GÅ-HJEM MØDE (“GO-HOME” MEETING)

GLOBAL SHIPPING / LOGISTICS

BUSINESS MODEL REVIEW

S E P T E M B E R 2 , 2 0 1 4 , B L U E W AT E R S H I P P I N G , E S B J E R G

Proprietary, private, and confidential

Introduction – Thomas Poulsen PhD Fellow and MBA

2 GLOBAL WIND ENERGY SHIPPING AND LOGISTICS

AALBORG UNIVERSITY

Aalborg University, Copenhagen Campus

Department of Mechanical and

Manufacturing Engineering

Contact info

tp@m-tech.aau.dk

www.en.m-tech.aau.dk

Research interest:

Global wind energy shipping and logistics

Background:

25 years of global shipping, logistics, and

SCM experience at practical, strategic,

general management, and consulting level

from living in 8 countries

Past employers

Select consulting clients

DelCon

AAU – research organization

3

Humanities Social

sciences

Engineering

& science

Medicine

4 faculties 20,000 students 2,300 staff

7,000 students

700 Ph.d. students

75 Ph.d.’s focused on wind

4,000 1,000 5,000

Aalborg

Esbjerg Copenhagen

Research:

• By faculty staff

• By Ph.d. students

• By Master students • Non-Danish students

make up 10 %

• From 100 countries

AAU – wind thought leader

WTG

BOP

Energy net

Smart grid

Active networks

Weather (waves, currents)

R+D

Industry vision

4

AAU – shipping and logistics

D E P A R T M E N T O F M E C H A N I C A L A N D

M A N U F A C T U R I N G E N G I N E E R I N G

- S H I P P I N G & L O G I S T I C S

5

Offshore wind

Global wind energy

shipping and logistics

Offshore oil & gas

Logistics

Maritime cleantech

Wave energy Port constructtion

Composite material for

vessels

Revenue management

GPS satellite &

surveillance of vessels

Wind market overview

6

10 largest onshore wind markets up until 2013

7 Source: BTM Consult part of Navigant (2013)

and own construction

Ranking Country Cumulative 2013 new

1 China 91460 16052

2 USA 61292 1084

3 Germany 34468 2729

4 Spain 22637 175

5 India 20589 1987

6 UK 10946 1028

7 Italy 8448 450

8 France 8128 535

9 Canada 7813 1599

10 Portugal 4557 196

51221 10299

321559 36134

Top 10 global onshore markets

Rest-of-the-world

Grand total

Cumulative percentage distribution

28,4%

19,1%

10,7%

7,0%

6,4%

3,4%

2,6%

2,5%

2,4%

1,4% 15,9%

China

USA

Germany

Spain

India

UK

Italy

France

Canada

Number of offshore annual MW and wind farms installed up to and including 2013

8

Source: BTM Consult a part of Navigant (2014a)

and own construction

MW Cumulative MW installed (2013) 6.837

Total number of wind farms (2013) 73

Distribution (2013)

Europe 94,6%

China + Japan 5,4%

9

Cumulative distribution ultimo 2013

(GW)

Installed distribution 2013

(GW)

Onshore and offshore distribution

Source: BTM Consult a part of Navigant (2014a)

and own construction

321,6

6,8

Onshore

Offshore

36,1

1,7

Onshore

Offshore

Key differences from onshore to offshore Offshore wind is more costly

1 0

• Bigger WTG output

• Bigger size

• Heavier weight

• Quality (corrosion,

wind, water)

• Balance of plant

modules (foundation,

cables, substation,

etc.)

1. Distance to shore

2. Water depth

3. Number of wind farm

turbine positions

4. Weight and

dimensions of WTG

5. Foundation type

• Near Shore

(0-25 kilometer)

• Offshore

(25-100 kilometer)

• Deep water offshore

(150-200 km)

Onshore vs. Offshore 5 critical offshore factors Distance as an issue

Race for larger WTG output - and importance of shipping/logistics/SCM

Source: Upwind Project (design limits and solutions for

very large wind turbines) and Aalborg University

Copenhagen photos

1 1

Wind farm life cycle and supply chains

12

End-to-end life-cycle focus

Shipping &

logistics

13

Source: LogMS conference paper, 2013,

Singapore 2013, Poulsen et.al.

