CS Offshore Wind PDF

9 May 2018
Europe
Equity Research
Clean Tech
Global Offshore Wind

The Ideas Engine series showcases Credit Suisse’s unique
insights and investment ideas. THEME
Research Analysts
Mark Freshney Propelling up the value chain
44 20 7888 0887
mark.freshney@credit-suisse.com Figure 1: Annual offshore wind installations set to grow 100%,
Vincent Gilles from c3.9GW in 2017A to c7.9GW in 2024E (MW p.a.)
44 20 7888 1926
vincent.gilles@credit-suisse.com 9,000
Max Yates 8,000

44 20 7883 8501 7,000
max.yates@credit-suisse.com
6,000
Gregory Brown
5,000
44 20 7888 1440
gregory.brown@credit-suisse.com 4,000
Specialist Sales: Jason Turner 3,000

44 20 7888 1395 2,000
jason.turner@credit-suisse.com
1,000
0
2010A
2011A
2012A
2013A
2014A
2015A
2016A
2017A
2018E
2019E
2020E
2021E
2022E
2023E
2025E
2024E
Europe US Taiwan China 3 year moving average
Source: Wind Europe, Credit Suisse estimates
Only halfway there: In this Ideas Engine report, we build on our proprietary
model for wind farm returns and energy costs by analysing c57 offshore wind
projects to gauge just how quickly the market is growing and which companies
stand to benefit. Whereas last year we expected annual installations to reach
c6.6GW by 2024, we now see that figure doubling from current levels to
c7.9GW. We expect pricing power to go to offshore turbine and cable
manufacturers, benefitting Siemens Gamesa, Prysmian and Subsea 7.
■ End in sight for continual cost reduction: We estimate the levelised

cost of offshore wind projects sanctioned in 2021 and on line in 2025
should fall to €46-49/MWh (previously €48-52/MWh). We think cost
reductions will become harder to achieve, with higher oil prices a risk.
■ Tenders have pushed project-level post-tax nominal returns to c6.0%:

We estimate bidders are assuming higher real power prices—and likely
c€30/tn costs of CO2 emissions—to reach their c6% IRR. Pioneer profits in
new markets (Taiwan and the US) will be limited by competition.
■ We raise our forecasts for global offshore wind installations by c11%

p.a., reaching c7.9GW by 2024. Financing is a risk: a c300bps rise in
discount rates could halve annual installations.
Stock calls: We rate Siemens Gamesa Outperform (TP €15.7) (link) due to
its dominant position in the offshore wind market. We downgrade Ørsted (link)
to Underperform (TP DKK365 from DKK350) as we see an end to large
farm-down gains, understated political risk and a full valuation. We are positive
on Prysmian (O/P, TP €30) owing to growth in cables and Subsea 7 (O/P, TP
NOK145) as it has the broadest renewables exposure amongst our OFS
coverage. We rate Vestas Underperform (TP DKK385).
DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
9 May 2018
Table of contents
Offshore wind in six charts 4
Executive summary 5
How the industry has changed over the past year ................................................... 5
Stocks that offer exposure to our thesis ................................................................... 6
1. An end to continual cost reduction in sight 7

1.1 The LCOE of offshore wind is c5% lower versus our expectations one year
ago, driven by larger projects.................................................................................... 7
1.2 Higher energy commodity and CO2 prices have helped offshore wind relative
to fossil fuels ............................................................................................................. 8
1.3 We do not expect the LCOE of offshore wind to fall further than our new
expectations .............................................................................................................. 9
2. Tenders have pushed returns to c6% 12

2.1 Returns for marginal players at c6.0% (WACC) ............................................... 12
2.2 CO2 costs of €30/tn would make wind economic without subsidies. Zero-
subsidy bids bake this in. ........................................................................................ 14
2.3 ‘Pioneer profits’ in the US and Taiwanese markets to be arbitraged away ...... 15
2.4 US – request for proposals picking up .............................................................. 16
2.5 Financing availability remains the major risk .................................................... 18
3. Annual installations to grow by c100% 20

3.1 Our detailed bottom-up model suggests annual wind installs will reach c6-8GW
across 2022-25E ..................................................................................................... 20
3.2 Our assumptions on the major markets ............................................................ 21
3.3 We are running c11% higher installations than one year ago, driven by
abundant cheap capital ........................................................................................... 22
3.4 We expect offshore to take share from onshore ............................................... 23
4. Positioning up the supply chain 25

4.1 Supply chain map ............................................................................................. 26
4.2 Value-accretive growth post-2020 will be harder to come by for developers ... 26
4.3 Enbridge our preferred developer/asset owner ................................................ 28
4.4 Supply chain better way of playing the thesis ................................................... 31
4.5 Positive on wind turbine OEMs. Lead times generate visibility on EBITDA. .... 32
4.6 Submarine cable manufacturers ....................................................................... 34
Current capacity and tracking the projects ............................................................. 35
Offshore wind scenario – Impact on Prysmian ....................................................... 37
4.7 Offshore services .............................................................................................. 38
Global Offshore Wind 2

9 May 2018
Appendix 1: Changes to our wind installation forecasts 41
Appendix 2: US wind pipeline 42

9 May 2018
Offshore wind in six charts

Figure 2: The LCOE1 of wind energy is €63/MWh for Figure 3: We believe that the cost of wind energy
2022E start-ups, falling to €48/MWh in 2025E, €/MWh will fall until 2025 and then start to rise, €/MWh
200
175 180
150 160
125 118
75 140
100
Cost of energy (€/MWh)

50 63 63 66
75 53 120
47 48 48
50 34
25 100
0 80
Nuclear
(Europe)
(Europe)
(Asia)
Offshore wind
Onshore wind
Hard coal
Offshore wind
CCGT
Hydro
Solar
CCGT
(Europe)
(US)
Lignite
CCGT
60
(2025)
(2022)
40
20
Fuel cost CO2 Other variable
0
Fixed O&M (cash) Capital repayment Return
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
2028E
2029E
2030E
€30/tn vs €13/tn CO2
Source: Credit Suisse estimates Source: Credit Suisse estimates
Figure 4: We see new installations rising, driven by Figure 5: We see offshore taking share from
Europe and new markets in US and Taiwan, MW p.a. onshore. GW p.a., % of spend offshore spend boxed
9,000 80 12%
14% 20% 17% 24% 21% 27% 24%
8,000 9% 16% 12%
70
7,000 8%
6,000 60
5,000 50
4,000 40
3,000 30
2,000
20
1,000
0 10
2010A
2011A
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2018E
2019E
2020E
2021E
2022E
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2025E
0
2014A
2015A
2017A
2018E
2020E
2021E
2023E
2024E
2025E
2016A
2019E
2022E
Europe US
Taiwan China
Onshore Offshore
3 year moving average
Source: Wind Europe, GWEC, Credit Suisse estimates Source: Credit Suisse research, Credit Suisse estimates
Figure 6: Net Income of theoretical 1GW project on Figure 7: We forecast SGRE and MHI-Vestas each
€63/MWh/6% IRR and a €81/MWh/9% IRR, €m taking 40% market share, %
300 70%
250 60%
200 50%
150 40%
100 30%
50 20%
0 10%
Yr-4
Yr-2
Yr 1
Yr 3
Yr 5
Yr 7
Yr 9
Yr 11
Yr 13
Yr 15
Yr 17
Yr 19
Yr 21
Yr 23
Yr 25
-50 0%
2014A
2015A
2016A
2017A
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
-100
Net Income (9% project-level IRR) Siemens Gamesa MHI Vestas

Net Income accretion (6% project-level IRR) Other (GE only from 2022)
Source: Credit Suisse estimates Source: Company data, Credit Suisse estimates
1 Levelised Cost of Energy. That is to say the all-in cost per MWh of producing wind energy. It includes the capital investment cost,
operational costs, financing and decommissioning. It also looks at the energy output and the quality of that output. It is the main
measure of cost in the renewable industry

9 May 2018
Executive summary
We have undertaken a detailed review of c57 offshore wind projects using a detailed
bottom-up model. One year ago, we published a report on Global Offshore Wind entitled
Bracing for c200% annual installation growth where we argued that offshore wind was a
‘game changer’ and it was still possible to get IRRs of c6.0-7.5%. Over the past year, large
European developers such as Ørsted and Vattenfall have won tenders at lower prices and
accelerated build-out.
How the industry has changed over the past year

Our trajectory for the Levelised Cost of Energy (Figure 3) has shifted down by c5%
■ One year ago: The offshore wind industry industrialised quickly and lowered costs
across 2015-16. Using our proprietary model, we forecast a Levelised Cost of Energy
(LCOE) for projects on line in 2022 of €67/MWh, falling to €48-52/MWh in 2024/25.
■ Today: The same models shows projects on line in 2022 cost €63/MWh, driven by the
scale of the projects. Projects must be closer to 1GW than the c0.5GW we forecast
one year ago. We think this will fall to €46-49/MWh in 2024/25 on larger project sizes.
That said, we think costs are unlikely to fall further versus our new forecasts as steel
and oil prices are rising.
More expensive fossil fuel and CO2 makes offshore wind more attractive (Figure 2)
■ One year ago: Offshore wind was more expensive than most other technologies for
projects sanctioned in 2017 (e.g. €19/MWh more expensive than European gas-fired
generation) and wind would not be competitive with European gas until 2024/25.
■ Today: The cost of CO2 emissions has risen to €13/tn and the Netherlands proposes a
€18/tn CO2 tax. Fossil fuel prices in Europe have risen by c10-30%, narrowing the gap
between gas-fired generation and offshore wind from €19 to €10/MWh for projects
sanctioned today. Offshore wind will rank below European natural gas by 2024/25.
We do not forecast cost reduction post-2020, and LCOE inflation may come through
■ One year ago: The industry had just moved to 8-9MW machines, and there were
savings to be made (e.g. moving to higher voltage cables and using dynamic
positioning vessels). Competitive tendering had been a theme for 18 months and had
helped the supply chain to lower costs. Oil prices had been cUS$50-55/bbl for a year.
■ Today: There is not as much incentive for developers or the supply chain to reduce
costs further, given offshore wind reaches fossil fuel prices in 2024/25. The turbine
market is tight to 2021. Higher oil prices may put upside pressure on some of the input
costs, to the extent that they share labour and resource with the oil and gas industry.
Our detailed bottom-up model suggests c11% higher annual installations
■ One year ago: We had c200% growth in annual installations across 2017-2024. We
forecast the global market reaching c6.6GW p.a. installs by 2024. We forecast the US
and Taiwan would reach only 4.9GW cumulative by 2025.
■ Today: We see the base year (2017) was much stronger than we expected, at 3.9GW,
due to China being bigger, and some of the UK and German projects being completed
ahead of our expectations. We have c100% growth across 2017-25E, and forecast
7.9GW by 2024.
Competitive auctions have now reached WACC
■ One year ago: Returns of c6.0-7.5% post-tax nominal are still available. These were
attractive relative to the c4-5% WACCs that some stocks discounted. The Hollandse
Kust Zuid I tender would clear at €48-52/MWh (ex. transmission costs).

9 May 2018
■ Today: We see returns are closer to c6% at the lower end of the c6.0-7.5% range. The
Hollandse Kust Zuid I tender cleared at zero subsidy (i.e. the market price of power),
and we think needs a price of €49/MWh to reach a return of c6%. The offshore industry
is sensitive to financing costs (more so than onshore wind) and each 100bps rise in the
cost of financing raises the LCOE by c€5/MWh. Pioneer profits are higher than we
expected, but unlikely to last for long.
Pioneer profits unlikely to persist
■ One year ago: There was an era of c12-18% post-tax nominal project-level IRRs on
the UK projects under construction (e.g. pioneer profits on certain investment contracts
awarded by the UK government). We expected pioneer profits (i.e. returns above
WACC) in coming Taiwanese and US tenders, as there was less competition.
■ Today: One UK ‘pioneer profit’ project earns more than c15-18% (e.g. 20% on the
660MW Walney extension) driven by cost reduction. We expect only the first 3.8GW (of
c5GW) in Taiwan to generate pioneer profits. Competitors in the US and Taiwan are
the same as those in Europe (e.g. Iberdrola-Avangrid, Vattenfall, CIP, Ørsted) and
capital is cheap. We therefore expect returns to go to the low levels seen in Europe.
Stocks that offer exposure to our thesis

■ Turbine OEMs our favoured play: We see a consolidated offshore wind turbine OEM
market of two players (Siemens Gamesa and MHI-Vestas), and unlikely to rise above
three. Offshore wind turbine manufacturing is low (e.g. c4 turbines a week at Siemens
Gamesa, vs. c40 onshore) but we expect shipments to grow 50% over 2017-20E,
leading to cost-out potential. We rate Siemens Gamesa (link to report) Outperform
(TP €15.7). We retain Vestas as an Underperform (TP DKK385) due to its large
onshore exposure and later revenue recognition, but do note value in MHI-Vestas.
■ Offshore cables: Prysmian (TP €30, Outperform) remains our preferred play in the
offshore wind supply chain and currently offshore wind cables and installation accounts
for 15% of Prysmian EBITDA. Submarine Interconnection cables account for another
15% of Prysmian EBITDA. In Offshore wind cables, Prysmian is market leader with a
c40% market share.
■ Offshore services: Our preferred way to play offshore renewables services is through
integrated business models. Subsea 7 (Outperform, TP NOK145) is our preferred
play. As windfarms increase in scale and distance from shore, we believe that project
management expertise will become a greater competitive advantage. The recent
acquisition of Siem Offshore contractors has broadened Subsea 7’s toolkit to include
cable work, which should help market share in the medium term.
■ Owner-developers to find value accretion more difficult: With returns falling close
to WACC, we think some of the tenders begin to look unattractive. Wind projects
undertaken on a c6% IRR bring EBITDA growth, but would be EPS dilutive, detrimental
to a balance sheet and only fund c40% of the dividends, when compared to c9% IRR
project. We have downgraded Ørsted (link to report) (TP DKK365 from DKK350,
Underperform from Neutral). We remain Outperform on Enbridge (TP C$55).
Figure 8: Summary of key plays on our thesis
Ticker Stock Analyst TP, Rating, Upside/downside Exposure to offshore wind Investment thesis
ORSTED.CO Ørsted Mark Freshney DKK365, Underperform, 12% downside 85% of EV in offshore wind Lower returns on new projects
SGREN.MC Siemens Gamesa Mark Freshney €15.7, Outperform, 12% upside 40% of gross profit Growth in turbines and high market share
VWS.CO Vestas Mark Freshney DKK 385, Underperform, 11% downside 5% of Net Income Maturity in MHI-Vestas, but only 50% stake
PRY.MI Prysmian Max Yates €30, Outperform, 20% upside 15% of EBITDA Market leader in highly-consolidated industry
SUBC.OL Subsea 7 Gregory Brown NKR145, Outperform, 25% upside 25% of 2018-20E EBIT Benefit as projects get larger and go further offshore
ENB.TO Enbridge Andrew Kuske C$55, Outperform, 35% upside Less than 3% of EV Value of existing wind assets. Sale potential.
Source: Credit Suisse estimates; priced as of closing prices on 7 May 2018

