Romax consulting: De-risking investment in the wind industry by Yann Rageul

Romax “Hybrid” Strategic Consulting:

De-risking Investment in the Renewable Sector

through hybrid consulting

Global Wind Power Finance & Investment Conference

26th June 2012

Yann Rageul – Head of European Sales & Strategic Consulting

CONFIDENTIAL@ Copyright 2012

CONFIDENTIAL@ Copyright 2012SHARING INNOVATION IN BEARING, GEARBOX & DRIVELINE

Business Facts• Established in 1989

• Private Equity Fidelity (1.5Trillion USD) invested in 2012 in Romax

• Technology-led solutions provider

• Active across a range of sectors

o Automotive, Off-highway, Marine, Aerospace…

o Wind energy

• Head office in Nottingham, UK

• Overseas offices in the US, Germany, France, Japan, Korea, China and India

• 200 employees globally, with 120 in UK

Selected clients from the wind industry Selected clients from other industries: Automotive, Off-highway, Marine, Aerospace …


ROMAX “Hybrid” Strategic Consulting offering:

Traditional Engineering Services

Technology

Traditional Strategic Consulting Strategic perspective and depth of detail

Technical / Engineering Consulting

Perspective

Commercial/Strategic

(Senior Management)

Depth of knowledge and Delivery Capability

Issues: Market trend using wrong technical assumption = recommendation technical not

possible to implement

Issues: First class technical solution without market = no understanding of the market drivers

Solutions: Unique combination of Strategic and Technical knowledge in the Renewable Sector

� Wind Industry knowledge

� Product solutions

� Technical solutions

� Benchmarks

� Best practises

� Market Analysis

� Business strategy

� Product strategy

� Merging & Acquisition target definition

� Product life cycle management

� Due diligence

ROMAX “Hybrid” Strategic Consulting: � Wind turbine design assessment� Market Entry Strategy� Technology roadmap� Technical Due diligence� Supply Chain Analysis� Design to cost� Risk Analysis of Wind Turbine


Agenda

• Wind turbine market technology trend and cost models

• De-risking the investment in renewable energy: Wind, Tidal and Wave

• New wind turbine design benchmark for risk and cost mitigation

• O&M risk

• Return-on-investment

• Wind Farm Asset Management to increase return on investment

• Condition monitoring benefit for Off-shore wind farm

• Prognostics tools to reduce Off-shore maintenance cost: £17.6m Saving


0

1000

2000

3000

4000

5000

6000

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

China

UK

USA

Wind Turbine Size: Onshore vs. OffshoreAverage sizes of wind turbines installed increases each year:

UK is a typical offshore turbine market while USA is a typical onshore turbine market

Source: EWEA ‘UpWind’ report, March 2010

2010: global average size = 1,650 kW

Existing onshore technology2 MW, 90m rotor

Current Offshore technology3 to 6 MW

Future offshore10 MW? 200m rotor?

Future onshore technology2.5/3 MW, 120+? rotor

Expected Offshore average 4MW with range 3 to 6MW in 2015

Expected Onshore average 2.5MW with range 1.5 to 3MW

in 2015

Projected average turbine size


Conventional High Speed Geared Drivetrain

Medium Speed Geared Drivetrain

Direct Drive

1MW 2MW 3MW 4MW 5MW 6MW 7MW 8MW 9MW 10MW

Onshore vs. offshore: Medium vs. High Speed

• Three most dominant drivetrain technologies in the market:

Offshore 6MW expected by 2015

3MW 6MW

Gamesa

Vestas

Doosan

Siemens

Vestas

DoosanMinyang

WinWind

Siemens

Siemens

Nordex

Alstom

REpower

SinovelMinyang

Gamesa

REpower

BARD

XEMC Darwind

Areva

Sinovel

GE

Sinovel Sh.Electric

EnerconEnercon


Wind Turbine Drivetrain Cost Model

• Cost model development:

o Cost of energy (COE) is a fundamental design driver for drivetrain concept development

o A full cost model has been developed by Romax – this includes capital costs (e.g. drivetrain) and operational costs (O&M)

Example cost study for a 7.5 MW drivetrain

0%

20%

40%

60%

80%

100%

120%

On-shore High

speed drivetrain

Off-shore High

speed drivetrain

Generator CAPEX

Generator O&M

Gearbox CAPEX

Gearbox O&M


Medium Speed (2 stage)

Offshore Drivetrain

Annual Cost of Energy

Generator

capex

16%

Generator

O&M

37%

Gearbox

capex

14%

Gearbox

O&M

33%


Direct Drive Medium Speed

(1 stage)

