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Wind Farm Development

Thursday 16th November 2006


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Introduction to Mott MacDonald Technical consultancy active in power, water,

transport, buildings, communication, education,health etc

Leading capability in power covering renewables,thermal and nuclear

Approximately 800 staff active in

powerequivalent of 90 in renewables

Mott MacDonalds renewable energy capabilityfocussed in Glasgow with wind, biomass and

marine technology skills

Currently involved in 30+ wind projects across UK,Europe and Asia


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Introduction to SgurrEnergy

Leading independent multi-disciplinary consultancyspecialising in renewables

Based in Glasgow and Beijing

Further international expansion planned

Over 40 experienced professionals

Accumulation of decades of experience

Experience in over 20 countries


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Drivers and Regulatory Structures


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Decommissioning

START OF COMMERCIALOPERATIONS

S

cheme

Dev

elopment

Procurement

O&M

Handover

Con

struction

Construction

Pre-Construction

PlanningOnshore No.

& MW

OffshoreNo. & MW

England 43 822 6 2718N. Ireland 29 599 0 0

Scotland 74 5399 0 0Wales 14 183 0 0

Total 160 7006 6 2718 150272227Total

601463Wales

0052314Scotland

00412N. Ireland

9011118England

OffshoreNo. & MW

OnshoreNo. & MW

Underconstruction

21341124114Total

60125423Wales

0056831Scotland

008911N. Ireland

153321049England

OffshoreNo. & MW

OnshoreNo. & MWOperational

UK Wind Project Development - Status


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Revenues available to a UK wind

generator

0

1020

30

40

50

60

70

8090

100

LEC

ROC

Energy

A UK wind generator will beable to earn revenue fromthree sources; sales ofenergy and ROCs and LECs

ROCs and LECs are tradablegreen certificates issued forrenewable generation ROCsderive from the RenewableObligation and LECs derivefrom the Climate ChangeLevy


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ROCs Renewable Obligation Certificates

Derive from the Renewable Energy Obligationintroduced in April 2002

Obligation on retailers to buy a certain percentageof their energy from accredited renewablesgeneration set at 3.2% in 2003, now 6.7%.

If a retailer does not comply it pays a fine buyout

penalty - now ~33/MWh - on top of its energy cost

Accredited renewables generators are issued ROCsfor energy produced - 1 ROC per 1 MWh

Retailers buy ROCs to demonstrate compliance withRO


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ROC recycle Buy-out payments are collected and are recycled to

holders of ROCs in proportion to their ROC holdings

This means that a ROC has a value greater than thebuy-out price as holders of ROCs receive a share ofbuyout monies

The recycle bonus rises as the level of shortfallincreases

If the RO target were met the ROC price would dropto zero!


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0

10

20

30

40

50

60

70

0 10 20 30 40 50

% shortfall on RO Target

ROCv

alue:/MWh

ROC values versus RO shortfall in

2006


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Drivers of ROC prices Supply and demand

Supply will depend on amount of renewable capacity built andits utilisation rule changes

Demand is set by the RO targets

Currently set to rise linearly to 10.4% in 2010

View is that target will be raised after 2010 possibly to the20% target aspired to.

Buy-out prices indexed to inflation

Banking of ROCs by suppliers/ traders may affect prices

Dominant suppliers (which are also the main owners of RE

plant) will ensure that RO target is not met to stop ROC valuesfalling to zero

Scheme is now being reviewed


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RO Review - Issues There are a number of concerns regarding the

RO

Rewards to lower cost renewable generators are toogenerous

There is considerable uncertainty regarding ROC prices,

especially after 2015

There is a cliff edge for ROC prices if full compliance ofthe RO is achieved

Rewards for high cost more innovative renewablegeneration are too small to support deployment


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RO Review Outcomes Future ROC allocation may be banded. Mature

technologies likely to issued less ROCs per MWh than

selected promising but high cost technologies (likePV).

Scheme likely to be rolled out to 2020

The recycle arrangements will be changed in order toeliminate the possibility of ROC prices collapsing tozero

EU Commission still favours that all Europe moved to

feed-in tariffs


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Climate Change Levy (CCL)

Introduced in 2002, CCL is a tax on energy consumption bylarge industrial and commercial users not paid by generators

Electricity is taxed at 4.3/MWh

Energy from certain renewable sources and from qualifyingcogeneration is exempted and is issued a Levy ExemptionCertificate (LEC).