9 May 2018
1. An end to continual cost reduction in

sight
Offshore wind has undergone a fundamental change in the past two years
■ LCOE trajectory c5% lower than we anticipated one year ago …: We believe that
the cost of offshore wind has shifted down by c5% across all years to 2025. We now
put the cost of offshore wind in 2025 at c€46-49/MWh (vs. €48-52/MWh one year ago).
This is driven by larger project sizes. Note also that the cost of fossil-fuel generation
has increased, partly because of higher CO2 costs. CO2 at €30/tn would take the
power price to levels at which we see offshore wind does not need government
subsidies.
■ … but falls in the cost are coming to an end: We fail to see how offshore wind costs
could fall much further versus our existing expectation (e.g. versus €46-49/MWh in
2025). With offshore wind being cheaper than fossil fuels, there is less incentive for the
supply chain to lower prices. Oil and steel prices have also risen. Note that our
numbers are on the basis of a c6% post-tax nominal WACC.
1.1 The LCOE of offshore wind is c5% lower versus

our expectations one year ago, driven by larger
projects
Figure 9: Our estimates for the LCOE cost of energy from offshore wind in the past, today and in 2025
Projects sanctioned Projects sanctioned Projects Projects sanctioned in 3 years (CS est.)
10 yrs ago 5yrs ago sanctioned today High-low point in a range
On-line 2012 2017 2022 2025 (High) 2025 (Low)
Wind farm size 150MW / 50 turbines 504MW / 72 turbines 846MW 996MW / 83 turbines 1,005MW
(94 turbines) (67 turbines)
Size 3.0 MW 7.0 MW 9.0 MW 12.0 MW 15.0MW

Improvement 122% 29% 33% 67%
Cost €3.15m/MW €4.0m/MW €3.00m/MW €2.9m/MW €2.8m/MW

Improvement 6% -25% 0% 0%
Load factor 35% 47% 50% 50% 50%

Improvement 34% 6% 0% 0%
Distance from shore 8 km 21 km 35 km 42 km 42 km

Improvement 163% 67% 40% 40%
Depth 12 m 23 m 34 m 46 m 46 m
Improvement 92% 48% 35% 35%
LCOE @ 6% WACC inc. transmission (nominal) €159/MWh €84/MWh €63/MWh €49/MWh €46/MWh
Reduction in costs (€/MWh) -€75/MWh -€21/MWh -€13/MWh -€16/MWh
Reduction in costs (%) -47% -25% -22% -27%
LCOE @ 6% WACC ex transmission (nominal) €145/MWh €72/MWh €58/MWh €46/MWh €43/MWh

Reduction in costs (%) -50% -19% -21% -26%
Source: Credit Suisse estimates
Using our proprietary wind model, we now believe that the cost of wind energy has fallen
slightly more quickly than we expected. We look at two relevant periods.

9 May 2018
■ Commissioning in 2022 (versus 2021 one year ago): We have a cost of €63/MWh in
2022E (we expected €66/MWh) versus c€70/MWh for 2021E one year ago. The cost
has fallen c10% year-on-year (vs our forecast of a 5% fall).
■ Commissioning in 2024: to €46-49/MWh (versus €48-52/MWh one year ago). Again,

costs appear to have fallen c4% or thereabouts.
We do not see the supply chain taking undue margin or pricing pressure. We believe that
turbine, cable and installation unitary costs on the components have progressed as we
expected.
The levelised cost of The reason is that the projects are larger. Most projects need to be >700MW to get costs
offshore wind is falling down and we believe 1,000MW will become the average size of future wind projects.
more quickly than we Funding and risk sharing for larger projects is now possible, meaning that a 1,000MW
expected. We reduce our project can be split between four players and financed with debt before construction. This
trajectory by 5%, before was not possible three years ago.
reaching €46-49/MWh in
2024.
1.2 Higher energy commodity and CO2 prices have

helped offshore wind relative to fossil fuels
Commodity prices have continued to rise over the past year. Compared to our report of 2
May 2017, energy prices are c10%-30% higher than in our report of 2 May 2017 entitled
Global Offshore Wind: bracing for c200% annual installation growth).
Commodity prices matter, because investment decisions—and therefore returns taken—
tend to be taken from the forward curve. This rise in energy prices has had as big an
impact on customers’ propensity to build wind as our c5% lower levelised cost of energy.
Figure 10: Generic levelised cost of different generation technologies, with a

rise in CO2 to €30/tn illustrated, €/MWh
118
120
100
80 75
63 63 66
60 53
47 48 48 50
40 34
20
0
(Europe)
(Europe)
(Asia)
Onshore wind
Hard coal
CCGT
Hydro
Nuclear
Solar
Offshore wind (2022)
Offshore wind (2025)
CCGT
(Europe)
(US)
Lignite
CCGT
Fuel cost CO2 Other variable Fixed O&M (cash) Capital repayment Return €30/tn vs €13/tn CO2
Note that we assume US$3/mmBTU US natural gas, US$5.5/mmBTU European Natural Gas, US$10/mmBTU Asian natural gas, €13/tn CO2
emission permits, US$12.5/tn lignite, 6% cost of capital, US$65/tn API2 coal and US$10/tn transport. We assume transmission / distribution
connection costs. We note that transmission / distribution costs may not be payable by all technologies
CCGT= Combined Cycle Gas Turbine (gas-fired power station).

9 May 2018
Over the past year, Offshore wind is nearly competitive with fossil fuels, on Credit Suisse commodity price
energy commodities assumptions (see our Power tracker of 2018.05.02), full transmission charges and 6%
have risen by10-30%, WACC (Figure 10). The drop in costs has meant offshore wind will become the cheapest
which lowers the bar for technology for utilities and governments. We make the following observations:
offshore wind.
■ US natural gas is the only technology materially cheaper than offshore wind in
the mid-2020s: We forecast US$3/mmbtu US natural gas. It will therefore be difficult
for any renewable to compete with this. Widespread shale gas in Europe is the obvious
competitive threat to offshore wind installations in Europe, but this is some way off, if
indeed it happens at all.
■ Unlikely to reach the level of solar: We put the cost of solar at €63/MWh, on the
basis of c12-14% load factors. Note solar has lead times of a few months, whereas
offshore has four-year lead times. If solar can continue to report a c7-9% p.a. drop in
the levelised cost of energy, then we think solar will still be below wind on cost.
■ Full cost of wind likely to rank slightly above thermal coal/natural gas on a
marginal cost basis: Most coal- and gas-fired assets have been built and the capital
cost has therefore been sunk. The assets would stay open so long as they cover
annual costs and breakeven. We think this gets to c€37/MWh for coal and €47/MWh
for European natural gas, on our assumptions highlighted in Figure 10.
Costs of CO2 emissions have risen …
In Europe—where most offshore wind is built—the EU ETS price has increased to €13/tn
(from €4.6/tn one year ago) on moves by the European Commission to create a ‘stability
reserve’ and cuts to auction supply in 2019. This has benefited wind insofar as it has
disadvantaged coal and natural gas.
There have been moves towards taxes in addition to the EU ETS2. We show in Figure 10
that if we were to increase the cost of CO2 emissions to €30/tn, then wind will be one of
the cheapest technologies. If the planned €18/tn CO2 tax in the Netherlands, (due to be
introduced in 2020), takes place then offshore wind would be competitive.
1.3 We do not expect the LCOE of offshore wind to

fall further than our new expectations
There is limited scope for The cost of wind has halved across 2012-17. A project such as the Walney Extension
lower prices from here (660MW – complete 2017/18) has a levelised cost half the level of Walney I&II (367MW-
onwards. Not least completed 2012).
because many costs
appear to us to be as low We estimate the levelised cost is c€63/MWh for projects sanctioned today ready in 2022,
as they can be. and will fall to c€46-49/MWh3 for projects sanctioned in 2021 and ready in 2024/25. We
show in Figure 11 our view of what the cost over time is and point to the following
milestones:
- Commissioning of 6-8MW turbines from 2017 (replacing 3.6MW turbines). This
caused the large step-down in 2016 and 2017;
- Improvement in cost structure across 2017-24 as 6-8MW machines are upgraded
in size to later marks of 8-10MW, projects become larger and unit cost savings
achieved; and
- Step-down after introduction of next series of 12-15MW turbines in 2025 causes
another drop, after which we expect costs to rise with inflation.
2 There is an £18/tn CO2 tax in the UK, which means that the power price is already around £48/tn.
3 Note that all projects are different and have their own cost structures. What we seek to show is a generic cost

9 May 2018
Figure 11: Our view of the cost of wind energy, by Figure 12: Breakdown of the costs of offshore wind,
year of project commissioning, €/MWh €/MWh
180 180
160 160
17
140
140
22

120
120
100 38
100
80
80
60
60
40 82 16
4
40
20 21
20 0 8
Offshore wind (2012) Offshore wind (2024/25 - average)
0
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
2028E
2029E
2030E
Opex Capex Transmission 6% Return
From here onwards, we From 2024/25 onwards, we see negligible additional savings in the LCOE that would lower
see a risk that costs rise. the curve by more than we expect. We say this for the following reasons:
The supply chain is
looking tight with long ■ Limited incentive to push the costs of wind down further: Auctions have cleared at
lead times, and oil prices ‘market prices’ (the Netherlands at the market price for 2022 onwards, Germany
have risen, which may 2024/25). Unless commodity prices fall, we see less incentive for developers or OEMs
put upward pressure on to push costs down further, as wind would be more competitive than all other types of
costs. generation (Figure 10).
■ Many of the costs appear as low as they can be: Incremental drops in costs
become harder and harder to achieve. There is a large amount of steel, labour, vessels
and fuel that goes into an offshore wind installation, and savings can only go so far.
The cost of the installation is €2.8-2.9m/MW including transmission; the opex costs will
have fallen c85% over the past 12 years. Incremental drops will be much harder to
achieve given the cost is so low (Figure 12).
If anything, we think the industry may find unit cost inflation an issue:
■ Lack of delivery slots for large turbines before 2022: MHI Vestas and Siemens
Gamesa are working with around two-year backlogs of firm orders. If we include
conditional-type agreements (e.g. preferred supplier or exclusive negotiations) then this
extends to around three years for MHI Vestas and 3½ years for Siemens Gamesa.
■ More expensive oil and steel: Offshore wind competes with the oil and gas industry
for resources. It is true that there is a value chain of specialist wind vessels that cannot
switch to oil industry use but we believe there is overlap on c5-10% of the costs. Brent
crude oil prices have increased to US$75/bbl - their highest level in 4 years. Steel is
subject to a similar movement, with prices up c50% (in US dollar terms) across the
past year.
■ Cable market in better shape: Pricing discipline is generally high in the European
submarine cables industry as the Top-3 players control c85% of the market and run a
backlog of c2-3 years of revenue. We expect pricing to be more competitive in early
2018 as Top-3 player NKT (we estimate has c15% market share) has spare capacity in
one of its two factories as it lost market share during the process of acquiring ABB’s
business. We expect the environment to normalize as NKT fills its factory.

9 May 2018
Falls in the cost of offshore wind will not continue indefinitely. We note there was a period
in 2006-09 when the cost rose (e.g. from c€100/MWh to c€160/MWh), partly due to FX but
also due to higher oil prices and the rising cost of contractors. This comes despite the
industry moving from 2.0MW to 3.6MW turbines. Above-inflation rises could happen again.
We think companies firmly expect c€46-49/MWh by 2024/25 (see next section). But we do
not expect the curve to be shifted down much further. It is possible that rises in costs result
in difficulties for some of the developers.
Note on the importance of discount rates
We note that the return is a large part of the cost of energy. A rise in discount rates would
pose the biggest risk to the cost of energy, in our view. A c100bps rise in WACC would
cause a €5/MWh rise in the cost of energy. We cover this in more depth in the next section
and revisit throughout this report.

9 May 2018
2. Tenders have pushed returns to c6%

We now see returns reaching WACC. The biggest risk is higher interest rates. This
is a risk for both asset owners/developers but especially the turbine OEMs.
■ Returns close to WACC: We estimate returns to developers in Europe will be closer
to 6%, at the lower end of the 6-7.5% post-tax nominal range that we flagged one year
ago. Further, we estimate that the recent zero-subsidy Dutch tender (won by Vattenfall)
needs power prices to rise in real terms by c€6/MWh to get to a c6% IRR. We think the
Dutch tender outcome price assumes an €18/tn CO2 tax.
■ Pioneer profits unlikely to last for long: Beyond the first c2GW allocation in Taiwan,
we expect new markets to see low prices. Competitors are similar, equipment suppliers
the same and we see capital is cheap. For example, France is looking to reduce prices
from the original tender prices of €115-220/MWh awarded in 2011-13 (Les Echos).
■ Rise in discount rates would end the dynamic: The major risk to bidders comes
from financing rates. A 1% rise in WACC would cause a rise in the cost of energy of
c€5/MWh. And the impact of a rise in hurdle rates from c6% to c9% in a short period of
time could lead the number of installations to halve, albeit with a c3-4 year lead time,
which provides a buffer for the long-term impact. We have seen similar dynamics
before (e.g. in Brazilian wind over 2011-15). Note this is not our base case.
2.1 Returns for marginal players at c6.0% (WACC)

The move from
administratively set Figure 13: Prices for wind tenders (we add back our estimate of transmission),
prices to auction prices €/MWh
caused a large drop in 250
Walney Extension 223
the cost of offshore wind Dudgeon 223
Burbo Bank 223
across 2015 to H1 2016. Beatrice 208 East Anglia Phase 204
200 Hornesa 208
Neart na Gaoithe 195
Administratively-set prices
Competitive tenders
150
€/MWh
Gode Wind IV 108

Triton Knoll 101
Danish near-shore
100
Horns Rev 3 103 tender 78 Baltic Eagle 74
Borssele I and II 87 Borssele III&IV 68 79
Hornsea two, Moray 78
Kriegers Flak 62 56
50
Gode Wind III 60
German 2017 offshore
tenders 48
0
Oct-13
Apr-14
Oct-14
Apr-15
Mar-16
Mar-17
May-13
Sep-15
Sep-16
Aug-17
Feb-18
Aug-18
Source: Company data, Credit Suisse research, Credit Suisse estimates
The levelised cost fell across the 2015 – H1 2016 period4. We show in Figure 13 the
prices at which offshore wind has cleared in competitive auctions. There has been a large
fall in prices, with most of the drop occurring in 2015-16, once the industry had visibility on
cost reduction.
4 We caveat that not all support contracts are the same—e.g. the UK prices are for 15 years linked to CPI, whereas the Borssele
contracts are for 15 years fixed, with a cap and a collar. Some—e.g. Netherlands, Germany and Belgium—have grid connections
that are the responsibility of the grid operator, hence provide an optically lower price and a lower bar.

