the renewable energy sector worldwide

JUNE 2019

Ramón Baeza

The Renewable Energy Sector Worldwide

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Renewable Power Megatrends

Growth and electrification of power demand

Renewables absorbing most of power demand increase

Storage (batteries and hydrogen) as key disruptor in electricity systems

Scale matters, in a context of increasing competition

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Electricity is already overpacing investments in the oil sector

Oil & Gas Electricity

Source: IEA 2019

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Global annual investment in oil and gas and electricity infrastructures

+6T USDExpected

investment in power sector

until 2025

Growth and electrification power demand

1.200

400

800

1.000

600

200

0

USD Billion

+61%

+15%

2018

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Electricity demand growing 2x times faster than total energy demand

Final energy demand (2018-2030)

% of electricity/ final demand

Source: IEA WEO 2018, New Policies Scenario; IEA Digitalization & Energy report

19% 21%

Drivers for growth in electricity demand

Energy efficiency to reduce electricity demand, but outgrown by growth levers

• EV penetration• Electrification of rural areas• Economy growth• Shifts in fossil fuels heat systems to

electric powered systems

Growth and electrification power demand

2018

Mtoe

2,648

3,945

1,492

2,440

1,856

1,964

4,405

2,457

2030

Others

Gas

9,733

Oil

Electricity

11,474

+18%

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Renewables + storage accounted ~43% of global electricity investments in 2018

Investment (USD billion)

Source: IEA Energy Investment Outlook 2019

Renewables

305

290

175

5

Renewables Networks Conventional Generation

Energy Storage Total

775

39% 1%

Green Technologies

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Wind and PV manufacturing’s “learning curve” explain the steep price decline

Source: Bloomberg new energy finance; Lawrence Berkeley laboratory

Wind turbine price index 1984–2018 Solar PV module experience curve 1976–2018

1

10.0

1,000,000100,00010,00010 100 1,0000.1

1.0

100.0

Log (MW)

Log (M€/MW)

0.1100

1.0

10,0001,000 100,000 1,000,000

10.0

Log (MW)

Log (M€/MW)

Historic prices

Thin-film experience curve

Experience curve

Experience curve

- 69%- 99%

- 85%

1976

1985

2003

2018

2006

2018

19841990

20002004

2018

Renewables

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Solar PV improves at faster rates and in many conditions is already competitive vs. wind on-shore

Wind on-shore Large Scale PV

∼0.06

∼0.09

Globally on average Large scale PVless competitive than wind on-shore..

1. Global Weighted Average LCOE 2. IRENA Renewable cost database Note: All LCOE values are unsubsidized Source: IRENA, Bloomberg, NREL, Enerdata, EIA, Lazard, BCG analysis

0.20

0.05

2,1000.00

0.10

1,200 2,400

0.15

900 1,500 1,800 2,700

PV - 2017 LCOE sensitivity to capex and irradiation level

Average Capex 1.4 $/W2

Min-Max Capex 0.9-2.0 $/W2

Solar irradiation [kWh/m2 year]

… but PV competitiveness already high in some conditions

Wind on-shore LCOE range '17

2017 LCOE ($/kWh)1

US California

IndiaGermanyUK

Margins shrink

Backup

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Solar and wind will be the cheapest power generation technologies in most countries by 2030

Levelized costs of electricity for solar PV (utility-scale), onshore wind, coal and CCGT (China and USA as examples)

Source: BNEF

Renewables

180

135

90

45

0

$/MWh (real 2016)

Solar PV (utility-scale)

CoalOnshore wind

CCGT

2030202520202017

120

80

40

0

$/MWh (real 2016)

Solar PV (utility-scale)

Coal

Onshore windCCGT

2030202520202017

China USA

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Solar PV and Wind remain as the dominant RES technologies with ~94% of additions until 2030

Renewables

Source: IEA WEO 2018 and BCG Analysis

58%

Wind Onshore

Solar PV

31%

CSP

4%5%

Wind offshoreBioenergy

1%1%

Geothermal

0%

Marine

Total REN additions

2017-2030:

2,045 GW

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Africa will be adding >1.5GW by 2030 growing at fast pace

328

2017 2030

217

644

2017 2030

366

44

20302017

157

2017 2030

359

950

20302017

588956

Sources: IEA WEO 2018 New Policies Scenario

98

20302017

72

2017 2030

18 66

Capacity of RES installed (GW)

+278(4%)

+111(3%)

+368(4%)

+113(10%)

+48(11%)

+591(8%)

+26(2%)

x% CAGR 2017-2030

2017 2030

1,519

653

+866(7%)

Renewables

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Digitalization transforming power industry creating a new business models ecosystem

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Li-Ion battery pack costs projected to decrease by ~8% p.a. until 2030

