Global Offshore Wind Market

Global Offshore Wind Market Presented at: Wind Shipping and Logistics Conference Presented by Bruce Hamilton Navigant Copenhagen, Denmark March 12, 2015 2015 Navigant Consulting, Inc. D I S P U T E S & I N V E S T I G AT I O N S E C O N O M I C S F I N A N C I A L A D V I S O RY M A N A G E M E N T C O N S U LT I N G

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Introduction» Navigant Wind Industry Service Offerings We provide our clients wind energy services from strategy through to operational improvement. Strategy Go-to-Market Strategy Resource, Technology & Market Assessment REC and Energy Forward Price Curves Asset & Portfolio Modeling & Valuation Business Model Development and Analysis M&A Support Policy Analysis Development Support Independent Engineer Review Company/Technology Due Diligence Transmission and Interconnection Analysis Project Finance and Closing Support RFP Review and Proposal Evaluations PPA Negotiations Operational Improvement Benchmarking - Performance and Cost NERC Reporting Wind Plant Post-Warranty Operations Strategy Business Planning Performance Bonus/Penalty Determination Procurement & Contracting Best Practices Primary Market Research on Wind Energy Supply and Demand 3

Table of Contents» 1» Offshore Wind Market History 2» Offshore Wind Market Policies and Forecast 3» Navigant s World Market Update Highlights and Forecast 4

Offshore Wind Market History» Global Offshore Capacity There are approximately 7.7 GW of offshore wind installations worldwide. Region Europe Asia Installed Global Offshore Capacity through 2014 Country New MW in 2014 Total Capacity (MW) Operational Projects Installed Turbines U.K. 389 4,055 24 1,198 Denmark 0 1,233 10 502 Belgium 216 781 6 206 Germany 108 629 5 143 Netherlands 0 247 4 128 Sweden 0 211 6 91 Ireland 0 25 1 7 Norway 8 10 1 1 Portugal 0 2 1 1 China 131 487 10 171 Japan 0 16 1 8 Total 852 7,697 69 2,456 Note: Excludes test projects. Individual phases of projects at a single site may be counted as separate projects. Includes only project officially commissioned and feeding electricity to the grid. Source: Navigant analysis of data provided by NREL and BTM Majority of activity continues to center on northwestern Europe. Development in China continues to progress. In 2014, 852 MW were added globally. The European market will continue to grow rapidly over the next two years New and expanding projects likely to contribute a record-setting 4.9 GW in 2015 alone (mostly in Germany, U.K., and China). 5

Offshore Wind Market History» Global Annual MW Additions by Country and Year The global offshore wind market has been generally increasing, with large fluctuations due to the impact of completing large projects. Global Offshore Wind Annual MW Additions by Country and Year MW Denmark was the early leader and continues to have active projects. U.K. is the current leader due to the implementation of Rounds 1 and 2. 2013 was the record year, with 1,734 MW added in 7 countries. Several projects in Germany were completed in 2014 but delayed due to substation problems, therefore not included here. 6

Table of Contents 1» Offshore Wind Market History» 2» Offshore Wind Market Policies and Forecast 3» Navigant s World Market Update Highlights and Forecast 7

Belgium Denmark Germany Netherlands U.K. China U.S. Offshore Wind Policies and Forecast» Summary of Policies A variety of policies have proven success in developing offshore wind markets worldwide. Jurisdictions Where Used Policy Options Feed-In Tariff 2 Contracts for Difference 3 Tax exemptions Green certificates with premium prices for offshore installations 1 4 Grants Carbon tax Public finance institutions (5) (1) New policy is currently being developed, new system will still be based on GC but with a contract for difference principle. (2) Denmark s FIT level is set by competitive tenders, currently in the EUR 70-80 /MWh range. (3) Netherlands generators receive the market energy price and the premium up to a maximum predetermined strike price per kwh. (4) U.K. offshore generators receive 2 Renewable Obligation Certificates (ROCs) per MWh. The offshore rate will be reduced to 1.9 ROC/MWh and to 1.8 ROC/MWh if built in 2015 and 2016 respectively, and beginning 2014 the government will move to a CfD system (a FiT program). (5) The European Investment Bank (EIB) also borrows funds on the capital markets, which it lends on favorable terms to renewable energy developers or commercial banks. 8

