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Turbines: commercial DD support-intro• Two major questions:– Will supplier be around to honor warranty obligationsand provide support beyond the warranty period?(Commercial DD)– Will the product work as specified/expected?Source: Azure International dataConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- intro – what’s going on and why• For international buyers, it is helpful if the company isinternationally listed as this provides a base of publicknowledge about a company that is reliable includingtimely market disclosures and audited financialstatements• Goldwind (HKG:2208)• Mingyang (NYSE:MY)• A-Power (NASDAQ:APWR)• GC China Turbine Corp (OTC:GCHT)• Sinovel (A-share, TBD)…Confidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- intro – China starting to export WTGs(MW)30Chinese WTG Exports252015105USAThailandCubaChileUSAIndiaPakistanEnglandThailand02008 2009Confidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- Readying to export: production capacitySinovelProduction Capacities of Chinese Turbine Manufacturers(MW 2009, Top 10)DFSTGoldwindGuodian UnitedXingdianMingyangNew UnitedHuayiSewindWindeySource: Azure International0 500 1000 1500 2000 2500 3000 3500 4000Confidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- Readying to export: technologyInstalled capacity by technology provider(2009, top 5 only, 80% market share)FuehrlanderRepowerVensysAerodynVestasSource: Azure International0 500 1000 1500 2000 2500 3000 3500 4000Confidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- Readying to export: certificationGranted:Applied:(Blade)(Blade)(WTG, 2)(WTG, 1)(WTG, 1)(WTG, 1)• One example of a leadingcertifying institution (mostprolific for Chinesecompanies)• Type certification processstarts to be completed forsome Chinese turbines• More in the pipeline fromother leading third partycertification institutesConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- Readying to export: certification• Numerous suppliersfor each maincomponent• Complicatescertification andpurchasingspecification• Configuration needsto be understood andevaluated• Often many optionsfor controller, powerelectronics, pitch andyaw drives and gearboxes, brakes ect…Confidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- Readying to export: technology• Turbines produced inChina differ significantlyfrom original designswhich usually arecertified• Type certification (GL,DNV, TUV ect…) presentlyfor very few models• Important formanaging/communicatingtechnical risk for exportmarkets• Design fidelity review arecommended part ofprocurement DD – AzureInternationalConfidential & Proprietary: Do not distribute or copy© 2010 Azure International100%80%60%40%20%0%Design Fidelity - portion of content equivalent tooriginal design (2008)AX Y ZBC1.5MW 1.5MW 1.5MW Gamesa850kWSource: Azure InternationalVestas2.0MWNote: This is a subjective ranking weightingmain components for relative value, and foreach, deviations from original designdocumentation by the potential to affect theoperational life positively or negatively. Ourengineering team is ready to assist you intechnical and ‘quality’ related due diligencesand assessments related to wind turbinesand the component value chain in China.14


Installation outlook – tracking pipeline- Basis for bottom-up viewUpdated quarterly in full bottom-up detailInstalledInstalled & gridconnected 16GW25GWThe presentOEM orderbacklogNear-termincrementalpipeline(High probability)Long-term cumulativepipeline240GW50GW…each projectFuture time & certaintyLong-term incremental pipeline165GW(Low probability)Confidential & Proprietary: Do not distribute or copy© 2010 Azure InternationalSebastian Meyer, Azure International 15


Installation outlook – accelerating- Tracking pipelineAccelerating development activity?Pipeline development(GW)Installation Imminent dev. Longterm dev.2502001501005002004200520061Q072Q073Q074Q071Q082Q083Q084Q081Q092Q093Q094Q09Source: Azure International According to data known as of 25 Dec 2009Confidential & Proprietary: Do not distribute or copy© 2010 Azure International Sebastian Meyer, Azure International 16


Turbines: commercial DD support- Readying to export: track recordSource Azure International, GoogleSource Azure International, GoogleSource Azure International, GoogleDate2010 Mid Term (~2015)Long Term (~2020)Target10GW-30GWAzure42GW 100GW 240 GWPast and future order books of manufacturers and component providersPast and actual pipeline for all developersEnables identification of repeat customers, shifts in buying behavior, nichesConfidential & Proprietary: Do not distribute or copy© 2010 Azure International17


