European onshore windoutlook 2020 Winning in a new landscape

TABLE OF CONTENTS

List of figures ................................................................................................ 4

Preface ................................................................................................................ 5

1.The European onshore wind market is diversifying in policy, markets and site availability ........................................................................................................ 8

Market-based incentives bring decentralised policy mechanisms and increased competition in the market ...................................... 9

The extent of target achievement varies by country ........................................................................................................ 9

Lower wind sites will be the norm going forward, with site characteristics varying by country ..................................................................................................... 10

Four distinct segments emerge in the European onshore wind market ............................................... 10

2.New capabilities are required to win in the new market dynamics .............................................................. 12

Build to Sell segment needs to drive competitiveness to reduce generation costs to wholesale price levels .................................................. 14

Build to Consume & Sell needs high predictability on costs and returns ........................................ 15

Build to Transfer aims to minimise the risk of project non-conversion .............................................................. 15

3.European onshore wind market to witness four categories of WTG OEM archetypes .................................................................................................... 17

CONTACT

QVARTZ SwedenBirger Jarlsgatan 7SE-111 45 StockholmTel + 46 (0)8 614 19 00

QVARTZ NorwayWergelandsveien 21NO-0167 OsloTel +47 22 59 36 00

QVARTZ DenmarkRyesgade 3ADK-2200 Copenhagen NTel +45 33 17 00 00

MEC Intelligence, India112, Udyog Vihar Phase 4122015 GurgaonHaryana, IndiaTel +91 124 480 2700

3

PrefaceEurope has been an attractive geography for on-shore wind installations with cumulative installation of 135 GW by YE2015, out of the total 410 GW wind installation worldwide. Europe is expected to grow towards 2020, reaching 196 GW by YE2020. Although attractive, the growth in Europe has plateaued during the last three years. At the same time, the installation is expected to come from new markets (Turkey, the Netherlands and Greece) in addition to old markets (Germany, France and Italy) with further opportunities emerging in the service markets. Players in the wind value chain need to un-derstand how they should adapt to growing markets, declining markets (with limited new turbine sales) and service markets.

Out of the 29 countries in Europe with some sort of presence in wind or plans to participate in the wind market base towards 2020, 11 countries stand out as the main markets towards 2020 based on four factors:

• Total installed capacity in the country until YE2015• Total capacity out of warranty in the period 2016-20; i.e. the capacity installed in the period 2010-151

• New capacity expected to be installed in the period 2016-20• Percentage growth in installation in the period 2016-20

54

PL-5.1

SE-6.1

UK-8.5

IT-8.9

FR-10.4

LIST OF FIGURES

Figure P.1 Selecting countries in European onshore wind market based on potential for new turbine sales and services ................................................................. 5

Figure P.2 New turbine and new service opportunity in 11 selected countries ...................................................................... 6

Figure 1.1 The three major trends transforming the European onshore wind industry ............................................... 8

Figure 1.2 Segmentation of European nations on the basis of three key trends ................................................................. 10

Figure 2.1 Impact of changing market landscape on the three owner segments and their evolving needs .......................................................................................... 13

Figure 2.2 Mapping of owner and market segments to indicate needs of players ......................................................... 16

Figure 3.1 Supplier archetypes expected to emerge in the new market dynamics ........................................................ 18

Note: Includes countries with target installation greater than 2.5 GW in 2020Source: EWEA; GWEC; MEC+ analysis

DE

~80% of installation

14,000

49.1

2.3

0 Target installation

57.8

2.42.92.933

8.6

10

12.9

10%

70%

1. Assuming an average warranty contract in Europe of five years.

Fig P.1

Current installed

New

installed

Capacity Growth

1. 2015 cumulative installation (GW)

3. 2016-2020 new installation (GW) 4. 2016-2020 new installation (GW)*

2. 2010-2015 installation (GW) Selected countries that account for 80% of new service market and new turbine sales market

Germany

Spain

France

Netherlands

Italy

UK

Romania

Sweden

Poland

Turkey

Greece

2.53.23.4

4.04.04.64.7

14.5

FR UK SE PL TR IT RO SP EU

DE TR FR IT** SP NL PL GR EU

~80% of installation

SP-23

DE-41.7

RoE

4%

4%

6%

7%8%

17%

31%

23%

FI

GRNLBE

IE

ATPL

IT

SPUKSE

DK

DE

FR

TR

76

The 11 countries contribute to a total of 83% of the new turbine sales market and a total of 86% of the cumulative service market in Europe.

Out of these, four countries (Spain, the UK, Sweden and Romania) are pure service markets, while the remaining seven countries (Germany, the Nether-lands, France, Italy, Poland, Greece and Turkey) are mixed markets due to substantial new installations as well as a sizeable existing installed base for services. However, Turkey emerges as an exception and would primarily be a new turbine sales market because the future installations (next five years) are projected to be twice that of the existing installed base.

Figure P.2 below illustrates the new turbine sales and cumulative service opportunity in the 11 selected countries.

In this report, we consider these 11 countries the “European market” and take a closer look at the dynamics that are shaping the demand of the market. The report will be divided into three sections:

Section 1 highlights the three major trends affecting the European onshore wind market.

Section 2 defines the wind assets’ owner segments and their evolving needs to survive in the changing market landscape.

Section 3 discusses the new archetypes of WTG OEMs that can exist in the future wind market.

