Flying High on Winds of Change: Role of Wind Energy Legislation in Developing Economies

Sweta Ramchandran, Research Analyst Economic Research & Analytics Division

Energy & Power Systems October 07, 2009

2

Focus Points

Effects and Impact of Economic Downturn: Emerging Economies

Stimulus Measures: Emerging Economies

Effects and Impact of Economic Downturn: Global Wind Energy Market in 2009

Market Dynamics

Global Installed Wind Power Capacity

Need for Wind Energy Legislation

Asia

India

China Pakistan and Bangladesh East Europe Poland Czech Republic

Roadmap Beyond 2009

Global Wind Energy Market

Wind Legislation in Developing Economies

Ranking of Countries Based on Emerging Opportunities

Drivers Directing Global Wind Energy Market

Growth Opportunities in Global Wind Energy Market

33

BrazilWithdrawal of Foreign Institutional Investors (FII) inflows, currency

depreciation, slowdown in export of oil and other commodities

BrazilWithdrawal of Foreign Institutional Investors (FII) inflows, currency

depreciation, slowdown in export of oil and other commodities

ChinaFall in exports, reduction in trade and

investment

PolandEuropean banks withdrew investments

from eastern Europe, diminished exports

RussiaDrop in oil prices due to slower growth in

Europe and US

IndiaIndustrial production slowed down, fall in

demand and exports

MexicoSlowdown of funds remittance from

US

Global financial and economic crisis results in recession

Global Economy: Effects and Impact of Economic Downturn in 2008-2009 on Emerging Economies

4

Global Economy: Emerging Economies and Stimulus Measures

ChinaStimulus package-$586 bn

Medical care and Education - $5.8 bnR&D and Innovative Projects - $23.4 bnNew Medical Reform Plan - $123.00 bn

Q1, 2009 - 7.1 % Q2,2009 - 7.9%

Brazil Increased lending by state banks, Central Bank support for corporate

foreign debt and monetary easing to partly offset impact of global slow

downQ1, 2009 (yoy) – (1.8%) Q2, 2009 (yoy)– (1.2%)

IndiaThree stimulus packages with tax cuts, Cut in

Reserve Bank of India repo rate and fall in Cash Reserve Ratio. June 2009 - Business

and investment improving. Economic growth to gain momentum in second half of 2009

Q1, 2009 - 5.8% Q2, 2009 - 6.0%

PolandFiscal measures- Additional fiscal spending, additional credit. June 2009- Unemployment

dropping and overall industry climate indicators and trade improving

Q1 2009 (yoy)- 1.7 % Q2 2009(yoy)-1.4%

RussiaFiscal measures – cuts in interest rates and

strengthening of financial sector and support to real economy. June 2009- Unemployment falling, investment and retail sales rising

Q1, 2009 (yoy) – (9.7%) Q2, 2009 (yoy) – (10.9%)

MexicoLower interest rates are less effective in jump-starting economy. Dramatic

fall in tourism.Q1 2009 (yoy)- (8.4%) Q2 2009 (yoy) – (9.7%)

More than $2.0 trillion in 2009 via fiscal stimulus injected by Governments worldwide to spur aggregate demand

5

Effects and Impact of Economic Downturn: Global Energy Market in 2009

Eastern Europe• EU and Role of European

Economic Recovery Plan

Asia Pacific• China: To spend $585.5 billion stimulus by

2010. Specific to alternative energy, a *$440.0 billion has been planned to focus on boosting green energy via solar and wind

• India: No direct stimulus allocated for energy sector across the three stimulus packages aiming at monetary easing

• South Korea: $50.0 billion stimulus package supports expansion of the use of renewable energy and green technology

North America

• U.S: $787.20 billion includes varied grants, loan guarantees, and grants-in-lieu-of-tax-credits encouraging renewable energy including wind energy

• Canada: $62.0 billion stimulus under Canada’s Economic Action Plan includes resources for enhance energy efficiency, Green Infrastructure Fund (GIF) and carbon capture and storage (CCS) technologies

• High capital intensive energy industry faces dip in future flow of investment due to weakened conditions in credit availability and commodities market• Beyond 2009, the road to global economic growth and recovery to be muted due to growing fiscal deficits even as world economies take to development of renewable energy including wind

6

• Independent power owners • Independent project developers • Original equipment manufacturers• Component manufactures• Sub-suppliers

Global Wind Energy Market: Market Dynamics

• Energy security, climate change and oil and gas price volatility makes wind power one of the fastest growing forms of energy generation

• Long run demand for electricity high making wind energy a vital source for generation• Green energy production has been increasing post Kyoto Protocol

