Wind ProjectDevelopment 101

Presented by

Locke Liddell & Sapp LLP

Bill Swanstrom

(713) 223 – 1143

bswanstrom@lockeliddell.com

Elizabeth Mack

(214) 740 – 8598

eemack@lockeliddell.com

David Montgomery

(713) 226 – 1337

dmontgomery@lockeliddell.com

John Arnold

(713) 226 – 1575

jarnold@lockliddell.com

Key Market Drivers

• Increased Focus on Clean Energy• Increased Focus on Domestic Energy• Production Tax Credit• Renewable Portfolio Standard

Key Market Challenges

• Low Pricing in PPA’s • Permitting Delays• Turbine Availability• Land Acquisition• Transmission Constraints

Texas Wind Development Highlights

• Texas is now the number one wind energy producer in the nation -- approx. 2900 MW

• Texas is widely viewed as having the most progressive Renewable Portfolio Standards in the country – Original RPS called for 2000 MW by 2009– In 2005, the RPS goal was increased to 5880 MW by

2015, and 10,880 MW by 2025

Texas Wind Development Highlights(cont.)

• Wind development in Texas continues to be very robust

• Offshore Wind -- the Next Wave?

Texas Wind Energy Development Existing Project or Area

Owner Date Online

MW Power Purchaser/User

Turbine

Wind Power Partners ('94)

FPL Energy 1994 39.8 Lower Colorado River Authority

110 KVS-33

Delaware Mountain

FPL Energy 1999 28.5 Lower Colorado River Authority

Zond 750-kW (38)

Big Spring IHoward County

Caithness April 1999 27.72 TXU Electric & Gas Vestas V-47(42)

Big Spring IIHoward County

Caithness June 1999 6.6 TXU Electric & Gas / York

Vestas 1.65-MW (4)

Southwest Mesa Wind Farm

FPL Energy May 1999 74.9 American Electric Power

NEG Micon 700-kW (107)

Hueco Mountain Wind Ranch,El Paso County

El Paso Electric Mar 2001 1.32 El Paso Electric Vestas V-47 (2)

King Mountain Wind Ranch 

FPL Energy 2001, 2003

281.2 Texas-New Mexico Power Co. / Reliant Energy / Austin Energy

Bonus 1300 (214); Vestas 3-MW (1)

Woodward Mt. I & II, Pecos County

FPL Energy Apr 2001 159.7 TXU Energy Vestas V-47 (242)

Texas Wind Energy Development, cont.Existing Project or Area

Owner Date Online

MW Power Purchaser/User

Turbine

Trent Mesa American Electric Power (AEP)

Aug 2001

150.0 TXU Energy Enron 1500 (100)

Desert Sky Wind Farm

American Electric Power (AEP)

Dec 2001

160.5 City Public Service of San Antonio

Enron 1500 (107)

Llano Estacado Wind Ranch at White Deer

Shell Wind Energy Nov 2001

80.0 Southwestern Public Service (Xcel Energy)

Mitsubishi 1000 (80)

Brazos Wind Ranch

Shell Wind Energy / Mitsui

4th Q 2003

160 TXU Energy / Green Mountain Power

Mitsubishi 1000 (160)

Sweetwater Babcock & Brown & Catamount Energy

2003, 2005

264 TXU Energy, Austin Energy, CPS Energy

GE Wind 1.5-MW (176)

Indian Mesa Vestas 2003 3 N.A. Vestas 3-MW (1)

Callahan Divide Wind Energy Center, Taylor County

FPL Energy 2005 114 Austin Energy GE Wind 1500 (76)

American Windmill Museum

American Wind Power Center

2005 .66 American Windmill Museum

Vestas 660 kW (1)

Texas Wind Energy Development, cont.Existing Project or Area

Owner Date Online

MW Power Purchaser/User

Turbine

McKinney Wal-Mart

Bergey Windpower

2005 0.05 McKinney Wal-Mart Bergey Windpower 50 kW (1)

Buffalo Gap AES Corp. 2005 120.6

Direct Energy Vestas 1.8 MW (67)

Horse Hollow Wind Energy Center

FPL Energy 2005/2006 735.5

various GE Energy 1.5 MW (291); Siemens 2.3 MW (130)

Red Canyon FPL Energy 2006 84 various GE Energy 1.5 MW (56)

JD Wind I DWS/John Deere Wind Energy

2006 10 Southwestern Public Service (Xcel Energy)

Suzlon 1.25-MW (8)

JD Wind II DWS/John Deere Wind Energy

2006 10 Southwestern Public Service (Xcel Energy)

Suzlon 1.25-MW (8)

JD Wind III DWS/John Deere Wind Energy

2006 10 Southwestern Public Service (Xcel Energy)

Suzlon 1.25-MW (8)

JD Wind V DWS/John Deere Wind Energy

2006 10 Southwestern Public Service (Xcel Energy)

Suzlon 1.25-MW (8)

Forest Creek Wind Farm

Airtricity 2006 124.2

TXU Energy Siemens 2.3-MW (54)

Proposed Wind Projects in TexasProject Utility/Developer Location Status MW

CapOn Line By / Turbines

Wildorado Xcel Energy/Tierra Energy Oldham & Potter Counties

NA 160 NA

JD Wind IV John Deere Credit/Distributed Wind Systems

panhandle under construction

79.8 Suzlon 2.1-MW (38)

JD Wind VI John Deere Credit/community wind

Sherman County under construction

10 Suzlon 1.25 MW (8)

Buffalo Gap, phase II

AES/Direct Energy near Abilene under construction

232.5 GE Energy 1.5 MW (155)

Lone Star Horizon Wind Energy   under construction

200  

Sweetwater Phase IVa

CPS San Antonio/Babcock & Brown and Catamount Energy Corp.