Fig P.2 The 11 countries account for 86% of the service market and 83% of the new turbine sale market

Capacity installations (GW)

Note: Countries with a ratio of new installation to current installation between 0.3 and 2 are considered mixed markets, less than 0.3 are pure service markets and greater than 2 are new turbine sales marketsSource: Country wind associations; industry articles; MEC+ analysis

UK Germany

The Netherlands

France

Spain Italy Greece Turkey

Romania

Poland

41.7

8.5

3.1

10.4

23

12.9

3.5 1.2

3

8.6

5.9 92.1 4.7

5.1

3

3 2.410

3.9

0.2

Sweden

60.5

3

2.9

Pure serviceNew turbine salesMixed (service & new turbine)

Current installation (2015)New installation (2016-20)Unachieved targets (2016-20)

98

The Europeanonshore wind marketis diversifying in policy, markets and siteavailabilityThe growth in the European onshore wind market in the last five years has been driven primarily by attractive FiT policies, reduced LCOE and availability of high-wind sites. This has been concentrated par-ticularly in five countries (Germany, Spain, France,

Italy and the UK), which accounted for 59% of the total installations in the EU for the period 2010-15.

Over the years, the industry has matured and three changes are now underway that create a fundamen-tal shift in the market:

• Shift of policy framework from government- regulated incentives to market-based incentives.• Shift of new capacity installations from traditional markets2 to new and emerging installation markets in Europe.• Shift of new installations from high-wind resource sites to moderate/low-wind sites3 due to limited availability of high-wind sites in Europe.

Figure 1.1 illustrates the above-mentioned trends on a map of Europe to indicate the fundamental shifts in market dynamics.

Fig 1.1 The three major trends transforming the onshore wind industry

Shift of policy framework from government-regulated incentives to market-based incentives

7 out of the 11 selected countries have moved into market-based incentive policy

Shift of new capacity installations from traditional markets to new and emerging installation hubs in Europe

Non-traditional wind markets of TU, GR & NL to double installed wind capacity in the next five years

Shift of new installations from high-wind resource sites to moderate to low-wind sites

~57% of high-potential wind sites have already been used

Policy (2010)

Installation (2010-2015, GW)

Land availability (2010) Land availability (current)

Installation (2016-2020, GW)

Policy (current)

Note: Land mapping based on qualitative assessment of available site, wind resource and policy in DE & PLSource: EU Commission; wind associations; EWEA Onshore Wind Statistics; industry articles; MEC+ analysis

2. The traditional wind markets are countries with the highest wind installations to date, i.e. Germany, Spain, France, Italy and the UK.

3. High-wind resource sites are sites with average wind speeds above 7.5 m/s; Moderate-wind resource sites are defined as sites with wind speeds in the range 5.5 m/s to 6.5 m/s; Low-wind resource sites are defined as sites with average wind speeds below 5.5 m/s.

4. Under the CfD scheme, owners bid for lowest tariff; under FiP, owners bid for lowest incentive/premium.

5. Power Purchase Agreement.

Market-based incentives bring decentralised policy mechanisms and increased competition in the markets

As per the 2014 EU Commission directive on incen-tive design guidelines for renewables, it is mandatory for all European nations to migrate to market-based incentives for onshore wind by January 2017. A mar-ket-based incentive policy is one in which the incen-tives are decided through market bidding rather than being set by the government. Under this incentive scheme, the owners compete for the capacity instal-lations through auctions to win projects selected on the basis of lowest bid for incentive/tariff.4

The shift to compliance with the directive is clearly evident in the market, but with different timelines. 6 out of 11 countries, namely the UK, Germany, Italy, the Netherlands, Poland and Spain, have already adopted one or another form of market-based mechanism to set incentives. Two other countries, France and Greece, have also progressed in the same direction, but on slightly different terms and conditions. France has laid out the framework for auctions under FiP post-2016, with the first auction expected in 2017; however, the country has retained FiTs until 2018 to ensure a smooth transition for farms that have secured approvals prior to 2016 under the Ministerial FiT order. Meanwhile, Greece’s wind parks (>3MW and a PPA5 dated after December 31, 2015) will be entitled to feed-in premiums (FiP) with a threshold reference price of EUR 98 per MWh. However, from January 1, 2017, with the introduction of competitive bidding procedures for new wind in-stallation projects, this reference price will be decid-ed through auctions. Lastly, Romania and Sweden are still in the process of finalising the auction design suitable to their markets. However, no clear frame-work for the draft policy is in the pipeline.

Turkey, which is not bound by the EU Commission, is most likely to retain traditional FiTs until 2020 to promote its emerging onshore wind market.

Although the migration to a market-based incentive policy is in the cards, the EU commission has not mandated a uniform compliance to one design of auctions. Each country is free to decide the type of mechanism (CfD, FiP, etc.) for implementation of future projects and design of auctions.

The extent of target achivement varies by country

There is a high degree of variance between coun-tries in terms of the scale of capacity installation in the next five years. For instance, while Germany is expected to install 12.9 GW, Romania will install only 200 MW between 2016 and 2020.

