Attractiveness in Wind Power Value Chain

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Attractiveness in Wind Power Value Chain

  1. 1. Overview of the Investment Attractiveness of Selected Parts of the Value Chain: Wind and Solar Power M5BE-14 March 2010
  2. 2. Disclaimer • Frost & Sullivan takes no responsibility for any incorrect information supplied to us by manufacturers or users. • Quantitative market information is based primarily on interviews and therefore, is subject to fluctuation. • Frost & Sullivan Research Services are limited publications containing valuable market information provided to a select group of customers in response to orders. Our customers acknowledge, when ordering, that Frost & Sullivan Research Services are for customers’ internal use and not for general publication or disclosure to third parties. • No part of this Research Service may be given, lent, resold or disclosed to non-customers without written permission. • Furthermore, no part may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the permission of the publisher. • For information regarding permission, write to: Frost & Sullivan 4 Grosvenor Gardens, London SW1W 0DH United Kingdom © 2010 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.M5BE-14 2
  3. 3. Certification • We hereby certify that the views expressed in this research service accurately reflect our views based on primary and secondary research with industry participants, industry experts, end users, regulatory organizations, financial and investment community, and other related sources. • In addition to the above, our robust in- house forecast & benchmarking models along with the Frost & Sullivan Decision Support Databases have been instrumental in the completion and publishing of this research service. • We also certify that no part of our analyst compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this service.M5BE-14 3
  4. 4. Table of Contents Executive Summary Executive Summary 5-10 5-10 Scope 6 Methodology 7 Two-step Assessment Methodology 8 Wind Power Industry Hot Spot Segment Assessment: Summary 9 Solar Power Industry Hot Spot Segment Assessment: Summary 10 Overview of the Investment Attractiveness of the Wind Power Value Chain Overview of the Investment Attractiveness of the Wind Power Value Chain 11-27 11-27 Wind Power Market Introduction 12 Hot Spot Segment Assessment, Two-Step Methodology 15 Blades 17 Bearings 19 Gearbox 21 Tower 23 Other Components 25 Summary 26 Overview of the Investment Attractiveness of the Solar Power Value Chain Overview of the Investment Attractiveness of the Solar Power Value Chain 28-48 28-48 Solar Power Market Introduction 29 Hot Spot Segment Assessment, Two-Step Methodology 33 Polysilicon 35 Ingot/Wafer 37 Cell 39 Module 41 Other Components 43 Summary 45 Other Solar Technologies 47 About Frost & Sullivan About Frost & Sullivan 49-53 49-53M5BE-14 4
  5. 5. Executive SummaryM5BE-14 5
  6. 6. Executive SummaryScope• This study covers global wind and solar power markets’ value chains, focusing on the components, materials and semi-finished goods outlined below.• For the solar power industry, a detailed overview is provided on the value chain for polysilicon based modules, while other technology’s value chains are covered on a top level.• The base year is 2010.Overview of Investment Attractiveness: Wind Turbine Overview of Investment Attractiveness: Solar ModuleComponents Included (World), 2010 Materials and Components Included (World), 20101 Bearings 1 Polysilicon2 Blades 2 Ingot/Wafer3 Gearbox 3 Cell4 Tower 4 Module5 Generator 5 PV Glass6 Transformer 6 Backsheet7 Control System 7 Junction Box & Frame Detailed assessment 8 EVA Films Top-level overview Detailed assessment Source: Frost & Sullivan Top-level overview Source: Frost & SullivanM5BE-14 6
  7. 7. Executive SummaryMethodologyThis market analysis is a strategic overview of the investment Market Engineering Research Methodologyattractiveness of selected parts of the wind and solar power industryvalue chains. It follows the principle of Frost & Sullivans MarketEngineering research methodology. This is a measurement-basedsystem of market analysis, forecasting, strategy development andmonitoring. The full research cycle is outlined in the chart alongside. Ourapproach is designed to fully integrate market research, goal setting,strategic marketing, market planning, implementation, and monitoring asintegral components of the marketing process.This study is largely based on interviews with companies present in thewind and solar energy sectors such as financial investors, componentmanufacturers, wind turbine manufacturers, solar panels producers andwind and solar project developers. Additionally, it is also based on in-house knowledge and expertise, conferences that Frost & Sullivan haveattended, on-going conversations with clients and market participantsand regular tracking of the market. Source: Frost & SullivanM5BE-14 7
  8. 8. Executive SummaryTwo-Step Assessment Methodology• Every component market is analysed according to a two-step assessment methodology, where step one gives a market assessment according to six parameters that characterise the component market in terms of level of competition and threat of new entrants, technological complexity, supply/demand gap, the importance of manufacturing facilities being close to demand point and amount of investment required for setting up a new facility.• Under step two the key location criteria for manufacturing facilities are considered and assessed and later on compared for all components considered under the study’s scope.Overview of Investment Attractiveness: Assessment Methodology (World), 2010 STEP I - Introduction to the Sector STEP II - Analysis of Location of Key Market Participants and Major Highlights and Key Criteria Considered 1 Level of Competition 1 Proximity to Existing Facilities 2 Investment Required 2 Being Close to Demand 3 Technological Complexity 3 Favourable Investment Policies 4 Proximity to Demand 4 Access to Cheap Labour 5 Threat of New Entrants 5 Access to Cheap Manuf. Locations 6 Supply/Demand Gap Strong Weak Source: Frost & SullivanM5BE-14 8
