Industrials Insights from Clearwater International...
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clearthought Industrials Insights from Clearwater International Power Equipment and Services Rising subsidies and the falling costs of renewable energy are changing the global power production market Transforming technologies While coal and other fossil fuels still remain the largest source of electricity generation, renewable alternatives will play an increasing role in meeting demand as dirty, coal-fired power stations are phased out. Indeed the latest available statistics 2 for 2015 showed that renewables overtook coal as the world’s largest source of installed power capacity, while it is predicted that between 2015 and 2021 some 825GW (gigawatt) of new renewable capacity will be added globally. In addition to generous subsidies, this growth in renewable energy is also being made possible by significant falls in the cost of solar and onshore wind power. Average global generation costs for new onshore wind farms fell by an estimated 30% between 2010 and 2015 2 , while they are expected to continue to fall over the next five years by 15% on average for wind and by 25% for solar power. Sea-change This dramatic change in how global energy requirements are being met is having a huge impact on power production supply chains. Manufacturers across this broad sector are being forced to completely reshape their business models and be alive to the transforming technologies which are rapidly emerging. They particularly need to be aware of the power and potential of automated systems which play an increasing With the global population forecast to rise from 7 billion today to 11.2 billion 1 by 2100, sourcing and securing the power needed to meet that demand will be one of the key challenges of the 21st century. Where exactly that power will come from - and what equipment, technology and services will be required to meet this soaring demand - are among the most pressing questions for governments striving to counter the effects of climate change. role in the control, management and efficiency of power plants and production. Meanwhile as demand for power soars, the need for uninterrupted power supplies becomes ever more crucial. As such automated systems have a key role to play in maintaining stability, security and high levels of service throughout the supply chain. Reliability This becomes even more significant given that renewable energy is dependent on weather and thus inherently less reliable than coal-fired power production. Increased renewable generation inevitably results in volatility of energy supplies, but innovators are designing smart systems which can meet these challenges. In particular, the move to renewables is driving demand for smaller more flexible power stations, as well as storage systems that help keep the power grid balanced. It is not just governments that are taking up these grand challenges either. For instance, Google owner Alphabet plans to buy enough renewable energy this year to match the needs of all its data centres and offices. Like many companies dealing with increasingly vast amounts of data, its own power use has soared in recent years. 1 UN/Economist 2 International Energy Agency Electricity-generation growth forecasts 2015-20,TWh SOURCE: IEA 0 300 600 900 1,200 China India Africa EU-28 US Japan Total electricity Renewable
Transcript of Industrials Insights from Clearwater International...
clearthoughtIndustrials Insights from Clearwater International
Power Equipment and ServicesRising subsidies and the falling costs of renewable energy are changing the global power production market
Transforming technologies
While coal and other fossil fuels still remain the largest source of electricity generation, renewable alternatives will play an increasing role in meeting demand as dirty, coal-fi red power stations are phased out. Indeed the latest available statistics2 for 2015 showed that renewables overtook coal as the world’s largest source of installed power capacity, while it is predicted that between 2015 and 2021 some 825GW (gigawatt) of new renewable capacity will be added globally.
In addition to generous subsidies, this growth in renewable energy is also being made possible by signifi cant falls in the cost of solar and onshore wind power. Average global generation costs for new onshore wind farms
fell by an estimated 30% between 2010 and 20152, while they are expected to continue to fall over the next fi ve years by 15% on average for wind and by 25% for solar power.
Sea-change
This dramatic change in how global energy requirements are being met is having a huge impact on power production supply chains.
Manufacturers across this broad sector are being forced to completely reshape their business models and be alive to the transforming technologies which are rapidly emerging. They particularly need to be aware of the power and potential of automated systems which play an increasing
With the global population forecast to rise from 7 billion today to 11.2 billion1 by 2100, sourcing and securing the power needed to meet that demand will be one of the key challenges of the 21st century. Where exactly that power will come from - and what equipment, technology and services will be required to meet this soaring demand - are among the most pressing questions for governments striving to counter the effects of climate change.
role in the control, management and effi ciency of power plants and production.
Meanwhile as demand for power soars, the need for uninterrupted power supplies becomes ever more crucial. As such automated systems have a key role to play in maintaining stability, security and high levels of service throughout the supply chain.
Reliability
This becomes even more signifi cant given that renewable energy is dependent on weather and thus inherently less reliable than coal-fi red power production. Increased renewable generation inevitably results in volatility of energy supplies, but innovators are designing smart systems which can meet these challenges.
In particular, the move to renewables is driving demand for smaller more fl exible power stations, as well as storage systems that help keep the power grid balanced.
It is not just governments that are taking up these grand challenges either. For instance, Google owner Alphabet plans to buy enough renewable energy this year to match the needs of all its data centres and offi ces. Like many companies dealing with increasingly vast amounts of data, its own power use has soared in recent years.
