Investment Opportunity in “Belt and Maritime Route”...

15 October 2015, Beijing

Investment Opportunity in “Belt and Maritime Route” Region Feng Zhao, Director

Table of Contents

2

About FTI Consulting

Overview of Chinese turbine OEMs' performance in the overseas market

Industry background for China's “Belt and Maritime Route” initiative

Investment Opportunity in “Belt and Maritime Route” Region

Special focus on south-east Asian markets: Philippines, Thailand and Vietnam

Who will benefit the most from the “ Belt and Maritime Route” initiative

About FTI Consulting

FTI is a global advisory

firm that provides

multidisciplinary

solutions to complex

challenges and

opportunities.

United by a culture of

urgency, our

professionals are

organised around the

globe to provide critical

assistance wherever

and whenever needed.

4

EXPERIENCED PROFESSIONALS

FTI are trusted advisors with diverse

expertise and exceptional credentials

serving clients globally including

accountants, economists, engineers,

former CFOs and strategists.

DEEP INDUSTRY EXPERTISE

FTI combines unparalleled expertise

and industry knowledge to address

critical challenges for clients. Our

largest industry groups are:

Energy, Power & Products

Financial Institutions & Insurance

Healthcare & Life Sciences

Real Estate

Retail & Consumer

Telecom, Media & Technology

GLOBAL REACH

With over 4,400 employees and offices

in 27 countries on six continents, our

breadth and depth extends across

every major social, political and

economic hub across the globe.

FTI Consulting at a Glance

FCN

Publicly traded – NYSE

$1.7 BLN

Market Capitalization

1982 Year founded

80 Different disciplines

4,400+

Employees worldwide

700+

Industry specialists

440+

Senior Managing Directors

2 Nobel

Laureates

10/10 Advisor to the world’s top 10 bank

holding companies

94/100 Advisor to 94 of the world’s

top 100 law firms

47/100

47 of all Global 100

corporations are clients

80

Offices in 80 cities around the globe

Research Team Overview

5

We have a senior, multi-disciplinary and experienced team with deep industry knowledge. OUR TEAM

Senior with deep expertise

Ex-BTM Navigant, MAKE

Consulting, IHS-CERA,

Recharge, EWEA leaders

Leading industry

professionals

Hands-on operational

experience

Multi-disciplinary

background

OUR APPROACH

Small and senior teams

80/20

Speed

Focus on key issues

Data and hypotheses driven

Engagement with key

personnel

WHAT WE DON’T DO

‘Tick the box’ exercises

Seek 100% evidence

Burden management

‘Reinvent the wheel’

Aris Karcanias (UK)

Co-Lead of Clean Energy practice

Strategic, policy, M&A, dispute advisory

Supply chain & technology

commercialisation expert

Feng Zhao (Denmark)

Strategy, Policy, and market entry and

growth projection

Supply chain & product portfolio

Chris LeWand (US)

Co-Lead of the Clean Energy practice

Expert in M&A, strategic & financial

planning, performance improvement,

business valuation, restructuring,

interim management (CFO/CRO)

Christian Axmann (Germany)

Cost reduction and operational

improvement

Supply Chain expert

Engineering Industry

Victor Musuku (Denmark)

Policy and market research

Emerging wind power markets expert

Supply chain and products

Robert Clover (UK)

Strategy, policy, M&A, market entry,

competitive positioning

Finance & capital markets

Business valuation

Ben Backwell (UK)

Industry expert

Strategic communications and

lobbying

Strategy and competitive positioning

Dr Fabien Roques (France)

Energy economist focused on

European power market modelling,

market design and regulation

Ex-Senior Economics with the IEA

Athanasia Arapogianni (UK)

Strategy & policy

Finance expert

Stefan Karlsson (Sweden)

Senior Affiliate at FTI Consulting with >20

years’ industry experience

Supply chain, O&M and strategy

Emerging markets and extensive sales,

Marketing, and business development

experience.