  9. 9. Executive SummaryWind Power Industry Hot Spot Segment Assessment: SummaryOverview of Investment Attractiveness: Key Location Factors for Selected Wind Turbine Components (World), 2010 Blades Bearings Gearbox Tower 1 Expanding Existing Facilities 2 Being Close to Demand 3 Favourable Invest. Policies 4 Access to Cheap Labour Strong 5 Access to Cheap Manuf. Weak Source: Frost & Sullivan• The most important factor for the bulkiest and most expensive parts of the turbine is to be close to customers.• Although some of the wind turbine components are technologically very complex, the factor of expanding existing facilities has not been a priority.• Like most other production facilities, investment policies from governments such as tax credits and access to cheap labour, cheap electricity and raw materials are important to produce components for wind turbines.• The result of this is that manufacturing facilities are moving from Europe to China, India and the US. It certainly helps that these regions are becoming more investor friendly like setting up of special economic zones and countries like China and India have lower cost labour than traditional markets of Europe.M5BE-14 9
  10. 10. Executive SummarySolar Power Industry Hot Spot Segment Assessment: SummaryOverview of Investment Attractiveness: Key Location Factors for Selected Solar Module Materials (World), 2010 Poly- Ingot/ Cell Module Silicon Wafer 1 Proximity to Existing Facilities 2 Being Close to Demand 3 Favourable Invest. Policies 4 Access to Cheap Labour Strong 5 Access to Cheap Manuf. Weak Source: Frost & Sullivan• Proximity to existing manufacturing facilities is important at the technology-intensive lower part of the solar value chain. As production technology becomes less demanding, the factor reduces in its significance.• Being close to the demand gets more important towards the top-side of the value chain as it may be cost-ineffective for a manufacturer to transport large amounts of bulky modules around the globe.• Favourable investment policies along with a general trend to outsource production to lower cost countries has changed the solar cell and module industry, with larger quantities of equipment produced in Asian countries.• Access to cheap labour and manufacturing locations are crucial for cell and module manufacturing. There is a stronger trend to set up manufacturing facilities in Asian countries such as China, Malaysia, Taiwan and the Philippines.M5BE-14 10
  11. 11. Overview of the Investment Attractiveness of the Wind Power Value Chain 11
  12. 12. Wind Power Market IntroductionKey Wind Power Technologies• In terms of technology used to harness wind to convert to Overview of Investment Attractiveness: Wind Turbine Classification (World), 2010 electrical energy, there are only two types of mainstream technologies. They are onshore wind energy technology, which is used to harness wind on land, and offshore wind Wind Power energy technology, which is used to derive electricity from wind that blows on the sea.• While the technology used on land is more or less Onshore Wind Power Offshore Wind Power established, as the sector is quite mature, the technology used in the offshore wind energy sector is still developing. This is because the offshore sector is at a nascent stage Micro-wind Power Small Wind Power 0-100kW 2MW-4MW at less than 1.5% of global installed capacity of wind energy. Small Wind Power Large Wind Power• Onshore wind power can be further sub-divided into four 100kW-1MW More than 4MW categories depending on the power rating or capacity of the turbines used. Medium Wind Power 1MW-3MW• Medium-scale and large-scale turbines are used for commercial scale wind farms. This study will look at this Large Wind Power part of the sector. More than 3MW• The offshore wind power sector uses bigger turbines as they can take advantage of the higher wind speeds. This study will not look into offshore wind. Source: Frost & SullivanM5BE-14 12
  13. 13. Wind Power Market IntroductionWind Power Market Structure Overview of Investment Attractiveness: Wind Power Market• Component Suppliers manufacture the various Structure (World), 2010 components of a wind turbine such as towers, blades etc. Extended Value Chain• Production Equipment Suppliers produce and supply the equipment used by turbine Service Providers manufacturers to manufacture parts of the turbine or assemble a wind turbine. Planning and• Equipment Manufacturers are wind turbine Construction manufacturers.• Project Developers/Owners are companies that Production Equipment develop wind farms/projects. There are four types Suppliers of project owners: Utilities, Independent Power Producers (IPPs), independent project developers Traditional Approach to Value Chain and financial investors.• Planning and Construction firms are those that Project Developers/ plan and construct a wind farm and then sell it to Owners interested parties. They can also be firms that provide consulting and advisory services to wind Equipment farm owners. Manufacturers• Service Providers offer operation and Component maintenance services to wind farm owners once Suppliers the project has been commissioned. Source: Frost & SullivanM5BE-14 13
  14. 14. Wind Power Market IntroductionWind Power Industry Value Chain • Unlike the solar industry’s value chain that is very linear, in the wind industry many components are assembled together to erect a wind turbine. • There are approximately 16 major components in a wind turbine, that together contribute close to 90% of the cost of a turbine. • Towers contribute the most, in terms of cost, followed by rotor blades and then the gearbox. • Gearboxes and bearings have been the components most affected by shortage of supply brought on by the tremendous growth rates witnessed by the wind energy industry from 2005 to H1 2008. • Traditionally, wind turbine manufacturers have been outsourcing the manufacturing of most components and then assembling the turbines themselves. The industry has in the past 3 years been seeing a shift from outsourcing to in-housing for a number of reasons, the most important of which was to take more control of the supply chain. Overview of Investment Attractiveness: Major Components of a Wind Turbine (World), 2010 Tower (26.3%) Gearbox (12.9%) Rotor Blades (22.2%) Generator (3.4%) Rotor Hub (1.4%) WIND TURBINE Yaw and Pitch System (3.9%) Bearings (1.2%) Power Converter and Transformer (8.6%) Main Shaft and Frame (4.7%) Brake System and Nacelle Housing (2.7%) Source: EWEA; Based on a Repower MM92 turbineM5BE-14 14