1 UN/Economist2 International Energy Agency
Electricity-generation growth forecasts 2015-20,TWh
SOURCE: IEA
0 300 600 900 1,200
China
India
Africa
EU-28
US
Japan
Total electricity Renewable
clearthought | 2017 Industrials Insights from Clearwater International
Renewable powerThe smog that afflicted a huge part of China in early 2017 - some 24 cities issued the highest ‘red alert’ for pollution – was a graphic illustration of the need to drastically reduce coal-fired electricity generation in emerging economies.
In fact China has rapidly become a global leader in the development of clean power and low carbon forms of energy. It increased investments in green technology overseas by 60% to almost $32bn in 2016, while it is investing more than $100bn a year in domestic renewable energy projects1. Production from renewables, led by wind power, has tripled in the country over the last five years.
The shift is no less pronounced in Western economies. For instance, last year the UK generated more electricity from wind turbines than from burning coal for the first time2, while in Germany - where investors in green energy are guaranteed that their electricity will be fed into the grid - the share of renewable electricity generation has soared to more than 30% and the government’s target is to generate at least 80% of its electricity from renewables by 2025. The EU as a whole has a target of providing 50% of electricity from renewables by 2030.
The winds of change have also spread to the Middle East. Earlier this year Saudi Arabia announced it would start issuing tenders for a big solar and wind power programme worth ¤28bn-¤46bn as part of its plan to be a “solar powerhouse” and diversify the economy away from crude oil production.
Solar
The market continues to grow fast across the world. In the US it is estimated3 that it grew by 119% in 2015 and that 16GW of solar was installed last year, double the 2015 figure.
Latin America is a particularly big producer of solar energy because of its benign weather systems. For instance, last year the huge El Romero plant was opened in Chile capable of generating up to 196MW (megawatts) of electricity, enough to power a city of a million people. Interestingly, a
third of its output is being bought directly by Google’s Chilean subsidiary. In 2014 Latin America produced more than half of its electricity from renewable sources4, compared with a world average of 22%.
Wind
In 2016, the global wind market was more than 54GW, bringing total global installed capacity to nearly 487GW5. The market was led by China, the US, Germany and India, while countries such as France, the Netherlands, the UK and Turkey are also rapidly growing their industries.
For instance, last year Siemens opened a ¤365m wind turbine blade factory on the east coast of the UK, while a consortium led by Royal Dutch Shell recently won an auction for the rights to build a new 700MW phase of the Borssele wind farm off the Netherlands.
Wave and tidal
Oceans could prove to be our largest reserves of sustainable energy with predictions that the global wave and tidal energy market could be worth as much as $11.3bn by 20246. However, at present only tidal barrages are capable of generating returns on investments through the sale of electricity, while tidal stream and wave power plants are not capable of generating power at grid parity levels.
But there are plenty of innovators operating in the market such as Australian company Carnegie Wave Energy which plans to build the first commercial wave energy project connected to the electricity grid in the UK. Another company, Tidal Lagoon Power, is planning a ¤1.5bn tidal scheme in Wales.
Kite
Royal Dutch Shell’s venture capital arm Shell Technology Ventures (STV) recently announced an investment with E.ON and Schlumberger in a form of wind power that uses high-altitude kites to harness energy. The three companies have taken a stake in UK-based Kite Power Systems which is working on capturing wind power through airborne kites tethered to the ground. STV says kite power has the potential to be a game changer in renewable energy as traditional wind power is less efficient because it requires a lot of steel infrastructure.
1 Institute for Energy Economics and Financial Analysis2 Carbon Brief3 GTM Research4 International Energy Agency5 Global Wind Energy Council6 Transparency Market Research
clearthought | 2017 Industrials Insights from Clearwater International
Traditional powerDespite the huge drive towards renewables, traditional power sources will continue to play a significant part in the global energy mix.
Coal
Contrary to perception coal is far from dead, with coal power plants still supplying 39% of the world’s power in 20151.
Although China is taking action to limit coal imports and close small and inefficient mines, new modernised mines and coal-fired power stations are still being built. The government is targeting output of 3.9bn tonnes of coal in 2020, up from 3.75bn tonnes in 2015, although it has also set targets to cut coal overcapacity by half a billion tonnes over the next few years.
In Western nations low prices and increasing carbon taxes have made it uneconomical to run coal-fired plants. For instance the UK wants to eradicate coal power completely by 2025, while the EU recently announced it would bar coal-fired plants from access to ‘capacity mechanisms’ that guarantee back-up power reserves.
