information memorandum - hexicon€¦ · hexicon ab information memorandum may 2018 6 floating...

Hexicon AB Information Memorandum May 2018

Hexicon AB Information Memorandum

May 2018

2

CONTENTS

1. BACKGROUND ..................................................................................................................................... 3

2. A WORD FROM THE CEO ..................................................................................................................... 4

3. MARKET OVERVIEW ............................................................................................................................ 5

4. COMPANY OVERVIEW ......................................................................................................................... 7

5. PROJECTS ........................................................................................................................................... 10

6. PATENTS AND TRADEMARKS ............................................................................................................. 12

7. FINANCIAL FORECAST ........................................................................................................................ 13

8. PRODUCT DEVELOPMENT ................................................................................................................. 14

9. MEMBERS OF THE BOARD AND CEO ................................................................................................. 15


May 2018

3

1. BACKGROUND

Hexicon AB was founded in 2009 by three individuals with a background in offshore engineering and

ship design. The goal was to further develop an idea of utilizing existing platform technology from the

offshore oil and gas sector to enable large scale floating wind farms. Wind power and solar power are,

after hydroelectric power, the only established renewable energy sources that can generate enough

energy to provide a credible alternative to fossil fuels. To achieve higher rate of return from wind

power projects, not only bigger turbines are required. Large wind farms have an advantage when built

at sea, as they do not affect landscapes or views and where the winds are more powerful and more

sustainable.

Of more than 4,400 existing offshore turbines, so far only 10 units are based on floating structures.

The fixed wind towers are usually placed on the seabed or on bottom mounted structures that have

due to economic reasons, a maximum depth of about 40-50 meters. Therefore, large coastlines with

great depths of water are out of reach with this type of solution. As an example, 80 % of the territorial

waters in Europe and Japan have a depth of 50 meters or more.

Hexicon has developed a unique patented concept for floating wind power platforms for two or more

wind turbines per platform. This opens up the offshore market in deeper waters. The developed con-

cept is cost efficient and requires less space with equal capacity when compared to single turbine plat-

forms.

Floating wind power technology gives access to the best offshore wind resources most common over

deeper waters, yet near consumer centers like big cities. It is suitable for large scale production, it is

clean, has a low environmental footprint and driven by innovative technology solutions. The wind in-

dustry is also a job creator. As an example, there are currently more people employed in the German

wind industry than there are in the German car industry. Hexicon predicts that the development of the

Floating Wind Technology will by itself generate a new field within engineering, development and off-

shore industry.

In the global renewable energy transition, countries like Taiwan, Japan and South Korea are almost

entirely dependent on energy imports. It is an assumption that these countries could be self-sufficient

if they were to harvest their domestic wind energy resources at sea. For these countries, domestic

energy sources are a matter of national security and play a big role, next to economics and the envi-

ronment, in developing large scale offshore wind energy.


May 2018

4

2. A WORD FROM THE CEO

Hexicon has a unique concept that is attractive to the offshore wind power market. Our platforms can

be placed further offshore, are relatively inexpensive in operation and require less space than common

power options with the same installed capacity.

Hexicon is, together with strong partners, committed to launch its first project in Scotland. Some ex-

tended time is needed to be able to finish the construction of the platform. Other markets where we

are moving forward are South Korea, Spain and USA, where we have already signed Term Sheets for

joint venture set-ups. Other parts of Asia will also be considered later.

Our two main competitors, Statoil/Hywind and PPI/WindFloat have a certain head start, as they have

had more time for their technical development and already have deployed their first units. We are

convinced though, that we can take the lead through Hexicon’s unique and innovative multi-turbine

design, where we are pioneers.

The capital need concerns the financing of the next 24 months development cost of Hexicon. The pur-

chase of the Dounreay project has significant value potential – see under Legal structure in section 4.

We expect Hexicon to be profitable from 2020. The aim is to maintain a slim organization and maximize

returns for our shareholders.

This is the endeavor we have embarked on and that we offer new shareholders. Through our projects,

Hexicon will be able to make a powerful contribution to the necessary global energy transition away

from fossil fuels and towards sustainable, renewable and clean energy sources.

Together with my colleagues I welcome all shareholders, old and new, to participate in our develop-

ment towards achieving these goals!

Henrik Baltscheffsky

CEO Hexicon AB


May 2018

5

3. MARKET OVERVIEW

Wind power as a source of energy has a long history, and the modern form of wind turbines was al-

ready established about 30 years ago. In line with the world’s increasing pursuit of renewable energy,

this has become the most established renewable power source available after hydroelectric power.

