ScottMadden Wind Generation 2011 · for wind turbine drives and installation methods improve Vestas Wind Systems, the world's largest wind turbine manufacturer by market share, unveiled

Copyright © 2011 by ScottMadden. All rights reserved. Copyright © 2011 by ScottMadden. All rights reserved.

ScottMadden Wind Generation 2011

Trends and Business Considerations April 2011

Contact: [email protected]

Copyright © 2011 by ScottMadden. All rights reserved. 1

Wind Power Experienced a Slowdown in 2010

Global wind energy MW capacity grew 8% less in 2010 than 2009, with yearly growth mainly driven by China

The United States, China, and Germany were the top three countries in installed MW of wind energy capacity in 2009, but China moved to first place, nearly tripling the combined installations of the U.S. and Germany in 2010

Not only has China developed a significant amount of their domestic energy portfolio in wind generation, but they have steadily built strong wind component manufacturing capabilities

Stimulus funding provided a boost to wind energy supply chain manufacturing in the U.S., but China has steadily built a world class renewable supply chain that will likely challenge U.S. supply chain capabilities

U.S. wind generation installations in 2010 were approximately 50% of the MW installed in 2009

The reduced rate of wind generation growth in the U.S. was driven by the economic slowdown and uncertainty of regulatory support for wind in the United States

Fragmentation of transmission project funding and construction in the U.S. also continues to be a key recurring inhibitor of wind generation growth

A boom and bust cycle for wind generation in the U.S. has developed as short-term incentives are not conducive to sustained business investment

The uncertainty in the extension of energy grants (1603 program), along with a lack of support for a national renewable energy standard was a major contributor to the slow growth of wind in 2010. The extension of the 1603 program in December, 2010, by the U. S. Congress, is quite likely to spur wind project expansion in 2011

The DOE published a report that says there should be no major inhibitors to building out a 20% wind penetration by 2030, however, current levels of wind penetration in the U.S. indicate that there are significant challenges ahead


Current State of Wind Generation: The Rate of Global Wind Installations Declined in 2010

Source: Global Wind Energy Council (GWEC)

The rate of global wind installations declined in 2010, but the trajectory for installed capacity continues to accelerate


Current State of Wind Generation: China as Supplanted the U.S. as Global Leader in Wind Capacity

Source: Global Wind Energy Council (GWEC)


Current State of Wind Generation: Domestic Wind Installations Significantly Declined in 2010 After an uninterrupted growth spurt since 2005, 2010 wind power capacity installations in the U.S. have decreased to 2007

levels however, the total U.S. wind installations rose to 40,181 MW The reduction of wind build-out rates in 2010 was largely driven by economic slowdown and lack of long-term U.S. energy

policies, such as a Renewable Electricity Standard, which creates wind investment uncertainty surrounding wind projects The U.S. finished the year with a total of 5,116 MW of new wind capacity

Source: AWEA


Current State of Wind Generation: Texas Leads the U.S. in Wind Energy Installations

Texas is the leader in wind installations in the U.S. by a significant margin Texas wind has been driven by the ERCOT regulatory environment, and wind penetration has reached a little less than 8%

Source: AWEA


Outlook for Wind Generation: NREL Concludes That 20% Wind Penetration in U.S. is Possible

Source: DOE, NREL

The NREL 20% Technical Report explores one scenario for reaching 20% wind electricity by 2030 and contrasts it to a scenario in which no new U.S. wind power capacity is installed

The conclusions of the study are not a prediction, but an analysis based on one scenario

The study critically examines wind’s roles in energy security, economic prosperity, and environmental sustainability and was developed by more than 100 individuals from government, industry, and Non-Government Organizations (NGOs) from 2006-2008

The study concluded that 20% wind energy penetration is possible, but is not going to happen under a “business as usual” scenario

— Policy choices will have a large impact on assessing the timing and rate of achieving a 20% goal

— Key Issues in achievement of the 20% vision are the market transformation, transmission, project diversity, technology development, policy, and public acceptance

All of the above projections and estimates make broad assumptions about transmission accessibility, line losses, low capacity factors, and lack of load following capabilities and intermittency of wind. Actual changes in assumed wind generation enablers could be significantly affected (lowered) if assumptions do not materialize