•For an investor,

• Investment in wind power market based on geo-political risk, growing energy demand and national greening initiatives

• Specifically, focus is to understand the greening legislative framework prevalent across: India, China, Bangladesh, Pakistan, Czech Republic, and Poland

• End of 2008 • Global total installed capacity: 120,798 MW• Global new installed capacity: 27,051MW • Investments in turbine installation increased to $47.00 billion (2008) from $37.00 billion

(2007)

Key

Features

Wind

Energy

Statistics

Key

Participants

Need of

the Hour

7

`

United States:

25,170 MW

Denmark: 3,180 MW

Germany: 23,903 MW

United Kingdom: 3,241

MW

France: 3,404 MW

Portugal: 2,862 MW

Spain: 16,754 MW

Italy: 3,736 MW

India:9,645 MW

China:12,210

MW

Global Installed Wind Power Capacity in 2008

Key Observations• Beginning of 2009 saw United States, Germany, Spain, China, and India emerge as top nations in terms of total installed capacity• In 2010, Frost & Sullivan expects slower global growth in wind energy market due to tightened credit environment

Source: Global Wind Energy Council 2008 and Frost and Sullivan

8

Wind Legislation in Developing Economies

Asia• India, China, Pakistan and Bangladesh

Eastern Europe• Poland and Czech Republic

9

0

100,000

200,000

300,000

400,000

500,000

600,000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Year

Tota

l Inst

alle

d C

apaci

ty (

MW

)

0

5

10

15

20

25

30

35

Gro

wth

Rate

(%)

Total Capacity (MW)Growth Rate (%)

Need for Wind Energy Legislation

Wind Energy Capacity, (Global), 2005- 2015

Key Observations• Frost and Sullivan predicts that wind power market is expected to grow from 2008 to 2015 at a compound annual growth rate• (CAGR) of 22.1 percent in terms of installed capacity, reaching 490,804 MW at the end of this period.• No uniform worldwide legislation exists to promote wind energy for electricity generation• Strong legislative and fiscal climates stimulate wind energy generation in US, EU, and China• At country level, wind energy generation seeks a legislative framework backed by fiscal incentives

Source: Frost & Sullivan

10

Wind Legislation in India

Indian legislative framework does not define the amount of electricity that could to be generatedvia renewable energy

Legislative

Highlights

Nodal

Agencies

Incentives and Other

Policy Measures

Key

Players

• Section 3 (1) of the Electricity act of 2003 defines power development and encourages wind power generation• State Electricity Regulatory Commissions (SERCs) set Renewable Portfolio Standards• Indian Integrated Energy Policy of 2006

• At the Central level: Ministry of New and Renewable Energy (MNRE) • At the State Level: SERCs • Indian Renewable Energy Development Agency Ltd (IREDA), Centre for Wind Energy Technology (C-WET),

and Indian Wind Turbine Manufactures Association (IWTMA)

• Varying Incentives and tariff norms across states for wind energy generation• Unique renewable portfolio standards and feed-in-tariff systems in place• Open FDI, income tax breaks, concessional import duty on specified wind turbine parts, loans through IREDA• National Wind Power Program, Generation Based Incentive (GBI) Scheme, Small Wind Energy and Hybrid

Systems‘ promote wind energy development• National Action Plan on Climate Change and CERC in tariff regulations for electricity

• Suzlon, Enercon, Vestas RRB India Ltd

11

Wind Legislation in China

The Chinese legal framework encourages wind energy generation via national level renewable energy law

Legislative

Highlights

Nodal

Agencies

Incentives and Other

Policy Measures

Key

Players

• NDRC organizes and implements the national, economic and social development strategies• NDRC-backed National Energy Commission (NEC) has been coordinating national energy-related policy

since 2008

• Differentiated wind energy tariffs in NDRC’s new program issued in July 2009, • RE law- backed varied incentives and tax status for wind especially for Chinese domestic producers • A ‘10 GW Size Wind Base Programme’ (Wind Base) developed by the NEC identifies potential wind energy sites

capable of generating more than 10 GW of installed capacity per site by 2020

• American Superconductor, Suzlon, GE, Goldwind Science and Technology, Sinovel Wind Co., Ltd., Xinjiang

Goldwind Science & Technology Co and Dongfang Electric Corp

• Chinese Renewable Energy (RE) Law passed in 2005 identifies non-fossil sources of energy including wind• Grid operators to purchase resources from registered renewable energy producers• National Development and Reform Commission (NDRC) had set a 2010 wind energy target of 5 GW,

which the country achieved in 2007• National Mid and Long-Term Development Plan and Clean Production Promotion Law and Renewable Energy