  15. 15. Hot Spot Segment AssessmentTwo-Step Methodology STEP I - Introduction to the Sector and Major Highlights Introduction and Major Selected Criteria We have selected seven criteria for the component segment’s ranking: Highlights 1 Level of Competition 1. Level of Competition is an indicator of how many • The rating companies exist in the marketplace. will give a 2. Investment Required is an indicator of how much snapshot of 2 Investment Required investment is required in order to set up a new production a segment and will facility. allow for 3 Technological Complexity 3. Technological Complexity indicates whether or not comparison technological know-how and experience plays an between 4 important role in the industry, setting up new facility or various Proximity to Demand expanding existing ones. value chain segments. 4. Proximity to Demand indicates the importance of how 5 Threat of New Entrants • Visual close a component manufacturer needs to be to demand. ranking will 5. Threat of New Entrants indicates how easy it is to enter allow for the 6 Supply/Demand Gap the market and whether the likelihood of new entrants is ease of comparison high. of various Visual Ranking 6. Supply/Demand Gap assesses the supply shortage of the segments. component due to excess demand in the short to medium Strong Weak term.M5BE-14 15
  16. 16. Hot Spot Segment AssessmentTwo-Step Methodology (Contd…) STEP II - Analysis of Location of Key Market Participants and Key Criteria Considered Hot Spot Segment Selected Criteria We have selected seven criteria for segment ranking: Assessment 1 1. Expanding Existing Facilities is important for Proximity to Existing Facilities • The rating will access to technology and experienced technical give a top-level and engineering expertise, procurement reasons assessment of 2 Being Close to Demand and reaching economies of scale. the sector’s 2. Being Close to Demand is important if most important selection 3 Favourable Investment Policies transportation is challenging due to the nature of criteria for a component (extremely heavy, bulky, etc.). manufacturing 3. Favourable Investment Policies in the form of locations. 4 Access to Cheap Labour tax subsidies, long-term interest-free government loans, etc. can become a decisive factor for 5 Access to Cheap Manuf. Locations choosing a manufacturing location. 4. Access to Cheap Labour may offer a competitive advantage when a considerable amount of manual operation is present during the production process. Visual Ranking 5. Access to Cheap Manufacturing Locations may be important for energy/material intensive Strong Weak production processes for European and US players to compete with Asian manufacturers.M5BE-14 16
  17. 17. Hot Spot Segment AssessmentBlades Overview of Investment Attractiveness: Introduction and Major Highlights Blades Industry Scorecard (World), 2010 • The majority of the wind turbine suppliers have begun to manufacture blades in house to some level. About 40% of blade manufacturing is done in-house 1 Level of Competition while the rest is still outsourced. Danish LM Glasfiber is the largest blade manufacturer with an approximate market share of 30% at the global level. • Blade manufacturers are following their clients, the wind turbine 2 Investment Required manufacturers, who are moving to high growth areas like the US and China. It is important for blade manufacturers to be close to their clients as blades 3 Technological Complexity are difficult and expensive to transport because they are bulky and heavy. • Although blades were in short supply a few years ago, with wind turbine 4 Proximity to Demand manufacturers and blade manufacturers investing in production facilities, the shortage has been reduced by 2010. 5 Threat of New Entrants Overview of Investment Attractiveness: Examples of Blade Manufacturers (World), 2010 6 Supply/Demand Gap Source: Frost & Sullivan • The amount of capital required to build a blade manufacturing facility and the technological complexity adds to the fact that competition is high, Source: Frost & Sullivan keeping new entrants away.M5BE-14 17
  18. 18. Hot Spot Segment AssessmentBlades (Contd…) Overview of Investment Attractiveness: Overview of Investment Attractiveness: Analysis of Location of Key Key Location Factors for Blade Blade Market Participants (World), 2009-2012 Manufacturers (World), 2010 Number of Existing Trend for the Number of Continent Facilities (2009) Planned Facilities (2010-2012) 1 Expanding Existing Facilities Asia 14-20 Increasing rapidly Europe 14-19 Increasing slightly 2 Being Close to Demand North America 10-15 Increasing rapidly 3 Favourable Invest. Policies Source: Frost & Sullivan• Production of blades will be concentrated in the high growth regions – the US and Asia. Until a few years ago, most of the demand for wind turbines came 4 Access to Cheap Labour from Europe and therefore most of the facilities were located in Europe. With the growth in the demand for turbines in other regions, blade manufacturers 5 Access to Cheap Manuf. have moved to the high-growth areas. For blades, being close to demand is most important.• The trend is for blade manufacturing to move in-house so that wind turbine Source: Frost & Sullivan manufacturers have more control over their supply-chain. In the past 3 years, both OEMs as well as blade manufacturers have been expanding their facilities, to keep up with the demand for turbines and therefore blades.• All the other factors are of the same importance when it comes to the setting up of a manufacturing facility, except proximity to existing facilities.M5BE-14 18
  19. 19. Hot Spot Segment AssessmentBearings Introduction and Major Highlights Overview of Investment Attractiveness: • The wind bearings market is consolidated with 2-3 suppliers holding a major Bearings Industry Scorecard (World), share of the market. Bearing manufacturers who supply to other industries 2010 have begun to venture into the wind industry. 1 Level of Competition • Bearings are one of the most complex components of a turbine and one of the most critical to the efficient working of the turbine. Therefore the technology used to produce it is very complex. 2 Investment Required • Although they are not are not heavy or bulky to transport and therefore not necessary to be close to their customers, there are trends for facilities to be 3 Technological Complexity situated close to demand. • Bearings were one of the components in a major shortage from 2005 to mid- 4 Proximity to Demand 2008. The fall in demand for wind turbines triggered by the financial crisis has reduced the shortage problem temporarily. Frost & Sullivan expects the supply shortage to resume when demand picks up again, unless producers 5 Threat of New Entrants invest in more production facilities in the immediate future. Overview of Investment Attractiveness: Examples of Bearings 6 Supply/Demand Gap Manufacturers (World), 2010 Source: Frost & Sullivan • As the technology is complex and the competition is strong, the barriers to entry are quite high. Source: Frost & SullivanM5BE-14 19
