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Joint Venture Analysis Capturing the Japanese Offshore Wind Turbines Market

Joint Venture Analysis Capturing the Japanese Offshore Wind Turbines Market. April 28, 2010. Miranda Ford Johnathan Gritz. Jeremy Himelfarb Chris Loftus. Jason Shu. Japanese Market Environment. Japanese Energy Consumption by Type. Fossil Fuels. World Rank: Carbon Emissions. 1). China.

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Joint Venture Analysis Capturing the Japanese Offshore Wind Turbines Market

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  1. Joint Venture AnalysisCapturing the Japanese Offshore Wind Turbines Market April 28, 2010 Miranda Ford Johnathan Gritz Jeremy Himelfarb Chris Loftus Jason Shu

  2. Japanese Market Environment Japanese Energy Consumption by Type Fossil Fuels World Rank: Carbon Emissions 1) China 2) United States 3) Russia Japan 4) World Rank: Energy Consumption 1) United States 2) China 3) Russia Japan 4) Wind turbine market projected to reach $112B by 2030

  3. Investment Strategy Turbines Blade Design Capital Carbon-fiber Infrastructure Local knowledge 日本風の会社 GE / MHI Joint Venture Strategy leverages comparative advantages

  4. Financial Analysis • $187M initial capital investment • Joint venture establishment • Building procurement and modifications • Manufacturing tooling • Key assumptions • 8.1% Weighted Average Cost of Capital (WACC) • 25% gross margin • 10% market share • Investment results • $27M Net Present Value (NPV) • 12.5 year payback period • 9.6% Internal Rate of Return (IRR) Investment Cash Flow Analysis 12 Year Payback Period Returns indicate a potentially profitable investment

  5. Risk Assessment Political / Regulatory Wind Turbine Market • Stable government with ample checks and balances • Low probability of expropriation • Pro-intellectual property policies • Movement towards official inflation target • Potential variance drivers • Slow down in push towards renewable energy sources • Significant drop in fossil fuels costs • Technological advances in competing alternative energy Risk Level: Low Risk Level: Moderate Economic / Demographic Currency • Aging population more concerned with current consumption than future environmental impact • Deflationary environment • High Debt to GDP ratio • Transaction Risk • Translation Risk • Investor expectations • Strength of the Yen • Import competing Risk Level: Moderate Risk Level: High Risks threaten marginally profitable investment

  6. Is this the best use of GE’s Capital?

  7. Conclusion • Japanese wind energy market is potentially very strong • Joint venture could leverage comparative advantages • High cost of manufacturing in Japan leads to smaller than expected market share • Projected rate of return narrowly exceeds the cost of capital • A small change could result in a negative return on investment • Importing lower cost alternatives could meet Japan’s demand • GE should pursue alternate investments to reach Japanese market Business case does not justify this investment

  8. Questions?

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