Law (2005) encourages renewable energy indirectly

12

Wind Legislation in Pakistan

Pakistan’s weak energy policy for harnessing renewable energy for electricitygeneration makes wind energy incentive driven

Legislative

Highlights

Nodal

Agencies

Incentives and Other

Policy Measures

Key

Players

• AEDB • National Electric Power Regulatory Authority (NEPRA) • Pakistan Council of Renewable Energy Technologies (PCRET)

• Policy Framework and Package of Incentives for Private Sector Power Generation Projects in Pakistan (1994) • 'Policy for Power Generation Projects Year- 2002‘ suggests a two-part tariff structure consisting of fixed capacity and

variable energy component indirectly encouraging wind energy participants• 'Policy for Development of Renewable Energy for Power Generation' (issued in 2006) and concept 'Wind Risk

Coverage• Incentives for renewable energy based power projects include assured grid connection, a guaranteed market

offering, mandatory purchase of electricity. Production incentives include a production bonus payment to the IPP,

earning carbon credits by registering for CERs

• Zorlu Enerji Group

• 'Policy for Power Generation Projects Year- 2002'• Alternative Energy Development Board’s (AEDB) aim is to generate 9,700 MW through renewable energy

technologies by 2030• Medium-term Development Frame Work (MTDF), from 2005 to 2010, a five year plan that also covers

the importance of renewable energy)

13

Wind Legislation in Bangladesh

No separate legislation defines the need for wind energy for electricity generation in Bangladesh

Legislative

Highlights

Nodal

Agencies

Incentives and Other

Policy Measures

Key

Players

• Bangladesh Power Development Board (BPDB)• Dhaka Electricity Supply Authority (DESA) and Rural Electrification Board (REB)• A body called ‘Renewable Energy Development’

• Renewable energy project investors both in public and private sectors shall be exempted from corporate income

tax for a period of 15 years• Others include exemptions from corporate tax for 15 years, low-interest loans and a cap of 3.0 % on

import duty and value-added tax.

• High potential for existing wind power players

• National Energy Policy (NEP) (1996) ‘ensures’ optimum development of all the indigenous energy sources

including wind• Private Power Generation Policy (1996)• Renewable Energy Policy formulated in 2008

14

Wind Legislation in Developing EU Countries: Poland and Czech Republic

At the EU level, complete flexibility is given to each Member State in deciding their preferred 'mix' of renewable energy including that of wind

Legislative

Highlights

Nodal

Agencies

Incentives and Other

Policy Measures

Key Players

Polish Energy Law Polish Building Law

• RES Directive on Electricity Production from Renewable Energy Sources • By March 2010, each Member State to prepare and present a National Action Plan (NAP) to EU Commission • By 2020, 20% of electricity generation from renewable energy (of which wind energy to contribute 12%) • EU directive requires Poland and Czech Republic to achieve 15% and 13% respectively of its final energy consumption

from renewable energy by 2020

Act No 180/2005 of the Czech Republic legislation implements the promotion of electricity produced from renewable energy source

Energy Regulatory Office’ (ERU) Ministry of Industry and Trade

Poland Czech Republic

Ministry of Economy

RES driven by green certificates rather than the Renewable Energy Feed-In Tariff (REFIT) system Subsidies and preferential credits for RES projects provided by the National Fund for Environment Protection and Water Management Role of Natura 2000 Poland’s Energy Policy up to 2030

Choice of selecting between a feed-in-tariff or a green bonus A guarantee of revenue per unit of electricity produced over

a 15-year period as of the date a plant is put into operation exists 100.0% property tax reduction on certain renewable

technologies ‘State program for energy saving and use of renewable energy

sources’ Onshore wind energy investors are entitled for 15 years of

support under feed in tariff mechanism

Enercon, GE Energy, Vestas, Gamesa

Role of EU

15

Growth Opportunities in the Wind Energy Sector: Roadmap Beyond 2009

CEE• Europe's offshore installed wind power capacity to

grow from 1.9 GW (2009) to 40.0 GW (2020) • Poland and Czech Republic to look at enhancing wind power generation as:

• Poland to achieve minimum share of electricity from RES from 3.6% (in 2006) to 7.5% (in 2010), and 14.0 % (in 2020). Wind energy generation accounts for 463MW (Beginning of 2009)

• Czech Republic’s share of RES in electricity to grow from around 4.0 % (at the end of 2008) to 13.0 % (by 2020). Wind energy generation accounts for 150MW (Beginning of 2009)