  20. 20. Hot Spot Segment AssessmentBearings (Contd…) Overview of Investment Attractiveness: Analysis of Location of Key Overview of Investment Attractiveness: Bearings Market Participants (World), 2009-2012 Key Location Factors for Bearings Manufacturers (World), 2010 Number of Existing Trend for the Number of Facilities for all Planned Facilities 1 Expanding Existing Facilities Continent Applications (2009) (2010-2012) Asia 20+ Increasing 2 Being Close to Demand Europe 50+ Stagnant North America 50+ Increasing 3 Favourable Invest. Policies Source: Frost & Sullivan 4 Access to Cheap Labour • As with blades, expanding additional facilities is not a major factor for bearings suppliers when deciding on investment in increasing production capabilities. 5 Access to Cheap Manuf. • The most important difference between bearings and blade manufacturers is that being close to customers is not as important for bearings manufacturers as it is not difficult to transport these products. Source: Frost & Sullivan • However, there has been a trend for bearings manufacturers to move towards the high-growth areas such as India and China, to be closer to their customers and be able to provide better and quicker service. • Also, as the same production lines can be used to produce bearings for different industries, the choice of location also depends on the nature of other local industries.M5BE-14 20
  21. 21. Hot Spot Segment AssessmentGearbox Introduction and Major Highlights Overview of Investment Attractiveness: Gearbox Industry Scorecard (World), • Most wind turbine manufacturers outsource the production of gearboxes to 2010 third party providers. There are about 15 major players world-wide and the competition is strong. 1 Level of Competition • The production of gearboxes is complex as it is the heart of the turbine and has been the cause of failure of wind turbines on more than one occasion. 2 Investment Required • The trend has been for customers to prefer to have their gearbox manufacturer partners in close proximity. 3 Technological Complexity • Just as bearings were, the gearbox manufacturing market was not able to keep up with the demand for turbines from 2005 to mid 2008. This resulted in a massive demand-supply gap. Frost & Sullivan does not believe that the 4 Proximity to Demand supply will be able to keep up with demand, when the wind energy market picks up, as the number of facilities and their capacities are still not sufficient. 5 Threat of New EntrantsOverview of Investment Attractiveness: Examples of GearboxManufacturers (World), 2010 6 Supply/Demand Gap Source: Frost & Sullivan • The technological complexity, the established relationships between wind turbine manufacturer and gearbox manufacturer will make it Source: Frost & Sullivan difficult for new entrants.M5BE-14 21
  22. 22. Hot Spot Segment AssessmentGearbox (Contd…) Overview of Investment Attractiveness: Analysis of Location of Key Overview of Investment Attractiveness: Gearbox Market Participants (World), 2009-2012 Key Location Factors for Gearbox Manufacturers (World), 2010 Trend for the Number of Number of Existing Planned Facilities Continent Facilities (2009) (2010-2012) 1 Expanding Existing Facilities Asia 10-15 Increasing rapidly 2 Being Close to Demand Europe 10-15 Increasing slightly North America 3 Increasing rapidly 3 Favourable Invest. Policies Source: Frost & Sullivan • Due to the level of expertise involved in producing a gearbox, it is attractive if an 4 Access to Cheap Labour existing facility can be expanded. It has been seen in the case of some of the big manufacturers like Hansen Transmissions. 5 Access to Cheap Manuf. • Being close to demand is not the most important criteria as there are a number of European manufacturers that export to the US. Examples include Winergy, Moventas, Hansen Transmissions and Bosch Rexroth. At the same time, Source: Frost & Sullivan investments have been made in high growth areas such as India. This factor depends on the strategy of individual gearbox manufacturers. • Government incentives, cheap labour and access to cheap raw materials encourage gearbox manufacturers to set up in a particular location. This is due to the fact that the facilities involve huge investment themselves. Cutting costs in other ways helps increase profitability.M5BE-14 22
  23. 23. Hot Spot Segment AssessmentTower Introduction and Major Highlights Overview of Investment Attractiveness: • Like blades, towers used to be outsourced to local tower manufacturers but Tower Industry Scorecard (World), 2010 with the need to control the supply chain gaining more attention, wind turbine manufacturers have begun building their own tower manufacturing facilities. 1 Level of Competition There is substantial investment going into building factories by top wind turbine and tower manufacturers in the next few years. Even if the manufacturing is outsourced, the design is provided by the turbine producer. 2 Investment Required • Also, as they are heavy and bulky to transport, wind turbine manufacturers tend to source towers that are close to their facilities. Therefore, the market 3 Technological Complexity is relatively fragmented and local. • There are more than 30 tower manufacturers globally that supply to the top 4 Proximity to Demand 15 wind turbine manufacturers. So the competition is high. • The investment required and the technological complexity, when compared to other components, is low. 5 Threat of New EntrantsOverview of Investment Attractiveness: Selected Tower Manufacturers 6 Supply/Demand Gap(World), 2010 Source: Frost & Sullivan • As there are a number of players, investing in production facilities, there has been and will be no supply Source: Frost & Sullivan shortage in the future.M5BE-14 23
  24. 24. Hot Spot Segment AssessmentTower (Contd…) Overview of Investment Attractiveness: Analysis of Location of Key Overview of Investment Attractiveness: Tower Market Participants (World), 2009-2012 Key Location Factors for Tower Manufacturers (World), 2010 Trend for the Number of Number of Existing Planned Facilities Continent Facilities (2010-2012) 1 Expanding Existing Facilities Asia 16-20 Increasing rapidly 2 Being Close to Demand Europe 19-25 Increasing slightly North America 12-15 Increasing rapidly 3 Favourable Invest. Policies Source: Frost & Sullivan • As the demand shifts from Europe to the US and China, local tower 4 Access to Cheap Labour manufacturers as well as some global turbine manufacturers are setting up factories there. 5 Access to Cheap Manuf. • Being close to demand is the most important factor when setting up a factory. • It is not extremely important for tower factories to be expanded to take Source: Frost & Sullivan advantage of economies of scale, but the trend in the US suggests that once 2-3 suitable places have been chosen which is close to demand, tower manufacturers like to expand them. • Other factors such as favourable investment policies, access to cheap labour and access to cheap manufacturing are important too.M5BE-14 24