Turbines: commercial DD support- Readying to export: operating historyIndustry experience: Installed Capacity, (Annually, GW)14 GW12 GW10 GW8 GW6 GW4 GW2 GW0 GW200220032004200520062007200820091H 2010Confidential & Proprietary: Do not distribute or copy© 2010 Azure International Sebastian Meyer, Azure International 18


Turbines: commercial DD support- Readying to export: operating historyIndustry experience: Installed Capacity, (Cumulative, GW)35 GW30 GW25 GW20 GW15 GW10 GW5 GW0 GW200220032004200520062007200820091H 2010Confidential & Proprietary: Do not distribute or copy© 2010 Azure International Sebastian Meyer, Azure International 19


Turbines: commercial DD support- Readying to export: operating historyIndustry experience: TWh Available In China(to end 2009)GoldwindSinovelVestasGamesaDongfangTurbine- 10 20 30 40 50 60Confidential & Proprietary: Do not distribute or copy© 2010 Azure International Sebastian Meyer, Azure International 20


Turbines: commercial DD support- Readying to export: operating history• Relatively shortoperating history• AzureInternational datashows turbinesare operatingreasonably well• Data set covers28% of 130TWhtheoreticallyavailablegeneration formarket (’06-’09)shows netperformance of24%Confidential & Proprietary: Do not distribute or copy© 2010 Azure InternationalChina wind performance from 2006/1/1 to 2010/4/3040%35%30%25%20%15%10%5%0%01 Jan 0601 Mar 0601 May 0601 Jul 0601 Sep 0601 Nov 0601 Jan 0701 Mar 07Source: Azure International Data01 May 0701 Jul 0701 Sep 0701 Nov 0701 Jan 08Can be compared to net results forGermany, where wind resource is lowerSebastian Meyer, Azure International 2101 Mar 0801 May 0801 Jul 0801 Sep 0801 Nov 0801 Jan 0901 Mar 0901 May 0901 Jul 0901 Sep 0901 Nov 0901 Jan 1001 Mar 10


Turbines: commercial DD support- Readying to export: operating exampleProject XSinovel 1.5MWProject YGamesa 850kW17kM separationSource: Google Earth, Azure International dataConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


30 Dec 08Turbines: commercial DD support- Readying to export: operating examplePerformance comparison from Jan 2008 to Dec 2008Gamesa 850kW Sinovel 1500kW45%40%35%30%25%20%15%10%5%0%01 Jan 0814 Jan 0827 Jan 0809 Feb 0822 Feb 0806 Mar 0819 Mar 0801 Apr 0814 Apr 0827 Apr 0810 May 0823 May 0805 Jun 0818 Jun 0801 Jul 0814 Jul 0827 Jul 0809 Aug 0822 Aug 0804 Sep 0817 Sep 0830 Sep 0813 Oct 0826 Oct 0808 Nov 0821 Nov 0804 Dec 0817 Dec 08Source: Google Earth, Azure International dataConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- Readying to export: operating exampleSinovel 1.5MW swept diameter77m, hub height 70m - IEC class IIdesignation. Net average capacityfactor 24%Sinovel 1.5MW: 2008indicative price RMB6100/kWSource: Google Earth, Azure International dataSummary score (2008 only)Technical outcomeGamesa 850 kW swept diameter58m, hub height 55m, - IEC class IIdesignation. Net average capacityfactor 23%Commercial outcomeGamesa 850kW: 2008price RMB 6000/kWSinovel 1.7% more expensive, but delivers 4.3% more kWh p.a.BUT! This is only 1-year of data with project still under operational warranteeThe long-term performance including differences in maintenance and partreplacement costs will determine the final winner!Confidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- Some recommended technical supportAzure has performed technical duediligence on a number of windturbines manufactured in China(Goldwind, Sinovel, Dongfang,Suzlon, Changzhou New United,Guoce Nordic…)DD typically covers review of tech.documents, factory visit to assessmanufacturing capabilities, qualityand testing procedures, analysis ofperformance data, risk assessments,finish product inspections etc…Confidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- Some recommended technical support• RFP preparation and review ofproposals (~ 5 OEMS, including scoregrid to facilitate selection)• 2nd round due diligence of selectedshort list suppliers• Equipment purchase and servicecontracts review• Post contracting factory or siteinspection• Site delivery & storage inspectionsConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Turbines: commercial DD support- Azure can support you with…StrategyShortlistedManufacturer(s)Manufacturer andWTG due diligenceProcurement Support•Understanding theChinese WTG market•History of Chinese winddevelopments andintroduction to mainplayers•Identifying suitable WTGmanufacturers andpartners•Inputs to business plan:financing strategy, CAPEXand OPEX etc.• Technical riskmanagement/mitigation•Counterparty riskanalysis/mitigation•Company background,ownership, history,production facilities•WTG actual and futuremodels, technology andin-house design capacity,certification, maincomponent supply•Operating track record,developers using OEMsproducts in China,Feedback from Chinesedevelopers, assessment oforder backlog andproduction plan•Current export activity,ability of company toprovide/arrange financeor guarantees•First factory visit withClient•Review of technicaldocuments•Assessment ofmanufacturingcapabilities•Turbine quality relatedrisk analysis•Analysis of availableoperation data•Review of after salesservices•Analysis of hurdles andsolutions regarding export•Logistics and planning•Contracting support•Procurement supportand management•Scheduled factory visitsand quality inspections•Site visits to confirmmaintenance protocol areimplementedappropriately•Follow-up until turbinesare installed to confirmdelivery process iscompleted as specifiedConfidential & Proprietary: Do not distribute or copy© 2010 Azure InternationalSebastian Meyer, Azure International 27