Outlook for Wind Generation: Offshore Wind

* U.S. Minerals Management Service (MMS), now the Bureau of Ocean Energy Management, Regulation, and Enforcement Source: NREL, EWEA, OffshoreWind.Biz, Global Offshore Wind Farms Database

The European Wind Energy Association (EWEA) forecasts that between 1,000 and 1,500 MW of new offshore wind capacity will be fully grid connected in Europe during 2011

— Ten wind farms, which total 3,000 MW, are currently under construction and when completed, Europe’s installed offshore capacity will increase to 6,000 MW

— 19,000 MW are currently being processed — The average offshore wind farm size in 2010 was 155.3 MW, up from 72.1 MW the previous year

China plans to raise total capacity to at least 100 gigawatts by 2020, but the pressures of space, especially in densely populated eastern coastal areas, have made offshore sites increasingly attractive to developers

— Offshore wind capacity is expected to reach 5.000 MW by 2015 in China — Four offshore wind farms along the coast of eastern China’s Jiangsu province have been put out to tender and involve

a total capacity of 1,000 MW

Currently, the United States does not have offshore wind-generation capacity, despite significant potential. It is estimated that the offshore wind potential of the United States exceeds 1TW

— A number of projects have been identified in the Northeast, Northwest, Great Lakes, and Gulf of Mexico, but all remain in the approval process stage, except the recently announced Cape Wind

— A significant number of offshore wind projects have passed permitting from the USMMS,* representing 2,476 MW of capacity

Swedish company Vattenfall officially opened the 300-MW Thanet Offshore Wind Farm in southeast England in September, 2010. This project, which covers an area of 35 square kilometers, with100 Vestas V90 turbines, each 115 meters high, is the largest operating offshore wind farm in the world to date

Development of offshore wind-generation capabilities remains significantly more expensive than similar projects onshore; however, offshore wind is less variable, resulting in higher revenues due to increased electricity output

Offshore wind is accelerating in Europe and China, with the U.S in the beginning phase of offshore installations


Outlook for Wind Generation: Offshore Wind (Cont’d)

Sources: Offshore Wind Power (August 2007); U.S. Department of Energy, National Renewable Energy Laboratory

Offshore wind has higher operating effectiveness and potential than onshore wind — Larger wind turbines can be deployed over water, away from public areas. Because power output is a function of the

square of the blade radius, output will be higher — Higher sustained winds are available. Because power output is a function of the cube of wind speed, output will be

higher — More consistent wind conditions (i.e., less wind shear) over water results in longer operating life of turbines (estimated

50 years offshore vs. 25 years onshore) — More consistent wind conditions result in increased capacity factors. Factors approaching 50% have been estimated — Offshore wind development is attractive, as population centers are dense near coastlines, reducing transmission costs


Outlook for Wind Generation: Offshore Wind (Cont’d)

Source: EWEA, OffshoreWind.Biz, Global Offshore Wind Farms Database

As the development of offshore wind projects expands, so do the size of individual turbines increase and also the technology for wind turbine drives and installation methods improve

Vestas Wind Systems, the world's largest wind turbine manufacturer by market share, unveiled a new giant 7-MW offshore wind turbine that is planned for mass production in 2015

— The wind turbine, named V164 7.0 MW, has 80-meter-long blades with a rotor diameter of 164 meters

— While many of Vestas’ competitors are investing in direct drive technology, the V164 7.0 MW will retain the geared drive system which is a proven technology

— Vestas believes the initial cost of installing a direct drive system will be more expensive than turbines with a gearbox—the direct drive system has less rotating mechanical parts than the gearbox system, but also has more electrical parts and interfaces

Other offshore wind turbine manufacturers that compete with Vestas are taking a different course with development of direct drive turbines using permanent magnet generators, which eliminate gearboxes and turn at a lower speed

— GE announced it would introduce a 4 MW gearless wind turbine (a design requiring no gearbox between the turbine and generator) in 2012. GE acquired the technology in August, 2010 when it took over the ScanWind unit of Sweden’s Morphic Technologies. The technology is already being demonstrated at a test site in Hundhammerfjellet, Norway, where the first ScanWind direct drive unit has been operating for more than five years

— Siemens, which already holds about 6% of the overall offshore model market, will this year put up as many as 10 of its new direct drive 3 MW turbines onshore as well as offshore and plans to start large-scale production in 2011