  25. 25. Hot Spot Segment AssessmentOther Components• There are some other components of a wind turbine that are interesting either because they are gaining more importance or form a substantial part of the cost of a turbine. They are detailed below. Generator Transformer Control System • Most of the wind turbine • The industry structure is unorganised • Most of the top global wind manufacturers outsource their and fragmented. turbine manufacturers produce manufacturing of generators. their own control systems as • Also, the technology is not complex • Some conglomerates such as GE its becoming a very important and factories do not require heavy Energy and Siemens produce some component for the efficient investment. of their demand in-house and plan to working of a wind turbine. increase the percentage in the next • OEMs tend to outsource their • Europe is the hub of few years. manufacturing of transformers. production for control Proximity to demand or OEMs is not • There is moderate competition which systems. a very important factor when setting is characterised by long-term up a production facility. • There are very few third party contracts based on quality and brand. suppliers that can produce it. • Due to all these factors, the threat of • Also, the need to be close to demand Mita Teknik is the biggest. new entrants is quite high. is moderate. • If new entrants have the • The industry does not anticipate any • Based on this, the barriers to entry technology and the financial future supply problems in the case of are not very high. If new entrants can backing, they will be able to transformers. exhibit quality and undercut capture the outsourced competition, they might be able to market. break into the market.M5BE-14 25
  26. 26. Hot Spot Segment AssessmentSummary Overview of Investment Attractiveness: Key Location Factors for Selected Wind Turbine Components (World), 2010 Blades Bearings Gearbox Tower 1 Expanding Existing Facilities 2 Being Close to Demand 3 Favourable Invest. Policies 4 Access to Cheap Labour Strong 5 Access to Cheap Manuf. Weak Source: Frost & Sullivan • The most important factor for the bulkiest and most expensive parts of the turbine is to be close to customers. • Although some of the wind turbine components are technologically very complex, the factor of expanding existing facilities has not been a priority. • Like most other production facilities, investment policies from governments such as tax credits and access to cheap labour, cheap electricity and raw materials are important to produce components for wind turbines. • The result of this is that manufacturing facilities are moving from Europe to China, India and the US. It certainly helps that these regions are becoming more investor friendly like setting up of special economic zones and countries like China and India have lower cost labour than traditional markets of Europe.M5BE-14 26
  27. 27. Hot Spot Segment AssessmentSummary (Contd…) Overview of Investment Attractiveness: Future Development of Installed and Manufacturing Wind Capacity (World), 2010 Wind installed capacity development Wind turbine production development Arrow inclination denotes pace of market development Source: Frost & Sullivan • Europe has, until 2008, been the hub of wind turbine production and has been seeing the most growth in installed capacity. • It will still remain a major region, globally, but the US and China are exhibiting great growth rates and therefore increased activity in turbine and component production.M5BE-14 27
  28. 28. Overview of the Investment Attractiveness of the Solar Power Value Chain 28
  29. 29. Solar Power Market IntroductionOverview of Solar Technologies Overview of Investment Attractiveness: Solar Power• There are many competing solar technologies, including 14 Technologies Classification (World), 2010 types of photovoltaic cells such as mono-crystalline and polycrystalline silicon cells, amorphous cells, thin films as Solar Power well as multiple types of concentrating solar power.• At present solar PV generation I and II have reached full commercialisation, the rest are still in test or early research Direct Conversion Indirect Conversion phases.• Concentrating solar technologies are broadly divided into two Concentrating Photovoltaics categories: Technologies (CSP) • Concentrating photovoltaic (CPV) systems I Generation: Polysilicon- CPV (Concentrating PV) concentrate sunlight onto photovoltaic surfaces of based technologies several varieties to produce power. II Generation: Thin-films Examples: Fresnel • Concentrating solar thermal power plants produce (CdTe, CIS/CIGS, a-Si, lens, Heliostat power by first converting the sun’s energy into heat, etc.) Concentrator, etc. next into mechanical power, and lastly, into III Generation: Multi- CST (Concentrating Solar electricity in a conventional generator. junction cells, Organic, Thermal) Nanotech based• While direct conversion solar systems based on polysilicon Examples: Parabolic cells were the first ones to reach commercialisation and wide trough, dish stirling, acceptance, other technologies are gaining momentum and concentrating linear are expected to expand in the future. fresnel reflector, solar power tower, etc. Source: Frost & SullivanM5BE-14 29
  30. 30. Solar Power Market IntroductionKey Solar Technologies • At present the vast majority of installed solar systems for all applications are based on direct conversion. Solar PV reached 95% of worldwide solar market in 2007.This is expected to continue into the future as the residential segment will remain a major application and solar PV is best-suited for it. • CSP technologies could gain a higher market share; however, it is likely to stay below 10% of the entire solar power market. Overview of Investment Attractiveness: Markets and Applications for Solar Power (World), 2010 Category Small Medium Large Installation Size <10kW 10 to 100kW 100kW to 1MW 1 MW to 10 MW 10 to 100MW >100MW Technology Mix in Each Market 100% PV 99% PV, 1% CSP 20% PV, 80% CSP Distributed Generation Installation Type Centralised Generation Residential Market Served Commercial Utility Source: Frost & SullivanOverview of Investment Attractiveness: Solar Technology Penetration by Market Segment (World), 2010 Small Medium Large <10kW 10 to 100kW 100kW to 1MW 1 to 10 MW 10 to 100MW >100MW 2500 … CPV CST Insulation Level, 2000 PV … Tracking PV kWh/m2 1000 Source: Frost & SullivanM5BE-14 30
