Wind Project
Development 101
Presented by
Locke Liddell & Sapp LLP
Bill Swanstrom
(713) 223 – 1143
bswanstrom@lockeliddell.com
David Montgomery
(713) 226 – 1337
dmontgomery@lockeliddell.com
Elizabeth Mack
(214) 740 – 8598
eemack@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 I
Howard County
Caithness
April 1999
27.72
TXU Electric & Gas
Vestas V-47
(42)
Big Spring II
Howard County
Caithness
June 1999
6.6
TXU Electric & Gas /
York
Vestas 1.65MW (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 3MW (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 1.5MW (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 WalMart
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 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
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
Sweetwater
Phase IVb
CPS San Antonio/Babcock
& Brown and Catamount
Energy Corp.
near Sweetwater
under
construction
105.8
Sand Bluff
Airtricity
near Big spring
under
construction
90
GE Energy 1.5
MW (155)
Mitsubishi 1 MW
(135)
Siemens 2.3
MW (46)
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.