Presentation overview-OutlinePart (1) Turbine related commercial DDPart (2) Turbine related technical DDPart (3) Project investment related commercial DDPart (4) Project investment related technical DDConfidential & Proprietary: Do not distribute or copy© 2010 Azure International Sebastian Meyer, Azure International 28


Projects: commercial DD support- Peer performanceTechnical DD RelatedCommercial DD Related(full loadhours)3,0002,5002,0001,5001,000Utilization of wind plant in ChinaAverage revenue per kWIndividual project revenue per kW(capacityfactor)35%30%25%20%15%10%(RMB/kW)2,0001,8001,6001,4001,2001,000800600Revenue of Per kWAverage revenue per kWIndividual project revenue per kW500-55 projectsSource: Azure International,UNFCCC5%0%400200-55 projectsSource: Azure International,UNFCCCConfidential & Proprietary: Do not distribute or copy© 2010 Azure International Sebastian Meyer, Azure International 29


Projects: commercial DD support- Turbine price & project IRR(RMB/kW)8000The price of 1.5MW WTGIRR (%)25%Project IRR and WTG price7000600020%500015%4000300010%200010005%0Sep-06Dec-06Mar-07Jun-07Sep-07Dec-07Mar-08Jun-08Sep-08Dec-08Source: Azure International, UNFCCCMar-09Jun-09Sep-09Dec-090%6,500 6,000 5,500 5,000 4,500 4,000(RMB/kW)Confidential & Proprietary: Do not distribute or copy© 2010 Azure International Sebastian Meyer, Azure International 30


Projects: commercial DD support- Understanding grid limitations• Review of local grid situation• Interconnect queue• Balance of plant• Province-to-province connection & actual traffic• Planning?Wind FarmUp to 100%Additional costTP FactorySupplyPower GridDemandConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Presentation overview-OutlinePart (1) Turbine related commercial DDPart (2) Turbine related technical DDPart (3) Project investment related commercial DDPart (4) Project investment related technical DDConfidential & Proprietary: Do not distribute or copy© 2010 Azure International Sebastian Meyer, Azure International 32


Projects: technical DD support-example project in IMAR• First phase 50MW underdevelopment. Total capacity1200MW.• 3 70m met masts, 2 yearsdata• Wind resource analysis,turbine selection, energyproduction calculation,financial appraisal• Development from‘greenfield’ to first phasepermits, dealing with localgovernment officials andtechnical design institutesConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Projects: technical DD support-example project in IMARAzure was responsible for tasks 1 to 25Confidential & Proprietary: Do not distribute or copy© 2010 Azure International