  31. 31. Solar Power Market IntroductionSolar Power Market Structure• Small Systems Owners are private households or small businesses. Overview of Investment Attractiveness: Solar Small systems generating up to 20 kWp account for about 80% of all Power Market Structure (World), 2010 installations but their share is slightly decreasing due to development of large scale solar parks. Operators/ Small Systems Owners Owners• Large Scale Solar Park Developers are often utilities or IPPs. They are often responsible for operations and maintenance of the solar parks as well. Large-Scale Residential & Solar Park Small-Scale• Residential and Small Scale System Installers (Integrators) are Developers System Installers locally-based businesses that are engaged in final solar system assembly and installation. Wholesalers/• Wholesalers/Distributors are engaged in solar module and Distributors component sales. Sometimes they can also provide system installation services. Solar Module/System• Solar Module/System Manufacturers are engaged in production of Manufacturers modules or ready-to-install systems.• Solar Cell Manufacturers produce solar cells. The assembly of Solar Cell Component crystalline solar cells into modules is often carried out in the cell Manufacturers Producers plant, but can be done in smaller plants closer to the end market.• Component Producers manufacture inverters, mounting frames, Silicon batteries for off-grid systems, meters, as well as cables and switches. Producers• Silicon Producers are a handful of companies worldwide that produce polysilicon, which is a major raw material. Source: Frost & SullivanM5BE-14 31
  32. 32. Solar Power Market IntroductionSolar Power Industry Value Chain: Polysilicon based Cells and Modules• There are several major transformation steps through which silica takes shape of a solar module: • Metallurgical grade silicon (MG-Si) is refined into ultra pure silicon, so-called polysilicon. This step is both capital and energy intensive. • Polysilicon is re-melted and re-deposited to form ingots, which are then sawn and polished into wafers. The first part of the value chain has a lot in common with semiconductor manufacturing, only the purity requirements are less stringent. • Wafers are polished and prepared with a number of operations to form cells. • Cells are then assembled, fitted with a frame and a junction box to form modules (also called panels). Overview of Investment Attractiveness: Solar PV Industry Value Chain (World), 2010 MG- Poly- Silica Ingot Wafer Cell Module System Silicon Silicon Source: Frost & SullivanM5BE-14 32
  33. 33. Hot Spot Segment AssessmentTwo-Step Methodology STEP I - Introduction to the Sector and Major Highlights Introduction and Major Selected Criteria We have selected seven criteria for segment’s ranking: Highlights 1 1. Level of Competition is an indicator of how many companies Level of Competition • The rating are exist in the marketplace. will give the 2. Investment Required is an indicator of how much investment snapshot of 2 Investment Required is required in order to set up a new production facility. a segment and will 3. Technology Complexity indicates whether or not allow for 3 Technology Complexity technological know-how and experience plays an important comparison role for the industry, setting up new facility or expanding between existing ones. various 4 Proximity to Demand value chain 4. Proximity to Demand indicates the importance of how close a segments component manufacturer needs to be to demand. 5 Threat of New Entrants • Visual 5. Threat of New Entrants indicates how easy it is to enter the ranking will market and whether the likelihood of new entrants is high. At allow for the 6 Supply/Demand Gap present the solar industry is experiencing a temporary ease of slowdown accompanied by an oversupply at every step of the comparison Visual Ranking value chain. Going forward, however, increasing demand is of various segments expected to revive the industry and not only spur expansion activities but also attract new entrants to the market. Strong Weak 6. Supply/Demand Gap assesses the market saturation in the short to medium term.M5BE-14 33
  34. 34. Hot Spot Segment AssessmentTwo-Step Methodology (Contd… ) STEP II - Analysis of Location of Key Market Participants and Key Location Factors Hot Spot Segment Selected Criteria Assessment We have selected seven criteria for segment’s ranking: 1 Proximity to Existing Facilities • The rating 1. Proximity to Existing Facilities is important for will give a access to technology and experienced technical top-level 2 Being Close to Demand Point and engineering expertise, procurement reasons assessment and reaching economies of scale. of the sector’s 3 Favourable Investment Policies 2. Being Close to Demand Point is important if most transportation is challenging due to a nature of a important component (extremely heavy, bulky, etc.). location 4 Access to Cheap Labour selection 3. Favorable Investment Policies in the form of criteria/ tax subsidies, long-term interest-free government 5 Access to Cheap Manuf. Locations loans, etc. can become a decisive factor for choosing a manufacturing location. 4. Access to Cheap Labor may be a competitive advantage when a lot of manual operations are present during the production process. Visual Ranking 5. Access to Cheap Manufacturing Locations Strong Weak may be important at energy/material intensive production steps in order to compete with Asian manufacturers.M5BE-14 34
  35. 35. Hot Spot Segment AssessmentPolysilicon Introduction and Major Highlights Overview of Investment Attractiveness: Polysilicon Industry Scorecard (World), • Polysilicon production is highly concentrated, with a few large global 2010 chemical companies supplying the material worldwide. 1 Level of Competition • Polysilicon was in short supply during 2005-2008, driven by high demand from the solar PV industry. This led to increased spot prices from US$25 in 2004 to more than ten-fold increase by the beginning of 2008. 2 Investment Required • Extremely high margins and expectations of prolonged high solar industry 3 Technology Complexity demand have attracted many new entrants in Europe, but especially in Asia. • Even if successful, new entrants will face extremely tough competition from 4 Proximity of Suppliers the incumbents as the latter have the lowest cost base due to long production experience leading to technological know-how. Additionally, all 5 Threat of New Entrants large incumbent producers are expanding their production facilities. 6 Supply/Demand GapOverview of Investment Attractiveness: Examples of Polysilicon Source: Frost & SullivanManufacturers (World), 2010 • The polysilicon industry is likely to stay as concentrated as it is with new plants built close to existing facilities. • Supply/demand gap is non-existent at present but will come into being should demand become exceptionally Source: Frost & Sullivan strong.M5BE-14 35