— Alstom has entered the race to develop an offshore wind turbine capable of driving down the cost of energy, announcing plans to test its 6 MW direct drive permanent magnet machine at the Belwind Wind Farm


Development Drivers: U.S. Top 20 Wind Power Capacity Owners in 2010 The top 20 owners of U.S. wind project assets captured half of the 2010 capacity installations 85% of 2010 project capacity was owned by Independent Power Producers (IPPs), and 15% was owned by utilities Community wind, which has a component of local ownership, can be IPP, utility or other owners, and represents 5.6% of

capacity installed in 2010

Source: AWEA


Development Drivers: Challenges to Wind Energy Development

Transmission Cost Environment

Transmission, on a cost per kW basis, is more expensive for wind generation than fossil fuel generation (e.g., due to required transmission upgrades, lower rated vs. actual capability of turbines, lower capacity factor of wind vs. fossil)

The intermittency of wind generation could result in grid instability. A number of factors affect the productivity of wind generation including:

— presence of wind — temperature — humidity

Areas with the greatest onshore wind-energy potential tend to be far away from population centers, which would require significant investment in transmission lines

Capacity factors of wind generation are dependent on wind speed, turbine height with capacity factors ranging from 25% to 45%

Voltage stability is extremely variable for wind generation

According to EIA 2016 projections, the levelized cost of energy (LCOE) for onshore wind is comparable to conventional coal but approximately 45% higher than combined cycle gas turbine installations

Radial transmission expansion may require the construction of combustion turbines to augment the capacity on lines primarily connected to wind generation, increasing project costs

Construction costs of offshore wind generation projects are 30%-60% higher than those of onshore wind projects—EIA offshore wind LCOE estimate for 2016 is $243/MWHr

Construction cost of offshore development increases in deeper water, where more constant wind supply is found—development of direct drive wind turbines could be a driver for improved offshore wind prices

Low natural gas prices are creating competitive pressure for wind projects

Noise pollution created by wind turbines has been of public concern, both for large wind farms and small turbines used for homes or small communities. Noises associated with wind turbines include vibrations caused by the blades and mechanical noises of the gearbox within the nacelle

Impact on wildlife, particularly birds, has generated opposition to wind generation development. Although bird deaths have decreased due to turbine design enhancements, the effect on wildlife by proposed large-scale wind farms remains a concern

Habitat disruption for both wildlife and people presents a challenge for wind energy development. Aesthetics, noise, and the construction process of wind turbines have generated public opposition to development

Source: Energy Information Administration, Annual Energy Outlook 2011, DOE, NREL


Development Drivers: EIA Levelized Cost of Energy Projections

Source: Energy Information Administration, Annual Energy Outlook 2011


Development Drivers: Technology Advances

Greater demand for wind turbines has resulted in greater investment in developing turbine technology, reducing overall energy costs

— Enhanced blade design allows for greater wind energy capture, including improved abilities at lower wind conditions and better performance during periods of high humidity and temperatures. More efficient blades also reduce vibration noise

— Lighter materials used to build turbines reduce construction transportation costs — Mechanical improvements have resulted in longer lasting, quieter generators

Intermittency of renewable energy, such as wind, has sparked significant research in the areas of energy storage and distributed energy solutions

— Flywheel technology has been identified as a possible energy management solution to offset the intermittency of wind generation. Flywheel technology uses energy from the grid to accelerate a rotor at very high speeds. When needed, energy can be pulled from the rotor as it slows, maintaining the grid’s supply

— Distributed generation facilities provide a more constant electricity supply by leveraging multiple energy-creating technologies, such as wind, solar, biodiesel, fossil fuel, in conjunction with an energy management system. Wind generation is often paired with solar, as the two sources complement each other—wind is more prevalent when the sunlight is not, and vice versa

— Combinations of wind and energy storage solve peak power needs and can be interconnected to distribution lines, enabling “in-filling” of wind and energy “time-shifting” that improves transmission planning for utilities and improves wind turbine operating cost profiles

Heightened interest in wind generation has increased the study and reporting of wind patterns and forecasting — The National Renewable Energy Laboratory is working to provide seasonal, daily, and hourly data on wind activity,

allowing models to better characterize the potential benefits and impacts of wind on system operation, and to assess availability of transmission

