EMERGING CEE WIND TURBINE AND COMPONENT SUPPLY CHAIN PROSPECTS – EUROPEAN AND GLOBAL PERSPECTIVE BY: MIKE HANNON CONSULTANT & PARTNER MHM PARTNERSHIP LLP 2 BOSWELL PARK AYR KA7 1NP SCOTLAND TEL: INT WEB: MHM

ENERGY PROVIDERS & DEVELOPERS – DEVELOPING RENEWABLES TECHNOLOGIES PORTFOLIOS MHM

MAJOR EUROPEAN NACELLE ASSEMBLY – WIND TURBINES SOURCE : ‘MHM NACELLE MULTICLIENT’ IN-HOUSE TOP 15 IN-HOUSE OTHER OUTSOURCED LARGE OUTSOURCED SMALL  UK/POLAND INWARD INVESTMENT ADDS SIGNIFICANTLY - MITSUBISHI (£100M)... ROMANIA NEXT?  POSSIBLE:... SINOVEL, GOLDWIND, DONGFANG,...?? + + DEVELOPING DEMAND – LITTLE INFRASTRUCTURE

MAJOR EUROPEAN ELECTRONICS CONTROL SYSTEMS – WIND TURBINES IN-HOUSE TOP 15 IN-HOUSE OTHER OUTSOURCED LARGE OUTSOURCED SMALL HUGE R&D OPPORTUNITY  CABLE HARNESS SUPPLIED FROM ASIA/EUROPE... CAPACITY EXISTS IN ROMANIA  SIGNIFICANT CONTROL SYSTEM R&D/ MANUFACTURE OPPORTUNITY - AS YET FRAMENGTED + SOURCE : ‘MHM WT ELECTRONICS MULTICLIENT’ DEVELOPING DEMAND – LITTLE INFRASTRUCTURE

MAJOR EUROPEAN BLADES MANUFACTURE – WIND TURBINES IN-HOUSE TOP 15 IN-HOUSE OTHER OUTSOURCED LARGE OUTSOURCED SMALL  POLAND AND UK MAJOR GROWTH DEVELOPMENT... ALSO SOON ROMANIA + + SOURCE : ‘MHM BLADES MULTICLIENT’ DEVELOPING DEMAND – LITTLE INFRASTRUCTURE

MAJOR EUROPEAN TOWERS MANUFACTURE – WIND TURBINES IN-HOUSE TOP 15 IN-HOUSE OTHER OUTSOURCED LARGE OUTSOURCED SMALL IN-HOUSE BIG TOWERS DISTRIBUTED  EVERY PLAYER OUTSOURCES SOME TOWERS  DISTRIBUTED TOWER MANUFACTURE – ACROSS EUROPE... ROMANIA STARTING + + SOURCE : ‘MHM TOWERS MULTICLIENT’ DEVELOPING DEMAND – LITTLE INFRASTRUCTURE

MAJOR CEE COUNTRIES SECTOR WEIGHTED MONTHLY LABOUR COSTS EURO MHM

WIND TURBINE - INTEGRATED OUTSOURCING (GLOBAL SHARE) + TURBOWINDS THE FUTURE MODEL FOR MOST – GAMESA MODEL DECLINES + NOW NEW CHINESE SINOVEL, DONGFANG, GUPT AND OTHERS VIEWING EUROPE + OEM MARKET PRESSURE TOWARDS WINDFARM COMMISSIONING MHM

CHANGING WIND TECHNOLOGY ISSUES – ENERGY PROVIDERS & DEVELOPERS* MHM MHM IS WORKING WITH ENERGY PROVIDERS/DEVELOPERS AND COMPONENT SUPPLIERS FOR: KEY ISSUES – WIDEST APPEAL  OFFSHORE TECHNOLOGY – REFERENCE DESIGN, OPPORTUNITY (TO SPEED TECHNOLOGY FASTER)  NEW TURBINE DESIGNS – VERTICAL AXIS, JET ENGINE,... (RISK TO CURRENT PROVIDERS) MANY INTERESTED IN:  UPSCALING  GEARLESS TURBINES – VARIOUS OFFERINGS TODAY  SMALLER PARTS (TRANSPORT)  GRID CONNECTIN (OFFSHORE) ALSO OF INTEREST: GREATER RELIABILITY, BLADE OPTIMISATION, LOW WIND SPEED OPERATION, OTHER *PARTIAL LIST - ‘MHM GREENTECH’ STUDY OF ENERGY PROVIDERS/DEVELOPERS

GLOBAL WIND TURBINE OEM MARKET SHARE 2009 – TOP 12  EUROPEAN/US PLAYERS LOSING IN CHINA MARKET – MANY OTHER CHINESE - MINYANG, WINDEY, SEWIND, XEMC, CSIC, COMING ACCIONA DROPS OUT OF TOP 12  CHINA PRODUCTION SOON TO BE GLOBAL LOW-COST BASE, HUGE INTERNAL DEMAND... BLADES/ROTORS... GENERATORS... TOWERS... GEARBOXES  MARKET SHARE IS KEY OUTSOURCING METRIC... NO OEM HOLDS C. 30% SOURCE : MHM WT PROGRAMME MHM