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

1,200

0

200

400

1,000

600

800

$/kWh

Historic industry average BCG outlook

Source: BCG battery storage market model

2018

~175 $/kWh

2025

~90 $/kWh

2030

~60 $/kWh

New Technologies and business models

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Further decreasing battery storage system costs make various new battery use cases viable business opportunities

202420222016 20302018 20262020

1,200

20280

800

200

400

600

1,000

Total battery storage system costs ($/kWh)


Source: BCG analysis

…enable and accelerate several new use cases and business models

C&I demand charge reduction

Residential storage and self-consumption

Renewable generation support

Frequency regulation and reserve capacity

Grid support services

Wholesale energy arbitrage

Utility-scale storage system costs dropping to ~$200/kWh towards 2030…

Residential C&I Utility-scale

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With further increase in efficiency and declining cost, PEM expected to be competitive in upcoming years

600

500

70

1,000

2,000

1,500

65

75

(%)

2020 2030

$/kW

2015 2025

Efficiency PEMCAPEX Alkaline CAPEX PEM Efficiency Alkaline

CAPEX and efficiency for major hydrogen electrolysis technologies

Note: PEM=Proton-exchange membraneSource: E4Tech & Element Energy; BCG analysis


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Storage arises as a key enabler of Distributed Generation growth when combined with solar PV

83222

384583

10,000

5,000

02010

GW

2015 2020

782

2025 2030

Source: IEA World Energy Outlook 2018, BCG Analysis. Based on IEA "450 Scenario" estimations

Key drivers for Distributed Generation

ConventionalDistributed Generation Other Renewables

Decrease of technology costs (PV, Batteries)

Electrification of remote and isolated areas


171. For a residential PV+storage system; 1h storage capacity (e.g,. 4 kWp PV and 4 kWh storage) Source: BCG PV market model, Eurostat, Enerdata, EIA, ENTSO-E, Cigre, SNL

800 1,000 1,800

0.10

2,2001,2000.00

0.15

1,600

0.05

2,000 2,400

0.35

0.20

0.25

0.30

2,6001,400

Thailand

Czech Republic

Spain

Germany

Malaysia

Luxembourg

UK Sweden

Belgium

NetherlandsUS Texas (peak)

China

Turkey

Solar irradiation on optimally inclined plane [in kWh/m2/year]

US California (peak)

US Texas (off-peak)

JapanFrance

South Korea

Australia

India

Romania

South Africa

Indonesia

Poland

0.10

0.002,600

0.30

2,0001,800 2,200

0.20

2,4001,6001,000800 1,200 1,400

0.35

0.15

0.05

0.25

Germany

Czech RepublicTurkey

US California (peak)

Poland

LuxembourgSweden

South AfricaIndia

South Korea

US Texas (peak)

France Japan

Australia

China

Netherlands

Belgium

UK US California (off-peak)

Romania

Spain

Indonesia

Solar irradiation on optimally inclined plane [in kWh/m2/year]

Thailand

Malaysia

US Texas (off-peak)

Residential grid parity is a reality – storage the "next big thing"

Iso-LCOE curve at a PV+storage system price1 of

Average electricity price for households in 2017 in €Ct/kWhAverage electricity price for households in 2017 in €Ct/kWh

Iso-LCOE curve at a PV system price of

Residential grid parity of PV standalone already reached in almost all countries

PV+storage systems are becoming an attractive business case

Peak demand in GW (2017) Residential grid parity by 2017 at current electricity prices

1.00 €/Wp (2020)

1.25 €/Wp (2017)

1.6 €/Wp (2020)

2.4 €/Wp (2017)

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10 200 30 40 50

Most of the players are planning to invest significantly in the next years

2018 2021

Avg IPP• Annual installment > 600 MW

per year • Target size in 3 years: 5 GW

Avg Utility RES BU• Annual installment > 1 GW

per year • Target size in 3 years: 25 GW

Diversification

Increase in total installed capacity AND expansion in new geographies

Geographical diversification (# countries)

Installed capacity (GW)

Consolidation

Increase in total installed capacity without significantly expanding to new geographies

30

20

10

Scale matters

Note. Hydro includedSource: Investor relations, BCG analysis

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Pure developers enter new markets to boost economics …

Boost geography whilemaintaining EBIT%

2008 2010 2012 2014 2016

Growth 2018+

Canada

Colombia Tanzania

South Africa

IranTunisia

PolandHungaryGreece

Historical development 2008-2017

23 %

12 %

24 %22 % 23 %

9 %15 %

25 %19 %

26 %

DE

Reaching scale with EBIT% growth Consolidation in key geographies

17countries

EBIT Margin

Netherlands

Countries with transactions

FR

DEFRIE

Note: DE: Germania; FR: Francia; IE: Irlanda; ES: Spagna; BG: Bulgaria; FI: Finlandia; RA: Argentina; IR: IranSource: Orbis, ABO Wind Annual Report