— With better wind forecasts, utilities reduce the uncertainty of wind output and adjust the remainder of generation units accordingly

Source: DOE NREL


Development Drivers: Technology Advances (Cont’d)

Today, most modern wind turbine designs continue to be classified according to the configuration of the rotating axis of their rotor blades. Two categories dominate: horizontal-axis wind turbines (HAWTs) and vertical-axis wind turbines (VAWTs). More than 90% of wind turbines in use today are the HAWT design

Emerging HAWT designs — One of the most promising HAWT spinoffs is the Floating Wind Turbine that has several competitive models

• Siemens & Statoil Hydro: Hywind Floating Wind Turbine (North Sea in Norway) • Vestas & Energies de Portugal: WindFloat

Source: Power Magazine, April 2011, Principle Power

Driven by the desire to expand renewable energy, the development of the smart grid, and the emergence of energy storage technologies, alternative wind turbine designs of all sizes continue to make their way through pilots and demonstrations to commercialization

The Hywind Floating Wind Turbine is making history as the first large-scale wind turbine supported by an underwater floating structures such as those used in offshore rigs in the oil and gas business for many years

The turbine’s vital statistics include a height of about 65 meters or 213 feet and a rotor diameter of 82 meters

The Hywind project relies on a slender cylinder which is a patented underwater floating structure of steel and concrete with ballast tanks

The floating structure is a long steel pipe that measures approximately 117 meters long, with a bottom at one end and a flange for the turbine at the other end

After being moved to the site the pipe is filled with ballast which causes it to stand vertically in the water

The center point of gravity is below the surface of the seabed, which prevents the turbine from rocking backward and forward in rough seas

WindFloat Project



Emerging HAWT designs (Cont’d)

— The Japanese Wind Lens design is a shrouded six-bladed HAWT 112 meters in diameter, arranged in a honeycomb-like pattern

— The concept is thought capable of producing four to five times more power than conventional offshore turbines

— The shroud (or static diffuser) creates a pressure drop behind the rotor blades, causing increased flow through the propeller, even though efficiency is reduced because the airstream breaks up as it passes through the diffuser

— The FloDesign “jet engine prototype” as a diffuser augmented HAWT

— This design integrates aerospace technology known as a mixer ejector, with the prototype much smaller than earlier designs, making it easier to align blades to the direction of the wind

— U.S. Department of Energy awarded the FloDesign $8.3 million through its Advanced Research Projects Agency in October 2009

Source: Power Magazine, April 2011, SFC Committee/Kyushu University, FloDesign wind turbine corp



VAWT designs — VAWTs derive from one of two principle designs: the lift-based VAWT patented by Georges Darrieus in1931 and the

drag-based VAWT created by Finnish engineer S.J. Savonius in 1922

Large-scale VAWTs — Technip, the French firm that worked with Siemens and Statoil to launch the Hywind floating turbines in Norway,

launched the Vertiwind project to test a pre-industrial prototype. The VAWT design is said to be ideal because it eliminates turbine constraints related to foundations of fixed wind turbines, and it doesn’t have a yaw or pitch system, a gearbox, or complex blade geometry, which result in lower installation and operating costs

— The UK’s Energy Technologies Institute (ETI) also recently approved the use of VAWTs as a viable alternative to traditional offshore turbines. ETI indicated that they can flourish technically, economically, and environmentally, even when sized as large as the 10 MW VAWT Aerogenerator that is half the height of an equivalent HAWT, and its weight is concentrated at the base of the structure—this is also in the pilot stage

Small-scale VAWTs — The Idaho National Laboratory (INL) is supporting the Blackhawk Project LLC's TR-10 VAWT, a self-starting system

whose 1.5-kW-rated prototypes feature helicopter-like wings, known as airfoils, that rotate parallel to the ground — A similar design, the Nevada-based Windspire Energy's device, is being tested by the National Renewable Energy

Laboratory (NREL) — New York City-based Urban Green Energy (UGE) said it was the first VAWT firm in the U.S. to have its turbines' power

curves certified by a third party, after testing was completed on 600-W, 1-kW, and 4-kW devices in accordance with power production, noise levels, and vibration levels standards

