliers face significant political and operational challenges when moving abroad

• To make Spanish/European manufacturing competitive, vendors have to look for economies of scale and leverage quality advantage as China increasingly competitive on cost

• Globalization has to be seen as an opportunity. Design and IP are Spanish/European companies’ competitive advantages


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© 2008 EMERGING ENERGY RESEARCH, LLC. All rights reserved. Reproduction of this publication in any form without prior written permission is strictly forbidden. The information contained herein is from sources considered reliable but its accuracy and completeness are not warranted, nor are the opinions and analyses which are based upon it.

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