  36. 36. Hot Spot Segment AssessmentPolysilicon (Contd…) Overview of Investment Attractiveness: Analysis of Location of Key Overview of Investment Attractiveness: Market Participants (World), 2010 Key Location Factors for Polysilicon Manufacturers (World), 2010 1 Proximity to Existing Facilities 2 Being Close to Demand 3 Favourable Invest. Policies 4 Access to Cheap Labour 5 Access to Cheap Manuf. Existing facilities* Source: Frost & Sullivan Announced projects (2006-2008)Key: *indicates a factory location in terms of continent rather than specific country • Proximity of existing facilities is by far Source: Frost & Sullivan the most important location factor as due to technology complexity it is• While a lot of new projects were announced in 2006-2008 and some large cell extremely important to have and module producers were looking to set up their own polysilicon experienced technical staff. Also it manufacturing facilities, many small-scale projects will find it increasingly allows for scaling up of production difficult to survive from 2009 onwards. leading to economies of scale.M5BE-14 36
  37. 37. Hope Spot Segment AssessmentIngot/Wafer Introduction and Major Highlights Overview of Investment Attractiveness: Ingot/Wafer Segment Scorecard (World), • There are over 70 ingot manufacturers worldwide; most companies are 2010 integrated, i.e. they produce ingot and wafer; others are not. • Some of the ingot/wafer manufacturers have been seen trying to back- 1 Level of Competition integrate into polysilicon production to improve their competitiveness and secure feedstock for aggressive expansion. 2 Investment Required • There are two main type of ingot/wafers: monocrystalline and polycrystalline. The production of monocrystalline ingot requires precise specifications and 3 Technology Complexity careful monitoring to ensure uniform crystal growth and contaminant-free ingots. 4 Proximity of Suppliers • The Directional Solidification/Casting Method produces polycrystalline ingots/blocks. It takes less time to make and is cheaper to produce. These 5 Threat of New Entrants are the reasons for the casting method to be more widely accepted in recent years. 6 Supply/Demand GapOverview of Investment Attractiveness: Examples of Ingot/WaferManufacturers (World), 2010 Source: Frost & Sullivan • Ingot/wafer manufacturing is back- integrated by many large solar cell producers. Only large independent manufacturers will be able to survive the recent crisis and a slowdown in Source: Frost & Sullivan demand.M5BE-14 37
  38. 38. Hot Spot Segment Assessment Ingot/Wafer (Contd…) Overview of Investment Attractiveness: Analysis of Location of Overview of Investment Attractiveness: Key Market Participants (World), 2010 Key Location Factors for Ingot/Wafer Manufacturers (World), 2010 1 Proximity to Existing Facilities 2 Being Close to Demand 3 Favourable Invest. Policies 4 Access to Cheap Labour 5 Access to Cheap Manuf. Source: Frost & Sullivan Existing facilities Source: Frost & Sullivan • Ingot/wafer production require less• Existing large manufacturers enjoy economies of scale leading to lower cost technological expertise than of production. New facilities are likely to be vertically integrated with cell and polysilicon production; that’s why it is a process that is easier to integrate module manufacturing together as has been the case lately. Since solar with cell and module production. manufacturing is shifting to Asia, new independent ingot/wafer producers may • Access to cheap electricity is a spring into existence there after the current industry slow-down is over. competitive advantage. M5BE-14 38
  39. 39. Hope Spot Segment AssessmentCell Introduction and Major Highlights Overview of Investment Attractiveness: • The solar cell industry landscape is even more fragmented than the other Cell Segment Scorecard (World), 2010 elements of the solar value chain. While in 2006 ten global producers accounted for 75% of total output, in 2008 their combined share decreased 1 Level of Competition to just 46%. • The oversupply in the solar industry at the end of 2008-2009 drove a lot of 2 Investment Required small manufacturers, especially Asian, out of business. 3 Technology Complexity • Going forward the industry is likely to become increasingly concentrated as economies of scale achieved at large production facilities will cement the 4 Proximity of Suppliers cost advantage of large manufacturers. • Very few companies (e.g. Q-Cells) are pure solar cell producers, most have 5 Threat of New Entrants integrated facilities for solar cell and module manufacturing. We expect it to be a preferred business model going forward as it eliminates third-party 6 Supply/Demand Gap margins and reduces the cost of the final product – the solar module.Overview of Investment Attractiveness: Examples of Cell Manufacturers Source: Frost & Sullivan(World), 2010 • The current crisis has left only the strongest players. Technological know-how and research will continue to be important, leading to important cost reductions. Source: Frost & SullivanM5BE-14 39
  40. 40. Hot Spot Segment AssessmentCell (Contd…) Overview of Investment Attractiveness: Analysis of Location of Key Overview of Investment Attractiveness: Market Participants (World), 2010 Key Location Factors for Cell Manufacturers (World), 2010 1 Proximity to Existing Facilities 2 Being Close to Demand 3 Favourable Invest. Policies 4 Access to Cheap Labour 5 Access to Cheap Manuf. Source: Frost & Sullivan Existing facilities Source: Frost & Sullivan • Favourable investment polices as • Solar cells manufacturing leadership has moved from Germany and Japan well as access to cheap (the first solar markets to pick up) to other Asian countries, where production manufacturing locations and labour costs are significantly lower. are of paramount importance to cell manufacturers as cells as well as • European and US-based manufacturers are setting new plants in China, solar modules are becoming Taiwan, Malaysia and other Asian countries. commodities.M5BE-14 40
