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

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

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

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

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

7 Conclusion Business case does not justify this investment  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

8 Questions?