Offshore Wind Policies and Forecast» U.K. The U.K. government is replacing the Renewable Obligation (RO) with Contracts for Difference (CfD). ROC system (1.9 ROC/MWh in 2015-16, 1.8 in 2016-17) CfD system from mid-2014 CfD is a type of Feed-in Tariff: generators sell their electricity on the market and receive a top-up payment from a state-owned counterparty for the difference between the strike price and that market price. From 2014 to March 2017, generators can choose between the ROCs and CfD system. From April 2017 onwards, the only system will be CfD. Offshore wind CfD strike prices were announced in late 2013. They are challenging but should be manageable: GBP 155 /MWh (EUR 189 /MWh) through 2016, GBP 150 /MWh in 2016-17 and GBP 140 /MWh though 2019. Installed MW as of 12/31/14 Under Construction U.K. Offshore Wind MW Installations Navigant Forecast Consented 2015 2016 2017 2018 2019 4,055 1,714 9,979 1,000 1,000 1,200 1,500 2,000 9

Offshore Wind Policies and Forecast» Denmark Denmark began organising offshore wind tenders in 2014 for a cumulated capacity of 1,500 MW. 28% of electricity from wind (both onshore and offshore) 50% by 2020 In March 2012, the Danish government has set the target for half of its electricity mix to come from wind energy by 2020. To achieve this goal, several offshore areas have been identified and tenders began at the end of 2014 for the following projects: (i) the 400 MW Horns Rev 3 wind farm, (ii) the 600 MW Krieger s Falk wind farm and (iii) a combination of near-shore wind farms totalling 450 MW. Vattenfall won the Horns Rev 3 bid at 103.1/MWhr. For each tender, the bidder offering the lowest FiT will be granted the project and receive this FiT for the first 50,000 full-load hours. Installed MW as of 12/31/14 Under Construction Denmark Offshore Wind MW Installations Navigant Forecast Consented 2015 2016 2017 2018 2019 1,271 0 132 0 0 300 350 350 10

Offshore Wind Policies and Forecast» Belgium Belgium is reforming the support scheme to lower costs paid by consumers. GC bought by TSA for 20 years at a minimum guaranteed price CfD system Belgium has allocated zones for 7 offshore wind parks, good for around 2.2 GW. Three of them are already operational, including one completed in 2014 (Northwind). In December 2013, Belgium approved the reform of offshore wind support mechanism moving from a GC system with a premium to a CfD system. The reform aims to minimize costs to consumers while guaranteeing a decent return to investors. It will not apply to parks that are already under construction or in operation. Each project will receive a total fixed price of 138/MWh and will be reassessed on a project by project basis every 3 years and will be subject to changes in the level of the contracted maintenance costs and the correction factor in the PPA. Installed MW as of 12/31/14 Under Construction Belgium Offshore Wind MW Installations Navigant Forecast Consented 2015 2016 2017 2018 2019 712 0 1,162 165 0 0 400 450 11

Offshore Wind Policies and Forecast» Germany Two issues were resolved favourably to German offshore wind in 2014: extension of the compressed FiT and grid connection agreements. 2 0 1 2 : Compressed FiT scheme available until end-2017 2014: Compressed FiT scheme available until end-2019 The Renewable Energy Sources Act (EEG) was revised for the 4 th time in August 2014. Operators now have a choice of (a) selling power through direct marketing and auctioning or (b) a reduction of.004/kwh to the FiT. The 2014 EEG revision extended the initial tariff acceleration model (Stauchungsmodell). This increased tariff of.194/kwh for the first 8 years of operation has been extended to plants commissioned before January 2020. In addition, the FiT can be extended (under both models) if the turbines are >12 nautical miles from land or installed in waters with a depth >20 metres. In Germany, the grid operator is responsible for connecting the projects to the onshore grid. But because of substantial delays, the legislator has adopted a detailed liability regime which comprises an obligation to publish a grid plan each year. It sets out which grid connections will be provided and when. Now all projects depend on the grid plan. Installed MW as of 12/31/14 Under Construction Germany Offshore Wind MW Installations Navigant Forecast Consented 2015 2016 2017 2018 2019 629 2,812 8,131 2,000 900 900 800 800 12

Offshore Wind Policies and Forecast» Netherlands The Dutch government moved its 16% renewable energy target from 2020 to 2023 but has set up a plan to speed offshore wind deployment. 16% in 2020 16% in 2023 The government amended the SDE (a feed-in tariff and market premium system) in 2014 and has a target of 4.5 GW offshore wind capacity installed by 2023. For 2014, 3.5 billion have been made available under the SDE. The subsidy value is based on the difference between the strike price and the basis price. For offshore wind energy, the subsidy is 0.675/MWh, with a base energy price of 59.443/MWh. Installed Netherlands Offshore Wind MW Installations MW as of 12/31/14 Under Construction Navigant Forecast Consented 2015 2016 2017 2018 2019 247 729 2,825 129 600 250 228 228 13