9 May 2018
Figure 14: Major tenders across the past 18 months

Date Country Project Developer Capacity Target Price Transmission Power price Contract
(MW) commissioning (€/MWh) at time length
(€/MWh)
Dec-16 NL Borssele III&IV Ørsted 680 2021 55 Included 30.5 (2018) 15 years
Apr-17 DE German 2017 offshore tenders EnBW / Ørsted 1,380 2024 / 25 Market price Included 28 (2020) 20 years
Apr-17 DE Gode Wind III Ørsted 110 2024 60 Included 28 (2020) 20 years
Sep-17 UK Hornsea two Ørsted 1,368 2022 / 23 77 Not included 50.6 (2018) 15 years + CPI
Sep-17 UK Moray EDPR / Engie 950 2022 / 23 77 Not included 50.6 (2018) 15 years + CPI
Sep-17 UK Triton Knoll innogy / Statkraft 860 2021 / 22 88 Not included 50.6 (2018) 15 years + CPI
Oct-17 BE Northwester / Seastar / Mermaid Various 776 2020 79 Mostly included 37.8 (2019) 16 years
Mar-18 NL Hollandse Kust Zuid I Vattenfall 700 2022 Market price Included 38.9 (2020) 15 years
Apr-18 DE Baltic Eagle Iberdrola 476 2022 €64/MWh Included 37.6 (2021) 20 years
Apr-18 DE Gode wind 4 Ørsted 132 2024 / 25 98 Included 37.6 (2021) 20 years
Apr-18 DE Borkum Riffgrund West 1 Ørsted 420 2024 / 25 Market price Included 37.6 (2021) 20 years
Apr-18 DE Kaskasi Innogy 325 2022 n/a Included 37.6 (2021) 20 years
Apr-18 DE Others Others 257 MP-€98/MWh Included 37.6 (2021) 20 years
Total 8,434
Source: Company data, Platts, Credit Suisse research
We show in Figure 14 the list of projects that have been awarded across the past 18
months. We make the following observations:
■ Not all auctions are the same: All auctions subscribe to EU state aid rules. Some are
pay-as-clear (UK) where everyone gets the same price. Some are pay-as-bid where
prices are what bidders offer in a sealed process (Germany, France, Netherlands). In
the UK and Belgium, developers have their own exclusive sites which are a source of
advantage. In the Netherlands, Denmark and soon Germany, the sites are state-owned
and tendered. Our view is that more and more auctions will go to pay-as-bid to achieve
lower costs.
■ One recent auction down to WACC: We estimate at c6.0% post-tax nominal project-
level WACC for the Hollandse Kust Zuid I zero-subsidy project. This assumes a power
price of €49/MWh by the time it starts and requires a c€6/MWh rise in power prices in
real terms, as well as inflation. Even with a rise in CO2 prices, and assuming the next
marks of 9-10MW turbines will be used, we cannot get more than a c6.0% return.
A recent auction in ■ Blip in the UK in September 2018 owing to the auction design: Prices were higher
Europe—Hollandse Kust in the UK, owing to a lack of projects and the auctions were pay-as clear with one price
Zuid I—has cleared at an for each year. This meant that one project for 2021/22 start-up (Triton Knoll) did not
implied IRR of 6% post- have any competition, except high-priced biomass. And there was more budget
tax project-level, and available than projects needed. We believe the returns were c10% post-tax nominal for
assumes a power price
Ørsted (Hornsea two), c7% for EDPR (Moray Firth) and c12% for innogy5 (Triton Knoll).
c€6/MWh above current
levels (real). We think it
assumes effective
implementation of the
€18/tn CO2 tax by 2020.
5 We note that there was one clearing price per year, and the lack of any competing offshore wind projects along with higher-priced
Advanced Conversion Technology and the pay-as-clear nature helped innogy get a better price

9 May 2018
Figure 15: Our view of the power price likely factored-in to tenders
Project Post-tax nominal Price Dates over which power
project-level IRR price to be received
Borssele III&IV (Netherlands) 7% €54.5 2040
German 2017 and 2018 offshore tenders 6-7% Market (€40/MWh) From 2024/25
Gode Wind III and IV (Germany) 11% €80.9/MWh nominal 2025-2045
Triton Knoll (UK) 11% £83/MWh real* 2036/37
Hornsea Two (UK) 10% £64/MWh real* 2037/38
Moray (UK) 8% £64/MWh real* 2037/38
Northwester / Seastar / Mermaid (Belgium) 6-7% €79/MWh 2036
Hollandse Kust Zuid I (Netherlands) 6% Market (€40/MWh) 2022
Iberdrola Baltic Eagle (Germany) 7.5% €64/MWh 2022-42
* includes the cost of transmission

Source: Company data, Credit Suisse estimates
2.2 CO2 costs of €30/tn would make wind economic

without subsidies. Zero-subsidy bids bake this in.
A higher CO2 price—e.g.
€30/tn—could be used to Figure 16: German month-ahead power price, with the real amount assumed in
take power prices to the tender and our estimates, along with real power at €40/MWh (2017 prices)
levels c€6/MWh higher €/MWh
than where they are now. 90
Therefore, we think
tenders implicitly assume 80
action on CO2 prices. 70
60
50
40
30
20
10
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Germany month ahead power price (EUR/MWh) RPI Deflator (base price €40)
CS est. (EUR/MWh)
Source: Company data, Thomson Reuters, Credit Suisse estimates
We show in Figure 16 the real German power price assuming €43-46/MWh in 2025 (i.e.
assuming 1.5% p.a. inflation). This gives a c€40/MWh power price today and a €42/MWh
power price in 2020. For most of the past 5½ years, the power price has been below this.
The power price would need to be c€6/MWh above forward curves. This rise in the power
price, could, for example, be achieved in Germany with either:
■ CO2 emissions: A price of €30/tn for the total cost of CO2 (rather than €13/tn at
present under the EU ETS), with either a higher EU ETS or CO2 taxes; or
■ Commodities: Natural gas being c10% higher than current prices, and thermal coal
being c15% higher. In the long run, gas will set power prices on-peak and coal will
have closed. So natural gas will arguably be more important than thermal coal prices.

9 May 2018
We expect winning bidders to assume power prices are higher for a longer period of time,
and also for the volatility to be manageable.
2.3 ‘Pioneer profits’ in the US and Taiwanese

markets to be arbitraged away
We expect to see lower returns in auctions in emerging markets for offshore wind
Until 2014, post-tax nominal returns on new projects sanctioned were >10%. This was
achieved by:
■ Subsidy award structure: Subsidies were awarded on the basis of consultant reports,
which were subject to asymmetric risk and often worked to c10-12% returns (as in the
case of the UK Renewable Obligation and Contract for Difference regimes).
■ Niche industry: There were a limited number of developers. Ten years ago, Centrica
and Ørsted were the pioneers (e.g. with Barrow, Lynn and Inner Dowsing, and Horns
Rev 1) and the only major players in offshore wind with any material expertise and
were able to dictate returns.
Golden era of 2013-16
We believe pioneer The best players were able to win contracts and then lower the costs before sanctioning
profits in the US and the project, and sometimes even during the project. They were able to reach a critical
Taiwan are less likely. scale. This meant that they were able to improve the IRRs (reaching as high as c20% in
The equipment and the case of Wanly Extension, coming online in late 2018).
financiers are similar to
those in Europe. In the past three years, there has been a gradual move to competitive tendering and
Competition will be financial investors—while not willing to be the lead developer—have been quick to support
fierce. projects. This has worked to drive returns down to c6-7.5%. This is not far above WACC.
Coming auctions will clear at prices close to those in Europe (and onshore)
Figure 17: Summary of major wind auctions during 2018 outside of Europe
Expected date Project Amount Price Tariff
(GW)
Apr-18 Taiwan 1* 3.8 Administratively set Reviewed yearly. Currently 20years €170/MWh. Or 10yrs c€200/MWh and 10yrs at c€100/MWh.
May-18 Massachusetts 0.4-0.8 75% price, 25% non-price Ørsted-Eversource, CIP-Avangrid, Deepwater.
Jun-18 Connecticut 0.2 75% price, 25% non-price Can be served out of New Jersey, Massachusetts
Summer 2018 Taiwan 2 2.0 Competitive To be awarded in an auction process. Based upon price.
Late-18 New York TBC Likely competitive We expect 0.8GW.
* Note that grid connection agreements have been awarded. Administratively set tariffs must still be negotiated
The consensus view amongst investors and companies is that as new markets develop,
the pioneers will be able to win higher returns. With the exception of the first Taiwan
project—where prices are administratively set—we believe that the returns will fall very
quickly to the levels observable in Europe, and pioneer profits will not be available. We say
this because:
■ Competitors are similar: We note that c75% of the criteria will be on price in the US.
CIP, Avangrid/Iberdrola and Ørsted are competing in Massachusetts. And we note
European players were very active in Taiwan.
■ Capital is cheap: We note credit and equity markets understand wind and the risk
profile is perceived to be low. Bond yields in the US are c3%; higher than the c1.5% in
the UK but in Taiwan are at c1%, the same as Europe.

9 May 2018
■ Equipment suppliers the same: We note from onshore wind that the European
developers are able to use cheap German pricing to argue for cheaper turbines in the
US, for example. We expect two-thirds of orders to go to Siemens Gamesa and MHI-
Vestas.
■ Governments and regulators keen to avoid overpaying: We note France had

legacy contracts agreed at €115-220/MWh, but we would firmly expect the French
government to adjust the price down. Recent company comments indicate this could
be the case.
For so long as companies in the renewable and utility sectors see offshore wind as the
best area for growth, and are able to access cheap capital, auctions will see very low
prices. We see that interest rates (below) pose the largest risk for the industry.
2.4 US – request for proposals picking up

Research Analysts Offshore wind development in the US is still in its early stages and lags behind cost
improvements and PPA declines seen in Europe. Nevertheless, we see opportunities for
Maheep Mandloi unregulated developers that can take advantage of lower cost of capital and win state
212 325 2345 RFPs (Requests for Proposals). Regulated utilities in the coastal states stand to benefit
maheep.mandloi@credit- from higher transmission capex to absorb offshore wind into the grid.
suisse.com
■ Growth regions: We look at regions with higher offshore wind resource availability,
Michael Weinstein and lack of competition from alternative renewable energy sources (either too
212 325 0897 expensive to build or too prohibitive to import via transmission lines), and focus on the
w.weinstein@credit- North East, Mid Atlantic, and California coasts. We expect the east coast to fare better
suisse.com given a seabed that is shallow nearshore, compared to California which tails off quickly
and would need different foundations or floating turbines.
■ Strong competition in other regions: Offshore wind will have a tough time competing
with clean energy sources in other parts of the US as it faces competition from solar
power (in South West, South East, and Western Texas), from onshore wind power (in
mid-west and North Texas), and from hydro (North West and states on Canada
border). We estimate onshore solar and wind LCOE in these regions will be ~$20-
$30/MWh by mid-2020s (after existing tax credits fade away, due to continuous cost
reductions), and will be economical compared to offshore wind LCOE of c€46-49/MWh
(USD $56-60/MWh) by 2025 as estimated in this report.
■ Mandates drive near-term visibility: We tabulate 7.5GW of cumulative mandates

announced (mostly this year) by North East states. In addition, offshore wind also
qualifies for multi-GW technology agnostic renewable portfolio standards (RPS) in
other eastern states. Near-term RFP activity is also strong and is indicative of ~3.5 GW
of demand across eastern states and California.
■ US offshore pipeline is bigger than mandates: 30MW of offshore wind projects are
operational in the country today, while 492MW have received approval to build.
~14GW of projects have site-control and are now seek permitting/PPAs, while an
additional 9.35GW of projects are in early planning stages.

9 May 2018
Figure 18: US offshore wind mandates and RFP activity

State Offshore wind target Annualized Near-term
MW by year demand, MW/yr RFP, MW
NY 2,400 2030 200.0 800
NJ 3,500 2030 291.7 1,100
MA 1,600 800
CT 200
RI 400
CA 150
Total US mandate 7,500 492 3,450
Source: Public announcements
Figure 19: US offshore wind project pipeline
Source: NREL

9 May 2018
2.5 Financing availability remains the major risk

Figure 20: Spread of high yield bond index over Figure 21: Major transactions for c50% stakes in
German 10-yr, % assets under construction or complete, £ millions
24% 3,500
TBC
22%
3,000
20%
2,500
18% Nov-16
16% 2,000 TBC

Dec-16
14% 1,500
12% Aug-17 TBC

1,000
Feb-16
10%
500 Jan-17
8%
6% 0
Triton Knoll (TBC)**

Borkum Riffgrund II (GIP)
Walney (PFA)
Lincs (GIB)
Burbo Bank (Kirkbi / PKA)
NNG (TBC)*
Race Bank (Macquarie)
Hornsea One (TBC)**

4%
2%
0%
Apr-08
Oct-08
Apr-09
Oct-09
Apr-10
Oct-10
Apr-11
Oct-11
Apr-12
Oct-12
Apr-13
Oct-13
Apr-14
Oct-14
Apr-15
Oct-15
Apr-16
Oct-16
Apr-17
Oct-17
Apr-18
Source: Thomson Reuters, Credit Suisse research Source: Company data, Credit Suisse estimates
A theme we revisit Wind is one of the most capital-intensive technologies. Over the 25-year life of an offshore
throughout this report is wind project, the return on capital (i.e. interest and dividends) results in nearly as much of
credit availability and an absolute cash outflow as the actual cost of building a project. This means that the
pricing. The industry is levelised cost is sensitive to bond yields.
heavily reliant on cycling
of capital and being Each 1% increase in the discount rate would raise the levelised cost by c€5/MWh.
attractive to investment. Measures of financing cost—such as high yield bond index over the German 10-yr—
remain low (Figure 20) but rises, similar to those seen in 2008 and 2011, remain a risk.
Availability of capital is also key since developers need to cycle capital at a premium to
book cost to fund their next project. Liquidity has come into the sector, and according to
Bloomberg New Energy Finance, in 2017 there were 23 deals for US$9.4bn of stakes sold
and US$6.3bn of project-level debt. This was up 77% from 2016. We expect the amount of
equity sold in 2018 to be as much as was sold across 2016-17 (Figure 21).
Practically, we would expect a rise in rates to have the following:
1. Developers cannot cycle capital as easily: Rising rates may price investors out
of such assets. Most developers partner before or during the early stages of
construction. We think Ørsted has capacity to install up to 1.35GW p.a. (albeit the
current run-rate is c0.9-1.0GW p.a.). Our view is that the company could only
support 0.7GW p.a. if it could not farm-down assets;
2. A more acute problem would be that marginal developers leave: We would
expect some players—especially those without balance sheets—to stop
developing. We would expect equipment suppliers to reduce vendor finance, and
pension funds to pull back investments; and
3. Auction prices to go higher: Sales of existing assets would be less likely. It
would take time for governments and issuers of PPAs to accept that the price of
offshore wind is higher. We would expect postponing of auctions if prices move
higher or if there are not enough bidders.