— The Chinese have developed a magnetic levitation wind turbine called “Maglev,” which relies on full-permanent magnets (not electromagnets or ball bearings) to suspend the turbine blades above ground. The almost-floating vertical blades spin with little resistance, even in light breezes. The technology is today used to power street lights in Shenzhen and is available in ranges from 300 W to 1 kW, although developers say it can be scaled to much higher sizes

Source: Power Magazine, April 2011, Technip, Vertiwind, Wind Power. Idaho National Laboratories, NREL, UGE, Shenzhen

TIMAR Wind-Solar Energy Technology Co., Ltd


U.S. Development Drivers: Legislation and Regulatory

Tax credits

— The American Recovery and Reinvestment Act of 2009 provided two alternatives to the PTC

• First, qualifying wind projects may elect to choose a 30% investment tax credit (ITC). The ITC provides a tax credit equal to 30% of expenditures in the year a project is placed into service. To qualify for the ITC, a wind facility must be placed in service on or before December 31, 2012

• Second, qualifying wind projects may elect to choose a 30% cash grant from the U.S. Department of Treasury (also known as Section 1603 grants). The cash grant is equal to 30% of expenditures and requires wind projects to be placed in service by December 31, 2011 or to begin construction by December 31, 2011, and be placed in service by December 31, 2012. The provision originally required projects to be in service or under construction by December 31, 2010, but a one-year extension of this provision was included in the Middle Class Tax Relief Act of 2010 (enacted December 2010)

Modified Accelerated Cost Recovery System (MACRS)

— Assets may be depreciated for tax purposes using an accelerated double-declining method

— Most renewable technologies are classified by the IRS as having a five- or seven-year service life

Renewable Portfolio Standards (RPS)

— Many states have enacted timelines for development of renewable energy by requiring demand be met in part by renewable sources. RPS legislation typically includes a schedule of penalties if utilities fail to meet the standard

— RPS have been enacted in approximately 70% of the U.S. states and Washington, D.C. as of 2010 — RPS policies continue to differ greatly state to state, but no state has repealed or reduced an RPS

— RPS requirements tend to be most effective when Renewable Energy Credits (RECs) are used to prove compliance and substantial penalties are associated with non-compliance

Source: U.S. Department of Energy


U.S. Development Drivers: Other Incentives

Payment to land owners, Native Americans

— Individual land owners who lease their land to utilities for wind development typically receive 2-4% of the annual gross turbine revenue

— As many of the high-potential wind turbine sites are located in or near Native American reservations, development of wind turbines in these locations is a revenue generator for tribes

RECs (also known as green tags or tradable renewable certificates) — These tradable certificates are environmental commodities in the U.S. that represent proof that one megawatt-hour

(MWh) of electricity was generated from an eligible renewable energy resource — By purchasing an REC certificate, the owner can claim to have purchased renewable energy and may receive

associated benefits as well as demonstrate demand for renewable energy

Infrastructure support — Developing zones intended for renewable-energy generation have been identified as high potential wind areas. The

hope is that if the infrastructure is in place, the area will be more attractive to developers for siting — Western Texas has created competitive renewable energy zones (CREZ). In these regions, the state has started

expanding transmission to prime wind energy sites before wind farms are developed — Minnesota has created Community Based Energy Development (C-BED) tariffs which require utilities to offer a 20-

year power purchase agreement for renewable energy projects. This substantially reduces risk of projects by ensuring stable payments that improve project economics

— “Minnesota Flip” enables project financing by allowing a tax-equity partner (a corporation with a tax liability) to own turbines for the first eight years—fully exploiting the tax benefits. The turbines are then “flipped” to community owners (often farmers, local developers) who receive the revenues from years 8 to 20 of the project

Source: U.S. Department of Energy; NC Sustainable Energy Assn.; DSIRE database


Trends and Recent News

Apr 5, 2011 – U.S. President Barack Obama called for an ambitious target of 80% of U.S. energy from clean tech by 2035. Obama’s goal is to cut subsidies for fossil fuels and invest them in clean tech, such as wind energy

Mar 24, 2011 – The recent nuclear disaster in Japan has forced both Japan, and other countries around the world to re-consider new nuclear installations. The Fukushima crisis will surely slow the growth of nuclear, and is likely to increase demand for wind power and other renewable energy generation