Offshore Wind Policies and Forecast» France France increased its cost cap and awarded 2 projects (1 GW) under its 2 nd competitive tender for offshore wind. 2012: all bids exceeded 175 and 200/MWh caps 2 0 1 4 : 2x500 MW awarded w/ 220/MWh cap The French government has outlined plans to build 6 GW of offshore wind by 2020. Projects get a fixed feed-in-tariff for 15 years. Both the duration of the power purchase contract (hours of operation at the equivalent of full load) and the price paid are subject to competitive tender. In evaluating bids, the price is weighted at 40%, with the establishment of a local supply chain and the project s environmental impact being taken into consideration. Projects are expected to be built starting in 2017 and over the next several years. Installed MW as of 12/31/14 Under Construction France Offshore Wind MW Installations Navigant Forecast Consented 2015 2016 2017 2018 2019 0 0 185 0 0 250 850 894 14

Offshore Wind Policies and Forecast» China China has ambitious goals for offshore wind and a growing development pipeline. 61-90/MWh for onshore wind 50-80/MWh for onshore, 119/MWh for offshore China has official offshore wind goals of 5,000 MW by 2015 and 30,000 MW by 2020. In June 2014 China introduced new FiTs specific to offshore projects. Now, new offshore wind projects installed between June 2014 and December 2016 will receive CNY 850/MWh ( 119/MWh). Intertidal projects will receive CNY 750/MWh ( 105/MWh). The new offshore FiTs were put in place to accelerate offshore wind development, as offshore wind development has been slower than expected due to the postponement of four concession projects since 2010. Currently, there are seven offshore wind projects under construction, totaling 1,560 MW. Installed MW as of 12/31/14 Under Construction China Offshore Wind MW Installations Navigant Forecast Consented 2015 2016 2017 2018 2019 487 1,700 4,000 (est.) 1,500 1,000 1,200 1,600 1,800 15

Offshore Wind Policies and Forecast» U.S. There are a variety of favourable U.S. federal and state policies in place. The first projects are finally beginning construction. DOE National Offshore Wind Strategy Federal Tax Credits & Deductions Bureau of Ocean Energy Management Initiatives State Initiatives DOE Offshore Wind Initiative Advanced Technology Program & Grants DOE Guaranteed Loan Program Production Tax Credit (US$22/MWh) (expired 2014) Investment Tax Credit (30% of capital costs) (expired 2014) Accelerated Depreciation Deduction (expired 2014) Smart from the Start Favourable Rules Revisions Competitive Auction Lease Process Renewable Portfolio Standards w/offshore Carveout (NJ, MD) Mandatory Long Term Power Contracts (ME, MA, RI, DE) Broadly Defined Benefits for Rate Recovery (ME, MA, NJ, MD) Installed MW as of 12/31/14 Under Construction U.S. Offshore Wind MW Installations Navigant Forecast Consented 2015 2016 2017 2018 2019 0 30 523 0 30 67 234 234 16

Offshore Wind Policies and Forecast» Total World Navigant forecasts that the global offshore wind market will grow at 10%/year from 4.9 GW in 2015 to 7.2 GW in 2019. Global Offshore Wind Installations (2015-2019) MW Navigant View 26.3 GW will be installed globally in 2015-2019, brining the cumulative total to 34 GW. UK, Germany, and China will each install >5 GW in the next 5 years. France, Netherlands, Belgium, and Denmark will each install >1 GW in the next 5 years. Installed Total World Offshore Wind MW Installations MW as of 12/31/14 Under Construction Navigant Forecast Consented 2015 2016 2017 2018 2019 7,697 7,033 27,000 (est.) 4,888 3,617 4,353 6,262 7,181 17

Table of Contents 1» Offshore Wind Market History 2» Offshore Wind Market Forecast» 3» Navigant s World Market Update Highlights and Forecast 18

Navigant s World Market Update» Highlights World Market Update 2014 Highlights With a record 51.2 GW of new installations, worldwide installed capacity of wind power grew to ~372 GW in 2014. Annual additions were 42% higher than 2013. China increased its position as the world s largest wind market with a record 23.3 GW installed in 2014. Offshore wind installations are expected to grow from <2% in 2014 to ~14% in 2019. The average growth rate of new installations is expected to be approximatly flat between 2014-2019. Average cumulative capacity growth rate is expected to be ~12%/year. 19

Navigant s World Market Update» Annual Installations While 2014 was a record year for the global wind industry, it has grown at an average annual rate of only 6% over the last five years. Global Annual Installations (2009-2014) MW 60,000 50,000 40,000 38,103 39,404 41,712 44,951 36,134 51,231 Global financial and economic crisis has dampened growth. 30,000 20,000 10,000 U.S. market dropped by 12 GW from 2012 to 2013 but increased by 4 GW in 2014. - 2009 2010 2011 2012 2013 2014 Source: BTM Consult - A Part of Navigant Consulting - March 2011 20

