。EQUITIES ● INDUSTRIALS
February 2019
Executive Summary 2
Investment themes 6
Europe growth spurt post 2021 13
Take off beyond Europe 18
Supply chain expanding 25
Where do offshore oilfield
services (OFS) fit in 35
Company sections 43
Nexans (NEX FP) 44
Prysmian (PRY IM) 47
Shanghai Electric (2727 HK) 50
Siemens Gamesa (SGRE SM) 52
Sif Group (SIFG NA) 55
Iberdrola (IBE SM) 58
rsted (ORSTED DC) 62
Petrofac (PFC LN) 66
Saipem (SPM IM) 69
Wood Plc (WG/ LN) 72
Equinor (EQNR NO) 75
Royal Dutch Shell (RDS LN) 79
Subsea 7 (SUBC NO) 83
TechnipFMC (FTI US) 86
Vestas Wind (VWS DC) 89
Xinjiang Goldwind (2208 HK) 92
Disclosure appendix 97
Disclaimer 100
Contents
Yash Banthia, contributed to this report. Yash Banthia is employed by a non-US affiliate of HSBC
Securities (USA) Inc., and is not registered/qualified pursuant to FINRA regulations
EQUITIES ● INDUSTRIALS
February 2019An attractive growth sector within renewables
As super-scale offshore wind turbines become a reality, the industry
is set to witness a global expansion beyond its birthplace in the
North Sea across the Atlantic and into Asia at a global 9% CAGR
over the next decade. Key auction results in the UK and US due in H1
2019 will provide the next data points in an industry that is driving
down its cost of energy towards true competitiveness. New entrants
from the oil & gas sector are joining the investment mix and have the
potential to change long-term competitive dynamics, particularly in
the US market. In this report, we assess how suppliers in Europe and
Asia are positioned for growth and we look at the leading oil
companies investing in offshore wind. We highlight several Buy-
rated stocks active in offshore wind, including supply chain stocks
Siemens Gamesa and Sif Group.
Moving away from home
Offshore wind (OW) remains a highly attractive growth sector within renewables. It is growing
from a small base: the 23.8GW of installed OW capacity by YE 2018 accounted for a mere 4%
of the c600GW operational wind fleet globally. Yet in terms of MW, 10% of new wind
installations in 2018 were offshore and we forecast this figure will double to 20% by 2025. As
the capex outlay for OW is far higher compared to its onshore counterpart, the bulk of wind
investment in USD post 2025 will be offshore, on our estimates.
Today the leading OW markets are in Europe, the industry’s birthplace. In the UK, arguably the
most established market, over 8.2GW of OW was installed by YE 2018 and in 2018 OW already
supplied 7.6% of the nation’s electricity and we estimate this will rise above 10% by 2020. With
6.6GW of installed OW capacity by YE 2018, Germany follows the UK in second place. High
policy visibility beyond 2025 provides a new layer of growth in Europe that involves an
increasing number of countries.
Yet the real transformation is the rapid global expansion that the industry is poised for. Already
in 2018, China registered the highest volumes of new installations (1.9GW) and should close
the capacity gap on the European leaders over the next five years. The first capacity tenders in
Taiwan and US have also begun paving the way for other new markets over the next decade.
The strength of new markets is such that by 2027 we see China firmly in first place in terms of
installed capacity, overtaking current market leader UK. Over the next decade we expect more
volumes installed outside Europe than within it as the industry goes global.
Executive Summary
OW growing from a small
base to 50% of wind sector
investment post 2025e
UK and Germany are the
leading markets today;
supportive policy can drive
new European OW markets
China, Taiwan and the US
first markets outside Europe;
50% of installations outside
Europe over the next decadeEQUITIES ● INDUSTRIALS
February 2019
Super-scale turbines becoming a reality
The industry’s progression to bigger, more powerful turbines on larger foundations (minimising
installation costs per unit) as well as larger wind farms (driving economies of scale) are the key
drivers for cost of energy for OW falling firmly below EUR50/MWh.
Bid prices at OW auctions have been falling markedly since 2015 to reflect these trends.
Germany and the Netherlands have successfully held subsidy free auctions, with winning
bidders happy to sell at the wholesale power price. In the next UK auction, the level of subsidy
could fall as low as GBP2/MWh for projects completing in 2024/25, which is virtually subsidy
free. We also expect competitive pricing in the upcoming US tenders in H1 2019.
Recently held offshore wind auction pricesTop 12 OW markets by capacity in 2027e
Source: BNEFSource: Wood Mackenzie
A large and rising project pipeline gives the supply chain a clear mandate: to develop 13-15MW
turbines by 2025, a significant upscale compared to the 6-8MW turbines which constituted the
bulk of OW installations in 2018. The scale of these new goliaths cannot be underemphasised;
once erected in Rotterdam in 2019, GE’s (GE US, USD8.9, NR) prototype next-generation
turbine will be the tallest construction in the Netherlands.
Turbine producers have already begun to develop a new generation of super-sized turbines with
the first 10MW turbine launched by Vestas in September 2018 and larger 10+MW machines
under development by GE and Siemens Gamesa for market entry by 2021/22. With these new
turbines offering concrete visibility on the industry’s next leg of growth within and beyond
Europe, in our view European participants stand to benefit from the global growth opportunity.
A multi-sector deep dive into the key OW industry trends
In this multi-sector report we build on the conclusions reached in the February 2018 report
“Offshore wind: New Giant of the Sea”. We look in detail at the major markets and analyse how
the developers and suppliers are adapting to a changing growth outlook. We also take a
detailed look at the rising participation of oil & gas companies (both oil majors as asset owners
and oilfield service companies as specialist installers) and discuss what changes they will bring.
Overall we highlight four key investment themes, namely:
1. A growth industry going global
2. Super-scale turbines are becoming a reality
3. The oil companies: Are new entrants tomorrow’s kings
4. Divide and conquer: Driving a competitive supply chain
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2015201620172018
US
D/M
Wh
United KingdomDenmark
NetherlandsNetherlands
USGermany
Taiwan
010203040
South Korea
Japan
Poland
Belgium
Denmark
France
US
Taiwan
Netherlands
Germany
UK
China
Top 12 markets in 2027e by capacity (GW)
Larger turbines are a key
driver of OW cost reduction
Falling auction prices to the
EUR50/MWh level reflect
rising confidence that larger
turbines will be available
The race to 13-15MW turbines
by 2025 has begun…
…cementing a global growth
opportunity for suppliers and
developers
Multi-sector report looking at
four key themes。