Pakistan• 700.0 MW of wind power by 2010, 3,000.0 MW by

2020, and 9,700.0 MW by 2030• Overhaul of existing energy policy to solve load

shedding problem• Indirectly, greater exploitation of nations’ wind corridor

via incentives can be expected

Bangladesh• Expected to address issues concerning lack of regulation

defining the tariff norms as being a new entrant into the renewable energy market

Lower demand for energy, fluctuating energy prices, weak exchange rates, and less credit availability will make the economic recovery of the global wind energy sector sluggish in 2010

Lower demand for energy, fluctuating energy prices, weak exchange rates, and less credit availability will make the economic recovery of the global wind energy sector sluggish in 2010

India• From 9,645.0 MW (beginning of 2009) of installed wind

capacity, India to achieve a total wind power capacity of 10,500.0 MW (ongoing) by 2012

• Government to continue with fiscal incentives to encourage wind energy participants

China• Less than 1.0% of electricity supply comes from wind energy

in 2009• Installed wind capacity target to reach 30.0 GW by 2020

making renewable energy supply 40.0% of the energy market by 2050

• From being a world leader in the manufacturing of micro and small wind turbines in 2009, China to enter large

wind turbine production market to build its currently underdeveloped transmission system

16

Ranking of Countries Based on Emerging Opportunities

Source: by Frost & Sullivan

Regions 2009 (in MW) Ranking

Asia PacificEuropeNorth AmericaRest of the World

37,49673,39834,1181,681

21

3 4

Global Total Installed Wind Power Capacity, 2009*

Ranking of Specific Economies based on Qualitative Indicators**

Economies under Study

Business

Climate

National Legislative Prerogatives for Wind Energy Development

India

China

Pakistan

Bangladesh

Poland Czech Republic

Note:1.** Ranking based on economic growth expected

between 2010-2012, political and legislative environment supporting future wind energy development

2. Green indicates positive environment Orange indicates mixed environment Red indicates scope for major overhaul

Note: * The figures are estimates

17

Drivers Directing Global Wind Energy Market

• Positive fiscal climate such as incentives for feed in tariffs, subsidies for wind power generation, programs (such as Foreign direct investment, income tax breaks, easy available credit)

• Drivers directing global wind energy market:

Assessing existing national electricity policies and electricity supply mixes in potential wind energy nations of Asia and East Europe

Increasing population levels in some Asian economies to change trends in energy demand- and supply mix

Growth in wind energy driven by increased global uncertainties regarding steady supplies of conventional and indigenous power resources like oil and natural gas

Globally, increased awareness concerning environmental, ecological, and geopolitical risks surrounding generating electricity to lead to drive wind energy market

18

Growth Opportunities in Global Wind Energy Market

• Domestic manufacturing of turbines including design, installation, operation and associated wind energy services to emerge (Globally)

• Integration of the wind energy with electricity grids to cause increased demand for specialized manpower resources for operating grid systems (in East Europe and Asia)

• Demand for micro wind turbines and technological databases to emerge (in East Europe and Asia)

• Turbine and tower market to witness private sector collaboration and additional capital investments (in Asia)

• Innovation and development expected in turbine design, gearboxes, generators, and larger capacity machines (in Asia aiming at rural electrification)

• Demand for energy-efficient renewable energy technologies such as growth in technology option called compressed air energy storage (CAES) aiding large scale storage of wind energy (in Asia)

• Service offerings such as repairs, replacement, and other operations and maintenance related aspects concerning wind power component (in India and China)

• Reviewing investment in newer entrants such as Pakistan and Bangladesh that are low in energy supply when compared to actual electricity demand

19

Next Steps

Request a proposal for a Growth Partnership Service to support you and your team to accelerate the growth of your company. (myfrost@frost.com)

1-877-GoFrost 1-877-463-7678 or +44 (0)20 7343 8383

Register for the next Chairman’s Series on Growth: Transforming Information into Profit—The CEO’s Perspective on Competitive

Intelligence and Competitive Strategy (November 3rd) (http://www.frost.com/growth)

Register for Frost & Sullivan’s Growth Opportunity Newsletters and keep abreast of innovative growth opportunities.(www.frost.com/news)

20

Your Feedback is Important to Us

Growth Forecasts?

Competitive Structure?

Emerging Trends?

Strategic Recommendations?

Other?

Please inform us by taking our survey.

What would you like to see from Frost & Sullivan?

21

Sandeep Maheshwari Vice President, E&S Economic Research and Analytics (ERA) Division+001 (210) 326-0456smaheshwari@frost.com

For Additional Information

T.J. SivanIndustry ManagerEconomic Research and Analytics (ERA) Division+91 (044) 420-44500jsivan@frost.com

Naylor GrayDirector, Global Marketing+001 – 210- 247-2437ngray@frost.com