Germany, France and Italy remain strong towards the 2020 targets with a total new installation capacity of about 24.6 GW driven by robust wind targets and a clear roadmap for installation. Turkey is expected to install a record capacity of 10 GW in the next five years, driven primarily by a lucrative FiT incentive available to the country’s onshore wind sector. The Netherlands and Greece are expected to approxi-mately double their capacities by 2020. The Neth-erlands, driven by a clear policy and pre-planned yearly auctions until 2020, are expected to comfort-ably achieve their onshore wind target. Greece, on the other hand, is expected to have its first auction in 2016, but a clear transition policy planned by the government is expected to pave the way for target achievement.

Comparatively, the other traditional wind markets in Poland, the UK and Spain are expected to install an additional capacity of 7.1 GW in the next five years, as opposed to a target of 13.3 GW, because of lim-ited government support for wind projects. Poland, for instance, has recently passed a law that favours fossils over wind with additional taxes, permission requirements and site restrictions on new wind projects. Similar regulatory concerns exist in the UK where the government has no plans yet for second CfD auctions for onshore wind. In Spain, the govern-ment lacks the vigour for new wind projects with the country having seen limited/no new installations in the last two years.

Romania and Sweden have nearly met their 2020 wind targets and are expected to add marginal ca-pacity of 700 MW in the next five years.

Low

<3

FIT/RO

Medium

3-5

CfD/FiP

High

>5

In transition

1

1110

Lower wind sites will be the normgoing forward, with site characteristics varying by country

Five years back, there were multiple suitable sites in onshore wind installations; today, most of the best wind resource sites across Europe have been exploit-ed. Towards 2020, most of the low-wind resource sites are expected to dominate6.

Six out of the eleven countries studied, namely the UK, Spain, Italy, the Netherlands, Germany and France, have partially or fully exploited their high-wind resource sites, and the available land for instal-lation is predominantly low-wind resource.

In Germany, along with the depletion of suitable sites, the introduction of the latest 10H rule7 (amend-ment to the lands construction act), further squeezes the suitable land resources. Legislation similar to the 10H rule has been passed in Poland as well, restrict-ing the land resources available to wind projects.

Sweden faces a different challenge of grid insuffi-ciency, where the windiest sites in Sweden are in the north, while the demand centre is primarily located in the south of Sweden. The lack of grid connecting the two regions would pose the issue of power evac-uation from these sites.

Even though other countries are facing land resource constraints, Romania, Turkey and Greece face little to no constraints in terms of suitable site availability.

Four distinct segments emerge inthe European onshore market

Across Europe, countries can be grouped into “Emerging”, “Stable & Growing”, “Declining” and “In Transition” markets.

Figure 1.2 below illustrates this market segmentation and the opportunity offered by the market seg-ments.

Fig 1.2 Segmentation of European nations on the basis of three key trends

Segment Installation(2016-2020)

Policy Targets Land availability Market potential

Highest wind re-source sites used, but suitable sites exists; DE - new legislation restricts land availability

No visible land constraints

Defined targets postive to future installations

Traditional policy with FiT in place

1. Emerging

2. Stable & Growing

3. Declining

4. In Transition

Market-based incentive policy in place (FiP/CfD)

Stable policy (FiP/ CfD), but wind turbine act in PL adversely affects new installations

In transition to a market-based incentive policy

Defined targets with positive indus-try outlook

Targets exists, but weak outlook of achieving those targets

Targets achieved, but lack of clarity in policy stalls cur-rent installation

UK & SP have ex-hausted best sites while in PL new legislation restricts suitable land avail-ability

Suitable land sites available; SE grid insufficiency im-pedes connectivity to suitable sites

Source: Country wind associations; EWEA Onshore Wind Statistics; industry articles; MEC+ analysis

12.9

10

8.6

3

3

2.4

1.2

3

2.9

0.2

0.5

ServiceNew turbine sales

Low

Low

Low

Low

High

High

High

High

1. “Emerging” marketsThe segment comprises Turkey, where wind installa-tions are eligible for lucrative FiTs. Due to supportive policies and the government’s interest in promoting wind installation, the segment is highly attractive for wind towards 2020 and has a strong growth outlook. The market is predominantly a pure-play turbine sales market for 10 GW new capacity installations in the next 5 years under FiTs.

2. “Stable & Growing” marketsThe segment comprises Germany, France, the Netherlands, Italy and Greece. All of these markets have migrated to market-based incentives and have robust 2020 targets for wind, with clear roadmaps for implementation. Although Germany faces land restrictions (in terms of scarcity and policies), it still has suitable sites for new wind farm installation. Hence, the overall outlook for the segment is posi-tive, and growth is expected to be strong. The mar-ket offers mixed opportunities for advanced turbine sales with 29.9 GW new installations under auctions and an O&M opportunity for nearly 66.2 GW on cur-rent installations.

3. “Declining” marketsThe segment comprises three countries: the UK, Spain and Poland. These are the countries which have been traditionally big onshore wind markets, with 8.5 GW, 23 GW and 5.1 GW of installed capac-ity, respectively. However, due to non-supportive government regimes coupled with land constraints, these countries are expected to see limited growth in the new sales in the next five years. The major opportunity in the markets turns out to be a service opportunity on the already installed 37 GW.

4. “In Transition” marketsThe segment comprises Sweden and Romania. Both countries have met their onshore wind targets for 2020 and have not yet revised their targets. Also, the investor sentiment is not very positive in these countries due to a lack of visibility of future incen-tives available to onshore wind. The segment is thus expected to have limited to no growth towards 2020. The market is a pure-play service market with a ser-vice opportunity of 9 GW.

