Wind Project Development 101 Presented by Locke Liddell &
Sapp LLP Bill Swanstrom (713) 223 1143 [email protected]
Elizabeth Mack (214) 740 8598 [email protected] David
Montgomery (713) 226 1337 [email protected] John Arnold
(713) 226 1575 [email protected] Slide 2 Key Market Drivers
Increased Focus on Clean Energy Increased Focus on Domestic Energy
Production Tax Credit Renewable Portfolio Standard Slide 3 Slide 4
Slide 5 Key Market Challenges Low Pricing in PPAs Permitting Delays
Turbine Availability Land Acquisition Transmission Constraints
Slide 6 Slide 7 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 Slide 8 Texas Wind Development Highlights (cont.)
Wind development in Texas continues to be very robust Offshore Wind
-- the Next Wave? Slide 9 Texas Wind Energy Development Existing
Project or Area OwnerDate Online MWPower Purchaser/ User Turbine
Wind Power Partners ('94) FPL Energy199439.8Lower Colorado River
Authority 110 KVS-33 Delaware Mountain FPL Energy199928.5Lower
Colorado River Authority Zond 750-kW (38) Big Spring I Howard
County CaithnessApril 199927.72TXU Electric & GasVestas V-47
(42) Big Spring II Howard County CaithnessJune 19996.6TXU Electric
& Gas / York Vestas 1.65- MW (4) Southwest Mesa Wind Farm FPL
EnergyMay 199974.9American Electric Power NEG Micon 700-kW (107)
Hueco Mountain Wind Ranch, El Paso County El Paso ElectricMar
20011.32El Paso ElectricVestas V-47 (2) King Mountain Wind Ranch
FPL Energy2001, 2003 281.2Texas-New Mexico Power Co. / Reliant
Energy / Austin Energy Bonus 1300 (214); Vestas 3- MW (1) Woodward
Mt. I & II, Pecos County FPL EnergyApr 2001159.7TXU
EnergyVestas V-47 (242) Slide 10 Texas Wind Energy Development,
cont. Existing Project or Area OwnerDate Online MWPower Purchaser/
User Turbine Trent MesaAmerican Electric Power (AEP) Aug 2001
150.0TXU EnergyEnron 1500 (100) Desert Sky Wind Farm American
Electric Power (AEP) Dec 2001 160.5City Public Service of San
Antonio Enron 1500 (107) Llano Estacado Wind Ranch at White Deer
Shell Wind EnergyNov 2001 80.0Southwestern Public Service (Xcel
Energy) Mitsubishi 1000 (80) Brazos Wind Ranch Shell Wind Energy /
Mitsui 4th Q 2003 160TXU Energy / Green Mountain Power Mitsubishi
1000 (160) SweetwaterBabcock & Brown & Catamount Energy
2003, 2005 264TXU Energy, Austin Energy, CPS Energy GE Wind 1.5- MW
(176) Indian MesaVestas20033N.A.Vestas 3-MW (1) Callahan Divide
Wind Energy Center, Taylor County FPL Energy2005114Austin EnergyGE
Wind 1500 (76) American Windmill Museum American Wind Power Center
2005.66American Windmill Museum Vestas 660 kW (1) Slide 11 Texas
Wind Energy Development, cont. Existing Project or Area OwnerDate
Online MWPower Purchaser/ User Turbine McKinney Wal- Mart Bergey
Windpower 20050.05McKinney Wal-MartBergey Windpower 50 kW (1)
Buffalo GapAES Corp.2005120. 6 Direct EnergyVestas 1.8 MW (67)
Horse Hollow Wind Energy Center FPL Energy2005/2006735. 5 variousGE
Energy 1.5 MW (291); Siemens 2.3 MW (130) Red CanyonFPL
Energy200684variousGE Energy 1.5 MW (56) JD Wind IDWS/John Deere
Wind Energy 200610Southwestern Public Service (Xcel Energy) Suzlon
1.25-MW (8) JD Wind IIDWS/John Deere Wind Energy 200610Southwestern
Public Service (Xcel Energy) Suzlon 1.25-MW (8) JD Wind IIIDWS/John
Deere Wind Energy 200610Southwestern Public Service (Xcel Energy)
Suzlon 1.25-MW (8) JD Wind VDWS/John Deere Wind Energy
200610Southwestern Public Service (Xcel Energy) Suzlon 1.25-MW (8)
Forest Creek Wind Farm Airtricity2006124. 2 TXU EnergySiemens
2.3-MW (54) Slide 12 Proposed Wind Projects in Texas
ProjectUtility/DeveloperLocationStatusMW Cap On Line By / Turbines
WildoradoXcel Energy/Tierra EnergyOldham & Potter Counties
NA160NA JD Wind IVJohn Deere Credit/Distributed Wind Systems
panhandleunder construction 79.8Suzlon 2.1-MW (38) JD Wind VIJohn
Deere Credit/community wind Sherman Countyunder construction
10Suzlon 1.25 MW (8) Buffalo Gap, phase II AES/Direct Energynear
Abileneunder construction 232.5GE Energy 1.5 MW (155) Lone
StarHorizon Wind Energy under construction 200 Sweetwater Phase IVa
CPS San Antonio/Babcock & Brown and Catamount Energy Corp. near
Sweetwaterunder construction 135Mitsubishi 1 MW (135) Sweetwater
Phase IVb CPS San Antonio/Babcock & Brown and Catamount Energy
Corp. near Sweetwaterunder construction 105.8Siemens 2.3 MW (46)
Sand BluffAirtricitynear Big springunder construction 90 Slide 13
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 Slide
14 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
Slide 15 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 Slide 16 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 Slide 17 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
Slide 18 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 Slide 19 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 Slide
20 Wind Lease Aspects Options Wind Leases Easements Title Issues
Slide 21 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
Slide 22 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 Slide 23 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 Slide 24 Title Issues Lender subordinations Oil/gas
lessee surface waivers and drillsite agreements Marital joinders
community property states Probate matters Adverse possession claims
Slide 25 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: Slide 26 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
Slide 27 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 Slide 28 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 Slide 29 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.