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- 1. Happy New Year!
Chinese wind turbine market:
Characteristics, experience, export potential
Winterwind
Ostersund, Sweden 12 February 2013
Live Presentation
Sebastian Meyer
Director of Research & Advisory
Azure International Beijing
Data and information in this presentation is proprietary to Azure International
Do not distribute or copy without permission, seek permission to reprint excerpts or figures
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 1
- 2. Azure International
- company summary profile
A clean energy technology research & advisory, commercialization &
investment boutique founded in 2003
Based in Beijing and dedicated to leveraging the Chinese clean
energy market and value chain into businesses with global potential
Team’s professional experience combines deep local and
international cleantech business management; strong network of
technical, financial and institutional partners
Unique, in-house research/knowledgebase combined with hands-on
execution capabilities in sourcing, operations and marketing
Proven decade-long track record in commercializing clean energy
technologies in China
Engineering Market Research Consulting & advisory Investment
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 2
- 3. Presentation overview
- outline
(1) Introduction to Azure International
(2) Capacity & potential in China
(3) Operating history & track record
(4) Export potential
(5) Conclusions
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 3
- 4. Plans, pipelines, capital
- China plans to add 1.2TW generating capacity
Planned Power Generation Capacity
(12th 5-year plan, GW) Total funding need:
2500
• RMB 2.6 Trn to 2015
• RMB 6.2 Trn to 2020
2000
Wind funding needed:
1500 Solar • RMB 180 Bn to 2015
• RMB 340 Bn to 2020
Wind
1000
Solar funding needed:
Nuclear
500
Hydro • RMB 190 Bn to 2015
Coal
• RMB 350 Bn to 2020
0
Now 2015 2020
Source: 12th 5-year Plan, SERC, Azure International estimates
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 4
- 5. Plans, pipelines, capital
- China plans to add 1.2TW generating capacity
PM2.5 emission sources Beijing
vehicle
exhaust: trucks
vehicle
5%
exhaust: pass
other cars
7% 2%
coal
combustion
14%
secondary
sources road dust
Adding 1.2TW 34% 7%
generating capacity biomass
burning
(mostly coal) poses 8%
an unprecedented cigarette
smoke
soil dust
metal 12%
environmental 1% industry processing
5% 5%
challenge already Source: positive matrix factorization, various sources
obviously
problematic: Water,
Air quality, Global Resource limitations mean wind power likely to
warming... outpace plans
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 5
- 6. Plans, pipelines, capital
- renewable energy targets & pipelines
• China has seen an unprecedented scale-up and is now the operating
the world’s largest wind fleet
Installed capacity (GW, Cumulative)
Installed capacity (GW, annual)
90
20
18 80
16 70
100% y-o-y growth !
14 60
12
50
10
40
8
30
6
20
4
2 10
- -
< 2005 2006 2007 2008 2009 2010 2011 2012 < 2005 2006 2007 2008 2009 2010 2011 2012
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 6
- 7. Plans, pipelines, capital
- renewable energy installed
• Pipeline activity reflects economic transactions leading to capacity
• Wind power Installed base already world’s largest
Solar PV 5+GW
Wind 70GW
Source: Azure International data Source: Azure International, Google Earth
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 7
- 8. Plans, pipelines, capital
- renewable energy under development
• Ongoing early development activity across the country indicates
considerable further potential
Solar PV 85GW
Wind 450GW
Source: Azure International data Source: Azure International, Google Earth
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 8
- 9. Plans, pipelines, capital
- renewable energy targets & pipelines
• Central targets and bottom-up pipelines intersect reasonably well and
confirm economic interest in out performing capacity targets in the
long run if feasible
Solar PV
Mid Term Target (~2015) Long Term Target (~2020)
Target 21GW 50GW
3GW
Pipeline 18GW 85GW
Source: Azure International for pipeline data, targets from NDRC and other Chinese government planning authorities
Wind
Mid Term Target (~2015) Long Term Target (~2020)
Target 100GW (connected) 150GW
65GW
Pipeline 105GW 450GW
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 9
- 10. Plans, pipelines, capital
- China’s big 5 generators
• Lots of assets (SOE groups total RMB 2.6Tr or US$ 400Bn)
• Profits low (2010 net margins average 1.6%, Datang posts loss)
• All net profit practically invested in capacity additions (2010 RMB 14bn
or US$ 2.2Bn)
• Overall balance sheets weak (2010 d/(d+e)=>80%)
Big 5 net assets (RMB Bn) Big 5 profitability (RMB Bn)
800 Total liabilities Total assets Group profit
250
600
200
400
200 150
0 100
-200
50
-400
-600 0
Datang Huanneng Guodian Huadian CPI
-800 -50
Datang Huanneng Guodian Huadian CPI
Source: public declarations y SOE group level companies, not audited or confirmed
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 10
- 11. Plans, pipelines, capital
- Hong Kong listed renewables subsidiaries
• Better capitalized with funds raised in HK IPOs
• Room for more leverage on balance sheets, but eventually capital is
required for continued asset expansion
• Given current capital market conditions, companies will be trying to
conserve capital
1H 2012 Net Debt / D+E (%)
Datang 1/2GW (1Yrs)
80%
Huaneng 4GW (2Yrs) MAX
Longyuan 6GW (3Yrs)
0% 10% 20% 30% 40% 50% 60% 70% 80%
Source: Company financial statements
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 11
- 12. Plans, pipelines, capital
- surcharge & redistribution fails to deliver cash
• Interconnection delays likely caused by delayed cash reimbursement
to deficit grids; ie lack of funding causes delays!