6. Although low-wind does not necessarily mean that a site is unattractive, it means that the turbine requirement of the site is different. This is discussed in detail in Chapter 2.

7. The distance from a turbine to the nearest building must be 10 times its height; assuming an average turbine height of 150 metres, no installation can be done at a distance of 1.5 km from any sort of settlement.

1312

New capabilitiesare required to win inthe new marketdynamicsThere are many types of players investing and oper-ating farms in the European wind industry. However, there are three predominant business models in the European wind energy business.

A. Build to Sell (electricity)The segment includes Utilities and IPPs that are associated with wind projects at all stages starting from greenfield developments. This is the largest segment, constituting 71% of the current installations in the 11 selected countries. Returns are earned from the sale of electricity over the lifecycle of a project. The owner segment has deep technical know-how across the wind farm value chain and performs ac-tivities from development to O&M in-house. Some of the biggest utilities and IPPs in Europe are Iberdrola and its subsidiaries, EDF, EDPR, E.ON and RWE.

B. Build to Consume & SellThe segment consists of financial investors and prosumers8. The segment is the second-largest in 11 countries with 26% installations based on current ownership. However, for Germany, the Netherlands and Italy, which have a sizeable share of BTC&S (community/investors), we see a predominant trend of Build to Transfer (see below); building a site and transferring the ownership to BTC&S, because the BTC&S segment lacks in-house capabilities of wind farm development. The primary driver for the seg-ment is guaranteed return on investment or self-con-sumption. Although their drivers vary, both the in-vestors and prosumers are also long-term owners of

the wind farms and seek returns through electricity sales. The segment, however, lacks the capability of wind farm development, EPC and O&M and de pends on third parties for these services. The segment is highly fragmented with a large number of players. To mention names, Deutsche Bank, Commerzbank, Morgan Stanley, Allianz and MEAG are some exam-ples of investors, and large industrials, large com-mercial enterprises like Google, IKEA, etc. and large co-opera tives like Thüga Renewables, Bürgerenergie are some key end users.

C. Build to TransferThe segment includes wind farm developers. They earn returns by selling their share in the farms at any stage of the project. The cash generated from sales is used to develop other assets. Due to the business model, the current ownership of the segment is only 3% of installations in 11 countries. The segment brings in the expertise of cost-effective wind farm development and EPC, but does not perform opera-tions. RES, juwi, wpd, Energiekontor, PNE are some of the biggest developers in Europe.

8. Financial investors are generally banks and non-bank entities which invest in wind farms with varying strategies. The key driver for investors is to be able to balance the risk profile of their asset portfolio; windfarms offer fairly stable and recurring returns for long periods of time, unlike other investments in equities or the commodities market. Prosumers, on the other hand, are entities who generate electricity primarily for their own consumption; however, their capacity is fed into the grid and it becomes a source of revenue generation for them. Additionally, they earn some money from the TSO by load-shedding once their demand reaches its peak.

Fig 2.1 Impact of changing market landscape on the three owner segments and their evolving needs

Emerging Stable& Growing

Market Segment*

Declining In transition Outlook Reasoning Evolvingneed

Drive com-petitveness to reduce generation costs to wholesale prices through maximising returns and O&M cost leadership

Minimise risk of project conversion through cost reduction and capabili-ty bridging

Require high predictabil-ity on costs and returns through third-party support across value chain

Lacks capability to bid and compete in auctions for new capacity installations

Currently squeezed in the market due to lack of capability across the wind farm value chain

Advanced capabilities to drive down costs across value chain

A.Build to Sell

B.Build to Consume & Sell

C.Build to Transfer

Note: Ownership mix based on YE15 cumulative capacity in all countries except in DE where no data is available for 28 GW; in NL where data is unavailable for 1.2 GW and in SE, top-17 owner have been analysed, contributing to 2.2 GW (35%) out of 6 GW installed capacity. * Based on current ownership of wind farms. ** Refers to current ownership. For DE, NL, SE & IT on a number of occasions it was observed that BTT originally constructed the wind farm and ownership was later transferred to BTC&S.Source: Country energy associations; Fraunhofer ISE; Climate policy initiative; MEC+ analysis.

The Build to Sell segment is driven by market com-petitiveness. With increased market competition, the segment is expected to leverage existing capabilities across the wind value chain to position itself ahead of the competition.

The Build to Consume & Sell segment needs predict-ability on costs and returns in the new market environment. The segment’s capabilities are re-stricted to the financing and is dependent on a third party for capabilities across the wind value chain to

maintain its share in the new market design. Howev-er, it may choose to stay out of auctions, build farms below the threshold capacity and continue to receive FiTs.

The Build to Transfer segment needs to minimise the risk of being unable to sell projects post-construc-tion. It has a smaller market share, but if coupled with consultancy services from third-party players (for auctions), it stands a better chance of competing due to its low cost of capital and asset-light set-up.

0% share100% share

84.3%

15.7%

0%

53.5%

44.5%

2%

89.2%

7.6%

3.2%

77.7%

8.3%

14%

2

1514

Build to Sell segment needsto drive competitiveness to reduce generation costs to wholesaleprice levels

As wind starts to compete in the wholesale elec-tricity markets9, the prices are expected to decline. Utilities will drive competitiveness by offering the optimum price. This will create multiple needs/capa-bilities.