Our Energy Capability

6

Example Clients

Capabilities

Team

Economists

Industry specialists

Ex-regulators

Accountants

1. Strategy

2. Policy & Regulation

• Wholesale & Retail market

• Transmission network regulation

• Distribution network regulation

• Renewable and carbon market

3. Competition economics & State Aid

4. Disputes (economic, commercial, and technical)

5. M&A / Transaction Support

6. Energy Market Research

FTI Intelligence’s Wind Subscription Service

7

Chinese turbine OEMs' performance in the overseas market

Overview of Chinese OEMs' performance in the overseas market

9

Wind turbine manufacturer

Hewind exported China's first

turbine in 2007. In the past 8

years, 851 units of Chinese

turbines totalling 1,546 MW

was installed out of China.

Chinese turbine has been

installed in 28 countries by

the end of 2014 with the US,

Ethiopia and Australia taking

the lead.

Europe, North America and

Africa have accounted for

67% of exports as end of

2014.

The top 4 OEMs accounted

for 87% of total installation.

Goldwind, Sinovel and SANY

accounted for 41%, 24.6%

and 15.8% of these exports

respectively.

Industry background for China's “Belt and Maritime Route”

initiative

Industry background for China's “Belt and Maritime Route” initiative

11

Source: FTI Intelligence and CEC, July 2015

28.8%

30.98%

17.8%

42.96%

22.7%

17.46%

13.9%

Growth rate of electricity consumption in China

5.3%4.6%

5.1%

7.6%

2.0%1.3% 1.6%

-0.3%

2.6%

-2.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

China East China Central China Western

China

Northeast

China

1H 2014 1H 2015

Goldwind

21%

United

Power

13%

Mingyang

12% ENVISION

10%

XEMC

8%

Haizhuang

8%

Sewind

6%

Dongfang

5%

Windey

4%

SANY

4%

Others

9%

Top 10 wind turbine suppliers in China, 1H2015

% of 10,100 MW

24 local OEMs

installed turbine in

China in 2014 and

16 domestic firms

reported turbine

installation in 1H

2015.

Source: FTI Intelligence and CWEA, July 2015

Source: FTI Intelligence, CWEA, CEC, July 2015

Wind power

curtailment rate

reached 15.2 %

in the first six

months of 2015

( 17.4 billion kWh

was curtailed),

6.8 % than the

previous year.

The slower than

expected growth

in electricity

consumption in

China is creating

new challenges

for the wind

industry.

The total amount

of unconnected

wind power

capacity has

grown nearly five

times since

2008.

The “Belt and Maritime Route” initiative

13

The “Belt and Road” initiative

refers to the Silk Road

Economic Belt and the 21st

Century Maritime Silk Road.

The initiative was introduced

by Chinese President Xi

Jinping against a background

of slow Chinese economic

growth and the challenge of

manufacturing overcapacity

for domestic industries.

With the goal of reviving the

centuries-old trading routes

linking Asia, Europe and

Africa, the Chinese

government released the

“Belt and Road” action plan

on 28 March 2015.

65 countries along the

historical trading road, of

which many are developing

countries.

The “Belt and Maritime Route” initiative will create a much bigger

market for local Chinese wind turbine manufacturers to serve

14

Elements of the plan that will help

boost renewable energy related

business include the connectivity

of transport and energy

infrastructure, the promotion of co-

operation in environmental

protection industries.

The Silk Road Infrastructure Fund

to implement this national

development strategy and provide

financial support to assist Chinese

firms in entering markets along the

Silk Road.

To address regional infrastructure

bottlenecks and capital

constraints, China has created a

joint venture with another 56

countries to establish the Asia

Infrastructure Investment Bank .

Chinese wind turbine suppliers

would benefit from the Silk Road

Infrastructure Fund, US$40 billion,

and Asia Infrastructure Investment

Bank, having authorised capital of

US$100 billion


15

The Top 15 fastest growing wind markets in terms of Compound Annual Growth Rate (CAGR) in 2015-2019

The Top 15 largest wind markets in terms of new additions in 2015-2019

Country CAGR

Kazakhstan 207%

Jordan 201%

Cuba 116%

Kenya 97%

Russia 76%

Iran 47%

South Africa 35%

Thailand 34%

Country GW

China 112

US 25

Germany 20

India 18

Brazil 12

UK 9.5

France 6.5

Ethiopia 27.9%

Jamaica 27.8%

Uruguay 26.6%

Chile 26.2%

Philippines 25%

Pakistan 33%

Egypt 30%

Turkey 6.2

Canada 5.0

Mexico 4.2

Sweden 3.3

Poland 2.7

South Africa 2.4

Japan 2.3

Austria 2.0

The Top 15 largest wind markets are expected to add

231 GW, accounting for 88% of the new capacity added

worldwide in 2015-2019. Aside from China, 10 out of

the top 15 are covered by this initiative. The market size

is 84.8 GW , 32% of new capacity to be added in 2015-

2019.

