Wind

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Wind ProjectDevelopment 101

• Presented by
• Locke Liddell Sapp LLP

Bill Swanstrom (713) 223 1143 bswanstrom_at_lockeli
ddell.com Elizabeth Mack (214) 740
8598 eemack_at_lockeliddell.com
David Montgomery (713) 226 1337 dmontgomery_at_lock
eliddell.com John Arnold (713) 226
1575 jarnold_at_lockliddell.com
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Key Market Drivers

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

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Key Market Challenges

• Low Pricing in PPAs
• Permitting Delays
• Turbine Availability
• Land Acquisition
• Transmission Constraints

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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

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Texas Wind Development Highlights(cont.)

• Wind development in Texas continues to be very
  robust
• Offshore Wind -- the Next Wave?

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Texas Wind Energy Development Texas Wind Energy Development Texas Wind Energy Development Texas Wind Energy Development Texas Wind Energy Development 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)
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Texas Wind Energy Development, cont. Texas Wind Energy Development, cont. Texas Wind Energy Development, cont. Texas Wind Energy Development, cont. Texas Wind Energy Development, cont. 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)
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Texas Wind Energy Development, cont. Texas Wind Energy Development, cont. Texas Wind Energy Development, cont. Texas Wind Energy Development, cont. Texas Wind Energy Development, cont. 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)
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Proposed Wind Projects in Texas
Project Utility/Developer Location Status MW Cap On 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  
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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

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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

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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

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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

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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

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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

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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

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Wind Lease Aspects

• Options
• Wind Leases
• Easements
• Title Issues

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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

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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,
  OM 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, OM buildings, control buildings,
  wells, etc.
• As with Option, accommodations with Owner
  regarding farming, ranching, hunting and other
  surface use aspects

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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

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Title Issues

• Lender subordinations
• Oil/gas lessee surface waivers and drillsite
  agreements
• Marital joinders community property states
• Probate matters
• Adverse possession claims

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Resolving theChicken 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

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• 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

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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

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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

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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.