Projects: technical DD support- example project in Heilongjiang• Met mast design,micrositing,installation,maintenance• Wind data collectionand verification• Scheduled quarterlyreporting and final AEPand financial appraisalreport• Support on first stepsdevelopment andpermitting workConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Projects: technical DD supporting valuation- example portfolio/pipeline review• Assessed projects in InnerMongolia, Heilongjiang, Shandong,Hainan, Gansu, Xinjiang• Site, substation, met station visits• Data collection, correction andanalysis, project energy productioncalculation• Financial modeling, potentialupsides review, permits and localrelationship appraisal andrecommendations on technicalaspects of JV negotiations and nextdevelopment steps• On going developmentConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Projects: technical DD supporting valuation- example portfolio/pipeline review• Third party independent DD of ‘Company B’ 3 GW wind portfolio• Appraisal of wind resource assessments• Review of turbine contracts and turbine suitability and reliability• Analysis of wind farm operation data• Confirmation / rectification of financial assumption for forecastingfuture financialCalculated vs. actual power production (single turbine example)Confidential & Proprietary: Do not distribute or copy© 2010 Azure International


Projects: technical DD feasibility analysis- wind and solar for Tetrapak factory• Renewable energy supply options for a factory in InnerMongolia• Technical, environmental and financial modelling andfeasibility of available options• Options considered included: solar, on site wind, nearbywind, purchase of electricity from existing wind farms,implementation of a green electricity trading system inInner MongoliaConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Projects: technical DD support- example project in Heilongjiang• Participation in expert review of complex topography CFDbased wind resource assessment and micrositing. Thestudy was performed by Meteodyn with the Meteodyn WTsoftware for a large state owned Chinese utility company.Aim of the review was to approve the micrositing.• Review of more than 20 Feasibility Studies compiled byChinese Design InstitutesConfidential & Proprietary: Do not distribute or copy© 2010 Azure International


Supporting wind investors in China- Strategy, prospection, assessment, developmentMarket researchBusiness strategyWind farm prospectionand acquisitionWind farm assessmentWTG assessmentProject developmentAnd operation support•Market and policyresearch and analysis•Implementation strategy/ business plan•Prospection of wind farmacquisition / investmentopportunities•Flash assessments, earlyrejection of unsuitableprojects•Target company duediligence•Wind farm permit duediligence•Wind resource andenergy yield assessmentWind turbine technologyand assessment andassociated risk analysis•Wind turbine duediligence•Grid connectionassessment based on localwind and griddevelopment plans•Final recommendationfor investment decision•Wind farm acquisition / JVcontract negotiation support•Setting up China dedicatedteam / company•Wind farm developmentsupport•Securing remainingapprovals and contractingengineering companies•WTG procurement support,purchase agreementnegotiations•WTG quality, storage,delivery control andinspection•Wind farm O&M teamstructure and logisticadvisoryConfidential & Proprietary: Do not distribute or copy© 2010 Azure International 40


Azure International – Syndicated Research- China Longyuan Power GroupThis report addressesthe following questionsamong many others:Add some defensiblerational caution to thebuy-side investmentstrategyUnderstand criticalgovernance issues that willaffect the company in thelong-runHow does the market share differfrom what the management says,and how is it developing quarterly?How does CDM affectLongyuan’s profit margins?Azure International - Longyuan Report Table of ContentsPage No.1.1. Table of contents 11.2. A word on the lack of critical analysis surrounding the stock 21.3. Defining pipeline and the challenges of tracking it 21.4. Reconciling future pipeline 41.5. Our view of market share differs from that presented by the management 61.6. Non CLYPG pipeline – expect fierce battle for market share 61.7. IMAR exposure and the impending bottleneck 71.8. CDM and the Longyuan pipeline 81.9. VAT and Longyuan 91.9.1. Explaining Chinese VAT legislation and accounting treatment 91.9.1.1. Effect on domestic wind project developers 101.9.1.2. Effect on international wind project developers 111.9.1.3. Effect on Longyuan 121.10. Risk: possible group governance ambiguities 131.11. Risk: expect exposure to intra group asset purchases 131.12. Income statement (Historical only) 141.13. Balance sheet (Historical only) 151.14. Cashflow statement (Historical only) 161.15. About Azure International 17How do new VAT accountingrules affect the company?What about regional exposure tohotspots like Inner Mongoliawithin the overall pipeline?Confidential & Proprietary: Do not distribute or copy© 2010 Azure InternationalSebastian Meyer, Azure International 41