Two different flows:

Onshore and Offshore

4 life-cycle phases 6 supply chains

1 4

• Different critical success factors, assets, and capabilities/skills

• Some overlap between life-cycle phases and individual supply chains

• Finalization of each chain with emergence of next life cycle phase

Wind farm phase

Development &

Consent (D&C)

De-commissioning

(De-comm)

Supply chains D&C chain I&C chain - Inbound I&C chain - Outbound O&M - Preventive O&M - Breakdown De-comm chain

Description

Site surveys, birds,

wildlife, sea, seabed

Inbound assembly parts

and components

Outbound wind

modules for wind farm

site

Personnel, parts, and

components

Personnel, parts,

components, and

modules

Restoration of site for

new wind farm or to

original condition

Characteristics

Specialized vehicles

(onshore) and vessels

(offshore)

Mainly a homogenous

flow using ocean

containers and air;

some project cargo

Project cargo/break-

bulk

Mainly service boats,

crew transfer vessels

and some larger vessels

Service boats and

helicopters, some larger

vessels like MPV,

tug&barge, WTIV

Project cargo/break-

bulk

Wind energy supply chains

Installation & Commissioning (I&C) Operations & Maintenance (O&M)

4 life-cycle phases 6 supply chains

1 5

• Different critical success factors, assets, and capabilities/skills

• Some overlap between life-cycle phases and individual supply chains

• Finalization of each chain with emergence of next life cycle phase

Wind farm phase

Development &

Consent (D&C)

De-commissioning

(De-comm)

Supply chains D&C chain I&C chain - Inbound I&C chain - Outbound O&M - Preventive O&M - Breakdown De-comm chain

Description

Site surveys, birds,

wildlife, sea, seabed

Inbound assembly parts

and components

Outbound wind

modules for wind farm

site

Personnel, parts, and

components

Personnel, parts,

components, and

modules

Restoration of site for

new wind farm or to

original condition

Characteristics

Specialized vehicles

(onshore) and vessels

(offshore)

Mainly a homogenous

flow using ocean

containers and air;

some project cargo

Project cargo/break-

bulk

Mainly service boats,

crew transfer vessels

and some larger vessels

Service boats and

helicopters, some larger

vessels like MPV,

tug&barge, WTIV

Project cargo/break-

bulk

Wind energy supply chains

Installation & Commissioning (I&C) Operations & Maintenance (O&M)

D&C

1 6

Onshore

• Site inspections

• Road inspections

• Port surveys

• Equipment / asset analysis

Offshore

• Port surveys

• Geological inspections

• Seabed surveys

Photo source: Aalborg University Copenhagen

I&C – Inbound: The installation & Commissioning inbound process deals with assembly parts and

components for manufacturing and assembly plants

1 7

Onshore

• WTG’s generally not as large and

durable as for offshore

• Number of parts and components

determined by nacelle technology

Offshore

• Bigger dimensions and heavier parts

• Higher demands in terms of quality

and durability due to ocean wear and

tear

• BOP modules (foundation, cables,

substation, and possibly

accommodation)

Photo source: Aalborg University Copenhagen

I&C – Outbound: The outbound Installation & commissioning process deals with project cargo / out -

of-gauge / break-bulk shipments that are heavy and not very homogenous

1 8

Onshore • Three key wind modules:

– Rotor (hub and blades)

– Nacelle (one to three pieces)

– Tower (usually two to three parts)

• Some site parts

– SWP example 2.5 TEU/WTG

Offshore • Partial assembly process at installation port

• BOP items:

– Export and array cables

– Substation topside and foundation

– Hotel platform or hotel vessel

– Foundations (e.g. MP/TP)

Photo source: Aalborg University Copenhagen

Outbound I&C onshore supply chain map

1 9

Source: Own construction using Chambers et al (2010) framework

Example of unique China offshore-inter-tidal wind farm outbound I&C challenges

2 0

Example Jiangsu Dafeng project (installation by Guodian/CCCC JV):

• 30 km from shore, Western part of farm will have riverbed exposed during low tide

• Eastern part of farm will need WTIV’s to be permanently jacked up out of the water

• Requires different kinds of vessels than in Europe

Source: NEA & World Bank (2010),

BTM Consult part of Navigant &

Poulsen (2012), and first author research

Outbound I&C offshore double-port supply chain set-up

2 1

Source: Own construction using Chambers et al (2010) framework

O&M - Preventive: Operations and Maintenance sometimes included in OEM offerings for 3, 5, 7 or

more years. After that usually long-term contracts.