VERTICAL INTEGRATION EXAMPLE EG GAMESA (MOSTLY) TODAY CORE TECHNOLOGY MATERIALS COMPONENTS TURBINE ASSEMBLY WIND FARM ERECTION, REPAIR & MAINTENANCE CORE TECHNOLOGY DEVELOPERS MARKETERS – CONTROL MARKET ACCESS DESIGN HOUSES MATERIALS PRODUCERS COMPONENT PRODUCERS SUBCONTRACTORS/ OEM POWER STATION PROVIDERS/ OPERATORS = HORIZONTAL SPECIALISATION = SYSTEM R&D WIND FARM MARKETING HUGE OPPORTUNITY : THE DECLINE OF VERTICAL INTEGRATION – 2010 ONWARDS TREND GEARBOXES, BLADES/ROTOR, CONTROLS/ BEARINGS, GENERATORS, CASTINGS, TOWERS, CABLING, SUB- STATIONS/GRID ACCESS, SAFETY WALK STEELS, COMPOSITES, ADHESIVES, ADDITIVES, COATINGS/TAPES/CORROSION, CONCRETE SPECIALIST R&D – GEARLESS, OFFSHORE, PORTABILITY, UPSCALING, LOW WIND, BLADE YIELD, SMARTGRID AEROFOIL

CONCLUSIONS OPPORTUNITY : POLAND AND OTHER CEE COUNTRIES EU POLICY SHOULD ENCOURAGE POLAND/OTHER CEE TO COMPETE WITH CHINA:  ACCELERATING TREND TO POLISH WIND TURBINE COMPONENT OUTSOURCING:... OUTSOURCING INCREASES AS NO WIND TURBINE SUPPLIERS WITH DOMINANT SHARE (BENEFITS POLAND)... TOP WIND TURBINE OEMS CURRENTLY VIEWING INCREASED OUTSOURCING TO REDUCE COSTS... OUTSOURCING TO INCREASE IN LOW-COST AND DIFFICULT TO ACCESS REGIONS (SCOTLAND/CEE/INDIA/ CHINA)... POLAND’S INDIGENOUS WIND ENERGY SIGNIFICANTLY INCREASING (BIGGEST IN CEE)... ALREADY SIGNIFICANT OUTSOURCED BLADES, ELECTRONICS CONTROLS AND TOWERS DEVELOPMENTS IN POLAND – MUCH MORE COMING... ALSO CZECH REPUBLIC, HUNGARY AND OTHERS BUT SMALLER... WIND TURBINE OEMS SLOWER TO MOVE THAN SUPPLIERS  COMBINATION OF GERMAN EXPERTISE AND OVER-THE-BORDER POLAND LOW COSTS HARD TO BEAT – EUROPEAN POWERHOUSE MHM

 MAJORITY OF WIND TURBINE COMPONENT PRODUCTION IN GERMANY/BENELUX – ONE OF THE WORLD’S HIGHEST COST BASES... MIGRATION TO LOWER COST/LOCAL UNDER WAY  TACTICAL UK MANUFACTURE/R&D/HQ DEVELOPMENT RELOCATIONS – DEVELOPMENTS INCLUDE:... IBERDROLA RENOVABLES HQ RELOCATED TO SCOTLAND... £100M MITSUBISHI R&D IN UK... GE, SIEMENS, NEW FACTORIES + GAMESA AND MANY OTHERS VIEWING... SINOVEL, DONGFANG, GOLDWIND YET TO LOCATE EUROPEAN OPERATIONS (SCOTLAND? – UK BIGGEST FOR OFFSHORE)... SIGNIFICANT COMPETITIVE LEAPFROG POSSIBLE FOR NEWER PLAYERS DUE TO CURRENT HIGH COST BASE/DISTANT MANUFACTURE CONCENTRATION... UK LEADS IN OFFSHORE (£100BN INVESTMENT) – SHORTLY 1GW OF CAPACITY CONCLUSIONS OPPORTUNITY : SCOTLAND AND REST OF UK MHM

EU POLICY CAN FURTHER HELP STRENGTHEN EUROPEAN WIND TURBINE SUPPLY CHAIN BY LEVERAGING:  CONSOLIDATION OF ELECTRONICS CONTROLS MARKET – AS YET FRAGMENTED (MANY SEPARATE R&D/DESIGNS)... EUROPEAN SUPPLIERS DEVELOP TO PROVIDE CONTROL ELECTRONICS AS OUTSOURCED SERVICE... FOR EXAMPLE, COULD BE VESTAS DE-MERGER OF CONTROL SYSTEMS, WORTH MORE SEPARATE... COULD BE EXISTING ELECTRONICS COMPANY SUCH AS ABB, HONEYWELL,...  INCREASING BLADES OUTSOURCING – SUBCONTRACTOR NEEDS 30%+ TO DOMINATE  DISTRIBUTED EUROPEAN TOWER MANUFACTURING – EVERY PLAYER OUTSOURCES SOME TOWERS  CHINA PRODUCTION WILL SOON LEAD GLOBALLY – USA SUPPLIERS LEFT STANDING... SIEMENS SHARE HOLDS STEADY... MANY EUROPEAN OEMS SHARES MARGINALISED BY QUICKLY GROWING CHINESE CONCLUSIONS OPPORTUNITY : GENERAL MHM