Wind power has grown into an established industry since the 1980’s. The drivers behind this develop-

ment are and have been emission regulations, different types of state aid programs and opinion for-

mation within an environmentally conscious public.

According to the Deep Water report1, the conditions for the development of floating wind power de-

pend to a great extent on national and supra-national support systems. In Europe, EWI (European Wind

Initiative) has a long-term funding program which strives to improve and increase public funding of

wind energy research. NER300 is another EU-funding approach, where the purpose is to support those

demonstration projects which have the greatest potential of further development. Countries with

powerful wind power support systems in place are Great Britain, France, Portugal, Spain, and Japan.

In addition, pilot projects of floating wind have been state funded and built in Norway and USA.

By 2030, it is predicted by Carbon Trust and MAKE Consulting that 3,500 MW (megawatt) floating wind

power will be installed, compared to around 50 MW today (see Figure 1 below). This means that

roughly another 600 floating turbines will be installed in the next 13 years, compared to only a handful

today. The first wind farms are already under development and being deployed.

In 2016 a study done by Carbon Trust on behalf of the Scottish Government (see Figure 2) gathered

leading experts within offshore energy to make a comparison study between traditional offshore and

1 Deep Water – The next step for offshore wind energy, July 2013.

Figure 1. Anticipated market growth for floating offshore wind power.


May 2018

6

floating offshore price curves. Their conclusion was that by 2030, floating offshore wind power’s cost

of energy would be on par or under that of conventional offshore wind energy.

GWEC (Global Wind Energy Council) estimates that the global growth of all means of wind power over

the last ten years has been 23 % annually and the total global installed capacity amounts to 486 GW

(gigawatt). China is the single largest market for wind power with 168 GW installed, followed by the

United States with 82 GW and Germany with 50 GW. Within the EU, there is 154 GW in wind power

capacity. By 2017, only 18 GW out of the global capacity came from offshore wind. By 2020, Europe's

offshore wind power capacity is expected to double. The driving forces for such a scenario include

larger turbines that provide higher power, increased competition that reduces installation costs, in-

creased volumes through new projects that give scale effects and improved infrastructure that reduces

costs when connecting to power grids.

Figure 2. LCOE comparison study.


May 2018

7

4. COMPANY OVERVIEW

Product in Brief

Hexicon offers a solution for electricity production at offshore sites with deep waters, a floating plat-

form with two wind turbines, see Figure 3. The platform is moored to the seabed and aligns with wind

direction. This ensures that the wind turbines are always facing the wind. Hexicon’s solution offers up

to 75 % more generated electricity per area and 45 % less cable compared to solutions with one wind

turbine per platform.

Hexicon’s product combines two well established industries, offshore oil & gas (O&G) and wind power

industries. Semi-submersible platforms and mooring systems with turret (allowing the platform to ro-

tate) are examples of well-known technologies from the O&G industry, see Figure 4. The platform hosts

two offshore wind turbines commercially available at the market. Hence, the knowledge and experi-

ence from the O&G and offshore wind is used by Hexicon in terms of technology and supply chain with

established fabricators, marine contractors and turbine manufacturers. As with other semi-submersi-

bles, the platform is fabricated at a shipyard in safe and controlled environment, see WindFloat in

Figure 4. The platform is then towed to the site, hence avoiding costly heavy-lift operations offshore.

Figure 3. Illustration of the Hexicon platform for the Dounreay Trì Project.

Figure 4. Semi-submersible platform (left) and a turret system for FPSO (middle), both are used within the offshore O&G. Photo of WindFloat by Principle Power being fabricated (right).


May 2018

8

In 2014, Hexicon initiated and managed the Dounreay Trì Project, a commercial demonstrator project

(Figure 3) under the RO scheme in Scotland. Hexicon’s responsibility included the development, engi-

neering and financing of the project. During the course of the project, American Bureau of Shipping

(ABS) issued a preliminary design basis verification certificate, highlighting that the engineering meth-

odology was in line with ABS practices. The FEED together with 75 % of fabrication drawings were

completed. The construction started in spring 2017 prior to the project halt in summer 2017 due to

financing. More details regarding the Dounreay Trì Project are found in Section 5.

The knowledge and experience from the engineering and management of the Dounreay Trì Project has

led to a phase of successful product development indicating that significant cost reduction is achieva-

ble with a few key changes in the design, Figure 5.

Hexicon's solution is the only solution in the market that allows installation of multiple wind turbines

on the very same platform. This feature brings several advantages which are expected to give Hexicon

a strong position in the rapidly expanding market for deep-sea-based wind farms, as mentioned above.