Navigant s World Market Update» Regional Market Share (Annual) In 2014, the Americas market more than doubled vs. 2013. The Asian market grew by 41%, while the European market increased by only 5%. MW 60,000 50,000 40,000 30,000 20,000 10,000 - Global Annual Installations by Region (2013-2014) 36,134 51,230 1,401 4,734 11,560 18,439 +31% +139% +5% +41% 1,829 11,311 12,157 25,933 2013 2014 Source: BTM Consult - A Part of Navigant Consulting - March 2015 Other Americas Europe Asia Europe was the market leader for decades, but lost its title to Asia in 2009, primarily due to explosive growth in China. Asia had a 51% share of the global market in both 2013 and 2014. Declines in UK and Denmark were offset by strong growth in Germany and France. The Americas market share increased from 13% in 2013 to 22% in 2014, primarily due to strong growth in the U.S. and Brazil. 21

Navigant s World Market Update» Regional Market Share (Cumulative) Asian markets surpassed Europe as the region with the largest cumulative installed capacity. Asia passed the Americas in 2010. MW 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 Global Cumulative Installations by Region (2013-2014) 321,559 372,381 9,846 77,116 121,471 113,126 +19% +15% +10% +23% 11,680 88,427 133,214 139,059 Other Americas Europe Asia China passed the U.S. in annual installations in 2009 and in cumulative capacity in 2010. Three markets have installed >35 GW: China, the US, and Germany. India has passed Spain as the 4th largest market, with nearly 23 GW. - 2013 2014 Source: BTM Consult - A Part of Navigant Consulting - March 2015 22

Navigant s World Market Update» Country Market Share (Annual) In 2014, China increased its market share to 45%, compared to 29% in 2012. During the same period, U.S. market share fell from 29% to 9%. MW 60,000 Annual Installations by Country (2012-2014) 44,951 36,134 51,230 50,000 40,000 30,000 20,000 10,000 0 2012 2013 2014 Source: BTM Consult - A Part of Navigant Consulting - March 2015 Other India Brazil U.S. Germany China China: 45% increase from 2013 to 2014, driven by government targets. Germany: >5 GW installed in 2014 due to stable policies, offshore growth. U.S.: market rebounded from dismal 2013 due to the renewal of PTC/ITC incentives. Brazil: 195% increase from 2013 to 2014. India: 17% increase, driven by government targets and a desire to grow domestic manufacturing. 23

Navigant s World Market Update» Suppliers Siemens and Vestas continued to dominate the offshore wind market, with a combined market share of 84% in 2014. Offshore Wind Turbine Suppliers Global Market Share (2014) Envision (CN), Sewind (CN), 3% 12% Mingyang (CN), 1% Vestas (DK), 25% Siemens (DK), 59% Source: BTM Consult - A Part of Navigant Consulting - March 2015 24

Navigant s World Market Update» 2014-2019 Forecast Navigant expects the global wind market to be relatively flat from 2014-2019, down from 6%/year between 2009-2014. MW 60,000 50,000 40,000 30,000 20,000 10,000 - Forecast: Global Annual Installations by Region (2014-2019) 51,231 55,785 46,196 43,188 47,475 48,073 Average growth in 5 yrs = -1% 2014 2015 2016 2017 2018 2019 Other Americas Europe Asia Navigant View In the Americas, Mexico and Argentina will likely grow at >20%/year. Europe is likely to grow at 4%/yr due to growing offshore markets and binding international clean energy targets. Asia is likely to be the largest market, but will likely shrink at -4% per year due to a relatively strong starting year of 2014. Source: BTM Consult - A Part of Navigant Consulting - March 2015 25

Navigant s World Market Update» 2019-2024 Forecast During the period 2019-2024, the average annual global wind growth rate is expected to be 7%. MW 125,000 100,000 75,000 50,000 25,000 Global Annual Installations 1990-2020 Wind power is likely to improve in competitiveness compared to fossil fuels due to economies of scale. Electricity demand will outpace traditional supply sources and drive up prices. Increased climate change requirements may become a major factor. 0 1990 2011 2016 2021 Offshore (Prediction) Prediction Offshore (Forecast) Forecast Existing capacity Source: BTM Consult - A Part of Navigant Consulting - March 2015 The offshore sector is expected to reach a market share of ~14% in 2019. 26

Key C O N T A C T S Bruce D. Hamilton, P.E. Director Energy Navigant Consulting, Inc. Direct: 1.503.476.2711 bruce.hamilton@navigant.com 2010 Navigant Consulting, Inc. Confidential and proprietary. Do not distribute or copy. 27