Industry Analysis

The industry that The Elivesto Group will be operating in is the Wind Power market. This market is Denmark is currently growing and has many opportunities. In this industry analysis the market factors will be described.

3.3.2 Market size

Denmark has been installing wind turbines for over 30 years. The entire wind energy market generates 33 per cent of Denmark’s electricity consumption with On- and offshore wind

turbines. This level of wind power integration makes Denmark the biggest wind energy market in the world. The recent government targets aim for a 50 per cent electricity supply of total energy consumption. The country’s wind power integration is made possible by a transmissions infrastructure. This means that the grid is connected to the neighbour countries and allows for import and export of energy during peak periods.

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The Danish wind industry includes more around 30.000 employees. (Danish Wind Industry Association, 2013). Research and development operations of international companies are located in Denmark and the concentration of companies covering the entire wind power value chain is unparalleled elsewhere in the world.

(Danish Wind Industry Association, 2013)

The Danish wind industry decreased from 11.1 billion EUR in 2011 to 10.9 billion EUR in 2012.

The total exports experienced a decline from €7.2 billion in 2011 to €7 billion in 2012. And the export share of total sales in the same period remained slightly above 60 per cent. Compared to 2006 and 2007 the export share in the industry increased from 55 to more than 60 per cent.

(Danish Wind Industry Association, 2013) 3.3.3 Cost structure

In Denmark there is a current overcapacity in Wind Power and this development reflects the European power exchanges. Political support is important to penetrate the renewable energy market and health and environmental costs are never calculated into the kWh-price. If these costs would be calculated, wind power would be competitive today.

Denmark has a payment system with an environmental bonus to promote the installation of wind power. In addition to the market price, which is set by the Nordic power exchange and Nord Pool, wind power investors get an environmental premium of €0.013 per kWh.

3.3.4 Growth

Denmark’s wind turbines covered 122% of the countries demand for electricity in November this year. The director of the Nordic Folkcenter for Renewable Energy said that this is the highest registered figure so far and means that the Wind Power market is extensively growing.

The annual Danish electricity consumption by wind power is 25 per cent, which is the highest percentage in the world. Expectations are that this share will double over the next decade with the target of supplying more than half of the total energy needs in Denmark by 2050.

Below there is a graphic of the growing capacity in Wind power, onshore and offshore in Mega Watt.

(Danish Energy Agency, 2013) 3.3.5 Life cycle

The growth of an industry's sales and developments over time is shown in a life cycle. The different stages of an industry life cycle are: introduction, growth, maturity, and decline. (INC., 2012) Looking at the Wind power market in Denmark, the current stage can be described as growth. The market is still developing and growing every year with the increase of capacity and more consumers considering wind power electricity.

3.3.6 Trends

Wind power is on its way to be competitive on the liberalised market. The production cost per kWh is reduced by more than 80% in the last 20 years and this trend is expected to continue resulting in a fully competitive technology in 7 to 10 years. The Danish Parliament adopted an Energy Agreement in March 2012 on the development of the energy supply. One of its main

0 500 1 000 1 500 2 000 2 500 3 000 3 500

Wind power onshore capacity, MW Wind power offshore capacity, MW

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targets is to cover the 50 per cent of the Danish electricity consumption with wind energy. This wind energy will be generated from wind turbines placed both off- and onshore. In addition to that main target, a long-term goal is to cover the total demand by renewable energy sources by 2050.

In the figure below is shown that renewable energy is trending comparing from 20 years ago till now. This while other ways of energy consumption are decreasing or staying constant.

(Danish Energy Agency, 2012)

3.3.7 Seasonal and cyclical sensitivity

The wind power market is not seasonal sensitive since there is always wind. Awareness of the environment is an important factor and the growing consumers of wind energy shows that more people start to understand the advantages of wind power electricity. The demand for energy will continue to rise and with this the need for renewable energy will rise as well. But with this demand, political benefits will have to rise with them to attract more customers for wind energy.

Therefore, the wind power market can be considered cyclical sensitive.

3.3.8 Porter’s Five Forces Analysis Threat of substitute products and services

There are many other technologies to generate electricity that are potentially a threat for the wind energy market. Examples of these are solar energy, Biomass Energy, Geothermal Energy and Hydroelectric Energy sources. All these alternatives for renewable energy have their advantages and disadvantages.

(Danish Energy Agency, 2012)

Looking at the Renewable energy consumption by source, Biomass energy is the most used source. However, in 2011, consumption of biomass energy only decreased to 120.3 compared with 127.1 PJ in 2010, while wind power increased from 28.1 to 35.2 PJ. For electricity: 1 pet joule (PJ) equals 277.78 million kWh. This threat will be considered medium.

Threat of entry of new competitors

The threat of entry of new competitors is always existent in the wind energy market in Denmark. With growing energy demand, renewable energy demand is growing as well. This means that the market is attractive for new competitors. However, the Denmark standards to wind turbines are high and difficult to meet. New competitors will find the market attractive but hard to enter. This threat will be considered high.

Intensity of competitive rivalry

The amount of players in the small wind energy market when it comes to providing fully integrated service are few but the intensity of competitive rivalry can be cited as medium as there is enough scope available in the Danish industry. This threat will be considered medium.

Bargaining power of buyers

Nowadays the customer is the king. However, the wind energy market in still in its development stage in the life cycle. Buyers don’t have the power yet to negotiate in the terms or prices of the supplier. This threat will be considered low.

Bargaining power of suppliers

A wind turbine is made out of different components. Not all wind turbine companies are fully manufactured by the company itself. This means that the power of suppliers can be high since few components have long delivery time or limited capacity to be produced. This threat will be considered high.

3.3.9 Conclusion

The Danish wind market is growing and expected to be competitive. With more awareness and support of the government, the market will be easy and open to enter for foreign companies interested in exporting to Denmark. However, the market can be considered cyclical sensitive since the growing demand for renewable energy needs political support of the government to attract more customers, this can be a threat. One of the main trends with the target to cover 50 per cent of the Danish energy supply by 2050 is a definite opportunity for the Elivesto Group.

Opportunities Threats

The Danish wind market is open to enter for

foreign companies The market is cyclical sensitive The Danish government has a 50% target of

green energy by 2050 The current wind energy capacity is 122%

The wind market is still in the growing phase

of the life cycle There are competitive other green energy solutions

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3.4 Competitor Analysis