Wind Energy
Energy Advancement Leadership
Conference
November 17, 2004
Outline
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Market
Cost of Wind Energy
Turbine Technology
Wind Resource
Financing
Market
Global Overview of Wind Energy
• More than 39,000 MW of
wind worldwide
• 5 year average growth of
32%
• Growth widely forecast
to continue in doubledigits into next decade
• Europe and U.S.
dominate market,
accounting for 90% of
new installations
• World’s fastest growing
energy source
Source: American Wind Energy Association
Rest of World
10%
U.S. 16%
Europe
74%
U.S. Market
• Wind power capacity increased 36% in
2003
• AWEA projects that wind will be 6% of
electricity supply by 2020
• Currently, less than 1% of U.S. electricity
is generated from wind
• Market fundamentals are strong, but
inconsistent policy support
• Less than 350 MW in 2004?
Source: American Wind Energy Association
National Wind Energy Status
California, Texas, Minnesota, Iowa and Wyoming lead the market
TOTAL INSTALLED U.S. WIND ENERGY CAPACITY: 6,373.8 MW as of Jan 12, 2004
Source: American Wind Energy Association
Near-Term Growth Opportunity
Source: Platts Analytics
Factors Affecting Industry Growth
• Federal Production Tax Credit
– PTC provides 1.8 cents per kWh
– Allowed to expire and then renewed late or retroactively
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several times
Recently extended to December 31, 2005
• Renewable Portfolio Standard
– RPS requires a certain amount of energy to come from
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renewable sources
RPS’s in 14 states, but no U.S. national standard yet
• Transmission constraints in certain states
– Remote locations of wind farm
– Intermittent not continuous
• Cost of power
Cost of Wind Energy
Rapidly Decreasing Costs
Source: American Wind Energy Association
Competitive Posture
Near-Term
Opportunity
Challenge Period
Long-Term
Competitiveness
New Coal-Fired
Generation Cost
Source: Platts Analytics
New Gas-Fired
Generation Cost
Fuel Price Hedge
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Platts “conservatively estimates that
generating electricity from renewable
sources can ultimately save consumers
more than $5/Mwh by eliminating fuel
price risk.”
Source: “Power Price Stability: What’s it Worth?”
Wind/Natural Gas Compatibility
WIND
NATURAL GAS
Low Operating Cost
High Operating Costs
High Capital Cost
Low Capital Cost
Non-Dispatchable
Dispatchable
No Fuel Supply/Cost Risk
No Emissions
Fuel Supply/Cost Risk
Smog, Greenhouse Gas Emissions
Wind and natural gas power plants are a winning
combination on the grid and in a utility’s power
portfolio because of their complementary
characteristics.
Source: American Wind Energy Association
Turbine Technology
Modern Turbines
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Power : 1-3 MW
Rotor : 55-90 meters diameter
Nacelle: 100,000-150,000 pounds
Tower : 60-80 meters
Turbine Sizes
Today’s
average wind
turbine:
Wind turbine
with 80 meter
rotor diameter
superimposed
on a Boeing
747 jumbo jet
Wind Resource
Wind
• Variable
– Site specific
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Terrain
Height
Ground cover
Atmospheric pressure
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Seasons
Diurnal
Annual
– Region Wide
• Measurable and Predictable
Uncertainty Analysis
The long term average production estimate has a significant
impact on cost. More data and geographical coverage = less risk.
Uncertainty Example
1.2%
1.0%
P75 390.4 GWh
$31.20
0.8%
P25 446.8 GWh
$24.25
P50 418.6 GWh
$27.50
0.6%
P75 362.1 GWh
$35.55
P25 475.1 GWh
$21.35
0.4%
0.2%
0.0%
200
225
250
275
300
325
350
375
400
10% Uncertainty
425
450
475
20% Uncertainty
500
525
550
575
600
625
Measurement
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Multiple approaches to resource
assessment and site characterization
Significant improvement with increasing
investor sophistication and improvement
in technology
Uncertainty can be reliably quantified if
data are available
Strong correlation of data quality/quantity
to accuracy of forecasts
Financing
Debt
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Up to 15 year amortizing term loan facility
Average debt service coverage ratios of
1.4-1.5x
Leverage both cash and PTCs
Need good wind data, credit worthy offtakers, and well developed projects
Equity
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Strategic Investors include PPM, FPL,
Shell, AEP
Institutional investors include Bank One,
Goldman Sachs, Key Bank, Union Bank
Target rates of return of 10-11%
unleveraged
Tax driven deals are usually unleveraged
and incorporate flip structures
Need good wind data, credit worthy offtakers, and well developed projects
Cost of Capital
Cost of Capital vs. Cost of Power
$35
$33
(12%,$33)
$31
(11%,$30)
Cost of Power ($/MWh)
$29
$27
(10%,$28)
(9%,$25)
$25
$23
(8%,$22)
$21
(7%,$20)
$19
(6%,$18)
$17
$15
5%
6%
7%
8%
9%
Cost of Capital
Typically 10-11% after-tax unleveraged IRR
10%
11%
12%
13%
Investment Attractions
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Stable revenue from long-term contracts
Proven technology with strong warranties
Low operating costs
No spark spread risk
Predictable wind resource
Tax incentives
Attractive risk/return
Investment Challenges
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Heavy tax component
PTC ownership requirements
PTC uncertainty
Tax market very specialized
Transmission constraints
Conclusions
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With the aid of tax incentives, wind energy
costs have fallen from 45 ¢/kWh in 1980 to
less than 3 ¢/kWh
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As technology improves, costs are
expected to continue to decline
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US wind market expected to grow from 6.2
GW to over 10 GW over the next two years
Conclusions (Cont’d.)
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Due to high gas prices, wind should enjoy
strong growth in the near term
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In the mid-term, as fossil fuel prices decline
and as premier wind sites are developed,
growth may plateau
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The long-term view is strong as wind
becomes more economically advantageous
relative to fossil fuel alternatives