Cumulative wind capacity installed & connected
(GW)
capacity installed & connected capacity installed not connected
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
1H06
1H07
1H08
1H09
1H10
1H11
1H12
2005
2006
2007
2008
2009
2010
2011
Source: Azure International
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 12
- 13. Plans, pipeline, capital
- surcharge & redistribution fails to deliver cash
• Curtailment is also Curtailment by province (2009-2011)
correlated with
degree of deficit
under Surcharge & 黑龙江
Redistribution
吉林
mechanism 新疆
辽宁
• Lack of funds also 甘肃 内蒙古
北京
means economic 宁夏
河北
uncertainty once 青海 山西 山东
grid connection is 西藏
陕西 河南
completed 四川 湖北
安徽
重庆 浙江
江西
Above 20% 湖南
贵州 福建
10-20% 云南
广西 广东
0-10%
Source: CEC, Azure International
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13
- 14. Plans, pipelines, capital
- receivables in the value chain
Sinovel - receivables vs. payables (RMB Bn) Goldwind - receivables vs. payables (RMB Bn) Mingyang - receivables vs. payables (RMB Bn)
Payables (+) Receivables (-) Payables (+) Receivables (-)
Payables (+) Receivables (-)
20 15 10
15 10 5
10
5 -
5
-
- (5)
(5)
(5) (10)
(10)
10)
(15)
15) (15)
20) (20) (20)
YE09 1H10 YE10 1H11 YE11 1H12 YE09 1H10 YE10 1H11 YE11 1H12 YE09 1H10 YE10 1H11 YE11 1H12
Source: Company financial statements Source: Company financial statements Source: Company financial statements
• Sinovel, Goldwind, Mingyang together represent 43% of all installed wind
generation capacity as at end Oct 2012
• Knock-on effect clearly affecting working capital of equipment suppliers
• Payables less receivables already at RMB 9bn (neg) for Sinovel, Goldwind
and Mingyang
• Market saw relatively stable installations in the timeframe
• 1H 2011 working capital funding increase basically locked-up all capital
raised in previous IPOs of the equipment manufacturers
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 14
- 15. Plans, pipeline, capital
- borderline bankability caused by administration
Average plant age close to 1.5 years operating only, with most
operating projects actively repaying long-term loans
70GW+ installed, financing 80% debt (2-year repayment holiday) puts
sector exposure on banks at some RMB 280bn
•7-year repayment and 6.5% interest means wind sector must
repay RMB 50bn in fixed principal and interest payments p.a.
