optimal supply chain? 85/15 Claus Hartmann Director, Head of regulatory affairs DONG Energy Dansk offshore konference 29.

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1 The 85/15 optimal supply chain? Claus Hartmann Director, Head of regulatory affairs DONG Energy Dansk offshore konference 29. september 2011

2 DONG Energy is an integrated energy company and active throughout the value chain E&P Power Renewables Energy Markets S&D Main positions Geographic focus areas Central power plant Waste-to-Energy generation Small-scale CHP plants Gas-fired power plant Gas-fired power plant under construction Offshore wind Onshore wind Hydro power Wind farms under planning/construction Power and/or natural gas customers Gas storage capacity Power and gas sales Gas distribution Power distribution Gas storage Total revenue 2010*: EUR 7,3bn Total EBITDA 2010*: EUR 1,9bn Current market position Strong and growing equity gas position The leading thermal generator on Nord Pool and market leader in district heating in Denmark Growing renewables portfolio with market leading position in offshore wind power Leading position in power and gas infrastructure. Retail positions in Sweden and Holland Leading seller of power and natural gas in Denmark and active in several other countries * Total numbers after eliminations and unallocated items (but before adjustment for special hydrocarbon tax) Source: DONG Energy 2

3 DONG Energy's vision is to produce clean and reliable energy 15 / / 15 50/50 Green Energy

4 The offshore wind industry is growing rapidly Offshore capacity Europe in 2020 All figures in GW 1 CAGR 37 28,5% Offshore wind targets All figures in GW 13,0 10,0 EU National Targets Installed capacity, Aug ,0 5,2 1,5 0,1 0,3 1,3 0,8 United Kingdom Germany France Netherlands Denmark Source: 1 IHS Emerging Energy Research, Europe Renewable Power, Market Forecast: , April Selected EU member states. Source: European Commission 4

5 DONG Energy is present in key Northern European offshore wind markets The UK is the world's largest market for offshore wind DONG Energy has built more offshore wind parks in the UK than any other developer France is expected to be the third largest market for offshore wind DONG Energy has formed strategic partnership with EdF Denmark pioneered offshore wind and is second only to the UK in terms of installed capacity DONG Energy is the largest operator of offshore wind Germany is expected to kickstart significant growth and become the second largest market for offshore wind DONG Energy is developing two projects in Germany DONG Energy has project rights to three projects in the Netherlands 5

6 DONG Energy holds a market leading position in the industry Offshore wind in operation and under construction, ownership (MW) Under Construction Operational capacity DONG Energy is an established world leader within offshore wind DONG Energy holds the largest market share of projects in operation and under construction 0 Source: Emerging Energy Research and company webpages. 6

7 Significant portfolio of potential future offshore wind projects DONG Energy offshore wind project pipeline Offshore wind projects under construction Offshore wind projects under development* WoDS (389/195 MW)** Walney 2 (184/92 MW)** Walney 2.5 ( MW) Westermost Rough (240 MW) Anholt (400/200 MW)** DONG Energy holds an attractive pipeline with a number of offshore wind projects Approx. 2,200 MW currently under construction (of which DONG Energy's share is approx 1,200 MW) Burbo 2.5 ( MW) Borkum Riffgrund 2 (302 MW) Lincs (270/68 MW)** London Array 2 (370/185 MW)** London Array 1 (630/315 MW)** Borkum Riffgrund 1 (320 MW) Dutch portfolio (approx. 1,000/500 MW)** *) The projects under development are at different development stages. No final investment decisions with respect to the projects under development have been made. **) Figures represent gross/dong Energy's share of the capacity 7

8 Reducing Cost of Energy remains the largest challenge of the offshore wind industry Levelised Cost of Energy, EUR/MWh 160 Offshore wind 140 Capacity increases 2 times by Capacity increases 3.5 times by 2020 Offshore could become competive with gasfired capacity CCGT Annual fossil price increases CO 2 9%, natural gas 0.7% CO 2 5%, natural gas 0.7%