First, to participate in auctions for new installations and trading production for wholesale and ancillary markets, better forecasting (generation, load and electricity price) capabilities will be required. The segment has capabilities in generation forecasting, but load and electricity price forecasting are clear gaps.

As new wind projects are required to participate in the wholesale electricity markets, it is mandatory for project owners to meet the scheduled generation to avoid penalties. Therefore, grid responsiveness will become an important need for the segment. Current grid compliance products are limited to reactive power compensation and fault ride through; howev-er, reduction of the schedule dispatch period, fast frequency response for more than 14 second dura-tion and bi-directional inverters for energy storage integration through DC input/DC output conversion are major gaps.

Build to Consume & Sellneeds high predictability oncosts and returns

Traditionally, the segment was restricted to the in-vestment part of the wind farm value chain with the intent of earning stable returns in the case of inves-tors and for self-consumption in the case of prosum-ers. The segment has limited/no capabilities of wind farm development/construction and operational know-how.

To participate in the bidding process, the segment needs to mitigate risks and predict costs and returns, which creates three needs for the segment: trading and bidding support to participate in the market, turnkey contracts to avoid any cost surprises and long-term O&M for stable returns.

However, both the owners in the segment, the investors and prosumers may choose to stay out of the auction processes, which offer low transaction certainty and require high transaction costs. Inves-tors can move investments to already operational projects, and prosumers may choose to establish projects below the threshold capacity12 in each mar-ket to qualify for FiTs/Quotas and avoid auctions.

Second, to bid for the optimal price in auctions, multiple plant configurations would be essential to identify the lowest cost of generation. The segment can leverage capabilities of diversified portfolios to test different project configurations associated with scale and source of generation. Hybrid plants and energy storage optimisation can be used to attain configuration, which can drive down the cost of gen-eration and win projects with lowest bids. Success within different configurations will vary by geogra-phy based on local resource availability and techno-logical advancement.

Third, to maximise production, yield maximisation is necessary for both current and future wind projects; the need becomes even more important as new tur-bines are going to be installed at the sites with low to moderate wind speeds. Currently, retrofits of key WTG components and control systems are the most popular methods of yield maximisation; however, there is an increasing need for aerodynamic up-grades, site-specific turbine tuning as well as design improvements.

Finally, to drive down costs, O&M cost reduction is critical. O&M costs constitute 20-25% of the LCOE in current wind installations10, therefore it would be essential to contain the costs through predictive maintenance and hybrid O&M.

Predictive maintenance is used to drive down the cost of maintenance through active monitoring of key WTG parts to avoid breakdown. The current offering in SCADA/CMS provides the data on the health of critical components; however, the segment requires improvement in their performance to offer real-time monitoring and data feeds through ad-vanced SCADA and CMS.

Hybrid O&M contracts, which can reduce the OPEX through selective outsourcing, are also emerging as key needs of the segment, with major players like EDPR, E.ON, Iberdrola and RWE aiming to outsource basic O&M to ISPs11 while keeping strategic O&M in-house along with technological support of OEM. Currently, WTG OEMs offer flexible service contracts; however, future needs require service providers to work as owners’ service partners with higher flexibili-ty, even incorporating third parties on services.

9. Under the new incentive scheme, wind power has to be sold by farm owners in the wholesale electricity market, where they will be compensated on the wholesale market price. The incentive will be calculated as a difference from reference price (decided in auctions) and a monthly average wholesale electricity price. Participation in the wholesale electricity market requires farm owners to participate in two types of broad categories: day-ahead and real-time market.

10. EWEA, 2009, IRENA, 2012.

11. Independent Service Providers.

12. All markets shifting to auctions have designed a minimum MW scale for projects which can participate in auctions; plants below the threshold would continue to be eligible for FiTs/Quotas.

Build to Transfer aims to minimise the risk of projectnon-conversion

The segment operates under the BOT model, where the owners aim to develop wind farms cost-effective-ly, then sell the wind farms to earn returns and utilise these returns for new project developments.

In the changed market dynamics, the segment will face competitiveness from the Build to Sell segment in auctions for new capacity installations, as well as the risk of uncertainty of realising returns from developed wind farms. This requires the segment to provide future project owners with clarity on returns and generation, which creates three needs for the segment: support in the auction process, early-stage investment from owner and cost reduction in wind farm development/construction.

First, the most pressing need of the segment is support in the auction process as the segment lacks both the technical know-how of wind project O&M to calculate the lifetime costs of a wind project, and the knowledge of electricity wholesale markets on which the returns of these projects are dependent. Hence, in order to produce accurate bids, the need is crucial for the Build to Transfer segment.

Second, in order to minimise the risk of no buyers for a plant set up under the auctioning mechanism, the segment needs early-stage investments from future owners of the wind project to ensure the certainty of their returns. The trend is already visible in the market with Energiekontor and Thüga Renewables partnering for participation in German new-capacity auctions.

Additionally, to produce competitive bids in auc-tions, the segment needs to optimise the CAPEX of their wind projects. To this end, the segment is expected to outsource EPC under turnkey contracts to third party/OEM and concentrate on their core ca-pability of project development, or cut costs across the supply chain. MLK, a developer in Germany, has recently outsourced EPC to Vestas along with tur-bine supply and O&M contract for a project, clearly stating that turnkey EPC becomes key for them with auctions coming in, because in such a scenario, they can focus on the core capability of development.

These high-level needs can be mapped by market segments to clearly understand how needs differ by owner segment in each market.