2012 sector revenue at 2k effective hours by WA FIT is RMB 78bn, with:
• RMB 46bn from the OGT, and
• RMB 32bn from top-up to FIT, of which
This leaves some RMB 50bn of timely received cash revenue for
servicing debt payments
Further capacity expansion can’t effectively be funded through
retained earnings/cash; utilities must access (existing) equity
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 15
- 16. Presentation overview
- outline
(1) Introduction to Azure International
(2) Capacity & potential in China
(3) Operating history & track record
(4) Export potential
(5) Conclusions
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 16
- 17. Operating history in China
- overview
• Over 5 years • Growing verifiable evidence of reasonably
operating history robust turbine operations in China
documented
• Results reflect curtailment and seasonality
• Azure International
data shows turbines Operating track record: net capacity factor (%)
are operating Average net performance from 01-Mar-06 to 01-Jul-12 (26 GW reference capacity)
reasonably well
0.45
0.4
• 5 GW shown; data 0.35
set covers 20% 0.3
theoretically
available generation
0.25
for market (’06-’11) 0.2
shows net 0.15
performance of 22% 0.1
0.05 Congestion likely explains declining average technical performance
• Can be compared to
net results for
0
Nov/06
Jan/07
Nov/07
Jan/08
Nov/08
Jan/09
Nov/09
Jan/10
Nov/10
Jan/11
Nov/11
Jan/12
May/06
Sep/06
May/07
Sep/07
May/08
Sep/08
May/09
Sep/09
May/10
Sep/10
May/11
Sep/11
May/12
Jul/06
Jul/07
Jul/08
Jul/09
Jul/10
Jul/11
Jul/12
Mar/06
Mar/07
Mar/08
Mar/09
Mar/10
Mar/11
Mar/12
Germany Source: Azure International data
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 17
- 18. Operating history in China
- average vs. project level
Utilization of wind plant in China Revenue of Per kW
(full load Average revenue per kW (capacity Average revenue per kW
hours) Individual project revenue per kW factor) (RMB/kW) Individual project revenue per kW
3,000 35% 2,000
1,800
30%
2,500 1,600
25% 1,400
2,000
20% 1,200
1,500 1,000
15%
800
1,000
10% 600
500 400
5%
200
- 0%
-
55 projects
55 projects
Source: Azure International,UNFCCC
Source: Azure International,UNFCCC
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 18
- 19. Operating history in China
- cold weather dominates
Chinese fleet exposure
• Most of the fleet in
high wind speed
areas in north China Cold weather rated Normal
• In these regions,
equipment is rated
to operate regularly
in temperatures to
minus 35 degrees
• Generally dry
conditions in north
China mean ice is
generally not an
overall issue
• Abrasion through
fine dust is a
common problem Source: Azure International
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 19
- 20. Operating history in China
- cold weather dominates
2012E Installed wind capacity in cold weather rated provinces
(>500 MW)
25
Cold!
20
15
GW
10
5
0
IMAR Hebei Gansu Liaoning Heilongjiang Jilin Xinjiang Shanxi Ningxia Shaanxi
Source: Azure International
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 20
- 21. Operating history in China
- volume accelerates fleet operating experience
Fleet operating experience (turbine years)
Cold weather Normal
Goldwind
Sinovel
Vestas
Dongfang
Guodian United
Mingyang
Shanghai Eelectric
- 5,000 10,000 15,000 20,000 25,000 30,000
Source: Azure International
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 21
- 22. Operating history in China
- direct drive leadership?
Fleet operating experience direct drive (turbine years)
Cold weather Normal
Goldwind
XEMC
Energine
DNEE
- 2,000 4,000 6,000 8,000 10,000 12,000
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 22
- 23. Presentation overview
- outline
(1) Introduction to Azure International
(2) Capacity & potential in China
(3) Operating history & track record
(4) Export potential
(5) Conclusions
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 23
- 24. Export potential
- value proposition & risk
International expectation of value:
“Deeply discounted capacity with manageable risk
or reliability tradeoff”
Azure:
Because of differences in market maturity, capital
markets, value chain integration, differing levels of
quality control and sourcing relationships,
international sourcing needs to be carefully
managed to ensure highest valued is obtained
(& Azure can support international buyers)
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 24
- 25. Export potential
- available capacity & competitive pricing
Supply side (Production plans vs installations) Wind turbine bid price in China (incl. VAT) - 1.5MW
total actual installations tempered production plans (50%) (RMB/kW)
45 9,000
40
8,000
35
7,000
30
25
6,000
20
5,000
15
10 4,000
5
3,000
0
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Sep-12
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jul-06
Jul-12
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Aug-06
Aug-07
Aug-08
Aug-09
Aug-10
Aug-11
Nov-12
May-06
May-12
2006
2007
2008
2009
2010
2011
2012
Source: Azure International Data Source: Azure International Data
“Apparent” excess capacity
strong price competition has halved capacity costs as industry reached
scale
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© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 25
- 26. Export potential
– exports already started
Turbine exports form China (MW)
400
350
USA
Pakistan
300 Ecuador
Brazil
USA Australia
250
Vietnam Chile
Cyprus
(MW) 200
150 USA
USA
100
USA India
Thailand Pakistan
England
50 Cuba
Thailand
Chile
-
2008 2009 2010 2011 2012
Source: Azure International
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© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 26
- 27. Export potential
- expectation gaps and context
• At present negotiations for Chinese turbine for
developer participation in a growing number of
projects around the world are frustrated by huge
gaps and different expectations that exist because of
differences in China and international markets
• Context: 100% y-o-y growth, average turbine
operating experience is just over 1.5 years
• Shift from most turbines under warrantee in early
2013, to most turbines beyond 2-year warrantee
period
• Warrantee periods quietly extending…it’s a buyer’s
market
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 27
- 28. Export potential
– context & risk interpretation (capex and opex)
China ROW
Capex
Lower cost Higher cost
Opex
2 year warranty period 5 year warranty period is common, but
cost of services is charged to client
Warranty periods currently being
expanded Enercon: warranty period > 12 years
Entire Chinese fleet now operational Public data on turbine models which
for an average period of under 2-years have been operating for more than 10
years
No public data on failure rates
Project financial model includes
Assumes fixed yearly O&M cost with no failure rates
major failures
e.g changing 15% of gearboxes every 5
year period
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© 2012 Azure International
Sebastian Meyer, Azure International 13-Feb-13 28
- 29. Export potential
– annual energy production interpretation
China ROW
Considers losses but not uncertainty Considers losses & uncertainty
Example:
– GROSS equivalent full load hours: 3500h
– Estimated energy losses: 20%
– Net energy production: 2800 full load hours
This is the value given in a typical local FSR, it is a P50, there are as many chances
that this result is exceeded than chances that it is not reached.