Medium Speed

(2 stage)

High Speed

Co

stHigh Speed

Offshore Drivetrain


Gearbox

O&M

59%

Gearbox

capex

11%

Generator

O&M

24%

Generator

capex

6%

6.xMW Drivetrain Cost Model

Off-shore Results (Romax R&D)


Agenda




• O&M risk






Renewable Investment Risks:

Main risks in renewable investment

Operational risk of the project

Romax expertise

Operational risk of the project

International market risk Market analysis, Power Purchase Agreement (PPA) review

Foreign exchange risk

Policy/regulatory riskPolicy review, Romax database on worldwide Health &

Safety requirement

Renewable Resource availability risk

Technology riskTechnical Due Diligence, Technology assessment,

Benchmarking, Reliability assessment

Construction risk

O&M riskO&M strategy, Condition monitoring expertise and

software

Transmission grid risk

Output (revenue covering debt) riskCost models for turbine, return on investment

calculation

1

2

3


Technology Risk: Wind Turbine Drivetrain Failure

• Consequences of failure are very severe and resulting costs are extremely high:

o Maintenance costs, replacement gearbox cost, refurbishment, crane or vessel costs, lost revenue…

-> All these costs are financial RISK during the warranty period!

Scenario:

• What if drivetrain system-level interactions cause the gearbox failure rate to double?

• Cost analysis for a 6 MW offshore turbine:

Conclusions:

• The additional financial risk is approx. £81,000 per turbine per year

• For a 5 year warranty on 100 turbines the extra

financial risk is estimated at £40,500,000

1

Source: …


Case studies – what can go wrong?

Case study 1 Case study 2 Case study 3 Case study 4

2MW conventional turbine design



5MW offshore turbine design

Gearbox package space within the nacelle was insufficient

Gearbox purchase specifications poorly defined

Turbine and gearbox maintenance not adequately considered at the concept phase

System level drivetrain interactions result in failure modes that do not occur at component level

1 month delay for re-work. Cost of gearbox increased.

Gearbox was heavier and more expensive than necessary. Project delays caused by extra design loops due to incorrect and unclear specifications.

Poor access to the turbine for maintenance. Compromises on the drivetrain assembly resulting in increased downtime due to misalignement

Bedplate deflections caused loads to be transferred to the gearbox and the generator.Potential future failures

1


Technology Due Diligence

• Step 1: Turbine market and product analysis including wind turbine OEM capability (manufacturing, installation and Operation & Maintenance)

• Step 2: Detailed technical review –benchmark (serviceability, maintainability, reliability…) turbine technology with competitors in given market, review certification level (GL, IEC, DNV) and identify risks

Independent Validation of turbine choice for wind farm development

Independent validation of decision for M&A

Evaluate hidden cost (i.e. to bring the manufacturing capability to the correct standard, true design capabilities, etc….)

Benefit

WTG Technology due diligence

Output from RCG Cost models

Drivetrain layout assessment

Romax database

1


Turbine Technology Due Diligence for Improved RoI

Step1: Drivetrain subcomponents and connections defined

Step2: Cost of energy calculated for each turbine

Step3: Technology benchmarking (cost, maintainability…)

Romax analysis uses the following key criteria:

• Cost

• Technology Risk

• Manufacturability

• Transportation / Assembly

• Scheduled Maintenance

• Unscheduled Maintenance

• Overall turbine design (size, tower clearance)

Breakdown of Annual Costs by Component

Gearbox

Oil Change

Mainshaft to Mainframe

Mainshaft to Gearbox Housing

Mainshaft to S1 Carrier

Carrier to Gearbox Housing

Gearbox Housing to Mainframe

Generator Support

Braking System

Slip Coupling

Generator Connecting Housing

Generator Connecting Shaft

Sun Hub/Brake Carrier

Sun Hub Bearing

Cost

CapEx, incl. financing

Unplanned Maintenance

Planned Maintenance

183 fLayout:

1


O&M strategy: De-risking

O&M strategy importance in project profitability:

O&M cost estimation:

-1% operational costs: £20k cost reduction per year

+1% availability: £213k revenue increase per year

Increasing availability is 10.65 time more important

than reducing operational cost

O&M strategy for improvement process:

1. Review client O&M strategy and SCADA analysis to understand overall wind farm health

2. Analyse wind data to schedule maintenance for minimum energy production penalty

3. Implement advanced warning system based on Romax unique industry expertise and EOH (Equivalent Operating Hours) model

4. Implement optimised strategy

2


Reliability modelling based on field experience and failure data

0

50,000

100,000

150,000

200,000

250,000

PL-PL-PA PL-PL PL

Co

st,£ Generator O&M

Generator capex

Gearbox O&M

Gearbox capex

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

0.00 0.50 1.00 1.50 2.00

Norminal rating (MW)