DEFRIEESBG

DEFR

DEFRESFI

DEFRESFIRA

DEFRIEESFIRAIR

Example:

BackupScale matters

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Local vs. global scale differ by technologyScale matters

Offshore wind

Onshore wind

Solar PV

Value of scale at “market” level

Valu

e of

glo

bal s

cale

• Procurement excellence: multi-year pipeline of orders• EPC capabilities (experience curve)• Service capabilities (high setup costs)

• Local supply chain• Trading capabilities• O&M clustering (service hubs)

Value of global scale

Value of scale at"market" level

• Procurement of key components

• Local regulations, legal framework knowledge• EPC capabilities (experience)• Securing of PPA (before and behind the meter)

Source: BCG analysis





Very limited

• Local regulations, legal framework knowledge• Securing of PPA (before and behind the meter)

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1. Unlevered IRRSource: BCG case experience, expert interviews

AcquisitionsEarly stage Late stage

Pros / Cons for entry @ this stage

+ Highest returns- Long timeline to operating with high

risks remaining- Need analytical capabilities, local

connections

+ Higher returns- High risk of

failure- Significant

amount of work- Long timeline to

operations

+ Risk very low except for environment / execution

- Returns lower- Reliant on

subcontractors

+ Very low risk- Low returns- Main entry

point for pension & infra funds (low WACC)

Risk level High High Medium Low

Avg returns for entry @ stage1 ~8-10% ~7-9% ~6-8% ~4-6%

Cumulative development costs per Watt2 $0.06 $0.15 ~$1.00 N/A

Pipeline multiplerequired 5-7x 2-3x 1-1.5x 1x

Typical duration (years) 1-2 1-2 0.5-1 20-35

Risks levels are high at the early stages of RES projectsScale matters

Market analysis / concept dev Pre-feasibility Feasibility Development EPC Operations

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Incentives on new parks are going down…

Feed-in tariff/premiums

Mixed

Countries with auction ortender programmes

Market-based mechanismse.g., auctions

1. CAGR 2016-2020Source: REN21, BCG analysis

80

2015 2016 202220192017 2018 2021

160

2020 2023 2024 2025 20260

40

120

$/MWh

Solar PV

Onshore Wind

Offshore Wind Auction Prices—Government provides grid connection

In recent tenders in DE and NL, several developers won

projects with a bid price of 0 $/MWh, renouncing from

receiving subsidies

Most countries are shifting towards competitive auction mechanism to support RES growth…

… with most auctions closing around 60 $/MWh (well below past feed-in tariffs)

60+Countries have

somehow adopted auction systems in the past ~8 years

Margins shrink

From ∼9 to ∼16% yearly reduction in auction results1

Scale matters

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… while interest rate evolution might harm RES players

Renewables players are highly leveraged

1. Money market Interest rate – Economist Intelligence Unit 2. 2017A Median value – Moody's investor services, Capital IQSource: Moody's investor services, Capital IQ, EIU, OECD, Make, GTM, BCG ValueScience® Center, BCG Analysis

Telco

Net Debt / EBITDA ratio by industry2

2.7

Auto Devel.MediaRetail IPPs

2.8

Energy RES BU

2.0

4.6

3.54.0 4.0

4.8

Renewableplayers

o.w.

Going forward RES players need to handle increasing interest rate

-1

0

1

2

3

2018 2019 2020 2021 2022 2023

Expected Interest Rate evolution - %1

USA

EU

Scale matters

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Appropriate financing conditions are crucial for successful RES Players

40

50

60

70

1.0% 2.0% 3.0% 4.0%

400

0

200

600

LCOE - $/MWh NPV - k€/MW

LCOENPV @ WACC

Source: BCG Analysis

New parks are less attractive

Interest rate

Additional costs on balance sheet and limited room for further investment

Project financing less accessible

Use of corporate debt bring costs to balance sheet

Risk of reduction in room for further investment

Wind on-shore -

Scale matters

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How to win going forward?

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BCG identified a long list of areas to get the most out of your RES business – which priorities for you?

Strategy EPC O&M Commercial/ trading

• EPC excellence Optimization of capex deployment

• Energy mgmtMax. production value (including PPA, VPP, trading)

Business development

2 4Innovation strategyStrategy for storage, P2X and new technologies

1 • Finance eng.Optimization of cost of capital / asset rotation

Financing

5• O&M excellenceO&M cash outO&M strategy (make vs. buy)

3

• Optimize multi-country/ global operating modelDesign and adoption of best model per country/ overall and deploy the required capabilities and tools

10

6 Get the most out of digital -> digital transformation program

Margins

Growth strategyStrategy about where and ho (geography/value chain) to compete

Effective Bus. Dev. BD strategy (greenfield, M&A, asset rotation, …) and deployment

7 8

Growth

Operatingmodel

Effective Comm. Capabilities to manage offtakers

9

Operational Excellence

28

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