Source: FTI Intelligence, September 2015

The Top 15 fastest growing wind markets are expected to

install 12.8 GW in 2015-2019, account for 5% of the new

capacity added worldwide. 12 of the top 15 are located in

“ Belt and Maritime Route” region.

Silk Road Economic Belt

21st-Century Maritime Silk Road

Special focus on south-east Asian markets: Philippines,

Thailand and Vietnam

Investment Opportunity in south-east Asian markets: Philippines

Key facts for 2014 and beyond: Philippines

Support Scheme Structure Feed-in tariff (FiT)

Cumulative installation (MW) 216

Five-year forecast total (MW) 454

Most popular machine installed (2014) Vestas V90-3.0

Source: FTI Intelligence, October 2015

17

0

50

100

150

200

2014 2015e 2016e 2017e 2018e 2019e

Market forecast for Philippines Market drivers :

The Philippines wants energy independence

from expensive and volatile foreign supplies.

The Government’s Investment Priorities Plan

recognises renewable energy investment as a

priority investment area.

In 2012, state-run Energy Regulatory

Commission (ERC) approved RE feed-in tariff

(FIT) rates including PHP 8.53/kWh

($0.21/kWh) for wind.

High wind potential estimated at 70GW.

Wind target of 500MW by 2020; record

installations in 2014.

Market challenges:

Lack of project financing: investment conditions

favour large developers.

Grid constraints: the best wind sites are distant

from the population centres and therefore lead

to high grid access costs .

Typhoon risk: good wind sites in the outer

northern islands are at the same time

vulnerable to high winds.

Investment Opportunity in south-east Asian markets: Thailand

Key facts for 2014 and beyond: Thailand




Leading turbine suppliers in Thailand Siemens

Most popular machine installed (2013) Siemens SWT-2.3-101

Source: FTI Intelligence, March 2015

18

0

50

100

150

200

250

2014 2015e 2016e 2017e 2018e 2019e

Market forecast for Thailand Market drivers:

The Thai Government has ambitions to become a

renewable energy export hub to regional markets,

thanks to the country’s existing substantial port

infrastructure.

The Thai Government set a renewable energy target

of 20% by 2020. in addition, it wants developers to

install 1.8GW wind by 2021, that is 300 MW per year.

The Thai Government set a wind FIT of 4.5 Baht/kWh

($0.15/kWh) for farms under 50MW and 3.5

Baht/kWh for larger projects, for the first 10 years. It

also intends to oblige developers to start farm

construction within six months or lose their PPA.

The Thai Government's Board of Investment (BOI)

offers other incentives including import-duty

reductions or exemptions on machinery and raw

materials, deductions for infrastructure construction

or installation costs.

Market challenges:

Shortage of land: Land in Thailand, including areas

with the best wind-resource potential, is protected

and usually not for sale.

Land leases: land is available under long-term lease

agreements from the Agricultural Land Reform Office

but obtaining such a lease can be time consuming

and difficult.

Investment Opportunity in south-east Asian markets: Vietnam

Key facts for 2014 and beyond: Vietnam




Leading turbine suppliers in Vietnam Fuhrlander, GE

Most popular machine installed (2013) GE 1.6-82.5

Source: FTI Intelligence, October 2015

19

0

20

40

60

80

100

120

140

160

2014 2015e 2016e 2017e 2018e 2019e

Market forecast for Vietnam Market drivers :

Strong economic growth since 1995 (average GDP growth

between 1995-2014 at 5.84%) has seen electricity

demand outpace electricity supply.

Good wind resources: an extensive coastline with high

wind speeds, particularly in the provinces of Ninh Thuan

and Binh Thuan.

In 2010, the Vietnamese Government set a wind target of

1GW by 2020 and 6.2GW by 2030.