9 May 2018
We think offshore wind has risk on financing

Our view is that if the hurdle rate required for the investors—currently c6% post-tax
nominal—were to rise to c9%, then offshore wind costs in 2025 would be €63/MWh, in
effect offsetting the move to 12-15MW turbines. The amount of offshore wind built could
halve. This is not our base case, but we are cognisant of the risk.
We have seen the dynamic play out before (e.g. Brazilian onshore wind 2011-15)
We note Brazilian Brazil runs periodic auctions for capacity, and has been doing so for many years. In 2011,
onshore has been auctions for wind for delivery three years ahead had fallen to R$99/MWh (€43/MWh real),
through a similar driven by cheap interest rates and a strengthening currency attracting capital. This was at
machination. Offshore a time when European administratively set prices were €85/MWh. Load factors were
wind is even more high—c45% versus c30% in Europe—but this alone could not explain the difference. We
capital-intensive than estimated that returns on equity were around 0% real (see our note of 18 August 2011
onshore and highly- entitled High demand and very low prices).
exposed.
By mid-2015, borrowing costs had risen. The currency had halved in value (making
imported wind components—c30-40% of machines—more expensive). Interest rates rose
from c3% real to c8% real and the state-owned lending bank, BNDES6, faced lending
restrictions. Some players could not finance their projects.
Prices had recovered to R$181/MWh (€48/MWh at the time) in August 2015 for capacity
starting in 2018. But there had been four years of cost reduction. We estimate returns
would have been above c11% real.
Every financial crisis is different. And we would not argue that Europe or the US should
see the same movement in interest rates, currencies and credit availability as an emerging
market. But the offshore wind market is far more capital-intensive and arguably as
exposed as Brazilian wind.
6 BNDES is Brazil's development bank, controlled by the Federal Government. it is involved with most infrastructure projects in the
country. The macro and political conditions in Brazil have hampered BNDES' ability to provide low-cost financing

9 May 2018
3. Annual installations to grow by c100%

We forecast offshore wind installations reaching c6-7GW p.a. (from c4GW in 2017A)
■ Revising up our offshore estimates: We forecast the number of annual installations
growing by +c100% across 2017-25E, if we include China. Excluding China, our
forecast rises to 160%. Our estimates are an average c0.6GW (+c11%) higher than we
forecast one year ago, reflecting more in Taiwan and Europe, due to lower cost. Our
forecasts are below more bullish consultant reports (e.g. MAKE is at c10GW p.a.
installs in 2025 while we are at c7GW).
■ Quickest-growing area within renewables: We believe that the offshore market may
take market share from onshore. The technologies are a similar price, but with more
impressive cost-reduction potential through to 2025. Offshore wind is often closer to
population centres and uses less land. As noted in the last section, offshore wind is
highly-dependent on cheap equity and credit financing (more so than onshore).
3.1 Our detailed bottom-up model suggests annual

wind installs will reach c6-8GW across 2022-25E
Figure 22: Offshore wind installed capacity by country
MW installed capacity
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2010A
2011A
2012A
2013A
2014A
2015A
2016A
2017A
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2026E
2027E
2028E
2029E
2030E
UK Germany Belgium
Netherlands France Denmark
Other Europe (Sweden, Eire, Poland) US Taiwan
China 3 year moving average
Source: Company data, EWEA, Credit Suisse estimates
Our analysis suggests We show in Figure 22 our updated proprietary forecasts for global offshore wind
c100% growth in the installations, which we have updated for the first time since we published in May 2017. We
wind market across have been through the full list of projects and made an estimate about when they could
2017-25E. reach final investment decision and commission. We have also looked at pipelines for
government tenders and the amount that can be afforded.
We forecast the number of annual installations growing by +c100% across 2017-25E, or
+c160% excluding China. We see that the growth will be steady and we see that it is
already happening in orders (see next section).

9 May 2018
Our forecast is lower than the c200% growth (2016-24E) we spoke about in our 2 May
2017 report entitled Global Offshore Wind: bracing for c200% annual installation growth.
This is because we have rolled forward by one year, and we note that 2017 was a strong
year, with projects being delivered earlier (in 2017 rather than 2018) and China being
c0.35GW larger than we expected. Hence, we have a higher base.
3.2 Our assumptions on the major markets

Figure 23: Our assumptions for the major wind markets, in order of level of growth
2017A 2025E
Country Official target Detail behind Credit Suisse assumption
(MW) (MW)
All existing assets, 6.8GW with CfDs and we assume another 3.5GW are awarded in the early-2019 CfD
UK
6,357 18,021 14GW by 2026 allocation round for delivery in April 2023-March24. A lack of seabed will become an issue by 2030, and
(Low growth)
offshore wind penetration will become very high before then, which may slow-down build-out.
We include all existing assets, and all assets with contracts. 1.49GW for 2023-25 (zero-subsidy auctions),
1.61GW for 2021-23 (April 2018 auction) and 0.84GW p.a. thereafter once the market moves to a process
Germany 5,241 10,634 7.7GW by 2020
whereby anyone can tender for the seabed. We note that there is enough seabed for 2030, but like the UK,
a lack of seabed becomes an issue at some point.
2.3GW for 2021. We assume 0.1GW p.a. thereafter. We would expect more large projects to come over
Belgium 878 2,693 4.0GW by 2030
time. New laws to reach the legislation need to come in by the end of 2018 or early 2019.
4.5GW by end of 2023 All existing assets (1.1GW) and those with subsidies (2.2GW) get to 3.3GW. Two more auctions totaling
Netherlands 1,118 5,650
11.5GW by 2030 1.5GW to get to 4.65GW by 2023/24. We then assume another 0.5GW p.a. thereafter.
Late start means the targets will not be met, in our view. We do not expect FID to take place until late-2018
France 2 2,252 3GW by 2023 at the earliest. Planning consents are not due until August 2018. Government speculated to be seeking to
revisit the tender prices (source: Les Echos) which in our view is to be expected.
Taiwan (High We assume the target is met, but one year late. 3.8GW to be awarded via a feed-in tariff that is centrally set,
2 5,396 5.5GW by 2025
growth) and another 2GW to be awarded via June 2018 auction. 10.5GW of offshore projects chasing contracts.
5GW by 2020, We assume the target is almost met. There is little visibility on projects. We expect increasing build-out over
China 2,946 9,346
10GW by 2025 time, likely with top-down state involvement.
Various. 8GW We assume that the Connecticut, Massachusetts and New York and New Jersey states adopt offshore wind.
US 40 3,912
commitments by 2030 We note the East Coast has more suitable seabed than the West Coast.
Total 16,584 56,880

We note that we have At this point, we flag that our numbers are more conservative than those presented by
visibility out until 2022, consultants. We note MAKE numbers presented by Siemens Gamesa point to an offshore
and visibility is building market with c10GW p.a. of annual installations by 2025. This compares with our c7GW.
for the years after.
Tenders in the US and We believe that the key reason for the difference between our 7GW and Make’s 10GW
Taiwan will be key. pertains to the US and Taiwanese markets—where tenders have yet to be won—and also
the uptake on China. In relation to Taiwan and the US, we make the following points:
(1) 3-4 year lead times mean we have visibility until 2022: We already have clarity
on projects close to final investment decision and turbine backlogs. Projects due
for a final investment decision in 2019 are unlikely to be delivered before 2022.
(2) Practical constraints: There is a lack of consented seabed. And it takes c5-7
years to undertake all of the necessary consenting, planning and survey work. We
calculate there is likely to be just c13GW of offshore wind in the UK, if all gets
consents.

9 May 2018
(3) Scope for delays: We note there is scope for delays—e.g. in response to
environmental lobbies and changes in government—and as seen in France, these
can slow down projects by c2 years.
(4) Funding a downside risk: As we explain in the next section, the ability of
developers to fund c1GW projects and above has helped bring the cost down.
Lack of finance or rising borrowing costs for these projects is a downside risk.
We look at the global A note on China, which we split out separately for our analysis
market excluding China, We split out China, as we do not think this market is as addressable for the European
as China is served by supply chain or developers. We note that China offshore wind is a combination of:
local players.
- Locally manufactured onshore turbines: The first UK and Danish offshore projects
(e.g. Barrow, Middelgrunden) were built close to the shore for ease of maintenance, using
slightly adapted onshore machines which were suitable for near-shore. It is the same in
China.
- Siemens Gamesa machines: Manufactured under license by Shanghai Electric with a
technology transfer agreement. This is a low-risk method of approaching the market.
We note the European supply chain is working with local Chinese manufacturers, and
there have been some large machines—e.g. the CSIC Haizhuang 5MW-154m machine.
The cost of transporting full turbines from China to the US and Europe is expensive. The
machines are tailored to local markets and sold between state-owned entities.
Western developers—e.g. Vattenfall, Ørsted—have stayed away and focused on opening
the US and Taiwanese markets. We therefore continue to split out China when thinking
about the global market for Western OEMs and developers. We therefore assume that
there is little overlap between China and the rest of the world.
3.3 We are running c11% higher installations than

one year ago, driven by abundant cheap capital
Figure 24: Our old versus new wind installation Figure 25: Summary of installations by region,
forecasts, MW MW
9,000 9,000
8,000 8,000
7,000 7,000
6,000 6,000
5,000 5,000
4,000 4,000
3,000 3,000
2,000 2,000
1,000 1,000
0 0
2017A
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
2010A
2011A
2012A
2013A
2014A
2015A
2017A
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2026E
2027E
2028E
2029E
2030E
2016A
2025E
New estimates Old estimates Europe China US Taiwan
Source: Wind Europe, Credit Suisse estimates Source: Wind Europe, Credit Suisse estimates

9 May 2018
We raise our estimates by c400MW p.a. (+c11% p.a.). The phasing is very similar to our
previous estimates but 2022-24 are higher. We flag the following points:
We increase our forecast ■ More was installed during 2017: The UK, Germany and China exceeded our
of annual installations by expectations. Construction times have shortened—itself a source of cost savings—and
c11%, reflecting a more we believe projects are running c3 months ahead of schedule.
bullish outlook on most
markets. ■ We assume an extra c3.5GW is installed in Taiwan across 2021-25: The proximity
to the auctions and the intent suggests that there will be more installed.
■ Slightly higher in Europe: There is more capital coming into the sector and the lower
costs means that governments can procure more capacity at a lower price. For
example, we expected the September 2017 CfD allocation round to procure c2.5GW of
capacity. It in fact procured 3.17GW at lower cost.
Key reason why we assume a drop post-2025
We also see that the European markets will drop by c1.75GW in 2025 as the UK and
Germany see lower installations, as the markets become saturated.
The bigger limit is a lack of sites. Recent comments from developers lead us to believe
that there are not enough sites suitable to receive planning consent. Authorities are slow
to award planning consents, which takes c5-7 years and many of the good sites have
been hoarded by existing developers.
For example, in the third UK CfD allocation round due in early 2019, there will likely be
only four large offshore wind projects (two at Dogger Bank, one in East Anglia and one at
Sea Green) led by three developers. This is not enough for competition.
3.4 We expect offshore to take share from onshore

Figure 26: Global wind installations split into onshore and offshore, with the
value in offshore boxed, GW p.a. installations
80
12%
70 14% 20% 17% 24% 21% 27% 24%
9%
16% 12%
60 8%
50
40
30
20
10
0
2014A
2015A
2016A
2017A
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
Onshore Offshore
Source: Credit Suisse research, Credit Suisse estimates
We believe that offshore We see Global wind installations including China totaling c53GW p.a. (onshore and
wind will take market offshore). We expect to see a step-up in 2019 as China goes from 20GW to 25GW p.a. of
share from onshore wind, installations, and we expect gentle growth thereafter. We put the cost at cUS$95bn p.a.
as they have a similar
LCOE.

9 May 2018
Offshore wind is currently c7% of installations by MWs, and c12-16% (cUS$10bn p.a.) of
capital, as offshore wind is more expensive than onshore by capital investment.
We believe that within this mix, onshore will lose market share to offshore. We estimate
that offshore installations will grow, with offshore reaching c11% of installed MWs and
c24% of capital deployed by 2022. We expect capital will be taken away from onshore:
1. Offshore and onshore wind is approximately the same price: The cost of
offshore wind is currently c€63/MWh, versus €48/MWh for onshore wind. We
expect the offshore price to fall to around the level of onshore wind (Figure 10) by
2022. Where onshore and offshore compete, we expect offshore to take more;
2. LCOE reduction potential: We forecast the cost of offshore wind to fall from
€63/MWh to c€47/MWh over the next four years. We do not believe onshore wind
has the same cost-reduction potential as there are practical constraints on rotor
heights, blade lengths, among others;
3. Offshore wind is closer to population centres: Most of the population centres
are on coasts, and within c50km of an offshore wind farm. By contrast, a lot of
wind resource is in Texas or inner Mongolia; and
4. Offshore wind uses less land: We note that onshore wind becomes more
difficult in areas of population density and where property rights give local players
a veto (as in the UK). We do not believe that offshore wind is potentially as
contentious.
Our view is that within the renewable arena, offshore wind is the fastest maturing
technology. We forecast annual capex on offshore wind moving from US$12bn to
US$27bn by 2024.

9 May 2018
4. Positioning up the supply chain

Developer’s less-compelling. Prefer turbine OEMs and cable suppliers
■ Owner-developers to see harder value-accretion: With returns falling close to
WACC, we think some of the tenders begin to look unattractive. Wind projects
undertaken on a c6% IRR bring EBITDA growth, but would be EPS dilutive, detrimental
to a balance sheet and only fund c40% of the dividends, when compared to c9% IRR
project. We downgrade Ørsted (TP DKK365, Underperform from Neutral). We
remain Outperform on Enbridge (TP €55, Outperform), where offshore wind is small.
■ OEMs our favoured part of the supply chain: We see a consolidated offshore wind
turbine OEM market of two players (Siemens Gamesa and MHI-Vestas), and unlikely
to rise above three (e.g. GE, Senvion). Offshore wind turbine shipments are low (e.g.
c4 turbines a week at Siemens Gamesa, vs. c50 onshore) but we expect shipments to
grow 50% over coming years, leading to cost-out potential. We rate Siemens Gamesa
Outperform (TP €15.7) and retain Vestas at Underperform (TP DKK 385), albeit we
acknowledge exposure to offshore wind through the MHI-Vestas JV. Offshore wind is
c40% of EV at SGRE (it has scale and owns c100% of its wind subsidiary), versus
c10% for Vestas (it only owns ½ of the MHI-Vestas JV).
■ Offshore cables: Prysmian (TP €30, Outperform) remains our preferred play in the
offshore wind supply chain and currently offshore wind cables and installation accounts
for 15% of Prysmian EBITDA. Submarine Interconnection cables account for another
15% of Prysmian EBITDA. In Offshore wind cables Prysmian is market leader with a
c40% market share.
■ Offshore services: Our preferred way to play offshore renewables services is through
integrated business models. Subsea 7 (Outperform, TP NOK145) is our preferred
play. As windfarms increase in scale and distance from shore we believe that project
management expertise will become a greater competitive advantage. The recent
acquisition of Siem Offshore contractors has broadened its toolkit to include cable
work, which should help market share in the medium term.
US stocks with exposure to Offshore wind development
■ Eversource (E; TP US$59, Underperform): Stands to benefit the most from

development opportunities in the US given its existing offshore development
partnership with Ørsted. The JV's first project is the 800MW Bay State Wind offshore
project in Massachusetts (MA). The project would likely be part of the state's 1.6 GW
offshore wind mandate. The JV has also proposed a 200MW offshore project in
Connecticut (CT) state RFP. We expect more opportunities to develop projects in
Rhode Island (RI), New York (NY), and New Jersey (NJ) RFPs.
■ Avangrid (AGR; Not Covered): Acquired a 50% ownership in Vineyard Wind in 2017,
a joint venture from Copenhagen Infrastructure Partners. The JV will build and operate
an offshore wind facility to be developed off of Martha’s Vineyard with a nameplate
capacity of approximately 1,600MW.

