Consulting@RWE Case: Floating Wind in Japan

1.9k
Times solved
Intermediate
Difficulty
Rating

Problem Definition

RWE has reliably supplied people and companies with electricity for more than 120 years with activities around the world with a clear focus on growth. The company is pushing the energy transition to climate neutrality with focus on renewable energy sources like offshore or onshore wind as well as photovoltaics and is constantly scanning for attractive investment opportunities in core and new markets.

RWE wants to evaluate the attractiveness of the Japanese market and suitable investment opportunities with special interest on the new technology of floating wind (offshore). You as an RWE Management Consultant have been asked to analyse the investment opportunities of floating wind in the Japanese market and provide an initial Go or No-Go recommendation based on your analysis.

Comments

This case is divided into three parts:

  • In the first part the candidate should utilise a holistic framework to give a first assessment of the current business situation regarding the market entry decision in Japan with critical success factors (e.g. market, product/technology, competition, company). “What are important factors to consider for the decision to enter or not to enter the Japanese floating wind market?”
  • In the second part the candidate should estimate the total market potential for floating wind in 2050 in Japan, measured in gigawatt which is the common metric for market potential in the energy sector. “What is the future market potential of floating wind in Japan in 2050 in gigawatt?”
  • Currently, there are two auctions for floating wind building sites on the coast of Japan. Before analysing specific opportunities, the candidate should conduct a brief profitability calculation in the third part for one floating wind turbine over the lifespan of 20 years to ensure the general investment profitability and provide an initial Go or No-Go recommendation including the previous qualitative factors. “Is the investment in one floating wind turbine profitable at all and would you recommend RWE to enter the market based on your analysis?”

Short Solution

Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in orange indicate hints for you how to guide the interviewee through the case.

1. Current business situation

The candidate should utilise a holistic framework to give a first assessment of the current business situation regarding the market entry decision in Japan with critical success factors (e.g. market, product/technology, competition, company).

  • Use the following framework with exemplary categories and information to guide the candidate (Exhibit 1)
  • If demanded, the information provided in the framework can be shared with the candidate

  • The focus of this case is the evaluation of floating wind in Japan, other countries should not be considered

2. Assessment of the future market potential

Before continuing with a current floating wind project, the candidate should estimate the total market potential for floating wind in 2050 in Japan, measured in gigawatt which is the common metric for market potential in the energy sector.

  • The candidate should start with the area on Japans' coastline in km^2 suitable for floating wind

  • If the candidate needs further guidance, share the following newspaper headlines, otherwise provide information upon request (Exhibit 2)
  • If demanded, share the following map with information on regions applicable for floating wind (Exhibit 3)

  • It is expected that 5% of the regions suitable for floating wind will be utilised with floating wind parks until 2050
  • Due to the special characteristics of floating wind turbines, 2 turbines per km^2 can be installed
  • The candidate can calculate with an average capacity of a floating wind turbine of 8 MW

Calculation:

  • Area only available for floating wind: 20,000 + 40,000 = 60,000 km^2
  • Expected area utilised for floating wind: 3,000 km^2 (5% of available area)
  • Number of floating wind turbines on that area: 6,000 (2 per km^2)
  • Market potential in 2050 in GW: 48 = (6,000 * 8) / 1000

3. Profitability calculation with Go or No-Go recommendation

Currently, there are two auctions for floating wind building sites on the coast of Japan. Before analysing specific opportunities, the candidate should conduct a brief profitability calculation for one floating wind turbine over the lifespan of 20 years to ensure the general investment profitability and provide an initial Go or No-Go recommendation including the previous qualitative factors.

  • If demanded, share the information in blue on the profit tree with the candidate (Exhibit 4)

  • The candidate should not include capital costs and interest rates, investments are depreciated lineary over the lifecycle of a turbine
  • The service life of a wind turbine is on average 20 years (including all risks) bevor beeing dismantled and is not expected to increase over time
  • As an investment incentive, the power price from floating wind turbines is guaranteed from the Japanese government with a fixed price at 100€ per MWh
  • The power produced is measured in MWh and is the product of the turbine capacity (in MW), total hours per year and a utilisation factor in % (since wind turbines do not run 24/7)

  • The candidate can calculate with a power producing rate of 20,000 GWh per annum per wind turbine
  • In case of a Go-recommendation, you can ask for arguments against the market entry (e.g. strong competitors with large project pipeline, business network required especially on senior level in Japan, domestic business partners required)

Calculation:

  • Sales (40mn €) = MWh p.a. (~20.000) * price/MWh (100 €) * lifetime (20 years)
  • with MWh p.a. (21.024) = MW/turbine (8MW) * hours/year (8760h) * utilisation factor (30%)
  • Costs (32.4mn €) = investment costs (16mn €) + running costs over lifetime (16.4mn €)
  • with investment costs (16mn €) = investment costs/MW (2mn €) * MW/Turbine (8MW)
  • with running costs over lifetime (16.4mn €)
  • Running costs over lifetime (16.4mn €) = running costs p.a. (820k €) * lifetime (20 year)
  • with running costs p.a. (820k €) = fixed costs (20k €) + variable costs (800k €)
  • with fixed costs p.a. (20k €) = leasing costs (0.5*(10k €/km^2)) + insurance costs (15k €)
  • with variable costs p.a. (800k €) = operating & maintenance/MWh (40 €) * MWh p.a. (20.000)
  • Profit (7.6 mn €) = sales (40mn €) - costs (32.4mn €)

Exhibits

Exhibit 1

Exhibit 2

Exhibit 3

Exhibit 4

Do you have questions on this case? Ask our community!
1.9k
Times solved
Intermediate
Difficulty
Do you have questions on this case? Ask our community!

Exhibits

Exhibit 1

Exhibit 2

Exhibit 3

Exhibit 4