1716

Figure 2.2 below maps the needs by owner segment in each market segment.

The “Emerging” market segment (Turkey) is primar-ily CAPEX-focused and driven by FiTs, hence the Build to Sell owner segment needs low CAPEX WTG, low-cost EPC/development, low-cost spares as well as cost reduction through predictive maintenance. However, in “Stable & Growing” and “Declining” markets, the new capacity will be installed through auctions, the Build to Sell owner segment needs forecasting capabilities, yield maximisation, hybrid

Fig 2.2 Critical needs within market segments by owners

Build to Sell(Electricity)

Utilities and IPP

Build toConsume & Sell

Investorsand Communities

Build to Transfer

Developers

Emerging

Yield maximisation Yield maximisationYield maximisation

Energy storage Energy storage Energy storage

Hybrid O&M Hybrid O&M Hybrid O&M

Predictivemaintenance

Predictivemaintenance

Predictivemaintenance

Predictivemaintenance

Grid responsiveness Grid responsiveness

Low CAPEX WTG

Low CAPEX WTG

Low CAPEX WTG

Low EPC /development costs

Low EPC /development costs

Turnkey & EPC Turnkey & EPC

Trading & bidding support

Trading & bidding support

Trading & bidding support

Low EPC /development costs

Early-stageinvestment

Early-stageinvestment

O&M support O&M support O&M support

Low-cost spare parts mgmt.

Forecasting Forecasting

Stable & Growing Declining In transition

Source: MEC+ analysis

O&M contracts and grid responsiveness. The Build to Consume & Sell and Build to Transfer segments, on the other hand, would primarily require trading and bidding support. Within “In Transition” markets, which are service-driven, operational excellence is key. For the Build to Sell segment, focus is thus expected to be on energy storage, hybrid O&M and predictive maintenance. For Build to Consume & Sell, the primary need is O&M support.

Low-cost spare parts mgmt.

Low-cost spare parts mgmt.

Low-cost spare parts mgmt.

European onshorewind market to witness four categories ofWTG OEM archetypesWind markets are changing and farm owners’ needs go beyond just the conventional turbine solutions. To cater to these evolving needs, WTG OEMs will have to develop products and technical capabilities to of-fer relevant services. The OEMs will have to focus on two dimensions: commercial solutions and ancillary technical solutions.

The right combination of these two types of services will decide the relative positioning of the OEMs in the landscape. For commercial solutions, for exam-ple, OEMs will have to think about creative prod-ucts but not limited to low CAPEX turbines and/or turnkey solutions. For ancillary technical solutions, players will have to start investing in technology that can perform intricate modelling for price forecast-ing. Similarly, monitoring solutions are needed for predictive maintenance of turbines at the wind sites to optimise the O&M costs.

Based on commercial and ancillary technical capa-bilities, four archetypes of OEMs are expected to emerge in the European onshore wind market: lead-ers, challengers, followers and laggards.

3

Leaders (Dual business model)Leaders are players in the market with vertically integrated structure and focus on two aspects of the wind market. They have capabilities to offer services across the value chain (EPC, turnkey solutions), and simultaneously make investments to build ancillary technical service capabilities of forecasting, ad-vanced monitoring, etc.

Challengers (New Chinese model)Players with an asset-light model, but strong R&D capabilities (model similar to new Chinese busi-nesses). These players could be niche WTG OEMs or OEMs who partner with technology specialists or dedicated technology companies. They develop commercial solutions without significant CAPEX but focus on submodules, and they have built their technology capabilities through stringent R&D and patents.

Followers (Current Chinese model)Players primarily focusing on lowest cost offering within turbine, EPC and core commercial solutions. The segment is expected to be restricted to a singu-lar need of cost effectiveness of the asset owner, and have limited focus on advanced technical tools and capabilities.

Laggards (Current European model)Laggards are the players who would continue to focus on turbine R&D related to components, with limited focus on developing ancillary technical solu-tions or integrated commercial solutions required in a new market space.

Figure 3.1 on page 18 explains the relative positioning of these players across dimensions of requisite tools and commercial capabilities.

1918

Up for a chat about European onshore wind? Contact Thomas G. Arentsen, Anders Roed Bruhn,Henrik Madsen or Sidharth Jain.

Fig 3.1 Four archetypes of suppliers expected to emerge in the new market dynamics

Future

Current

Req

uisite technical too

ls

LaggardsPlayers lagging with products which do notaddress the future needs of the asset owners

FollowersPlayers with focus on cost reduction for asset owners across the wind value chain (Current Chinese model)

Load/demandforecasting

Forecasting

Generation forecasting

Wholesale electricity price

Bi-directional inverters

Schedule dispatch upgrade

Yieldmaximisation

Fastfrequency response

Reactive power com-pensation

Fault ride through

Hybrid O&M

Battery

Spare parts supply

O&M support Turnkey & EPC

Trading & bidding support

Low cost spare parts mgmt.