9 May 2018
4.1 Supply chain map

Figure 27: Value chain: Companies involved in offshore wind
Engineering work and Transmission export Vessels and installers
surveys (5%) Turbines (40%) cable (13%) Inter-array cables (9%) (16%)
Balmoral Offshore Siemens-Gamesa
NSW NSW A2Sea
Engineering (SGREN.MC)
Osbit GE (GE.N) LS Cable Prysmian (PRY.MI) Ellida Array
Orwell Offshore Senvion (SENG.DE) NKT (NKT.CO) NKT (NKT.CO) La Naval
MHI-Vestas (VWS.CO /
Saitec Engineering Prysmian (PRY.MI) Parker Scanrope MPI Offshore
7011.T)
SENER JDR Cable Systems Oceaneering (OII.N) Seajacks
IDOM Nexans (NEXS.PA) Nexans (NEXS.PA) Fred Olsen (FOE.OL)

EPC (5%)
ESTEYCO Fluor Corp (FLR.N) Oceaneering (OII.N) JDR Cable Systems Van Oord
Fugro (FUGRc.AS) Ørsted (ORSTED.CO) Subocean

Monopiles / Jackets
Acteon Statoil (STL.OL) Visser & Smit
Transformers (4%) (8%)
EEW Special Pipe
RSK Geophysics OGA ABB (ABB.S) Boskalis (BOSN.AS)
Constructions
Gardline Van Oord Siemens (SIEGn.DE) SIF (SIFG.AS) SAL Heavy Lift
Offshore Design MHI-Vestas (VWS.CO /

Vaisala (VAIAS.HE) Smulders SWIRE Blue Ocean
Engineering 7011.T)
TechnipFMC (FTI.PA) GE (GE.N) Bladt Industries

Gulf Marine Services (GMS.L)
China XD Electric ENGIE Fabricom
Subsea 7 (SUBC.OL) Subsea 7 (SUBC.OL)
(601179.SS) (ENGIE.PA)
Saipem (SPMI.MI) CG Power (CGPO.NS) lemants N.V. Saipem (SPMI.MI)
Boskalis (BOSN.AS) Mitsubishi Heavy Industries

Steelwind Ocean team
(7011.T)
Petrofac (PFC.L) TBEA (600089.SS) Aker Solutions (AKSO.OL)
Hyundai Engineering &

Lamprell (LAM.L)
Construction (000720.KS)
Siemens Gamesa
(SGREN.MC)
Vattenfall
Source: Credit Suisse research
Research Analyst
4.2 Value-accretive growth post-2020 will be harder
Mark Freshney to come by for developers
44 20 7888 0887
mark.freshney@ One year ago, we were positive on Ørsted because we saw value in the wind farms and
credit-suisse.com saw that they would be able to generate extra value from existing projects, such as
Borssele I&II (€72.7/MWh), as costs had fallen.
The financial Our new view is that at returns closer to c6% than 7.5% post-tax nominal, with rising
attractiveness of a discount rates in the UK and US, it is now far more difficult for developers to generate
project is highly sensitive value. The exposure to the power price is more difficult to hedge. We also note that the
to the IRR. share price of the main observable wind developer—Ørsted—is higher and fully discounts
the pipeline.
We see a ‘tier-1’ of state-owned developers increasing focus, alongside Ørsted (50.1%
state ownership). Vattenfall (100% state owned) has won tenders in Denmark and the
Netherlands. Statoil (67% state owned) has seabed in New York, EDF (83.5% state-
owned) has three projects in France and has built a demonstrator in the UK. Engie (28.1%
voting rights) is involved in Belgian wind and UK wind. innogy, EON, SSE and Iberdrola
are involved. It will be much harder to generate returns far in excess of WACC.

9 May 2018
+300bps returns on capital makes a material difference to the project

profile, even if not EBITDA
One of the points raised by developers is that at a c6% project-level return, the assets can
still be EBITDA accretive and bring a steady income stream. We disagree with this, as
whilst it generates EBITDA, it does not meaningfully support the business. We show a
theoretical example based on a 25-year project.
Figure 28: EBITDA, EBIT and Net Income on the Figure 29: EBITDA, EBIT and Net Income on the
basis of a €63/MWh real power price and 6% IRR basis of a €81/MWh real power price and 9% IRR
500 500
400 400
300 300
200 200
100 100
- -
Yr-4
Yr-2
Yr 3
Yr 1
Yr 5
Yr 7
Yr 9
Yr 11
Yr 13
Yr 15
Yr 17
Yr 19
Yr 21
Yr 23
Yr 25
Yr-4
Yr-2
Yr 1
Yr 3
Yr 5
Yr 7
Yr 9
Yr 11
Yr 13
Yr 15
Yr 17
Yr 19
Yr 21
Yr 23
Yr 25
(100) (100)
EBIT EBITDA Net Income EBIT EBITDA Net Income
Source: Credit Suisse research Source: Credit Suisse research
A project that earns a Figure 28 is a project with a €63/MWh power price in 2022, growing with CPI inflation. It
c9% IRR would make a earns a c6% project-level IRR. Figure 29 is the same project, but with €81/MWh and
positive contribution to earning a c9% project level IRR. All other parameters are the same.
balance sheet strength
and allow c150% more Both the projects generate EBITDA, but the project with the c9% IRR has the following
dividend payment than a features when compared to the c6% IRR project:
project earning c6%.
■ Generates c40% more EBITDA;
■ Pays out c150% more in equity dividends
■ Payback by year ten of the project
■ EPS accretive immediately

A small difference in IRRs (in this case 300bps, which equates to all of the ROIC-WACC
spread) can create a very large difference in the financial profile and the impact on income
statement, cash flow and balance sheet.
This becomes more important as projects become increasingly exposed to the power
price. Power prices move in multi-year trends and we note German power went from
>€50/MWh in 2011 to €20/MWh in 2016. Given opex and depreciation, this can have very
large impact on Net Income; akin to that of Verbund and Fortum.

9 May 2018
A seemingly small difference in return can make a large difference to the economics.
There is very little to buffer such projects from impairments or rises in credit costs if there
is no ROIC-WACC. Equity must earn a suitable buffer.
Figure 30: FCF to capital on a 6% IRR project Figure 31: FCF to capital on a 9% IRR project
500 500
400 400
300 300
200 200
100 100
- -
Yr-4
Yr-2
Yr 5
Yr 1
Yr 3
Yr 7
Yr 9
Yr-4
Yr-2
Yr 5
Yr 1
Yr 3
Yr 7
Yr 9
Yr 11
Yr 13
Yr 15
Yr 17
Yr 19
Yr 21
Yr 23
Yr 25
Yr 11
Yr 13
Yr 15
Yr 17
Yr 19
Yr 21
Yr 23
Yr 25
(100) (100)
(200) (200)
(300) (300)
(400) (400)
(500) (500)
(600) (600)
(700) (700)
(800) (800)
(900) (900)
(1,000) (1,000)
(1,100) (1,100)
(1,200) (1,200)
Net cash flow EBIT EBITDA Net cash flow EBIT EBITDA
4.3 Enbridge our preferred developer/asset owner

Research Analyst ENB is a new, but large scale entrant to offshore wind in Europe. We have been bullish
about ENB's offshore wind prospects for a variety of reasons as partially outlined in our
Andrew M. Kuske recent note – A Spectra Spectacular. The stock has been weak (down c15-35% versus the
416 352 4561 Alerian, S&P/TSX indices over the past year) driven by sentiment challenges faced by
andrew.kuske@credit- ENB after the closing of the Spectra Energy acquisition in February 2017. We believe the
suisse.com near-term bias around the offshore wind portfolio may be changing. We believe ENB will
be even more pragmatic with certain assets.
ENB's offshore positioning
ENB entered the offshore wind market in 2015 with the purchase of a 24.9% interest in the
Rampion project. Figure 32 summarises ENB's offshore assets.
Figure 32: ENB’s Offshore Wind Assets

Project Name Total MW Ownership Net to Enbridge (MW) Location
Albatros Offshore Wind Project 112 50.0% 56 North Sea
Eoliennes Offshore des Hautes
498 50.0% 249 Fecamp, France
Falaises
Eoliennes Offshore du Valvados 450 50.0% 225 Courseulles-sur-Mer, France
Hohe See Offshore Wind Project 497 50.0% 248.5 North Sea
Parc du Banc de Guerande 480 50.0% 240 Saint-Nazaire, France
Rampion Offshore Wind Project 400 24.9% 99.6 Brighton, UK
Source: Company data
Recently, ENB's last investor day (Overcoming the Rock and the Hard Place) classified
the renewable power as one of six platforms. More importantly, ENB's completed strategic
review (Returning to the Road to Redemption) highlighted some of the dynamics on the
North American onshore business and the European offshore.

9 May 2018
Market positioning
At the December investor day, ENB highlighted offshore wind as an area for post-2020
growth potential as shown in Figure 33.
ENB indicated that
offshore wind could be Figure 33: Growth areas
an area of growth post-
2020 …
We believe much more robust prospects exist for European offshore wind. From our view,
the often multi-billion-dollar scale of offshore wind is attractive for ENB. If the appropriate
level of returns could be generated, ENB could prospectively allocate US$1-2bn per
annum without much difficulty. We take this view, in part, given the European opportunity
set along with ENB's own declining capex forecasts by segment as appears in Figure 34.
Figure 34: ENB's Overall Capex Program
Despite the overall renewable portfolio being quite small versus ENB's overall balance
sheet, the amount of capital allocation over the next few years is outsized on a percentage
basis with 8% of total 2018-2020 capital spend. Currently, a relatively attractive element of
ENB's offshore portfolio is the timeline for bringing the projects into service (especially
compared with recent examples of pipeline purgatory) as is partly illustrated in Figure 35.

9 May 2018
Figure 35: Capital In-Service Dates by Grouping
… but ENB could get an Tactically, we believe ENB could substantially increase capital allocation toward offshore
attractive price and be a wind, but the return profile would need to be sufficient. Ultimately, we see ENB controlling
willing seller under the a separately listed offshore wind vehicle operating under the Enbridge banner. That
right circumstances approach may look to use some of the best attributes of the Brookfield family of entities
along with those from ENB's own affiliate structure. Yet, there are more vexing issues at
ENB at this time – which is partly addressed in the next section.
What about now?
ENB's shares have underperformed rather significantly over the last year. As a result, the
company clearly targeted C$3bn of divestitures in the November plan and also identified
C$10bn of non-core assets. Subject to valuation, ENB could be a willing seller of the
offshore business despite the longer-term positives for capital allocation.
If ENB could benefit from a high valuation and receive part of the developer promote on an
implied valuation, then we could see the company divest of these assets and projects.
Even with the attractiveness of this business, the bias of North American shareholders that
are less familiar with the European offshore business along with the perceived benefits of
streamlining and delivering, ENB may look to jettison these assets.
Therefore, we believe ENB faces a rather interesting duality with offshore wind not being a
priority disposal, however, the market dynamics may be ripe for a sale. If one believes the
return profiles on the new generation of offshore projects has compressed, then a relative
attractiveness can exist for some of the ENB projects. Moreover, if return compression has
occurred on a widespread basis, then the ability for ENB to allocate large sums of longer-
term capital to this business would have lessened. A reduced ability for capital allocation
ultimately may re-focus the strategic priorities at this time given near-term performance
and some perceptions.

9 May 2018
4.4 Supply chain better way of playing the thesis

Figure 36: Assumptions on lead times and capital investment phasing
Timeline for a project equipment supply

Project Management
Surveys (5%)
Oshore civil works (5%) Procurement Manufacture Installation
Inter-array cables (8%) Procurement Manufacture Installation
Foundations (10%)* Procurement Manufacture Installation
Transformers (4%)* Procurement Manufacture Installation
Transmission (10%)* Procurement Manufacture Installation
Turbines (45%)* Procurement Manufacture Installation
-5yrs -4yrs -3yrs -2yrs -1yrs 0yrs
Approximate cost breakdown
40%
25%
20%
10%
5%
-5yrs -4yrs -3yrs -2yrs -1yrs 0yrs
* Note that we have allocated out the vessel costs to individual components
We believe that in a quickly-growing market where returns are tight, it is better to be

positioned in the parts of the supply chain that have market power. To this end, we would
be in the wind turbine OEMs, cable manufacturers and to a lesser extent the service
companies that are active in the sector. We talk through each of these below.

9 May 2018
Research Analyst
4.5 Positive on wind turbine OEMs. Lead times
Mark Freshney generate visibility on EBITDA.
44 20 7888 0887
mark.freshney@
credit-suisse.com A market which has thus far been mostly split between two players
Figure 37: Installed capacity and market shares for installed capacity and backlog of projects to complete
OEM Siemens Gamesa MHI-Vestas Adwen Senvion GE BARD, WinWin, Total
(formerly Siemens) (formerly VWS) (Siemens Gamesa) (Repower) (inc. Alstom) Other
Installed capacity (MW) 11,219 2,627 1,140 983 61* 506 16,536
Market share (%) 68% 16% 7% 6% 0% 3% 100%
7.0MW, (154m dia) 8.0MW, 9.5MW

Current products
8.0MW (167m dia) (164m dia) Discontinued 5MW 6.2-6.3MW (126m 6MW
4.0MW (120m and and 4.2MW (117m (132m / 135m dia) and 152m dia) (150MW dia) -
130m dia) dia)
We expect a final We expect an

>10MW in
upgrade to 9.0MW upgrade to 10MW 12MW – 220m dia
Discontinued 8MW development for
Future products New 12-15MW New 12-15MW (shipping from -
(180m dia) 2018 German
product likely for product likely for 2021)
tenders
>2024 >2024
Direct Drive / geared? Direct Drive Gearbox Gearbox Gearbox Direct Drive n/a n/a
Backlog (MW) 6,819 4,608 350 203 408 0 12,164

Market share (%) 55% 37% 3% 2% 3% 0% 100%
* Includes first US offshore wind farm—30MW—in Rhode Island
Source: Company data, Credit Suisse research
We believe that the Offshore market is already more consolidated. This is partly due to different structures for
offshore wind market is the levelised cost of energy. Research and Development costs are as high as the cost of
unlikely to be large onshore machines, but volumes sold are much lower. The risk perception is also greater in
enough for more than onshore, owing to the cost of liquidated damages and remediation if the turbines break
three players. down. The market is more consolidated and two players have c84% market share of
installed capacity and 92% of backlog (Figure 37). There have been two stages:
■ Stage 1—existing turbines—across 2006-13, Siemens had c75% of the market:

Vestas’ problems with its earlier offering meant it had to temporarily withdraw its
turbines from sale until 2008. But most orders went to Siemens Gamesa’s 3.0MW and
later 3.6MW offshore machines, which were the largest at the time. Siemens had the
strongest balance sheet and was considered widely as the most financially-stable
turbine provider.
■ Stage 2—new turbines—from 2014 onwards, Siemens Gamesa had c57% of the
market: In 2014, the latest generation of turbines7 picked up orders, and the market
has been more fragmented. Mitsubishi Heavy Industries bought credibility to the MHI-
Vestas business when it purchased a 50% stake in the entity in 2013 and MHI Vestas
quickly took market share.
Visibility will come before 2025. The turbines have c3-year lead times. Conditional supply
agreements—which in our view are far more solid than onshore, owing to the visibility on
offshore projects—will appear c4 years earlier. The strong order inflow has therefore
already started (Figure 38).
7 ≥6MW with 154m blades for Siemens Gamesa, ≥8MW 164m blades for MHI-Vestas