Gas
Natural gas remains a good source of energy for economic, operational and environmental reasons, and as such will continue to increase its share of the global energy mix, growing at 2% per year until 20201. The fact that it is a low-risk, lower carbon alternative to other fossil fuels - plus the fact that gas plants can be built relatively quickly – means gas is an attractive choice for new power generating plants.
Consumption of natural gas worldwide is projected to increase from 120 tcf (trillion cubic feet) in 2012 to 203 tcf in 20402, while natural gas consumption in the electric power sector is forecast to increase by 2.2% a year until 2040.
The industrial and electric power sectors together account for 73% of the total increase in world natural gas consumption, and will account for 74% of total natural gas consumption through to 2040.
Nuclear
Despite the fallout from the 2011 Fukushima nuclear disaster in Japan - Germany is shutting down all its nuclear power stations by 2022 in response - the global industry continues to grow.
For instance, mainland China has 21 nuclear power reactors under construction and plans to double its nuclear capacity3 by 2020-2021. The country has become largely self-sufficient in reactor design and construction, as well as in other aspects of the fuel cycle.
Saudi Arabia announced earlier this year that it would also be making a “significant” investment in nuclear energy. It said it was in the early stages of feasibility and design proposals for the country’s first commercial nuclear power stations with capacity of 2.8GW.
In the UK, EDF Energy is planning to build the country’s first new nuclear power station for a generation at Hinkley Point, while France is building a new nuclear plant at Flamanville with pioneering EPR technology which is designed to be safer than for any other nuclear facility ever built. However, this new technology has been beset by cost overruns and delays to construction.
1 International Energy Agency 2 US Energy Information Administration:
International Energy Outlook 20163 World Nuclear Association
clearthought | 2017 Industrials Insights from Clearwater International
New technologiesThe recent launch of a $1bn Breakthrough Energy Ventures Fund for new energy technologies by Bill Gates and other leading global executives was a sign of the increased urgency towards finding workable clean-tech solutions. As Gates himself said: “We need affordable and reliable energy that doesn’t emit greenhouse gas to power the future, and to get it we need a different model for investing in good ideas and moving them from the lab to the market.”
In fact today there are a wide range of exciting new technologies that have the potential to transform and better regulate power production.
Smart meters
These provide accurate real-time measurement of energy usage and it is estimated that the market will grow to $18.2bn by 2019 at a CAGR of 10.2% from 2014-20191. The technology is already widely used across the EU due to various energy efficiency directives. Future growth will depend on the parallel growth of smart grid technologies such as advanced sensors and monitoring devices, and on increased knowledge among consumers and businesses.
A specific trend has been the adoption of more ‘time-of-day’ electricity tariffs for both businesses and consumers where prices vary between periods of high and low demand. Policymakers see such tariffs as an important part of making the electricity system more efficient and flexible, especially given the unreliability of renewable energy.
Energy storage
This is widely regarded as one of the keys to achieving the global transition to clean energy. Annual investment in energy storage systems is set to increase sixfold to $8.2bn by 20242, while it is forecast that between now and 2024 some $44bn will be invested in energy storage systems. At present the majority of stationary energy storage is installed by utilities, but by 2021 the market for storage capacity or systems installed in businesses and homes will become the largest segment.
It is forecast2 that the global battery market alone will soar to 25GW of storage devices deployed over the next 12 years. Battery storage plants can absorb surplus electricity at times of excess generation and then release it during times of increased demand, playing a crucial role in helping balance supply and demand.
Carbon capture and storage (CCS)
Although the technology which traps CO2
emissions and then stores them deep under the ground or sea has been around for many years, it is only now beginning to gain real traction. The world’s largest CCS project – the $1bn Petra Nova scheme - recently came into service in Texas and the facility, which is based on an existing coal-fuelled power plant, captures more than 90% of the CO
2 from a 240MW slipstream of flue
gas. Another large CCS project is nearing completion in Mississippi, US. The Integrated Gasification Combined Cycle plant will turn coal into gas and capture the carbon dioxide before combustion.
Subsea interconnectors
Electricity imported through subsea interconnectors has become a key source of power for many countries. There are several between the UK and mainland Europe with more planned, including the ¤1.65bn North Sea Link between the UK and Norway, the world’s longest. Electricity can flow in either direction depending on demand, and cable owners charge companies access to the power.
1 MarketsandMarkets2 Bloomberg New Energy Finance:
Global Energy Storage Forecast 2016-2024
clearthought | 2017 Industrials Insights from Clearwater International
M&A activityRecent transactions in the power equipment and services sector exemplify the move into energy management and renewable power supplies. There is increasing appetite from both strategic buyers and private equity investors for businesses operating in these areas, while recent deals demonstrate how scaleable companies with exciting international growth prospects can attract high valuations.
