BAYSIDE ENERGY ADVISORSUtility Scale Wind ProjectDevelopment: 101prepared by John ChaimanisApril 5, 2012Bayside Energy Adv...
Wind Development                                                                                                          ...
BAYSIDE ENERGY ADVISORSWind DevelopmentThe Five ElementsUtility scale wind projects are good investments for many stakehol...
BAYSIDE ENERGY ADVISORSmeteorologists to determine the probabilistic future wind performance. Depending on the size of a p...
BAYSIDE ENERGY ADVISORSFinancial Participation in a Wind ProjectThere are many reasons to participate in a wind project, a...
BAYSIDE ENERGY ADVISORSFundamental Value DriversCore Components of ValueAlthough a wind project is effected by hundred’s o...
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Wind Development 101 J Chaimanis

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A concise overview of utility scale wind project development.

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Wind Development 101 J Chaimanis

  1. 1. BAYSIDE ENERGY ADVISORSUtility Scale Wind ProjectDevelopment: 101prepared by John ChaimanisApril 5, 2012Bayside Energy Advisors 918 Belmont St Watertown, MA 02472 P: 617.899.7815 E: jchaimanis@twotenthirtythree.com or chaimanis@yahoo.com
  2. 2. Wind Development 3 The Five Elements 3 Land 3 Meteorology 3 Permitting / Environmental Analysis 4 Interconnection / Transmission 4 Power Sales 4 Financial Participation in a Wind Project 5 Fundamental Value Drivers 6 Core Components of Value 6Bayside Energy Advisors 918 Belmont St Watertown, MA 02472 P: 617.899.7815 E: jchaimanis@twotenthirtythree.com or chaimanis@yahoo.com
  3. 3. BAYSIDE ENERGY ADVISORSWind DevelopmentThe Five ElementsUtility scale wind projects are good investments for many stakeholders, produce clean renewable electricity, and help thelocal economy. Developing a project can be a complex process, although an understanding of the fundamental buildingblocks can help interested parties determine the right level of engagement. Every successful utility scale wind projectthat has ever been built posses five elements, all of which must satisfactorily be met. The order of attainment can impactoverall cost and speed of development, therefore a strategic approach is necessary in order to reduce risk and exposureto costly mistakes. The five elements are land, meteorology, permitting / environmental analysis, interconnection /transmission, and power sales.The financial, environmental, and generational benefits of wind projects are great. With the right understanding andguidance it is possible to turn the idea into reality.LandToday, it is common for utility scale wind turbine generators to stand 80m tall, and to have a swept rotor diameter of 80m- 100m, therefore appropriate site control is required for the optimal energy production and safe operation. Commonly,land is leased (rather than purchased) from one or multiple land owners by a developer in order to form the project area.Among other things the topography, zoning, chain of title, and proximity to other stakeholders must all be taken intoaccount. The objective is a contiguous project site which is reasonably build-able and insurable.MeteorologyThe wind is the fuel source, and therefore it is a key input relied upon by investors as a fundamental driver of economics.While the wind is a free fuel source, its value is directly related to the frequency, distribution, and average speed.Scientific measurement, correlation to long term reference data, and sophisticated prediction methods are used byUtility Scale Wind Project Development 3
  4. 4. BAYSIDE ENERGY ADVISORSmeteorologists to determine the probabilistic future wind performance. Depending on the size of a project, one ormultiple meteorologic towers are erected during the early stages of development to collect on site data which forms thebasis of the future analysis. In some cases technologies like LIDAR an SODAR can be employed during themeteorological campaign. The objective is to have complete data which shows a regionally competitive wind resource,that investors are willing to rely upon.Permitting / Environmental AnalysisWind energy is very compatible with farming and ranching which makes it an attractive opportunity to many. Howeverdefining the potential impact to existing wildlife and plant life are an important part of responsible development. Inaddition to being a good steward to the environment, projects must adhere to federal, state and / or local regulations.Interconnection / TransmissionElectricity from the wind project must flow over existing or new transmission lines to a point where it can be used by aload. Utility scale wind projects must apply for the right to interconnect to the power grid. The process is generally welldocumented and prescribes a number of steps which could include financial deposits and evidence of developmentprogress. The ultimate objective is to obtain a Generator Interconnection Agreement.Power SalesGenerally, developers of wind projects seek a long term power purchase agreement (PPA) with a creditworthy offtaker.However, in some circumstances, selling power at the spot price into the market or obtaining a structured offtakeagreement (i.e. - hedge / synthetic PPA) is acceptable. Selling power from wind projects can be a competitive activity,especially if there is small demand for new power, and there are other developers in close proximity. Understanding thecompetitive dynamics, and cost of power are essential steps in developing a successful wind project.Utility Scale Wind Project Development 4
  5. 5. BAYSIDE ENERGY ADVISORSFinancial Participation in a Wind ProjectThere are many reasons to participate in a wind project, and this sections focuses on the financial benefits across aspectrum of involvement. As a basic premise, the earlier an individual or entity becomes involved in the process and thelonger they stay in through operation, the greater the financial benefit. The table below outlines three possible levels ofengagement. There are multiple variations the these themes and additional value streams based on owner preference. Lease Holder Project Originator / Developer & Investor DeveloperActivities Generally passive host for Coordinates all activities up All activities noted for the project turbines. Some through commencement of Originator plus coordination additional activities could construction. Requires at of project construction, include supplying gravel / least one expert who can procurement, and financing water during construction. manage partners and (including equity, tax equity, consultants through the and debt). Operation could process. be in house or outsourced.Control Minimal High until sale TotalCosts Essentially none. Attorney Depending on the project Development expenses fees. maturity at the time of sale $1.5M - $3M between $100K - $3M. Capital Investment $150 - $190MProfit Streams 2% - 6% of revenues once Purchase price payment and All income and tax benefits. the project is operational. In recovery of expenses at sale Could structure royalty to some cases an annual fee of project. land as well. per acre during Ongoing royalty stream in development. some cases.Value for a 100MW wind $400,000 - $800,000 / year; 1) Recover all expenses Leveraged 20 year equityproject with a $40/MWh $8M - $14M over 20 years 2) $4M - $10M at project IRR of 12% - 17%. TotalPPA and 40% NCF sale (could be less if sold value of tax benefits and very early) income streams up to 3) $8M - $14M in lease $400M. royalties - if also the landowner.Utility Scale Wind Project Development 5
  6. 6. BAYSIDE ENERGY ADVISORSFundamental Value DriversCore Components of ValueAlthough a wind project is effected by hundred’s of variables and many of those have implications on overall economics,there are three core drivers of economic value inherent in a wind project.A) WindB) Power PricesC) Capital Costs Wind Power Prices Capital Costs Core components of a successful wind projectUtility Scale Wind Project Development 6

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