9 May 2018
Figure 38: Wind orders by major players, along with our view of the market
MW p.a. of orders we believe the OEMs have won
8,000
7,000
3%
6,000
5,000 42%
4,000 19%
12%
3,000 18%
27% 5%
2,000 48%
24% 54%
1,000 15% 61% 58%
61% 51%
0
2014A 2015A 2016A 2017A 2018E 2019E 2020E 2021E 2022E
Siemens MHI Vestas Senvion

GE Holland - TBC German - TBC
Other orders (ex. China) China 3yr Moving average
Unlikely to go to more than three players

Given the 2-3 year lead We expect the market to remain consolidated, despite the growth 100% growth in the end
times for offshore wind market. We think there will be two periods: before 2022 and after 2022:
farms and lengthening
backlogs, we see a very ■ Across 2018-22 we forecast MHI-Vestas and Siemens splitting the market: A rule
strong order flow over the of thumb is that an OEM can increase an offshore wind turbine by c1MW every c18
coming years to reach months. Often, a new turbine is announced to the market even before the previous
our 2024E peak. version has started shipping. Most orders—with the exception of 600MW in Germany—
are with the two dominant players, and we expect this to continue:
o Siemens Gamesa: launched its offshore machine at 6MW in 2011 and it
has now reached 8MW. We understand from the company that there is
one final mark to reach 9MW, after which we expect a new machine.
o MHI-Vestas: started at 7MW in 2011 and the first order was for 8.0MW in
2014. The company is now at 9.5MW and we expect an upgrade one
size during 2018, with 2019 likely to see an announcement of a new
machine.
With Siemens Gamesa discontinuing the 5MW and 8MW Adwen machines and
Senvion only reaching c6.3MW, it is unlikely another player could enter the market and
win orders in the next two years. The exception is GE, which will win some orders for
its 6MW Halliade machine in Europe, the US or Taiwan.
We see new machines ■ From 2022 onwards we expect an opening for a third player. Our experience is that
(12-15MW) being ready as soon as new products become available, old ones quickly stop being sold, even in
from 2022 onwards. China. We expect a new entrant driven by geography and size:
o Siemens Gamesa and MHI-Vestas (we assume 40% each): We expect
larger turbines. We expect both Siemens Gamesa and MHI-Vestas to
debut 12-15MW machines from 2024.
o GE could be a new player (we assume 20%): GE has a 12MW
machine under development that is due to ship in 2021 (and we think
commission in 2022). Senvion is a possibility.
We believe that the opening of the US, Taiwan and French offshore wind
markets will bring an additional c10.6GW of demand through to 2025.

9 May 2018
The initial orders will go to MHI-Vestas and Siemens’ Europe facilities, but all markets will
require local manufacturing. We think this will create scope for a player prepared to build
production (we expect GE in the US and France). We assume the new entrant wins c50%
of these orders, which would be c20%
Figure 39: Market shares of the major wind OEMs, Figure 40: Deliveries of the major offshore wind
% OEMs, MW p.a.
70% 3,500
60%
3,000
50%
2,500
40%
2,000
30%
1,500
20%
10% 1,000
0%
500
2014A
2015A
2016A
2017A
2018E
2019E
2020E
2021E
2022E
2023E
2024E
2025E
Siemens Gamesa MHI Vestas 0

2017A 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Other (GE only from 2022)
Siemens Gamesa MHI-Vestas Other (GE only from 2022)
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
We assume that MHI- We do not believe that the market will generate enough of a profit pool for more than three
Vestas and Siemens players. We stated in our report of 2 May 2017 (Global Offshore Wind: bracing for c200%
Gamesa each take c40% annual installation growth) that the fixed costs are €200m and that unless a player can
of the market, with a reach c1.5GW p.a., it is unlikely to be profitable. We remain of this view. We think that
newcomer—e.g. GE— Siemens Gamesa, MHI-Vestas and GE can get there.
taking the rest.
Scope for cost-out
Offshore wind volumes are low. We estimate that MHI-Vestas produces c3 offshore
turbines per week, whereas Vestas produces c55 onshore per week. The low volumes
take away a lot of potential for cost savings. As the offshore increases and the companies
get to later marks of their machines, there is a lot of potential to move down the cost curve.
Research Analysts
4.6 Submarine cable manufacturers
Prysmian remains our preferred play in the offshore wind supply chain and currently
Max Yates offshore wind cables and installation accounts for 15% of Prysmian's EBITDA. Submarine
44 20 7883 8501 Interconnection cables account for another 15% of Prysmian's EBITDA. In Offshore wind
max.yates@credit- cables Prysmian is the market leader with a c40% market share.
suisse.com
In a scenario in which this market share is sustained, we estimate this portion of the
Artem Tokarenko business would add 2% to Prysmian EPS per year on average over 2019E-22E. This
44 20 7888 2676 scenario also assumes that Prysmian would maintain its backlog broadly flat at two years
artem.tokarenko@credit- of revenue at the end of that period.
suisse.com

9 May 2018
Figure 41: Submarine cable market size (€bn) – the Figure 42: Submarine cable order backlog –
step-up is likely driven by large interconnection Prysmian has the highest backlog at c2 years of
orders rather than Offshore wind orders
4000 2500 2.5
Prysmian forecasts a step-up in
Submarine market orders to
€3bn in 2018 2000 2.0
3000
1500 1.5
2000 2000
2200
1000 1000 1.0
600 800
1000
1000
500 0.5
1175 1000 1000 1000
725 750
0 0 0.0
2013 2014 2015 2016 2017 2018E Prysmian Nexans NKT
Offshore wind Interconnections Submarine order backlog Backlog: year of revenue cover (RHS)
Source: Company data, Credit Suisse estimates Source: Company data
Figure 43: Total Submarine cable (including Figure 44: 2014-16 average Interarray market shares
Interconnection, export and Interarray) market and General cable operates through NSW –
(2011-16) – Average annual market size of €2bn Interarray is estimated to be a €210m annual market
Others ABB
14% NKT 2%
5%
Parker Nexans
Peer 5 Scanrope 26%
5% 8%
Prysmian
40%
Peer 4
6% JDR
13%
ABB/NKT
14%
Prysmian NSW (General

22% Cable owned)
Nexans
21% 24%
Source: Prysmian Offshore wind presentation Source: EWEC. Based on number of cables sold
Current capacity and tracking the projects

We show the capacity of the main players in Figure 45. These capacities can fluctuate
depending on the type of cables being produced, but both Prysmian and Nexans will be
adding capacity in 2019-20.

9 May 2018
Figure 45: Submarine cable capacity – Currently Prysmian and Nexans capacity is fully utilised (with 1.5-2
year backlogs) while NKT has spare capacity at Karlskrona due to lower-than-expected 2017 orders
Submarine HV capacity
Total Production
Company/Factory Country Technology Coming online
Capacity (km/year)
Prysmian
Wrexham UK
Drammen Norway 1300 1495
Pikkala Finland
Arco Felice Italy
General Cable's factory Germany After the deal closure
NKT
Cologne Germany MI/XLPE 200-300
800-1100
Karlskrona Sweden MI/XLPE 600-800
Nexans
Halden Norway MI/XLPE
400
Tokyo Bay Japan MI
Goose Creek North America MI/XLPE End of 2019
We show a project tracker for offshore wind contracts for the cable players in Figure 46.
The average value per MW of these contracts is €0.27m. This has been coming down over
time but the profitability of the major cable players has been unchanged, suggesting
efficiency gains over time.
Figure 46: Offshore wind project tracker – on average, these tracked orders have generated €0.27m for the
cable manufacturers for every MW of wind that was installed
Cable Value per
Date Project Country Value MW Specification
provider MW
01-Aug-11 Helwin 2 Germany Prysmian €200 690 0.29 320KV HVDC extruded
15-Apr-14 Borwin 3 Germany Prysmian €250 900 0.28 320KV HVDC extruded
24-May-16 Beatrice UK Nexans €245 588 0.42 220KV Submarine
Fecamp,
21-Feb-17 Calvados & France Prysmian €300 1428 0.21 220KV HVAC cable
St Nazaire
21-Feb-17 Moray East UK NKT €150 950 0.16 220KV HVAC cable
Average 0.27

9 May 2018
Offshore wind scenario – Impact on Prysmian

In Figure 47 we show our offshore wind scenario based on CS forecasts for the offshore
wind market. The methodology is that we apply a value per MW (gradually falling) to the
CS Offshore wind forecasts (three-year moving average).
We then assume that Prysmian maintains a 40% market share of the market orders, which
translates to 11% average annual order growth in 2019E-22E.
Assuming Prysmian can maintain its EBITDA margin at 20%, we estimate this can add on
average 2% to Prysmian's EPS annually in 2019-22E.
The key variable for this model is how quickly Prysmian is prepared to add capacity. Our
assumptions below imply that Prysmian's order cover remains at approximately at 2x
revenues. However, to reach the below revenue growth trajectory, it would need to enlarge
its current capacity by 40% and expand to other regions such as the US and Taiwan. If
Prysmian chooses not to, then our market share assumptions of 40% may be too
generous and this demand may be met by another player.
On capacity, we believe converting a plant acquired with the General Cable acquisition will
add 15% to Submarine capacity but how Prysmian sets out to meet the ramp-up in future
demand from offshore wind elsewhere is at the moment unclear. Prysmian's capex
decisions relating to this market in the coming 12-18 months will be an interesting
indication of how aggressively the company intends to pursue growth in the offshore wind
market.
Figure 47: Prysmian Offshore wind scenario with order and revenue assumptions
Offshore Wind market (Global) 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Annual wind installations (MW, ex China) 3,059 3,940 3,710 5,726 5,555 6,783 5,908
3 year moving average installations (MW) 3570 4459 4997 6021 6082
Average
Cables market (cables ordered 3 years earlier) 2018E 2019E 2020E 2021E 2022E
2019E-22E
Market value per year (€bn) 1,250 1,517 1,650 1,928 1,886
Value per MW (Forecast) 0.35 0.34 0.33 0.32 0.31
Prysmian Offshore wind cable backlog 1,000 1,082 1,164 1,300 1,356
Order cover 2.0 2.1 2.0 2.0 1.9
PRY Offshore wind orders (40% mkt share) 500 607 660 771 755
yoy growth 21% 9% 17% -2% 11%

Book:Bill 1.00 1.16 1.14 1.21 1.08
PRY Offshore Wind Revenues 500 525 578 635 699
yoy growth 5% 10% 10% 10% 9%
PRY Offshore wind EBITDA (20% margin) 100 105 116 127 140
EPS Impact 0.30 0.31 0.35 0.38 0.42
Incremental EPS impact 0.01 0.03 0.03 0.04
Annual Impact on PRY group EPS 1% 2% 2% 2% 2%

9 May 2018
Research Analyst 4.7 Offshore services

Gregory Brown Greater exposure driven by structural shift
44 20 7888 1440 As the offshore oil and gas market has turned down and with investment levels waning,
gregory.brown@credit-
the likes of Subsea 7 and Saipem have pivoted towards renewables work. Subsea 7 in
suisse.com
particular has ramped up exposure through a series of acquisitions including Seaway
Heavy Lift and Siem Offshore Contractors. Saipem now looks to offer a fully bundled
engineering, procurement, construction and installation offering.
With offshore wind projects growing in size / complexity and moving further offshore, there
is a greater pull from utility companies for large-scale project management expertise and
more capable installation vessels. The Oilfield Services supply chain has looked to
leverage its EPCI capabilities and actively chase renewables opportunities, particularly in
the North Sea. With offshore activity unlikely to recover to its 2010-14 peaks, we believe
the pivot towards renewables is a structural shift and unlikely to recede, despite traditional
oil and gas markets recovering.
Offshore wind now appears to be a more prospective market, and we believe that
traditional offshore oil & gas engineering and construction (E&C) contractors can benefit
from the substantial growth we expect. While wind farm installation is traditionally low-end
offshore construction, future projects will require more advanced engineering design
capability, more capable project management expertise, and greater vessel intensity.
Offshore wind can be a good source of people and asset utilisation. This is particularly
useful while offshore oil & gas markets remain weak.
We believe large EPCI contractors can carve out a profitable niche from offshore wind
markets. We think that players such as Subsea 7 and Saipem could effectively create a
top tier for large offshore wind installation projects, leveraging off large-scale project
management expertise and differentiated assets/vessels. In addition, we would not expect
utility companies to be as aggressive on pricing and terms & conditions as oil & gas
companies – although this has the potential to change as the market matures. Projects are
lumpy, and therefore scale will be important, with exposure to multiple projects likely to
improve investor confidence in business sustainability. We would also note that EPCI
(Engineering, Procurement, Construction and Installation) is traditionally lower-margin than
Transport and Installation, particularly where the procurement scope is extensive.
The tools for the job
The majority of assets serving offshore wind in the market today are shallow-water assets
– but such assets have limitations the further offshore installations go. With the
consolidation of Seaway Heavy Lift, Subsea 7 now operates two niche vessels – the
5,000mT Oleg Strashnov (built in 2011) and the 2,500mT Stanislav Yudin (built in 1985).
Each vessel can utilise full lift capability at a 32m length – a competitive advantage over
typical renewables-focused assets with shorter lifting radius. This will become more
relevant as turbine sizes increase. The ability to work in deeper waters will also become
increasingly relevant as developments move further offshore. The assets have typically
worked in Europe and their low draughts allow them to work in shallow waters – making
them well suited to perform installation work in the offshore wind space.

9 May 2018
Figure 48: Subsea 7 – Recent Acquisitions and Alliances have increased

Integrated Solutions JV proposed
Alliance with KBR/Granherne Consolidation of SHL - renewables
Investment: Early Engagement
2015 2016 2017 2018
Global alliance with OneSubsea Acquisition: Technology Acquisition: Middle East Acquisition: Renewables
In April 2018, Subsea 7 closed the acquisition of Siem Offshore Contractors. The €140m
deal gives Subsea 7 access to the inter-array cable lay vessel Siem Aimery and the
support vessel Siem Moxie. The acquisition broadens Subsea 7’s renewables capability to
include cable installation.
■ EPCI – with the consolidation of SHL and the acquisition of the Siem Offshore
Contractors vessels, Subsea 7 offers a full EPCI package for offshore wind projects,
including the installation of inter-array cables and turbine substations.
■ T&I – as well as EPCI, Subsea 7 also offers transport and installation services for
foundation structures, cable installation, wind turbine installation and overall project
management.
■ Substation jacket installation – the Subsea 7 fleet is able to install offshore jackets
via a number of methods: vertical lift, vertical lift from a submersible barge, lift-off and
double hook upending, lift-off/lower into the water/re-rig and upending and the use of
launching jackets.
■ Substation topside installation – although rarely used in the installation of offshore

windfarms, Subsea 7 is also able to provide float-over solutions for topsides.
With 33 of the 84 jackets installed by the end of December, Subsea 7's major renewable
project, Beatrice, continues to make progress. Subsea 7 is now tendering for several other
large-scale opportunities across France, the UK, Germany and the Netherlands, in
addition to potential work in the US and Taiwan.
We also believe Saipem could become a key player in the offshore wind market – it has
the pre-requisite skills to be an EPCI solutions provider: large project management
expertise and enabling assets. Saipem is currently proposing new solutions using existing
assets, although it may need to upgrade some topside equipment to explore these
opportunities. The Saipem 7000 has the capabilities to be a competitive force in this
market – it offers 14,000mT of lift capacity (the third largest globally; only the private
players Allseas and Heerema have a larger lift capacity via Pioneering Spirit and Thialf,
respectively), but offers a beam of 45m – far in excess of other heavy lift vessels. As a
semisub it is unsuitable for near-shore work but has a significant track record of lifting
heavy facilities in deepwater.
Saipem continues to work on the Hornsea project and is bidding EDF’s Fecamp and
Courseulles offshore work. Saipem is also bidding for Engie’s Eoiliennes en Mer
development.