Vietnam’s wind FiT was introduced in August 2011. It

obliges the Electricity of Vietnam Group (EVN) to purchase

all electricity generated by grid-connected wind turbines

at VND1,614/kWh (€0.06/kWh) (or 8 cents per kWh

higher than the average electricity price) for a period of

20 years.

Market challenges:

Shortage of land: fierce competition for land in the wind

resource-rich Mekong Delta for rice farming; about 12

wind power projects put on hold in Binh Thuan Province

following the discovery of titanium in the region.

Grid constraints: many wind projects have failed to

progress due to lack of investment in grid upgrades.

Low electricity prices: despite the FIT, Vietnam’s electricity

prices are lower than its neighbours’ and thus not

attractive enough to encourage further investment.

Bureaucracy, lack of available data and inadequate

transport infrastructure and equipment

Who will benefit the most from the “ Belt and Maritime

Route” initiative

0

1

2

3

4

51

2

34

5

Goldwind

United Power

Mingyang

ENVISION

XEMC

Sewind

DEC

CSIC

Sinovel

SANY

Who will benefit the most from the “Belt and Maritime Route”

initiative

21

1. Establish global footprint with

an installation track record, sales

network and local O&M service

unit

2. Proven wind turbine

technologies, certified (by

international certification bodies),

capable of coping with challenging

climate conditions

3. EPC (engineering, procurement

and construction) capability in

overseas markets

4. Strong ties with state-owned

EPC contractors building energy

infrastructure development

businesses abroad or with large

state-owned (renewable) energy

investors/developers

5. Offer complete energy

equipment package solutions

(including hydro, gas, nuclear and

renewables)

Source: FTI Intelligence, September 2015

To maximize business opportunities abroad, Chinese turbine suppliers will need to demonstrate the following core competences:

It is unlikely that this initiative will bring equal opportunities to Chinese turbine manufacturers.

FTI Intelligence expect that Goldwind will remain the largest Chinese wind turbine exporter in the

next five years. Other key Chinese players active in the overseas market will include United Power,

Mingyang, DEC, ENVISION and SANY.

Projects signed and under construction by the end of H1 2015

22

Source: FTI Intelligence, July 2015

Goldwind is currently

taking the lead followed by

United Power and

Mingyang.

Envision recently entered

the Swedish market

through acquisition.

Once projects currently

under construction or

signed come online, the top

three regions favoured by

Chinese turbine vendors

will be Europe, Africa and

South America.

It is likely that more

Chinese wind turbines will

be exported to countries in

Central Asia and South Asia

(starting with Kazakhstan

and Pakistan).

OEMs Turbine Model UnitTotal

MWOrder type Financing Country

GW 121/2.5 40 100 EPCChina EXIM Bank, China-

CEE fundSerbia

GW121/2.5 48 120 EPC TBD South Africa

GW109/2.5 13 32.5 EPC TBD South Africa

GW77/1500 34 51 Turbine supply TBD Cuba

GW109/2.5 86 215 Turbine supply IFC of the World Bank Panama

GW 1O9/2.5 4 10 Turbine supply Foreign bank Thailand

S48/0.75 14 10.5 Turbine supply Foreign bank France

United Power UP86-1.5 163 244.5 Turbine supply Nedbank, IDC South Africa

MY1.5 33 49.5 EPC ICBC Pakistan

MY1.5 39 58.5 EPC N.A India

MY2.0 100 200 EPC TBD Romania

DEC DF110-2.5 30 75 EPC Nordic Investment Bank Sweden

CSIC Haizhuang HZ 2.0 14 28 Turbine supply Vendor finance US

ENVISION E2.3/3.0 n/a 25 Acquisition Vendor finance Sweden

Goldwind

Sub-total 539

Total 1,220

Mingyang

Sub-total 308

Critical Thinking at the Critical Time ™

Contact Details:

Aris Karcanias

Managing Director

+44 20 3727 1282 direct

+44 77 1784 6696 mobile

[email protected]

200 Aldersgate,

Aldersgate Street,

London, EC1A 4HD

United Kingdom

Contact Details:

Feng Zhao

Director/Head of wind energy

+45 2046 2658 direct

+45 3113 5677 mobile

[email protected]

Gl. Kongevej 1

1610 Copenhagen

Denmark

mailto:[email protected]

mailto:[email protected]

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