Mar 10, 2011 – Tenne T, a firm that runs the Netherlands power grid, has developed new transmission poles in pylon shape that are 65 meters tall. This new design is projected to increase transmission capabilities by reducing low-frequency radiation, and will be key to linking off-shore wind with the grid. Tenne T’s poles will decrease the need to buy high tension lines and reduce the need for high cost alternatives such as underground cable burial. The lines will be tested with off-shore wind farms in the North Sea

Despite strong opposition and a 10-year wait, Cape Wind received its final federal permit in January, 2011, and has applied for a Department of Energy Loan Guarantee. The company hopes to begin construction on the $2 billion project in 2013

Dec 17, 2010 – Notice was issued by the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE), Department of Interior inviting submissions describing interest in obtaining one or more commercial leases for the construction of wind energy project(s) on the Outer Continental Shelf (OCS) offshore Massachusetts

— Follow-on statement from the Massachusetts Executive Office of Energy and Environmental Affairs says offshore area adjacent to the state could support as much as 4,000 MW of wind energy development. State Energy and Environmental Affairs Secretary Ian Bowles states "Let there be no question that Massachusetts is, and will be, the nations offshore wind leader, spurring technological innovation and technology to reduce costs and improve performance"

Sources: offshorewind.biz; New Energy Finance Limited 2008; ScienceDaily.com; Google news, the Economist


Trends and Recent News (Cont’d)

Oct 14, 2010 – Google announces $5 billion investment in an undersea power cable project linking offshore wind farms with energy grids along the northeast coast of the U.S. Google investment will help to build an undersea wind-energy transmission backbone of the Atlantic seaboard. The Atlantic Wind Connection backbone is designed to stretch 350 miles off the coast from New Jersey to Virginia, collecting power from multiple offshore wind farms and delivering it via cables to the land-based transmission system. The project will serve 1.9 million homes from Virginia to New Jersey with up to 6,000 megawatts of electric power from dozens of wind farms 16km off the mid-Atlantic coast

May 1, 2010 – Google invests $38.8 million into 169.5 megawatts worth of wind farms developed by NextEra Energy Resources in North Dakota. This constitutes the search engine giant's first direct investment in a wind power project. The cash came from Google itself, in contrast to previous investments made via its philanthropy arm, Google.org

Apr 7, 2010 – Numerous initiatives are underway in U.S. and Europe to convert existing offshore oil resources into platforms for wind energy production. Texas leverages rights for states’ unique 9 mile ocean buffer; more than 40 Europe companies – all with oil and gas experience – participate in the Arena NOW (Norwegian Offshore Wind) network. Many landed their first wind power contracts in early 2010 and completed their first installations in fields like Dogger Banks

Sources: offshorewind.biz; New Energy Finance Limited 2008; ScienceDaily.com; Google news, the Economist


ScottMadden Has Experience in Wind Generation

ScottMadden Has Significant Qualification in Wind Generation

We have performed work on behalf of the DOE, turbine manufacturers and installers, and turbine supply chain manufacturers

We have performed global and domestic wind market evaluations and projections, in addition to manufacturer market share projections

We have assisted turbine component manufacturers in attaining advanced energy manufacturing tax credits

We have performed due diligence on permanent magnet generator projects used for direct drive wind turbines

We have conducted competitive analysis on commercial turbine operating characteristics — Turbine manufacturers’ power curve comparisons — Turbine manufacturers’ Annual Energy Production or AEP (MWh) for a specific turbine capacity range and wind class

regime — Turbine manufacturers’ cost-to-sales price comparisons (the price paid by the developer) to delivered cost (total

delivered and installed cost ) — Turbine manufacturers’ Total Installed Cost (or TIC) which includes the balance of plant (BOP)

We have analyzed wind farm installation costs and project viability

We have wind farm development project cost-estimating tools

We have wind project PPA examples and PPA development tools

For more information on Wind Technology and Business Considerations, please contact us.

Jere “Jake” Jacobi Partner and Sustainability Practice Leader

ScottMadden, Inc. Ten Piedmont Center

Suite 805 Atlanta, GA 30305

Phone: 404-814-0020 Mobile: 262-337-1352

[email protected]

Contact Us

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ScottMadden Wind Generation 2011 · for wind turbine drives and installation methods improve Vestas Wind Systems, the world's largest wind turbine manufacturer by market share, unveiled

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