Another strong advantage is the possibility of combining a floating wind power solution with different

technologies, e.g. tidal, wave, sun, dedicated usage such as fish farms etc.

Business Concept

Based on IP, knowledge and technology, Hexicon aims to develop the world's most efficient platforms

for floating offshore wind power, as well as create, lead and participate in projects where the technol-

ogy can be used and further developed.

Vision

Hexicon's vision is to become a leading international designer and developer of the most cost-effective

and innovative floating solutions for the growing market for offshore renewable energy.

Strategy

Hexicon's strategy is to apply the company's technology and methods together with local partners in

select markets where the market potential is significant. In these markets, Hexicon is expected to have

an advantageous competitive position.

Figure 5. The platform Generation 2.


May 2018

9

Revenue model

Hexicon has three main revenue models for its operations.

Project Development - Includes initial feasibility studies, site selection analysis, design support, site-

specific engineering solutions and surveys.

Licensing - Hexicon delivers completed designs for a construction based on Hexicon's patented tech-

nology. In connection with the construction, a license fee is paid either as a one-off fee in connection

with the handover or as an annual remuneration.

Equity Participation - Hexicon participates in the continuation of a project. Hexicon may also be a long-

term partner in project companies and through that receive a return.

Legal Structure

Hexicon AB has 100% ownership of Highland Floating Winds Ltd, Dounreay Holding AB, Freia Offshore

AB and Hexicon USA LLC. In addition, Hexicon has interests in the following entities:

Company Share of capital

Offshore Access Sweden AB 22.5 %

Wunder Hexicon SA 50.0 %

Hexicon Malta Ltd 50.0 %

CoensHexicon CO 49.0 %


May 2018

10

5. PROJECTS

The following projects have been launched and are expected to generate successful final results, which

in turn provide validated quality and competitiveness in the patents and methods of Hexicon.

Scotland, Dounreay Trì

Hexicon initiated the Dounreay Trì Project during the fall of 2014 and has since then managed it through site selection, development, design & engineering, consent, procurement and start of fabri-cation.

By June 2017, the Project was well underway and had secured (not limited to) the following;

✓ All necessary consents from Scottish Ministers to build, install and operate the Project,

✓ Preliminary accreditation of 3.5 ROCs from Ofgem, a subsidy over 20 years,

✓ Seabed lease with The Crown Estate,

✓ Grid connection agreement with Scottish & Southern Energy valid from June 30th 2018,

✓ The entire supply chain identified and agreed,

✓ Power Purchase Agreement with Vattenfall,

✓ Construction All Risk insurance with SwissRe as lead underwriter, and

✓ Fabrication-start at multiple yards.

The Dounreay Trì Project has always been under a very tight schedule to complete in time to reach

final accreditation of 3.5 ROCs, which requires the project to be operational by 1st October 2018. In

late spring 2017, two months into construction, the Dounreay Trì shareholders decided to cease fund-

ing the project due to the risk of missing the final deadline. This project is since then on hold and work

is ongoing with UK authorities to extend this deadline by 18 months until April 2020. The extension

process is led by RenewableUK and supported by the Scottish Government. A new SPV, Highland Float-

ing Winds Ltd., is formed and all assets in the project are being transferred.

Hexicon has through the Dounreay Trì Project obtained the knowledge and experience required to

manage the development of a floating wind project. This places Hexicon in a competitive position going

forward since there are very few, if any, companies with this experience in addition to holding the IP

of a floating technology.

The Dounreay Trì Project achieved possibly the shortest lead time of going from concept to consent

that the offshore renewables industry has ever seen.

Spain, Plocan and WunderHexicon SL

Plocan is an already existing test-site for offshore renewable energy sources with a reserved slot for floating wind. All licenses and environmental impact assessments are in place as well as a grid connec-tion. Hexicon and its local partner WunderEnergy have formed a joint venture company, WunderHexi-con which has an arrangement with Plocan. The intention is to develop the slot within Plocan for Hexi-con’s technology and that this shall be a reusable pilot site construction.

Together with Hexicon’s partner and project developer WunderEnergy, a joint company WunderHexi-

con is in agreement with Plocan to develop the slot for Hexicon. WunderHexicon have just recently

been awarded a grant of EUR 60 000 for further development of the Hexicon technology in Spain. A

further capital raise is ongoing to have an adequate development budget for 2018-2019. A tentative

agreement has been negotiated with a Spanish investor. Initial project start is planned for August 2018.