near Sweetwater under construction

135 Mitsubishi 1 MW (135)

Sweetwater Phase IVb

CPS San Antonio/Babcock & Brown and Catamount Energy Corp.

near Sweetwater under construction

105.8 Siemens 2.3 MW (46)

Sand Bluff Airtricity near Big spring under construction

90  

New Developments

• Turbine Financing• Merchant Wind Plants – Hedge Products• Expanding Share of Tax Equity• Private Equity Funds Seeding Development• Strategic Investors Driving Acquisition Market• Financial Structures For Municipal Project

Ownership - CREBs

Environmental Review on Wind Farms Driven by:

• Required Permits • Expectations/Requirements of Lenders and/or

Equity Investors– Including for issuance of environmental opinions

• Best Practices

Permits

• Generally, if project is on private land, and privately funded, then very few permits typically required:– No material air emissions– Generally no wastewater discharge (possible sanitary or

washwater)– Generally no hazardous waste– Stormwater– Wetlands (nationwide permits)– County road crossing/state highway access rights, etc.

• Projects on federal land may trigger full NEPA review – generally not an issue in Texas

Best Practice

• Private NEPA-style review:– Identify potentially significant issues early in process– Ensure/enhance local acceptance– Support image of wind projects as environmentally

friendly and conscientious

• Key environmental issues in wind projects, and focus of environmental review, include:– Birds/Avian Survey– Endangered and Threatened Species– Cultural/Archeological Resources

Avian Impacts

• Most significant environmental issue raised by wind farms

• Migratory Bird Treaty Act – no bird kills, strict liability

• Four season avian survey • Turbine and collection/transmission system

design• Generally no post construction monitoring – but

winds of change are blowing

Endangered/Threatened Species

• Both avian and terrestrial• Federal ESA – incidental take permits available,

but easier to redesign project• State endangered species laws (Parks and

Wildlife Code) – no incidental take

Cultural Resources

• NHPA - extensive review, but only if federal permit

• Texas Antiquities Code – no protection for cultural resources on private land– development on public land requires THC review and

approval – lengthy process

Wind Lease Aspects

• Options• Wind Leases• Easements• Title Issues

Options

• Almost every Wind Lease in Texas arises from exclusive option with term of 2 – 7 years

• Option Fee is usually calculated as $/acre• During Option Term, grants exclusive right of

ingress/egress to:– install met towers and conduct wind studies– survey land and perform title work– conduct other due diligence: geotechnical, foundation and soils

tests

• Accommodations with Owner regarding farming, ranching, hunting and other surface use aspects

Wind Leases

• Exclusive right to use as Wind Farm for a term of 30 – 80 years (incl. extensions)– Installation and operation of turbines, transmission and gathering

lines, substations, O&M buildings, roads, etc.

• Consideration varies widely – Pre-construction bonuses/delay rental and per-turbine bonuses

up to $10,000– Royalties ranging from 3% to 6%, with Minimum Rent

protections (per acre or per mW installed)– “Surface damages” for turbines, lines, roads, substations, O&M

buildings, control buildings, wells, etc.

• As with Option, accommodations with Owner regarding farming, ranching, hunting and other surface use aspects

Easements

• Also acquired by Options, either incorporated into Wind Lease or standalone

• Access Easements when surrendering leased but unused land

• Transmission Easements to get to market• Overhang Easements for turbine blades

Title Issues

• Lender subordinations• Oil/gas lessee surface waivers and drillsite

agreements• Marital joinders – community property states• Probate matters• Adverse possession claims

Resolving the“Chicken or Egg” Dilemma

• Senate Bill 7 (1999): renewable portfolio standard (“RPS”) of 2,880 MW of renewable generation by 2009.

• SB 20 (2005) RPS of 5,880 MW of renewable generation by 2015.

• Texas is not maximizing its use of available wind resources, because of the “chicken or egg” dilemma:

• For transmission utilities: difficult to know if a new transmission line should be built if there are no existing generation facilities.

• For wind farm developers: difficult to obtain financing or plan generation if there is no existing transmission infrastructure

• Stand off has prevented the development of sufficient transmission infrastructure to bring the available wind generated electricity to load centers and has led to curtailment

The Solution: Senate Bill 20 and the CREZ

• SB 20 authorized the PUC to identify CREZs to:– ensure that sufficient transmission infrastructure

is built to meet RPS– improve coordination between the transmission and

renewable generation– reducing the regulatory hurdles by establishing that

there is a need for transmission upgrades

• To implement Senate Bill 20, the PUC promulgated Commission Rule 25.174

The CREZ Rule:

• To designate a CREZ or CREZs PUC considers the following criteria: – Wind: areas with sufficient renewable energy

potential, i.e., wind resources– Transmission: the solution to move the power to load

centers – Financial Commitment: to ensure wind developers

meet their half of the chicken and egg equation

The CREZ Proceeding

• Shell WindEnergy Inc. is a participant • SWE is working with Horizon and RES

Americas, Inc. to support a CREZ in Briscoe County, Texas.

• Strong competition from FPL others with installed generation.

• Contested hearing in May• Final Order designating a CREZ or CREZs on

July 5, 2007.