9 May 2018
We see Subsea 7 as the key stock exposed to underlying growth
Figure 49: Group EBIT from renewables for Subsea 7
Subsea 7 (SUBC) is our preferred way to play the growth in offshore renewables. Amongst
our European Oilfield Services coverage it has the greatest exposure to the market –
renewables contributes ~25% of our 2018-20E EBIT forecast. For the likes of SPMI and
FTI, renewables account for less than 10% of group profitability. Subsea 7 has
increasingly sought to leverage its project management capabilities while tendering for
new work and the recent acquisition of Siem Offshore Contractors broadens the group’s
renewables toolkit to include cable lay work. We think this broader capability will facilitate
market share gains in the medium term and that Subsea 7 is particularly well positioned to
support larger-scale installations including Dieppe - Le Tréport off the coast of France.
Subsea 7 is bidding on a tender to provide and install foundations for the Dieppe - Le
Tréport and Iles d’Yeu et de Noirmoutier offshore wind farms in France.
At the presentation of Subsea 7's FY2017 results, CEO Jean Cahuzac stated that the
company is participating in the tender for the EPIC scope for the foundations.
The bulk of the offshore installation activity related to the wind farm tenders is scheduled
for 2020 or later, Cahuzac said. The 496MW Dieppe - Le Tréport and the 496MW Iles
d’Yeu et de Noirmoutier offshore wind farms will each consist of Siemens Gamesa wind
turbines and an offshore substation.
The construction and installation of the two wind farms will begin in 2019 and
commissioning is expected in 2021, with the wind farms remaining in operation until 2041.
Looking back on the company’s performance in 2017, the revenue of the Renewables and
Heavy Lifting divisions was USD 959 million, compared with USD 176 million in 2016, and
related mainly to the Beatrice offshore wind farm project, while the company’s net
operating income was USD 90 million, in comparison with USD 28 million in 2016.
The results benefited from high levels of activity on Beatrice and the consolidation of
Seaway Heavy Lifting following its acquisition in March 2017, the company said.

9 May 2018
Appendix 1: Changes to our wind installation forecasts

Figure 50: Our new versus old offshore wind installation forecasts, MW
y/e 31 December 2017A 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
New estimates
UK 1,280 1,445 893 1,761 1,330 1,861 1,750 1,750 875
Germany 1,247 448 1,390 455 - 811 248 1,021 1,021
Belgium 165 309 370 512 224 100 100 100 100
Netherlands - - - 752 680 1,400 700 500 500
France 2 - - - - - 750 750 750
Denmark - - 407 328 576 - - - -
China 1,161 800 800 800 800 800 800 800 800
Other Europe (Sweden, Eire, Poland) - - - - - 210 450 488 488
US - - - 12 400 600 - 1,450 1,450
Taiwan - 8 - 820 500 1,030 1,030 1,030 1,000
New estimates 3,855 3,010 3,859 5,440 4,510 6,812 5,828 7,888 6,983
Old estimates
UK 1,745 1,648 1,314 1,000 1,000 1,000 1,000 1,000
Germany 760 760 - - 1,000 700 2,250 2,250
Belgium - 520 388 238 238 - - -
Netherlands - - 700 700 700 700 700 700
France - - - 580 580 580 580 580
Denmark - 407 350 600 300 300 300 300
China 800 800 800 800 800 800 800 800
Other Europe (Sweden, Eire, Poland) - - - - - - - -
US - - 200 400 600 600 600 600
Taiwan - 120 - 200 400 400 400 400
Old estimates 3,304 4,254 3,752 4,518 5,618 5,080 6,630 6,630
Change
UK 21% 85% -25% -25% -46% -43% -43% 14%
Germany 70% -45% -100% 0% 23% 182% 120% 120%
Belgium -100% 41% -24% 6% 138% -100% -100% -100%
Netherlands 0% 0% -7% 3% -50% 0% 40% 40%
France 0% 0% 0% 0% 0% -23% -23% -23%
Denmark 0% 0% 7% 4% 0% 0% 0% 0%
China 0% 0% 0% 0% 0% 0% 0% 0%
Other Europe (Sweden, Eire, Poland) 0% 0% 0% 0% -100% -100% -100% -100%
US 0% 0% 1567% 0% 0% 0% -59% -59%
Taiwan -100% 0% -100% -60% -61% -61% -61% -60%
Change 10% 10% -31% 0% -18% -13% -16% -5%
Difference 21% 85% -25% -25% -46% -43% -43% 14%
Source: Wind Europe, Credit Suisse estimates

9 May 2018
Appendix 2: US wind pipeline

Figure 51: US Offshore Pipeline
Lease Avg wind

Project Area, Issuedby Water Depth speed,
Project Developer State Current Status Pipeline, MW km2 BOEM Avg, mtr mtr/sec
New England Aqua Ventus I Aqua Ventus I ME Permitting/Offtake Secured 12 9 6/4/2009 86 8.75
Cape Wind Cape Wind Associates MA Developer Suspended Lease 468 119 10/6/2010 10 8.70
Vineyard Wind Avangrid Renewables MA Site Control 1,600 675 4/1/2015 47 9.30
Bay State Wind Ørsted and Eversource MA Site Control 2,000 759 4/1/2015 45 9.30
Unleased Area MA Planning/Applications Received
3,012 1,004 N/A 48 9.40
Unleased Area MA Planning/Applications Received
1,707 569 N/A 48 9.20
Block Island Wind Farm Deepwater Wind RI Operating 30 2 4/2/2010 26 9.70
Deepwater One North Deepwater Wind RI Site Control 500 395 10/1/2013 38 9.10
Deepwater One South Deepwater Wind RI Site Control 500 272 10/1/2013 38 9.20
South Fork Deepwater Wind RI Permitting/Offtake Secured 90 - 1/25/2017 34 9.20
Statoil Wind Statoil Wind NY Site Control 1,000 321 4/1/2017 30 9.30
Excelsior Wind Park PNE Wind NT Planning 400 166 N/A 30 9.20
US Wind project 1 US Wind NJ Site Control 2,226 742 3/1/2016 26 8.60
Ørsted project Ørsted NJ Site Control 1,947 649 3/1/2016 26 8.40
Atlantic City Windfarm Fisherman's Energy NJ Approved 24 2 6/5/2011 10 8.30
Skipjack Deepwater Wind DE Permitting/Offtake Secured 120 390 12/1/2012 21 8.30
US Wind project 2 US Wind MD Permitting/Offtake Secured 375 132 12/1/2014 23 8.20
US Wind project 3 US Wind MD Permitting/Offtake Secured 375 190 12/1/2014 26 8.30
North Atlantic 16,386 6,396 34 8.91
12 MW pilot Ørsted and Dominion VA Approved 12 9 11/1/2015 23 8.30

Coastal Virginia Offshore Wind Dominion VA Site Control 2,000 457 11/1/2013 26 8.50
Kitty Hawk Avangrid Renewables NC Site Control 1,485 495 3/17/2017 37 8.50
WEA Wilmington West WEA Wilmington NC Planning 1,623 541 N/A 17 8.30
WEA Wilmington East WEA Wilmington NC Planning 627 209 N/A 22 8.40
South Atlantic 5,747 1,711 25 8.40
Morro Bay Trident Winds CA Planning 765 275 N/A 729 7.81
Oahu Northwest AW Hawaii Wind HI Planning 408 46 N/A 850 8.30
Oahu South AW Hawaii Wind HI Planning 408 49 N/A 600 8.40
Progression Hawaii Progression Hawaii HI Planning 400 46 N/A 450 8.40
Pacific 1,981 416 657 8.23
Ice Breaker Fred Olsen/LeedCo OH Permitting/Offtake Secured 21 10 N/A 17.5 8.10

Great Lakes 21 10 17.5 8.10
Total 24,135 8,533
Source: NREL
The author of this report wishes to acknowledge the contribution made by Sri Krishnan Dikshidar, an employee of
CRISIL Global Research and Analytics, a business division of CRISIL Limited, a third-party provider of research
services to Credit Suisse.

9 May 2018
Companies Mentioned (Price as of 07-May-2018)

ABB (ABBN.S, SFr23.82)
Aker Solutions (AKSOL.OL, Nkr55.14)
Avangrid (AGR.N, $54.0)
CG Pwr & Indl (CGPO.NS, Rs82.2)
Centrica (CNA.L, 154.65p)
Centuria (CIP.AX, A$2.54)
China XD (601179.SS, Rmb3.9)
E.ON (EONGn.DE, €9.52)
Electricite de France (EDF.PA, €11.745)
Enbridge Inc. (ENB.TO, C$40.7, OUTPERFORM, TP C$55.0)
Engie (ENGIE.PA, €14.7)
Eversource Energy (ES.N, $58.73)
Fluor (FLR.N, $44.49)
Fortum (FORTUM.HE, €19.52)
Fred Olsen Energ (FOE.OL, Nkr10.82)
Fugro (FUGRc.AS, €13.09)
General Cable Corp (BGC.N, $29.7)
General Electric (GE.N, $14.07)
Gulf Marine (GMS.L, 39.0p)
Hyundai E&C (000720.KS, W65,900)
Iberdrola (IBE.MC, €6.57)
Innogy (IGY.DE, €36.75)
Koninklijke Bosk (BOSN.AS, €25.05)
Lamprell (LAM.L, 95.5p)
Mitsubishi Heavy Industries (7011.T, ¥4,282)
NKT (NKT.CO, Dkr183.7)
Nexans (NEXS.PA, €39.76)
Oceaneering Intl, Inc. (OII.N, $21.64)
Petrofac (PFC.L, 607.6p)
Prysmian (PRY.MI, €25.13, OUTPERFORM, TP €30.0)
SSE (SSE.L, 1395.5p)
Saipem (SPMI.MI, €3.22)
Senvi (SENG.DE, €11.12)
Shanghai Electric Group Company Limited (601727.SS, Rmb5.86)
Shanghai Electric Group Company Limited (2727.HK, HK$2.82)
Siemens (SIEGn.DE, €109.7)
Siemens Gamesa (SGREN.MC, €14.0, OUTPERFORM, TP €15.7)
Sif Holding (SIFG.AS, €18.62)
Spectra Energy Partners (SEP.N, $31.5)
Statoil (STL.OL, Nkr209.3)
Subsea 7 S.A. (SUBC.OL, Nkr115.6, OUTPERFORM, TP Nkr145.0)
TBEA Co Ltd (600089.SS, Rmb8.12)
TechnipFMC (FTI.PA, €28.08)
Vaisala (VAIAS.HE, €21.0)
Verbund (VERB.VI, €26.06)
Vestas (VWS.CO, Dkr432.0, UNDERPERFORM, TP Dkr385.0)
Ørsted (ORSTED.CO, Dkr414.0, UNDERPERFORM, TP Dkr365.0)
Disclosure Appendix
Analyst Certification
Mark Freshney, Vincent Gilles, Artem Tokarenko, Maheep Mandloi, Max Yates, Andrew M. Kuske, Michael Weinstein, ERP and Gregory Brown
each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his
or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or
indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Enbridge Inc. (ENB.TO)
ENB.TO Closing Price Target Price

Date (C$) (C$) Rating
01-Jun-15 60.48 70.00 O
04-Feb-16 47.64 54.00 N
24-Feb-16 43.16 R
07-Mar-16 50.00 54.00 N
22-Jul-16 52.81 58.00
06-Sep-16 55.30 R
27-Feb-17 56.35 NR
14-Mar-17 54.38 70.00 O
24-Oct-17 49.31 64.00
25-Apr-18 37.59 55.00 O U T PERFO RM
N EU T RA L
* Asterisk signifies initiation or assumption of coverage. REST RIC T ED
N O T RA T ED

9 May 2018
3-Year Price and Rating History for Prysmian (PRY.MI)
PRY.MI Closing Price Target Price

Date (€) (€) Rating
08-May-15 19.84 21.00 O
31-Jul-15 20.89 23.00
12-Jan-16 18.89 22.00
02-Mar-16 18.99 21.00
11-May-16 21.49 23.00
04-Jul-16 19.02 22.00
29-Jul-16 20.92 23.00
30-Mar-17 24.48 27.00
23-May-17 24.93 28.00
01-Aug-17 27.26 29.00 O U T PERFO RM
08-Nov-17 28.36 30.00

* Asterisk signifies initiation or assumption of coverage.
3-Year Price and Rating History for Siemens Gamesa (SGREN.MC)
SGREN.MC Closing Price Target Price

Date (€) (€) Rating
20-Aug-15 10.78 10.53 U
15-Oct-15 11.37 10.03
01-Feb-16 14.11 R
22-Jul-16 15.43 NR
U N D ERPERFO RM
REST RIC T ED
N O T RA T ED
3-Year Price and Rating History for Subsea 7 S.A. (SUBC.OL)
SUBC.OL Closing Price Target Price

Date (Nkr) (Nkr) Rating
14-May-15 89.50 NR
19-Sep-16 84.90 75.00 U*
11-Nov-16 94.00 80.00
03-Mar-17 123.50 100.00
16-Mar-17 130.00 110.00
05-May-17 139.50 135.00 N
18-Jul-17 119.70 125.00
04-Oct-17 130.50 145.00 O*
23-Nov-17 123.90 140.00
31-Jan-18 120.00 150.00 N O T RA T ED
U N D ERPERFO RM
12-Mar-18 117.00 145.00 N EU T RA L
* Asterisk signifies initiation or assumption of coverage. O U T PERFO RM

9 May 2018
3-Year Price and Rating History for Vestas (VWS.CO)
VWS.CO Closing Price Target Price

Date (Dkr) (Dkr) Rating
07-May-15 326.70 250.00 N
20-Aug-15 355.40 290.00 U
10-Feb-16 430.80 310.00
24-Aug-16 556.50 370.00
24-Nov-16 463.10 380.00
02-May-17 591.50 430.00
22-Nov-17 385.70 370.00
15-Mar-18 434.30 385.00
UN D ERPERFO RM
3-Year Price and Rating History for Ørsted (ORSTED.CO)
ORSTED.CO Closing Price Target Price

Date (Dkr) (Dkr) Rating
04-Oct-16 278.90 310.00 O*
22-Dec-16 265.60 315.00
19-Jan-17 260.30 310.00
22-Feb-17 255.60 315.00
08-Aug-17 309.30 325.00
06-Sep-17 327.40 335.00 N
02-Nov-17 342.50 330.00
12-Dec-17 351.70 345.00
18-Jan-18 351.10 360.00
28-Feb-18 380.90 350.00 O U T PERFO RM
N EU T RA L
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total
return relative to the analyst's coverage universe which consists of all compani es covered by the analyst within the relevant sector, with Outperforms representing the
most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin Ame rican and Asia stocks (excluding Japan
and Australia), ratings are based on a stock’s total return relative to the average total return of the relevant country or regio nal benchmark (India - S&P BSE Sensex
Index); prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absol ute total return potential to its current share price and (2) the relative
attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stoc ks, the expected total return (ETR)
calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform wh ere an ETR
less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that
puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds
between 15% and 7.5%, which was in operation from 7 July 2011.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.
Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the
company at this time.
Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment
view on the equity security of the company or related products.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or
valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