May 2018

11

Portugal, Madeira, Porto Santo Offshore Island

This is a R&D project aimed at combining offshore floating wind and aqua-culture. The first step will

be an externally financed feasibility study of the integration of aqua-culture and Hexicon's multi tur-

bine floating platform. The timeline of the study is 24 months.

France

The French Authorities have ambitious plans to develop floating wind as a significant power source.

Hexicon is in dialogue with local partners with the goal to position the Hexicon technology for long

term growth. It is foremost the French Atlantic coast that is being considered.

USA, US EcoGen

Hexicon has agreed a Term Sheet with the project developer US EcoGen LLC that has initiated early

stage project development, targeting utilities in several states.

In terms of project development and revenue sharing, US EcoGen has committed to USD 1 Million for

early stage project development cost. Hexicon would have an equity stake of 25 % in the first project

and 49 % in the following projects.

Hexicon has together with US EcoGen initiated activities in several states, among them Florida, Maine,

New York and Massachusetts.

Taiwan

Hexicon initiated business development activities in 2014 and has since then signed a tri-part MOU

with key industrial players as well as several LOI’s with main industrial companies for data exchange

and deeper cooperation. Hexicon has explored the market, mapped key institutions, organizations and

companies and contacted many key people preparing future cooperation. Hexicon has an ongoing di-

alog with the Taiwanese Government whom is well aware of Hexicon's ambitions. Positive signs for

floating wind power in Taiwan:

• Ministry of economic affairs created a taskforce to study possibilities floating wind power

• Government sending teams to study global solutions for floating technology (visited Hexicon)

• China Shipbuilding Corporation formed a consortium and taskforce for floating wind power

The next steps for Hexicon will be to engage together with the local partner in early project develop-

ment, securing a site and working towards a fully consented project.

South Korea, COENSHEXICON Co.

The South-Korean government has announced a policy shift and has started putting in place legislation

to close the first of 20 nuclear power plants and to advance renewable energy, foremost wind and

solar as well as natural gas. By 2030, 20% of the electricity mix will come from renewable sources.

Hexicon has in April signed a Term Sheet with the Korean company COENS Co. Ltd. Intending to set up

a joint venture company with the exclusive rights to sell IP rights to shipyards and other clients in Korea

and additional agreed markets.

For Korea to reach their goals, large scale offshore wind power is needed. Given the limitations of

shallow waters, floating wind power will play an important role the coming Korean transition from

nuclear to renewables.

A first proposal is now sent in by COENS responding to on an RFI from Busan Technopark, including

Hexicon’s technology.


May 2018

12

6. PATENTS AND TRADEMARKS

Trademarks

Hexicon's trademark is currently protected by the European Union Trade Mark system (EUTM), which

gives Hexicon an exclusive right in the 28 Member States of the European Union. The trademark is

further registered in the United States, China, Curaçao, India, Japan, South Korea, Mexico, Norway,

Turkey, Taiwan and South Africa. Freia Offshore is another trademark owned by Hexicon, which cur-

rently stands under the protection of the EUTM.

Patents

Hexicon has three pending patent applications and two approved patents for generic inventions asso-

ciated with the platform. A patent for boarding access has been transferred to Offshore Access Sweden

AB, in which Hexicon has a part ownership in.

Patent 1: Floating power plant, no: 2012-543050, status: approved in Japan and Malaysia and pend-

ing applications in other countries.

Patent 2: Single point mooring system, no: 1651189-11, status: on hold.

Patent 3: Elongated platform, no: 1450889-9, status: pending applications in Sweden, EU, Taiwan

and the US.

Patent 4: Tilted turbine towers – Generation 2 Platform, no: 1850064-5, status: pending application.

Patent 5: Mooring system – Generation 2 Platform, no: 1850590-9, status: pending application

Hexicon is continuously developing its product and intends to continue to protect its intellectual

property.

Figure 6. Illustration of the platform from Patents 4 and 5 combined.


May 2018

13

7. FINANCIAL FORECAST

The table below shows Hexicon's financial forecast by year. Values are shown as whole thousands

Swedish krona. This forecast is to be updated based on the new joint ventures and projects discussed.

20172 2018 2019 2020 2021

Operating income

Sales revenue3 54,672 3,000 24,283 64,866 113,966

Other operating income 281

Tot 54,954 3,000 24,283 64,866 113,966

Operating expenses

Other external expenses3 59,976 10,760 21,875 35,000 65,000

Personnel costs 3,832

Depreciation 241

Tot 64,049 10,7604 21,875 35,000 65,000

Operating profit/loss -9,095 -6,760 2,408 29,866 48,966

2 2017 as of 31 of July 3 Revenue and expenses 2017 are mainly from the Dounreay Trì Project 4 Total costs for 2018 include personnel, R&D and other operational costs.