9 DONG Energy has the vision to industrialize offshore wind Main focus 2014/15- Third industrialization wave First industrialization wave Decision to construct Walney I & II (UK) and London Array (UK) Agreement on delivery of wind turbines signed with Siemens Wind Power Installation capacity and competences strengthened through acquisition of A2SEA /15 Second industrialization wave Focus on industrialized approach on development, planning and execution of UK and German projects Accelerated installation Technology improvements on current technology concept Large scale sourcing O&M Fully industrialized approach to be introduced for Round 2.5 (UK) Development and commercialization of next generation fully industrialized concepts Larger turbines Deep water foundation applicable to varying site conditions Revised electrical systems Accelerated installation concepts O&M

10 A fragmented supply chain characterizes the industry The supply chain is maturing but is still dominated by niche players WTG's account for the largest part of CAPEX while installation competencies and equipment are crucial elements in offshore installation Foundations supply WTG supply Installation vessels Installation services Transformer stations Cable supply Cable installation Leading players VSMC Other suppliers 10

11 Industrialisation to improve project economics and reduce risk DONG Energy's focus areas Projects under construction Projects in pipeline ~ Project planning, execution, installation and logistics A B C Stand-alone project planning Cross-portfolio planning of projects Sourcing Individual sourcing agreements Cross-portfolio sourcing Technology Standard solution Optimization of technology O&M, production, planning and sales Limited experience Optimized business model and set-up 11

12 Joining forces to reduce Cost of Energy for Offshore wind R & D Universities, research centre Industry WTG & subparts manufacturers, utilities Government local municipalities & national governments 1 Wind turbines Develop larger turbines specifically designed for offshore environment Improved reliability Close cooperation in testing Securing economies of scale Increased competition Identify test sites onshore & near coastal areas Subsidy to "serie 0" type 2 Foundations Stackable, replicable and standardised substructures New cost competitive foundations (jacket, tripod, suction bucket Develop company specific and pipeline adjustable substructure Provide R&D funding 3 4 Electrical infrastructure Higher voltage levels for internal electrical system Offshore wind farms as part of interconnectors between power systems Competitive solutions developed by industry players (transfomers, switchgear, cables ) Focus on interconnector development and cooperation with neighbouring countries Installation Optimised cable installation on seabed Modularisation and standardisation of substations and cable connections Accelerated installation concepts reducing vessel days and capital Secure port & larger vessel facilities Financial support to develop port facilities 5 Operation & Maintenance Developing tools for predictive maintenance Database and analysis of failure data for valuation of tools Access and transfer solutions for far from shore and rough climate Proactive condition monitoring systems Support construction of port facilities 12

13 To improve competitiveness of offshore wind, DONG Energy focuses on largest cost drivers Rationale: Framework agreements with Siemens Wind Power Bladt Industries Nexans Standardisation of conditions Optimisation potential Acquisition of A2SEA Minority interest in CT Offshore, specialized in cable installation Access to superior logistical skills Industrialised approach to sourcing, installation concepts and technical improvements Efficient planning Scale synergies Optimisation potential 13

14 Clear trend towards partnerships in offshore wind projects DONG Energy offshore wind projects in partnerships There is a clear tendency towards partnerships in wind projects WoDS 389 MW Horns Rev 160 MW Anholt 400 MW Increased complexity of offshore sites as well as increase in project size is expected to drive partner trend even further Walney 368 MW Barrow 90 MW Lincs 270 MW Middelgrunden 40 MW private partnership Nysted 166 MW Financial investors and suppliers have started to enter the scene DONG Energy is an attractive partner due to leading market position, project development experience as well as supply chain positioning London Array 1000 MW Gunfleet Sands 172 MW DONG Energy has experience with different types of partnerships 14

15 There are prospects for maintaining a large share of the offshore wind industry in Denmark Denmark has leading positions across the wind sector Selected companies Denmark has historically played a leading role in developing wind power A large wind industry has been built and unique competencies and know-how have been developed Although turbine manufacturing in future may be produced in closer proximity to the projects, Denmark is well positioned to maintain its leading position from e.g. Denmark hosts a wide range of companies engaged in the wind industry Activities are spread throughout the value chain More than 25,000 people are currently employed in the industry Research & development Services Installation WTG parts Cables and foundations Source: Danish Wind Industry Association 15

16 but what will be required? 1. New technology aspects to reduce cost of energy 2. Industrialisation of processes 3. Commercial aspects e.g. partnerships with institutional investors 16

17 Thank you for your attention Horns Rev 1 offshore wind farm, Denmark 17