9 May 2018
Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 48% (62% banking clients)
Neutral/Hold* 38% (56% banking clients)
Underperform/Sell* 12% (51% banking clients)
Restricted 2%
*For purposes of the NYSE and FINRA ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely
correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to
definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.
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Target Price and Rating

Valuation Methodology and Risks: (12 months) for Enbridge Inc. (ENB.TO)
Method: Our C$55 target price and Outperform rating for Enbridge are based on a projected dividend yield of 5.40%--a 240 bps spread over a
3.0% Canadian 10-year bond yield. We rate Enbridge Inc. Outperform due to numerous growth avenues after the acquisition of Spectra
Energy Inc.; we expect its total return to be higher than that of the typical stock in our coverage.
Risk: Risks to our C$55 target price and Outperform rating for Enbridge are an extensive capital program that requires access to capital
markets; global and North American crude market dynamics may have a significant impact on underlying asset valuations; regulatory;
commodity prices; and interest rates. Moreover, one should never underestimate the power of the regulator in any regulated business.
Valuation Methodology and Risks: (12 months) for Prysmian (PRY.MI)
Method: Our €30 target price is derived by applying a 11.7x 2018 EV/EBITA multiple, which is a -10% discount to Electrical peers. This compares
to a historical discount of -15% but we think due to solid FCF conversion and accelerating organic growth in 2018 Prysmian's discount
should close vs history. As a result of the upside potential to our €30 target price, we rate Prysmian shares Outperform.
Risk: The key risks to our Outperform rating and target price of €30 include: 1) project delays on the installation of large contracts resulting in
lower-than-expected margins on contracts, 2) a downturn which would impact the more cyclical parts of the business (automation,
construction and distribution cables), 3) slower-than-expected extraction of synergies from the Draka business integration and 4) further
deterioration of economic activity amid geopolitical uncertainty. Upside risks include 1) a pricing recovery as volumes pick up, 2) a rerating
of the shares driven by strong cash generation and 3) value-accretive M&A deals. If we were to see project delays, volume and pricing
weakness in cyclical businesses or unattractive M&A, this could impact our TP / rating.
Valuation Methodology and Risks: (12 months) for Siemens Gamesa (SGREN.MC)
Method: We value Siemens Gamesa on a DCF/EVA method. We undertake detailed bottom-up work on volumes, pricing, fixed cost and
contribution margins. This takes us to EBIT margin. We make assumptions about tax rates to arrive at a Normalised Profit or Loss After
Tax (NOPLAT) figure. We then add in working capital movements to arrive at cash flows for the years of our forecasts. We take the year
ended September 2027E as our terminal year, and assume flat parameters from then onwards to arrive at an exit multiple. We discount
these cash flows by our estimate of the cost of capital and this gets us to a valuation for the turbine manufacturing business. We go
through a similar process for valuing the services business. We benchmark our valuation to peers on EV/Sales, EV/EBIT and P/E
multiples to arrive at our €15.7/share target price. We rate the stock Outperform, given the upside potential indicated by our target price.
9 May 2018
Risk: Upside risks to our rating and target price come from several areas: (i) sustained availability of credit that could drive new global wind
installs higher; (ii) greater commitments to climate change which could force more investment in renewables; and (iii) higher pricing of
CO2 emissions, which would favour wind against fossil fuels. It is also possible that Siemens Gamesa could be taken over at a premium.
Downside risks include: (i) credit is not available, perhaps through a liquidity crisis; (ii) alternative technologies such as storage, solar,
biomass etc. become cheaper; and (iii) Europe and Asia manage to extract shale gas.
Valuation Methodology and Risks: (12 months) for Subsea 7 S.A. (SUBC.OL)
Method: We value Subsea 7 using an equally weighted average of 2018/19E DCF and SOTP. For our DCF we assume a beta of 1.45, WACC of
9.83% and long-term growth of 1.5%. For SOTP we apply EBITDA multiples to each division based on business quality, comparable
companies, historical multiples, cycle phasing and growth expectations. For the group, this results multiples of 7.6 / 7.0x for 2018/19e. In
aggregate this derives a target price of NOK145. Our target price implies significant potential upside and therefore we have an Outperform
rating.
Risk: Downside risks to our NOK145 target price and Outperform rating include growing uncertainty and volatility in oil price and macro
sentiment, rising competitive intensity, poor project planning and execution driving project delays and weaker-than-expected profitability,
and local country risk (notably in Brazil with 'blocking').
Valuation Methodology and Risks: (12 months) for Vestas (VWS.CO)
Method: We value Vestas on a DCF/EVA method to arrive at our TP of DKK 385. We make assumptions on long-run EBIT margins and tax rates to
arrive at a Normalised Profit or Loss After Tax (NOPLAT) figure. We then add in working capital movements to arrive at cash flows for the
years of our forecasts. We then take 2022E as our terminal year and assume flat parameters from then onwards to arrive at an exit
multiple. We discount these cash flows by our estimate of the cost of capital and this gets us to a valuation. We then benchmark our
valuation to peers on EV/Sales, EV/EBITDA and P/E multiples to arrive at our target price. Our Underperform rating is based upon our
view that the business is at is peak and that orders will decline from here onwards.
Risk: Upside risks come from several areas: (i) sustained availability of credit that could drive new global wind instals higher; (ii) greater
commitments to climate change (e.g. at COP23) which could force more investment in renewables; and (iii) higher pricing of CO2
emissions, which would favour wind against fossil fuels. It is also possible that Vestas is taken over at a premium. The risk to our rating is
that Vestas continues to trade at a large premium; perhaps because of the relative safety of the backlog, or if there are expectations of
more monetary stimulus in Europe. Our TP is DKK 385. Our rating Underperform.
Valuation Methodology and Risks: (12 months) for Ørsted (ORSTED.CO)
Method: We value Orsted on a Sum-of-the-Parts basis. We look at Orsted on a division-by-division DCF (as reported in the segmental analysis) in
our SOTP, using an average 6.1% post-tax nominal discount rate. For the wind business, there are three broad revenue streams: (1)
Assets in operation; (2) Assets under construction and to be retained; and (3) Assets under construction and to be sold. We value the
distribution network (Radius) at around the value of its RAB. We value the gas and oil business on the basis of declining production. We
sense-check multiples for all the main businesses (e.g. EV/EBITDA for wind, US$/2p reserves for oil and gas). We also look at the
multiples on a group basis (EV/EBITDA, P/E and dividend yield) and compare to peers. We rate the stock Underperform given the
downside indicated by our DKK365 target price.
Risk: Risks to our DKK365 target price and Underperform rating include: (i) returns on the CfDs are too high, and despite change in law
provisions, a future government finds something to remove (e.g. as with the LEC exemption); (ii) trading arrangements for power post the
UK's referendum to leave the EU; (iii) a risk that UK infrastructure is less attractive post-Brexit; (iv) construction risks on the wind pipeline;
(v) a risk that ROC prices collapse; and (vi) political risk in Denmark because of the relatively low price for which the company issued
shares (diluting the Danish government) in early 2014; and (vii) oil-linked contracts which may cause some volatility for EBITDA.
Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations
typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
Credit Suisse currently has, or had within the past 12 months, the following as investment banking client(s): ENB.TO, SGREN.MC, SUBC.OL,
STL.OL, PFC.L, OII.N, SPMI.MI, SIEGn.DE, IBE.MC, CNA.L, EONGn.DE, FORTUM.HE, VERB.VI, ABBN.S, ENGIE.PA, AKSOL.OL, 601727.SS,
2727.HK, ES.N, SSE.L
Credit Suisse provided investment banking services to the subject company (ENB.TO, STL.OL, OII.N, IBE.MC, CNA.L, ABBN.S, SSE.L) within the
past 12 months.
Credit Suisse currently has, or had within the past 12 months, the following issuer(s) as client(s), and the services provided were non-investment-
banking, securities-related: SGREN.MC, STL.OL, SIEGn.DE, IBE.MC, CNA.L, EONGn.DE, ABBN.S
Credit Suisse has managed or co-managed a public offering of securities for the subject company (ENB.TO, OII.N, ABBN.S) within the past 12
months.
Within the past 12 months, Credit Suisse has received compensation for investment banking services from the following issuer(s): ENB.TO, STL.OL,
OII.N, IBE.MC, CNA.L, ABBN.S, SSE.L

9 May 2018
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (PRY.MI, ENB.TO,
ORSTED.CO, SGREN.MC, SUBC.OL, FLR.N, 7011.T, STL.OL, PFC.L, OII.N, SPMI.MI, FTI.PA, SIEGn.DE, 600089.SS, IBE.MC, CNA.L,
EONGn.DE, FORTUM.HE, VERB.VI, ABBN.S, ENGIE.PA, AKSOL.OL, 601727.SS, 2727.HK, ES.N, SSE.L) within the next 3 months.
Within the last 12 months, Credit Suisse has received compensation for non-investment banking services or products from the following issuer(s):
SGREN.MC, STL.OL, SIEGn.DE, IBE.MC, CNA.L, EONGn.DE, ABBN.S
Credit Suisse or a member of the Credit Suisse Group is a market maker or liquidity provider in the securities of the following subject issuer(s):
ABBN.S, AKSOL.OL, CNA.L, EONGn.DE, ENB.TO, ENGIE.PA, ES.N, FLR.N, FORTUM.HE, IBE.MC, 7011.T, NEXS.PA, OII.N, PFC.L, PRY.MI,
SSE.L, SPMI.MI, 601727.SS, 2727.HK, SIEGn.DE, SGREN.MC, STL.OL, SUBC.OL, 600089.SS, FTI.PA, VERB.VI, VWS.CO, ORSTED.CO
A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of
Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (PRY.MI, VWS.CO, ENB.TO, ORSTED.CO,
SGREN.MC, SUBC.OL, FLR.N, 7011.T, STL.OL, PFC.L, OII.N, NEXS.PA, SPMI.MI, FTI.PA, SIEGn.DE, 600089.SS, IBE.MC, CNA.L, EONGn.DE,
FORTUM.HE, VERB.VI, ABBN.S, ENGIE.PA, AKSOL.OL, 601727.SS, 2727.HK, ES.N, SSE.L) within the past 12 months.
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (PRY.MI, PFC.L, OII.N,
CNA.L, EONGn.DE, 2727.HK).
As of the end of the preceding month, Credit Suisse beneficially owned between 1% and 3% of the equity and related equity derivatives of (ABBN.S).
Credit Suisse is acting as financial advisor to Polenergia (PEP.LI) in relation to the announced Joint Venture with Statoil (STL.OL)"
Credit Suisse is acting as M&A buy-side advisor to ABB Ltd (ABBN.S) in relation to the proposed acquisition of GE’s (GE.N) Industrial Solution
segment.
Credit Suisse is acting as advisor and corporate broker to SSE Plc (SSE.L) in relation to the proposed demerger of SSE’s household energy and
services business in Great Britain and combination with innogy’s UK subsidiary nPower Group plc.
For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated
within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=353545&v=-
6km6akg5e6h27gncxsdvtwy6p .
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This research report is authored by:
Credit Suisse Securities (USA) LLC ........................................................................................................ Maheep Mandloi ; Michael Weinstein, ERP
Credit Suisse International ........................................................... Mark Freshney ; Vincent Gilles ; Artem Tokarenko ; Max Yates ; Gregory Brown
Credit Suisse Securities (Canada), Inc. ...........................................................................................................................................Andrew M. Kuske
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Credit Suisse International ........................................................... Mark Freshney ; Vincent Gilles ; Artem Tokarenko ; Max Yates ; Gregory Brown
Credit Suisse Securities (Canada), Inc. ...........................................................................................................................................Andrew M. Kuske
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referenced in this report, please refer to the disclosures section of the most recent report regarding the subject company.

9 May 2018
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9 May 2018

Global Offshore Wind

Max Yates 8,000

Specialist Sales: Jason Turner 3,000

Source: Wind Europe, Credit Suisse estimates

■ End in sight for continual cost reduction: We estimate the levelised

■ Tenders have pushed project-level post-tax nominal returns to c6.0%:

■ We raise our forecasts for global offshore wind installations by c11%

1. An end to continual cost reduction in sight 7

2. Tenders have pushed returns to c6% 12

3. Annual installations to grow by c100% 20

4. Positioning up the supply chain 25

Global Offshore Wind 2

Appendix 1: Changes to our wind installation forecasts 41

Appendix 2: US wind pipeline 42

Global Offshore Wind 3

Offshore wind in six charts

Cost of energy (€/MWh)

Source: Credit Suisse estimates Source: Credit Suisse estimates

Net Income (9% project-level IRR) Siemens Gamesa MHI Vestas

Global Offshore Wind 4

How the industry has changed over the past year

Global Offshore Wind 5

Stocks that offer exposure to our thesis

Global Offshore Wind 6

1. An end to continual cost reduction in

1.1 The LCOE of offshore wind is c5% lower versus

Size 3.0 MW 7.0 MW 9.0 MW 12.0 MW 15.0MW

Cost €3.15m/MW €4.0m/MW €3.00m/MW €2.9m/MW €2.8m/MW

Load factor 35% 47% 50% 50% 50%

Distance from shore 8 km 21 km 35 km 42 km 42 km

LCOE @ 6% WACC ex transmission (nominal) €145/MWh €72/MWh €58/MWh €46/MWh €43/MWh

Global Offshore Wind 7

■ Commissioning in 2024: to €46-49/MWh (versus €48-52/MWh one year ago). Again,

1.2 Higher energy commodity and CO2 prices have

Figure 10: Generic levelised cost of different generation technologies, with a

Global Offshore Wind 8

1.3 We do not expect the LCOE of offshore wind to

Global Offshore Wind 9

Cost of energy (€/MWh)

Source: Credit Suisse estimates Source: Credit Suisse estimates

Global Offshore Wind 10

Global Offshore Wind 11

2. Tenders have pushed returns to c6%

2.1 Returns for marginal players at c6.0% (WACC)

Gode Wind IV 108

Source: Company data, Credit Suisse research, Credit Suisse estimates

Global Offshore Wind 12

Figure 14: Major tenders across the past 18 months

Global Offshore Wind 13

* includes the cost of transmission

2.2 CO2 costs of €30/tn would make wind economic

Source: Company data, Thomson Reuters, Credit Suisse estimates

Global Offshore Wind 14

2.3 ‘Pioneer profits’ in the US and Taiwanese

Global Offshore Wind 15

■ Governments and regulators keen to avoid overpaying: We note France had

2.4 US – request for proposals picking up

■ Mandates drive near-term visibility: We tabulate 7.5GW of cumulative mandates

Global Offshore Wind 16

Figure 18: US offshore wind mandates and RFP activity

Figure 19: US offshore wind project pipeline

Global Offshore Wind 17