2 2

Onshore

• Scheduled maintenance

• Objective is to prevent break-down

• Smaller parts & components

• Occasionally larger WTG modules

Offshore

• Impact of the weather / water

• Distance from shore

• Water depth

• BOP maintenance

• WTG and BOP access

Photo source: Aalborg University Copenhagen

O&M – Break-down: Operations and Maintenance sometimes included in OEM offerings for 3, 5, 7 or

more years. After that usually long-term contracts.

2 3

Onshore

• Emergency maintenance

• After a WTG has stopped functioning

• Smaller parts & components

• Larger WTG modules

Offshore

• WTG or BOP

• Speed of access

• Severity of break-down

• Parts, components, and bigger modules

• Helicopter, crew boats, WTI vessels

Photo source: offshoreenergy.dk

De-Comms: After 20-25 years, the site is De-commissioned and either restored back to its ´ original condition or readied for a new wind farm or alternative development

2 4

Onshore • Take-down of WTG’s

• Restoration of foundation

site (cement/steel)

• Transport to destruction or

refurbishment sites

Offshore • Transport to shore

• BOP items

Photo source: Aalborg University Copenhagen

Business case decision:

1. Cradle-to-grave

2. Cradle-to-cradle

Strategies and business models

25

• Projects are getting bigger and more complex

• Economies of scale is the winning platform to decrease LCoE

• Financially strong partners are sought

QUESTION:

How can SME companies compete

in this developing landscape?

The SME opportunity in offshore wind?

2 6

SME value proposition

What is SME´s value proposition to the offshore wind

energy market for both production and manufacturing to

shipping and logistics?

27

Product

Solution

Service

Know-how

Niche

Innovation

Key considerations

28

• Is the local market big enough to survive in? What are scalability opportunities?

• Few projects in Denmark so companies need to look outside the domestic borders to generate sales

• German offshore projects are continuously getting delayed/postponed/scaled back

• The Danish market is relatively mature (Anholt offshore wind farm as a “reference case”

• Are companies willing to take on the risk of only competing in these two markets?

Local market – Denmark (and Germany)

• Strong political backup support for wind energy but slow growth rates and mature markets ready for consolidation

• Consolidation in the industry is emerging – too many companies in many parts of the supply chain and companies are

seeking economies of scale to lower their costs

• Localization rate or “local content” and job creation are important factors to consider

• “Outsiders” from low-cost countries are targeting European markets which will have a radical impact in 5-years’ time

• How may the company value proposition be compared to other local/regional players? To Asian low-cost providers?

Regional/International market - Europe

• Asian offshore wave is catching up with China as the front runner (targets of 5GW in 2015 and 30GW in 2020)

• South Korea, Japan and to some extent Taiwan/India with firm growth plans to be executed in the coming years

• Increasing competition and local focus on LCoE to be challenged by foreign companies as markets cross-fertilize

• Mergers, acquisitions, joint-ventures, partnerships, and alliances will be critical to get success

• US offshore market in its’ infancy stage and nascent China offshore wind with new FIT providing growth opportunities

Global markets – US + Asia

Export opportunities (e.g. China): Comparing SME companies with Danish global brands

SME companies: Danish global brands:

29

• Little or no brand recognition

• HQ management has little cultural

understanding of doing business in

China

• Focus on short term quick wins and

little willingness to do full-scale

investments

• Usually one Danish local manager

2-50 local employees

• Well known brand Quality

• International culture and China as a

central hub for business in Asia

region

• Investments across the country with

long term focus

• Large local and international

employee base

Strategies and business models compared with the derived SCM industry example

3 0

Company name Origin country Company typeDimension 1:

Business focus

Dimension 2: Integration of

support industries

Shipping/logistics subsidiary or

JV company name

DONG Energy Denmark Semi-government

owned

Conglomerate,

utilities

Wind energy shipping JV with

Siemens Wind Power

A2SEA

Vattenfall Sweden Semi-government

owned

Conglomerate,

utilities

No owned wind shipping

activities

RWE Innogy Germany Semi-government

owned

Conglomerate,

utilities

Wind energy shipping

subsidiary

Offshore Logistics Company

GmbH

Siemens Wind

Power

Germany Publicly listed Conglomerate Wind energy shipping JV with

DONG Energy

A2SEA

Vestas Denmark Publicly listed Exclusive wind

focus

No owned wind shipping

activities

Hyuandai Heavy

Industries

South Korea Publicly listed Conglomerate,

chaebol

Own shipping activities like

Hyundai Merchant Marine

Suzlon India Private Exclusive wind

focus

No owned wind shipping

activities

Goldwind China Publicly listed Exclusive wind

focus

No owned wind shipping

activities

Guodian China SOE Conglomerate,

utilities

Wind energy shipping JV with

CCCC

Jiangsu Longyuan Zhenhua

Marine Engineering

Strategies and business models of select wind energy market constituencies

Source: Own construction

Business Model in Denmark

3 1

Joint Venture

- Onshore - Offshore

Joint Venture

Wind resource map of China

Source: Own analysis, BTM Navigant and data from

National Climate Center of the China Meteorological

Administration, June 2010

18.000 km long coastline

From shoreline to water depth of 20m = 157.000

km2

Assuming only 10%-20% is suitable for offshore

wind and the use of an average 5 MW WTG´s

100-200 GW

offshore capacity

Offshore resources in China are spread across:

Jiangsu

Zhejiang

Fujian

Shandong

Guangdong

Shanghai

32

2020 target: 30 GW offshore wind

Vertically and horizontal integrated business model China

3 3

South Korea wind status - as of February, 2013 (onshore and offshore)

3 4 Source: Korea Wind Energy Association (2013)

7.5 GW home market offshore wind target by 2030

Top South Korean Chaebol….

3 5 3 5

Competitive outlook and changes

3 6 3 6

Acquiror /

JV partnerCompany type

Target company /

JV partnerCompany type Comments

DONG Energy Conglomerate,

utility

A2SEA Private company,

shipping

49% of shares subsequently sold to

SWP, CT Offshore later acquired as well

GeoSea Publicly listed Beluga JV shares

with Hochtief

Hochtief is an

EPC company

Beluga went bankrupt, new JV company

name is HGO IntraSea Solutions

Swire Pacific

Offshore

Conglomerate Blue Ocean Private company,

shipping

New company name is Swire Blue

Ocean

Aarsleff Private company,

EPC

Bilfinger Berger Private company,

shipping

JV company is called AB-JV

DSV Publicly listed Baltship/ Seatainers Private company,

shipping

Company now trading as DSV Baltship

Mammoet Private company,

shipping

KR Wind Private company,

cranes

Subsequently acquired Brande

Maskintransport

Marubeni Conglomerate Sea Jacks Private company,

shipping

Oldendorff Private company,

shipping

Beluga Private company,

went bankrupt

Took over some of the MPV fleet

Peter Döhle Private company,

shipping

Beluga Private company,

went bankrupt

Took over some of the MPV fleet

Oaktree Private equity

company

Beluga Private company,

went bankrupt

Restructured Beluga and renamed it

Hansa Heavy Lift

M&A/JV activity shipping, logistics, and SCM

Source: Own analysis

Recent M&A activity (part I)

3 7

Renamed

Take over vessels

Take over vessels

Take over JV

100%

49%

Source: Own construction

Recent M&A activity (part II)

3 8

Acquired +

Acquired

Acquired

Acquired Blue

Ocean

Renamed

Joint Venture JV Company

+ Brande Maskintransport

Source: Own construction

End-to-end life-cycle focus

39

Source: LogMS conference paper, 2013,

Singapore 2013, Poulsen et.al.

End-to-end wind farm life-cycle

Opportunities for SME companies

1 2 3 4

• Bird life surveys

• Under water

operations

• Etc.

Suppliers:

• Grabbers

• Piles

• Etc.

• Access solutions (people, parts, tools)

• Hotel vessels (floating or jackup

• New transfer concepts (safe transfer,

small ribs vs. smaller ships vs mother

ship concepts

?

Conclusion

40

• The wind farm life cycle is a long and

varied power mega project

• Up to six different supply chains exist

in the wind farm life cycle

• Offshore wind farm projects are

getting larger and more capital

intensive

• Partners sought need to be financially

strong

Key points of today

4 1

• A strong value proposition is needed

to be relevant and to survive

• Partner strategies such as M&A and

JV set-ups should be used to secure

capacity and obtain lower prices

• The shipping, logistics, and SCM

market presents good SME

opportunities for offshore wind

Conclusions for SME

4 2

Questions & answers

43