Grid respon-siveness

Capability bridging

Modular maintenance with ISP & OEM

Advanced SCADA with real-time inputs

SCADA

Flexible OEM offering

Low CAPEX WTG

Low EPC/ development costs

Inventory management software

Predictive maintenance

Tuning &optimisation

CAPEX reduction

RetrofitWTG design improvisa-tion

Aero-dynamic upgrade

Power to gas

Energystorage

ChallengersPlayers with asset-light model offering advanced technical tools within asset operations andmanagement through R&D focus (new Chinese model)

LeadersPlayers offering integrated solutions fortechnical products and commercial capabilitiesby leveraging their vertically integrated energy business

Integrated solution for requisite tools and commercial solution

FutureRequisite commercial capabilities

Source: Country wind associations; EWEA Onshore Wind Statistics; industry articles; MEC+ analysis

Anders Roed Bruhnanders.roed.bruhn@qvartz.com+45 29 69 69 33

Thomas G. Arentsenthomas.g.arentsen@qvartz.com+45 29 69 69 30

Henrik Madsenhenrik.madsen@qvartz.com+45 29 69 69 16

Sidharth Jainsidharth@mecintelligence.com +91 98 105 33 550

The future looks attractive, but also demanding. The winners will have to be even more sharp in their positioning and internal capabilities.

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Germany Turkey France TheNetherlands

Greece Italy Poland Germany Turkey France TheNetherlands

Greece Italy Poland

Products

Low-moderate wind resource turbine

Advanced WTG offering with fore-casting, grid responsive-ness & yield maximisation

Trading & Bidding support for BTC&S and BTT segment

Service

Production- based guarantees & performance upgrades for BTS

Partnership/ M&A with ISP

Long-term O&M con-tracts for BTC&S

Retrofits for grid respon-siveness

Products

High-wind resource turbine

Low CAPEX WTG through local manufactur-ing of key components

Service

Time-based availability guaran-tee O&M contracts (5 years) at time of sales

Products

Low-wind resource turbine

Advanced WTG offering with fore-casting, grid responsive-ness & yield maximisation

Service

Hybrid O&M contracts with per-formance upgrades to top players in BTS seg-ment

Products

Low-wind resource turbine

Advanced WTG offering with fore-casting, grid responsive-ness & yield maximisation

Trading & Bidding support for BTC&S and BTT segment

Service

Long-term O&M con-tracts for BTC&S

Repowering

Products

High-wind resource turbine

Advanced WTG offering with fore-casting

Service

Long-term O&M con-tracts for BTC&S

Repowering

Products

Low-moderate wind resource turbine

Advanced WTG offering with fore-casting, yield maximisation

Service

Production- based avail-ability guar-antee O&M contracts for 10-15 years

Reliability- based upgrades

Repowering

Products

Low-wind resource turbine

Advanced WTG offering with fore-casting

Service

Hybrid O&M contracts for owners with larger capacity

Long- term O&M contracts for smaller owners

Market opportunities

Siemens to have limited pipeline (due to shift of focus from onshore to offshore wind)

Vestas:386 MW

Out of the 1,869 MW under con-struction:

Enercon:444 MW

Siemens:459 MW

Nordex:406 MW

GE:293 MW

Vestas:188 MW

Based on 932 MW of order book, share of OEMs:

Vestas:328 MW

Gamesa:243 MW

Senvion:106 MW

GE:120 MW

Nordex:96 MW

Pipeline data not available

Vestas: 66 MW

Nordex: 32 MW

Siemens: 10 MW

Enercon: (NA)

Siemens: 195.2 MW

Senvion:78 MW

Nordex: 46.5 MW

Vestas: 40 MW

Enercon: (NA)

Pipeline data not available

Announced pipeline(for the next1- 2 years)

Top-six players have WTG man-ufacturing base set up in Germany and also use them as export hub for Europe

Enercon and GE have local blades and tower manufactur-ing base

Vestas has local supply partnerships for compo-nents, spares and services

Only Enercon, which covers 23% of the market has its manufac-turing base in France

Rest of the WTG OEMs import from the neighbouring countries

None of the top WTG OEMs have manu-facturing base in the Netherlands

WTGs are primarily im-ported from Germany

No player has manufac-turing facility in Greece

Only Vestas has its WTG manufactur-ing base in Italy

No player has manufac-turing facility in Poland

Supply chain/manufacturing base

Utility-scale wind farm (>=750kW)

Sliding FiP (CfD) mechanism

Small-scale wind farm (<750kW)

Incentivised through FiT

FiT policy in place

Additional incentive for local content procurement

Utility-scale (>=500 kW)

FiP intro-duced for new wind farms post 2016; FiTs retained till 2018 only for farms that received ap-proval before 2016

Small-scale (<500 kW)

Incentivised through FiT

Utility & small-scale

Sliding FiP (CfD) mech-anism with increasing strike price based on capacity thresholds

Utility-scale (>=3MW)

New wind farms with a PPA dated after December 31, 2015 will be entitled to Government- regulated FiPs until end of 2016

Starting January 1, 2017, auc-tion-based incentive scheme to be imple-mented

Small-scale (<3MW)

Insentivised through FiTPPA dated

Utility-scale (>=500kW)

Incentive (FiP) is a combination of fixed tariff, premium/bonus and wholesale electricity prices

Plants >5MW required to fill tenders for approval on additional parameters along with price

Small-scale (<500kW)

Insentivised through FiT

Utility-scale (>=500kW)

Sliding FiP (CfD) mechanism

Small-scale (<500kW)

Insentivised through FiT

Policy

Installed base (WTG OEMS, GW)

00.702.303.705.806.710.811.7

0.20.71.2

1.20.21.1

0.61.51.92.81.22.4

0.50.40.70.83.61.91.2

0.6

0.3

2.20.61.5

0.3

0.20.21.4

0.9

0.2

1.00.40.5

RestGE (incl. Alstom)Nordex (incl. Acciona)SenvionVestasSiemens (incl. Gamesa)Enercon