  41. 41. Hot Spot Segment AssessmentModule Introduction and Major Highlights Overview of Investment Attractiveness: • Solar module assembly is the least technologically complex production step. Module Segment Scorecard (World), 2010 Thus, the solar module industry landscape is even more fragmented than that of the solar cell industry. 1 Level of Competition • Originally, there were a lot of small module producers based close to where demand was, spurred by government support. Nowadays as the solar 2 Investment Required industry is turning into a truly global market, manufacturing tends to be outsourced to cheaper locations, such as China and other Asian countries. • The level of competition is high as module manufacturing does not require 3 Technology Complexity significant capital investment and technological know-how. • While some existing module manufacturers are expanding to be in a good 4 Proximity of Suppliers shape for the next upsurge in demand, once the industry picks up from the current slump, there could be new companies entering the market. 5 Threat of New EntrantsOverview of Investment Attractiveness: Examples of ModuleManufacturers (World), 2010 6 Supply/Demand Gap Source: Frost & Sullivan • Threat of new entrants is low at present, however, when growth resumes, the sector may attract new Source: Frost & Sullivan participants.M5BE-14 41
  42. 42. Hot Spot Segment Assessment Module (Contd…) Overview of Investment Attractiveness: Analysis of Location of Key Overview of Investment Attractiveness: Market Participants (World), 2010 Key Location Factors for Module Manufacturers (World), 2010 1 Proximity to Existing Facilities 2 Being Close to Demand 3 Favourable Invest. Policies 4 Access to Cheap Labour 5 Access to Cheap Manuf. Existing facilities Source: Frost & Sullivan Source: Frost & Sullivan• There are mixed trends in the solar module industry: some producers outsource production entirely to Asia and ship modules around the globe to • Favourable investment policies as where the demand is. Others ship cells as they are more compact, and well as access to cheap assemble modules close to the point of final demand. manufacturing locations and labour• The business model depends on the amount of products shipped, and large have proved to be key location producers may find it more economical to have an assembly plant close to a factors for module manufacturers growing solar market. lately.M5BE-14 42
  43. 43. Hot Spot Segment AssessmentOther Components• There are other raw materials and components that are used during the solar module production process. The most important ones are those used for module assembly and are presented on the next two slides: PV Glass Backsheet Junction Boxes and Frames • PV glass is produced and • Backsheet films are produced by a few • Junction boxes and sourced locally to module international manufacturers. So far, Tedlar® frames are produced and production. (DuPont’s PVF product) is believed to be one of sourced local to module • Production capacity the few products with proven quality in a variety production. expansions require of climates to sustain stable solar module • Junction boxes and significant investment, performance for 25 years. Another well-known frames have been in with major investments supplier of backsheet is Mitsui. sufficient supply. undertaken during 2005- • Several new materials are being developed and 2007. More capacity has • No significant investment tested for backsheet application: polyesters, been coming on-line is required to expand the PVDF (Polyvinylidene Fluoride), multi-layer lately. production capacities; backsheet etc. expansions can be • Also, several solar module producers have completed within a short been reported to develop their own backsheet timeframe. in partnership with specialised producers.M5BE-14 43
  44. 44. Hot Spot Segment AssessmentOther Components (Contd…)• There are other raw materials and components that are used during solar module production process. The most important ones are those used for module assembly: EVA films • Major international suppliers include: DuPont, Mitsui, Bridgestone Corporation, STR (Specialized Technology Resources), ETIMEX. • In general, production capacity expansions require significant investment. Major international players have invested lately in production capacity expansion (eg. Bridgestone in 2005), new capacities are expected to come on-stream during 2008-2010 (STR, Etimex, Bridgestone). • Since the solar PV sector accounts for about 5% of total global demand for EVA, even with a rapid market growth severe shortages are unlikely to happen.M5BE-14 44
  45. 45. Hot Spot Segment AssessmentSummary Overview of Investment Attractiveness: Key Location Factors for Selected Solar Module Materials (World), 2010 Poly- Ingot/ Cell Module Silicon Wafer 1 Proximity to Existing Facilities 2 Being Close to Demand 3 Favourable Invest. Policies 4 Access to Cheap Labour Strong 5 Access to Cheap Manuf. Weak Source: Frost & Sullivan • Proximity to existing manufacturing facilities is important at the technology-intensive lower part of the solar value chain. As production technology becomes less demanding, the factor reduces in its significance. • Being close to the demand gets more important towards the top-side of the value chain as it may be cost-ineffective for a manufacturer to transport large amounts of bulky modules around the globe. • Favourable investment policies along with a general trend to outsource production to lower cost countries has changed the solar cell and module industry, with larger quantities of equipment produced in Asian countries. • Access to cheap labour and manufacturing locations are crucial for cell and module manufacturing. There is a stronger trend to set up manufacturing facilities in Asian countries such as China, Malaysia, Taiwan and the Philippines.M5BE-14 45
  46. 46. Hot Spot Segment AssessmentSummary (Contd…) Overview of Investment Attractiveness: Future Development of Installed and Manufacturing Solar Capacity (World), 2010 China, India and USA Europe rest of Asia Japan Solar installed capacity development Solar cell and module production development Arrow inclination denotes pace of market development Source: Frost & Sullivan• Solar installed capacity development and solar equipment manufacturing will be taking place in different corners of the world.• Asia will become the major manufacturing hub, while the US and Europe will remain major end markets for solar installed capacity development.• Solar cells and modules are turning into commodities, meaning European production facilities are likely to have niche markets to serve, e.g. BIPV products that require higher performance and in some cases need to be manufactured to order.M5BE-14 46

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