Fai

lure

rat

e,

/tu

rbin

e/y

ear

O&M cost breakdowns for the whole wind turbine and subcomponents

Full cost of energy modelsincluding CAPEX and OPEX

Technology selection for lowest cost of energy

O&M cost of gearbox

Equipment

55%

Revenue loss

17%

Labour

12%

Material

16%

Cost models & Return-on-Investment3


Case Study: Romax technology de-risk through technical assessment and

cost analysis

Cost analysis and generator selection

Background:

Company developing a 1MW tidal turbine. Romax was charged to

create a business case for the project by analysis the technology cost

and risk.

Project Outcome:

Romax delivered an optimum drivetrain solution, related cost

estimation of the tidal turbine and return on investment. This made the

investor decision much more accurate while de-risking the technology.


Agenda




• O&M risk






Case Study 1: Asian Customer, 1.5MW model

Primary failureSun gear tooth breakage causedFailed part price : € 7,000

Operator did not detect the failure Wind turbine kept running

2nd Failure Failure expanded to planet and ring gear

Failed part price : + € 43,000

Wind turbine still operating

3rd Failure Metal particles from failed gear

caused damage to LS and HS gearsFailed part price : gear € 30,547

bearing € 25,000

Project Case Study

Benefits: Second and third failure could have been avoided if faults

detected by CMS earlier, and thus saving up to Euro 98,547 for spares


• All generators changed and

more than 25

gearboxes changed

lead to 1500 visits –

• £ 7.5 million cost

Before Romax O&M Service

• £1.5 million revenue loss for

downtime and bad power

curve for 6 months

• Plus up to £ 1 million per

gearbox change

Wind Farm Asset Management: Offshore Business Case Study

Source: E-On, Wind Power Monthly Legend:Red = Turbine not performing as expectedBlue = Turbine performing inline with power curve

Time

Turbine

Gearbox replacement

Maintenance record

Power curve deviation


Wind Farm Asset Management: Offshore Business Case Study

1500 reactive maintenance (nearly 20 per year per turbine)

Reactive maintenance after failure occurred with expensive

secondary failure followed

Large volume, scattered but little understood data

Condition based maintenance with

part and crane an year advance planned

Clear Insight about farm health status

2 scheduled maintenance per year per turbine

when wind is not high and electricity is cheap

Multi-million pounds saved and availability improved more than 2%


• E.ON’s Scroby Sands offshore wind farm

• Romax end-of-warranty inspections ensured E.ON did not take on additional risk

Wind Farm Asset Management:

End of Warranty Inspection

Romax delivered software tools for O&M optimisation –allowing EON to make a

£17.6m saving in operations


Executive Summary

� Risk management through strategic & technical expertise: – Reducing design risk through “system interaction” and save on an estimated liability:

40,500,000GBP* for a 6MW offshore turbine

� Saving opportunity: 585,000GBP/Turbine /Year in Offshore O&M

� ROMAX is the industry leader in turn-key integrated drivetrain design with state-of-the-art process and simulation tools (RomaxWind)

– Largest track record in wind turbine drivetrain design (20+ design)

– Complete drivetrain platform design expertise

– Over 1.4GW of gearbox shipped designed by Romax (as of Q4 2011)

� Cost & Quality Benefits of working with ROMAX Consulting Group– Unique combination of technical and strategic consulting for investment risk reduction

– Fast response to your strategic problem enabling accurate CEO/Board level decision making

* Crane hire not included, assuming 100 wind turbine, 5 year warranty, pitch system cost 2.7% of total WTG

� ROMAX Consulting Group offers a unique combination of strategic consulting with deep engineering know-how

– Technical due diligence (turbine, manufacturing, serviceability, maintainability…)

– De-risking investment through knowledge of the turbine failure mode

– Cost modelling for OPEX and CAPEX

– O&M strategy to improve return-on-investment


Yann Rageul

Head of European Sales & Strategic Consulting

Romax Technology Limited

Rutherford House, Nottingham Science Park

Nottingham, NG7 2PZ, United Kingdom

T: +44 (0)115 951 8839 | F: +44 (0)115 951 8801

M: +44 (0)7581 194679

E: [email protected]

www.romaxtech.com

Contact details

Investor Relations

Romax consulting: De-risking investment in the wind industry by Yann Rageul