– Estimated Uncertainty: 15%
– P75: 2517 full load hours 75% chance of being exceeded
– P90: 2262 full load hours 90% chance of being exceeded
This is is the value used by western developers for project assessment
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 29
- 30. Export potential
- other commercial DD & finance related issues
• Country risk, currency risk, policy risk, political risk
• International banks & insurance difficulty in getting
comfortable with risks although international listings have
helped add some balance sheet visibility for some leading
companies
• Most Chinese banks are unable to lend in foreign currency,
long-term parent company guarantee treatment remains
unresolved particularly with regards to potential future asset
ownership transfers, PPA uncertainty and unfamiliarity with
non-PPA market based subsidies
• Service and maintenance treatment/coverage
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 30
- 31. Presentation overview
- outline
(1) Introduction to Azure International
(2) Capacity & potential in China
(3) Operating history & track record
(4) Export potential
(5) Conclusions
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 31
- 32. Conclusion
- Closing remarks
• China is already a world leader in wind markets
• The position and its leading companies as an important global
industry leader will be optimized if the industry can
demonstrate long-term success in its home market
• International markets and approaches particularly around
policy and finance differ considerably from the China
experience
• Execution of growing Chinese brand turbine deals depends on
refining approaches to international markets and Chinese
overseas direct investment, but experience is growing...
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 13-Feb-13 32
- 33. Azure International – Syndicated Research
- Other available studies
Other reports available:
A) Wind Development Bottom-Up (updated monthly, predictive)
B) Wind Turbine Manufacture Bottom-Up (updated monthly, predictive)
C) Wind Gearboxes Bottom-Up (updated annually)
D) Large Castings Bottom-Up (updated annually)
E) Blades Bottom-Up (updated annually)
F) China Offshore Industry: Sponsored by WWF Norway, and available at:
http://assets.wwf.no/downloads/china_norway_offshore_wind_final_wwf_march_2010.pdf
Bespoke assignments (suggestions/examples):
- Market segments, new products, competitor analysis, policy & market analysis
- Customer, partner, strategic buyer identification
- Project pipeline identification/acquisition (China, Australia, USA, Europe)
- Turbine and component quality due diligences, procurement support
- Investment related commercial and technical due diligences
- Wind measurement, project design, micro-siting, turbine selection
- Permitting & approvals, company structuring & setup
-Energy strategy: carbon foot-printing and emissions optimization & offset
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 33
- 34. Conclusion
- final remarks –
2012 3Q China Wind Market 2012 China Grid Scale Energy
Quarterly: Storage:
Reports available through Azure International’s partner Greentech Media
(GTM) at www.greentechmedia.com
Confidential & Proprietary: Do not distribute or copy
© 2012 Azure International Sebastian Meyer, Azure International 34
- 35. Sebastian Meyer
Director of Research & Advisory
sebastian.meyer@azure-international.com
Tel: +86 10 8447 7053
Fax: +86 10 8447 7058
Oriental Kenzo
Suite H, Office Tower, 6th Floor
48, Dongzhimen Wai Street
100027 Dong Cheng District, Beijing
PR China
www.azure-international.com
Happy New Year!
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© 2012 Azure International Sebastian Meyer, Azure International 35