Azure International – Syndicated Research- Evaluating Chinese OEMs readying for exportThis report addresses thefollowing questionsamong many others:Which Chinese wind turbinesare more likely to exportsuccessfully?What is the history,technology, track record ofthese OEMSWhat developers are usingthe turbines and what is theirfeedbackApproach to exploitingChinese financial supportdepending on companysituationConfidential & Proprietary: Do not distribute or copy© 2010 Azure InternationalAzure International - Evaluating Chinese OEMS readying for export (~10 OEMs)- Indicative table of contents0.0 Executive summary1.0 Introduction2.0 Industry background3.0 Manufacturer ranking based on installation and indicative generation4.0 For a selected number of Chinese WTG OEMs credibly angling towards export, analysis on:4.1 Company summary4.2 Company background and ownership structure4.3 History in the wind industry4.4 Production facilities (capacity and location)4.5 Technology and in-house design capacity4.6 Assessment of counterpart risk4.7 WTG models currently offered in China4.8 Future models in development4.9 Track record of wind turbine models4.10 Component supply4.11 Production facilities preliminary technical assessment4.12 Developpers using WTGs in China4.13 Feedback from Chinese developers4.14 Order book and production plans4.15 Current export activity4.16 Ability of manufacturer to bring financing from ChinaWhat does available operationaldata tell us about the turbinesUnderstand group and parentcompany relationshipsStart to unravel counterparty riskand develop an opinion+100 pages of facts and analysisSebastian Meyer, Azure International 42Simplified reportComplete report


Azure International – Syndicated Research- IMAR Grid StudyThis report addresses thefollowing questionsamong many others:How does the IMARgovernment interact withthe IMAR Grid (west)?How does wind power fitwithin the overall developmentof a power industry in IMAR?Azure International - IMAR Grid & Wind Report- Table of contentsPage no.1.2. Introduction 21.3. IMAR grid defined 31.4. IMAR power and China 61.5. IMAR coal and on-grid tarriffs for thermal & wind power 71.6. A note on T&D margins 81.7. Power price regulation and increases 91.8. IMAR and the Surcharge & Re-distribution Mechanism 91.9. Evolving balance 111.9.1. Base load (thermal power) capacity growth forecast 111.9.2. IMAR wind power development (pipeline activity) 121.9.3. Project performance of CDM registered wind projects in IMAR 131.9.4. Wind projects grid connection 141.9.5. Power storage in IMAR 151.10. Better interconnection to come 151.10.1. IMAR grid to north China grid interconnects 151.10.2. Smart grid future 161.11. Temporary delivery quotas for existing projects (curtailment) 171.12. Possible build out quotas (2010-2015) 231.13. Wind vs. baseload penetration forecast 231.14. Conclusion 25How do fluctuations in baseloadvs. seasonal wind outputinteract at the local nodeswithin the IMAR grid that arerelevant to your project?How much more wind power canIMAR physically develop in the nearfuture?What is overall generationvs power exports form IMAR,now and in the future?Confidential & Proprietary: Do not distribute or copy© 2010 Azure InternationalSebastian Meyer, Azure International 43


Azure International – Syndicated Research- Other available studiesOther reports available:A) Wind Development Bottom-Up (updated quarterly)B) Wind Turbine Manufacture Bottom-Up (updated quarterly)C) Wind Gearboxes Bottom-Up (updated annually)D) Large Castings Bottom-Up (updated annually)E) Blades Bottom-Up (updated annually)F) China Offshore Industry: Sponsored by WWF Norway, and available at:http://assets.wwf.no/downloads/china_norway_offshore_wind_final_wwf_march_2010.pdfBespoke assignments (suggestions/examples):- Market segments, new products, competitor analysis, policy & market analysis- Customer, partner, strategic buyer identification- Project pipeline identification/acquisition (China, Australia, USA, Europe)- Turbine and component quality due diligences, procurement support- Investment related commercial and technical due diligences- Wind measurement, project design, micro-siting, turbine selection- Permitting & approvals, company structuring & setup-Energy strategy: carbon foot-printing and emissions optimization & offsetConfidential & Proprietary: Do not distribute or copy© 2010 Azure InternationalSebastian Meyer, Azure International 44


Sebastian MeyerDirector of Research & Advisorysebastian.meyer@azure-international.comTel: +86 10 8447 7053Fax: +86 10 8447 7058Oriental KenzoSuite H, Office Tower, 6th Floor48, Dongzhimen Wai Street100027 Dong Cheng District, BeijingPR Chinawww.azure-international.comConfidential & Proprietary: Do not distribute or copy© 2010 Azure International Sebastian Meyer, Azure International 45

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