2322

BTC&S

Fragmented market, community windfarms dominate

BTS

Demirer enerji

Bilgin enerji

Aksa

BTS

Engie

EDF

Boralex

RES

BTS

RWE

Vattenfall

BTC&S

Yard energy

Growind

BTS

Terna energy

EDF

Iberdrola Rokas

BTS

ERG Renew

Enel green

FRI-EL

BTS

EDP renewables

PGE Energia

Invenergy

Primarycustomers

Low and moderate wind sites re-quire installa-tion of Class II or Class III turbines

High-wind resource sites availa-ble for new installations

Recent tur-bine orders indicate a demand for Class I to Class III turbines

High-potential wind sites to be exhaust-ed within the next 1-2 years

New installa-tions will be in low-wind sites with majority installations with Class III turbines

Only low-wind sites available for future installations as high- wind sites have been exhausted

High-potential areas exist but are un-exploited due to lack of grid inter-connections

Recent or-ders indicate a demand for Class I turbines

High-wind resource sites have been ex-hausted

Repowering is the key to meet the 2020 target

Currently, Class II and III turbine orders have been ob-served

Predomi-nantly a low-wind resource region

Site characte-ristics

WTG OEMs are the de-fault service providers; poor per-formance of certain OEMs has led to ISPs gaining market

Selected BTS players have acquired ISPs to develop in-house capability

Avg. contract duration*: 15-20 years

Value-add services: Leading BTS segment players are inclined towards per-formance up-grades; Grid compliance retrofits for regulatory requirements

Only EDF has in-house capability; Limited ISP presence, OEMs expected to dominate service mar-ket for next 5 years

Avg. contract duration*: 5–10 years

Type: Time-based availability contracts

Value-add services: No upgrade contracts yet

WTG OEMs are the pri-mary service providers; 3 out of top-10 farm owners have in-house service ca-pability; ISPs expected to gain share in future

Avg. contract duration*: 10 to 15 years

Value-add services: Retrofit market unexplored; Top-3 players in BTS seg-ment have installed performance upgrades

Presence of both WTG OEMs and ISPs in the service mar-ket for BTS segment; Enercon has large service market share of BTC&S segment

Few own-ers have in-house capability

Avg. contract duration*: 10-15 years

Value-add services: No major upgrades observed; Repowering projects un-dertaken by top owners

WTG OEMs are the dominant players; two out of top-10 owners have in-house capabilities; Limited ISP presence

Avg. contract duration*: Preferred 10 to 15 years

Type: Time-based availability contracts

Value-add services: No upgrade contracts

Owners have no in-house capability; WTG OEMs are primary service pro-viders with presence of a single ISP

Avg. contract duration*: Preferred 10 to 15 years

Type: Production- based availability contracts

Value-add services: Upgrades for increasing reliability, no visible contracts for performance upgrades

4 out of the top-10 owners have in-house service capabilities, but for high technologi-cal support prefer WTG OEMs; WTG OEMs service other small owners; limited ISP presence but expected to gain share in future

Avg. contract duration*: 15 to 20 years

Value-add services: No visible contracts for performance upgrades, except for EON partnering with GE for performance upgrade

Service market

One license, one approval authority permit pro-cess

Environ-mental Impact Assessment (EIA) manda-tory for wind farms with >20 turbines

Approval period: 3 months (simplified permit), 7 months (full permit)

Government initiated a proposal for single window au-thorisation. However, timelines for imple-mentation uncertain

Single window authorisation by French Commission for Energy Regulation (national level body)

Approval pe-riod: Within 10 months of applications

Multiple license re-quirements: environmen-tal permit, water license, nature conservative permit, other permits in connection with air trafficking and radar stations

EIA required for farms with >10 turbines

The licensing process is regulated with multiple certificate re-quirements: environmen-tal approval, installation license, building permit and operations license

One author-isation body (Gestore Servizi Energetici) covering all permits and approvals

Not only the current process of obtaining various approvals complex

Additional requirement of obtaining an opera-tions permit every two years from the Technical Supervision Officers makes it ex-pensive and cumbersome

Approvals/permit process

Wind farm owners prefer experienced developers over WTG OEM for EPC

Top OEMs primarily supply tur-bines, with limited turn-key contracts by Nordex

Nordex and Enercon have offered EPC contracts in the past

Current pipe-line is pri-marily under Utilities/IPPs developing their own farms

“WTG supply & installa-tion” model prevalent throughout France

Gamesa and Nordex have offered turnkey con-tracts, but account only for 1% of the total share

No visible EPC con-tracts with WTG OEMs

Local inves-tors either develop farms on their own or team up with developers

Wind farm development is primar-ily done by owners themselves with limited third-party contracts

Small wind farm owners in the past have signed turnkey con-tracts with WTG OEMs like Nordex, Enercon and Gamesa

Top owners have mixed contract-ing model, partially choosing to outsource and partially to contract third-party developers

Turnkey contracts are also visible for WTG OEM, Nordex

Gamesa and Nordex have operated in turnkey basis or acted as project developer through its subsidiaries

EPC/ infrastructure

* Based on WTG contracts studied in the last 2-3 years.

Germany Turkey France TheNetherlands

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