Announced date
Target name Country Target description Acquirer name Country Deal size (¤m)
Dec-16 SAG Group GmbH Germany Energy infrastructure services SPIE SA France 850.0
Dec-16 AH Industries AS Denmark Supplier of components, modules and systems for the wind power, minerals and cement industries
Aurelius Germany 32.3
Dec-16 Avanti Wind Systems AS
Denmark Vertical access solutions for wind turbine towers
Alimak Group AB Sweden 91.0
Dec-16 Clarke Energy Ltd UK Specialist in the engineering, construction, installation and maintenance of engine-based power plants
Kohler Co US 355.3
Nov-16 EVANTEC GmbH Germany Facility management services in the energy industry
ISS Facility Service AS Germany n.a.
Nov-16 KK Group AS Denmark Supplier of electrical system solutions for the wind turbine industry
Solix AS Denmark n.a.
Nov-16 Ensite Solutions LLC US Provider of maintenance and repair of HVAC, generators, uninterruptable power supply (UPS) and fire protection equipment
Cushman & Wakefield LLP US n.a.
Oct-16 Terra Millennium Corp US Industrial services company serving the power generation, refining, petrochemical, mining, solar, mineral processing and steel industries
Court Square Capital Partners
US n.a.
Oct-16 LM Wind Power AS Denmark Manufacturer of rotor blades for the wind industry
General Electric Co US 1,500.0
Aug-16 Emerson Electric Co (Motors, Drives & Electric Power Generation business)
US Motors, drives and electric power generation businesses of Emerson
Nidec Corp Japan 1,072.0
Aug-16 Emerson Electric Co (Network Power division)
US Provider of thermal management, A/C and D/C power, transfer switches, services and information management systems for the data centre and telecommunications industries
Platinum Equity US 3,573.0
Jun-16 Gamesa Corporacion Spain Development, construction and sale of wind farms
Siemens AG Germany 6,834.0
May-16 Saft SA France Battery manufacturer Total SA France 950.0
Apr-16 SL Industries Inc US Manufacturer of high-performance power solutions
Handy & Harman Ltd US 141.6
Mar-16 Bluffton Motor Works LLC
US Electric motor manufacturer WEG SA Brazil n.a.
Feb-16 PowerSecure International Inc
US Provider of energy technologies and services to electric utilities and their large industrial, commercial, institutional and municipal customers
Southern Co US 376.2
Feb-16 PR Industrial Srl (65% stake)
Italy Manufacturer of stationary and mobile generators
Generac Power Systems Inc
US 54.5
Feb-16 Electronic Systems Protection Inc
US Manufacturer of energy intelligence and power protection solutions
AMETEK Inc US 116.7
Jan-16 Availon GmbH Germany Service provider for wind turbines Vestas Wind Systems AS Denmark 88.0
Jan-16 Power Partners Inc US Manufacturer of power transformers OpenGate Capital US n.a.
Industrials Insights from Clearwater International clearthought | 2017
www.clearwaterinternational.com
Deal highlightsSome of our recent deals
Meet the team
Designer, manufacturer and installation service company, within renewable energy solutions
Clearwater International advised PE-backed Industrivarme on its sale to utility company VERDO S/I
Industrivarme
Supplier of metal components, modules, systems and services to the wind turbine industry
Clearwater International advised Sweden-based Ratos, and the joint shareholders, in the divestment of AH Industries to AURELIUS
AH Industries
Specialised provider of technical infrastructure and nuclear services for energy plants and other sites
Clearwater International advised private equity fi rm palero capital on the acquisition of EVANTEC from E.ON
EVANTEC
A leading designer, producer and servicer of decentralised power generation solutions
Clearwater International advised private equity fi rm 3i on the acquisition of DEUTZ Power Systems from DEUTZ
Deutz Power Systems
Provider of qualifi ed employees for the oil, gas and wind industry
Clearwater International advised Q-Star Energy on its investment from Via Venture Partners
Q-Star Energy
Installation and service provider to the global on- and offshore wind turbine industry
Clearwater International advised on the sale of Apro Wind to Via Venture Partners/VB Enterprise
Apro Wind
CHINA • DENMARK • FRANCE • GERMANY • IRELAND • PORTUGAL • SPAIN • UK • US
Constantine BillerInternational Head of Industrials, UK+44 845 052 [email protected]
Simon ZhangPartner, China+ 86 21 6341 0699 x [email protected]
Philippe CroppiPartner, France+33 1 53 89 [email protected]
Markus OttoPartner, Germany+49 611 360 39 [email protected]
Rui MirandaPartner, Portugal+351 918 766 [email protected]
Francisco GomezPartner, Spain +34 699 446 [email protected]
Jon HustlerPartner, UK+44 845 052 [email protected]
Carsten RydahlAssociate Partner, Denmark+45 27 62 03 [email protected]