Shareholders in Hexicon

Shareholder Holdings in % New issues Total in %

Gamla SEB Trygg Liv 21 074

003 21,4% 8 492 186 29 566 189 20,5%

Index Equity Sweden 9 000 000 9,1% 9 000 000 6,2%

MGA Holding 4 672 812 4,7% 4 672 812 3,2%

Södergrenska Stiftelsen 3 878 867 3,9% 3 878 867 2,7%

Percy Sundqvist 3 242 139 3,3% 3 242 139 2,2%

Ocke Mannerfeldt with family 3 157 020 3,2% 3 157 020 2,2%

Arne Almerfors 3 000 001 3,0% 3 000 001 2,1%

Dag Landvik 2 823 289 2,9% 2 823 289 2,0%

Stefan Holmgren 2 432 589 2,5% 2 432 589 1,7%

Broad Advisors 2 277 478 2,3% 2 277 478 1,6%

Anders Tunbjer with family 2 069 448 2,1% 2 069 448 1,4%

Liljeroth Fastighets 2 000 000 2,0% 2 000 000 1,4%

Björn Segerblom 2 000 000 2,0% 2 000 000 1,4%

Victoria Steamship 1 900 000 1,9% 1 900 000 1,3%

Others 34 852

994 35,4% 1169004 36 021 998 25,0%

RESTRUCTURING 0 0,0% 36 174 169 36 174 169 25,1%

NEWCO 0 0 0,0%

TOTAL 98 380

640 100,0% 45 835 359 144 215 999 100,0%


May 2018

14

8. PRODUCT DEVELOPMENT

Renewable energy in general and offshore wind power in particular are pushed towards cost optimi-

zation. At present, there are over 20 different concepts for offshore floating wind power. Most of these

are so far only in a conceptual stage. As the industry matures and moves towards commercial large-

scale wind farms, a selection will be made among available floating technologies. Only those that bring

competitive costs for produced electricity will be able to take advantage of the huge foreseen market

potential.

Hexicon's first-generation platform developed for the Dounreay Trì project in Scotland has been driven

under a very aggressive time schedule and with high technical safety margins. The knowledge and

experience of this project is essential and gives Hexicon the opportunity to develop the platform fur-

ther.

During the Dounreay Trì project, over 100,000 hours have been spent, of which approximately 85,000

engineering hours have led to a complete understanding of which loads that defines the design and

further the design parameters that drive the costs. With a complete procurement of the project's en-

tire supply chain, the areas that strongly affect the cost of produced electricity and those that Hexicon

has the greatest opportunity to influence are identified. The result of this analysis has led to Hexicon's

product development focusing on reducing the amount of steel in the platform as well as the mooring

chain and wire length of the anchoring system.

With experience from Dounreay Trì, as well as in-depth wind flow analyzes of how two closely-placed

turbines affect each other, Hexicon has developed preliminary drawings for the next-generation float-

ing wind power platform. So far, the results show a reduction of steel weight of about 50% compared

to the first-generation platform from Dounreay Trì, see Figure 7. Additionally, the length of OK chain

and the wire can be significantly reduced by introducing an anchorage system mounted on the seabed.

In addition to a reduced cost of steel, a reduction in the size of the platform also increases the number

of possible dry-docks suitable to build the platform. These lessons are the result of what has so far

been invested in the company.

Further analyzes are necessary to ensure the performance of the second-generation platform. The

results so far show a competitive cost of produced electricity for a larger wind farm below 1 Swedish

Krona per kWh. The work for the patent application for this is ongoing.

Figure 7. The platform Generation 1 (for the Dounreay Trì Project) vs. Generation 2.


May 2018

15

9. MEMBERS OF THE BOARD AND CEO

Chairman

Arne Almerfors

Formerly CEO of Flir Systems AB and COB of To-

bii Technologies.

Board member

Mats Jansson

Formerly CEO of Argonaut and Cool Carriers.

Board member of MGA Holding.

Board member

Rickard Haraldsson

CEO of INDEX International Group.

CEO

Henrik Baltscheffsky

Former Senior Advisor at Investor Growth Cap-

ital and CEO at Ostnor International and Sale-

nia.

Auditor Fredrik Jonsson

Auditor at Deloitte AB

information memorandum - hexicon€¦ · hexicon ab information memorandum may 2018 6 floating...

Documents