Different set of renewables to RO LECs include mini hydro

and municipal waste, while ROC dont. ROCs include biomassco-firing, LECs dont

LECs are sold with energy to suppliers/customers who can thenoffset their CCL obligation (4.3/MWh) Can be separated foroutput sold off-site

Stand alone renewable generators can normally capture 85% ofLEC value

Unclear how long tax will continue


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Energy Review and Renewable Grid Issues One of the key issues that has delayed the

introduction of renewables and limits theachievement of the 2010 target.

ER06 states there is the need to resolve anumber of issues:

Final Sums Liability (paying up front forconnection)

Connection queues as a result ofincreased interest in renewables[Clustering, i.e. group connectionssimilar to NI, provide better networkplanning but can disadvantage somegenerators]

Renewables lower transmission use ofsystem charges?

Need to change from invest then

connect to connect and manage Regulatory framework for offshore wind

All above issues were identified aroundtime of ER03

Distribution-level issues

Distribution andTransmission-

level issues

Transmission-level issues


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Stern Review of Economics of Climate

Change Sir Nicholas Sterns review of the economics of

climate change has two key messages forrenewables

Renewables are central part of the carbon

mitigation strategy There should be a huge scale up in funding of R&D

and deployment of low carbon technologies,

including renewables


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Planning and Permitting Issues


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Overview of Legislation

Windfarm consent needs are driven by legislation

Planning permission/consent to build granted under

Section 36 of Electricity Act for over 50MW

Town and Country Planning Act for under 50MW

Environmental Impact Assessment (EIA) needed for planningapplications

The Electricity Works (Environmental Impact Assessment) Regulations 2000 Town and Country Planning (Environmental Impact Assessment)

Regulations 1999

If require consent for grid connection

Either Section 37 of Electricity Act or Town and Country Planning Act

Also need an EIA for grid connection consent


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Planning Process Initial Stage

Early consultation with key stakeholders

Initial approach to local authority

Seek initial views of key stakeholders

Scoping of EIA

Focus on key issues through consultation and discussion with keystakeholders

Time spent at scoping stage could save time later in process

Identification of likely need for baseline studies

Identify available data / data gaps early

Develop public consultation strategy

Landowner consultation

no surprises later


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Interfaces

ClientPublic

Consultees

Statutory Consultees(SEPA or EA, LPA, DTI or Scottish

Exec, English Nature orSNH, MOD, CAA etc)

Environmental Technical

Civil

Engineering

Geology

EIApreparation

Transport/Routes

LayoutOptimisation

Landscape and visualEcology

Ornithology

Hydrology & hydrogeologyNoise

CommunicationsArchaeology

Traffic & transport

Planning


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Planning Process EIA Stage

Ensure project assessed covers all potential technical options

EIA scope focussed on key issues in a robust manner e.g.

landscape and visual impact including cumulative impact

ornithology; presence of SPAs and SSSIs close to site ecology

radar interference

Input from experts capable of taking to Public Inquiry

Supporting studies commissioned in timely manner and scopeagreed with key consultees

Meeting project programme through management of largeenvironmental resource and sub-consultants

Integration with the design process

Ensure mitigation measures consistent with project design


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Planning Process Application Stage

Maintain close interface with local planningauthority (LA) / Scottish Ministers (SM) after

application Respond to queries/requests for more information

in timely manner

Close integration with project design team to tryand mitigate issues to avoid Public Inquiry

Agree planning conditions with LA and SM Translate planning conditions into contractor

requirements


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Public Consultation

On going throughout the planning stage

Manage flow of information / publicity to localpeople and organisations information voids canfill with bad news !

Understand the local and regional politicians background to phase 1 essential

Review comments from third parties of previous

EIAs and identify potential supporters and risks


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Project Evaluation


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Site Identification & Provisional Layout

Wind resource and regime

NOABL

Reanalysis

Grid connection

Access and buildability

Constraints


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Underground

Cables /

Pipelines

Technical & Environmental Constraints

Roads

Houses(noise,

Shadow-flicker)

Areas with

Historical

Importance

Wildlife Areas

OverheadLines LandownerBoundary


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Wind Regime Assessment

Undertake wind regime assessment campaign using:

Wind Monitoring Masts

SODAR

LIDAR

Monitor for 12 months or more

Monitor at multiple locations


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Measured Turbulence Intensity & Wind Shear

Ambient turbulenceintensity and

Measured and Modeled Turbulence with

Height

0

10

20

30

40

50

60

0% 10% 20% 30% 40%

Tubulence (%)

Height(m)

ModeledFit

Measured

Data

Measured and Modeled Wind Shear in Forestry

0

10

20

30

40

50

60

70

80

0 1 2 3 4 5 6 7 8

Ave rage Wind Speed (m/s)

HeightAboveGroundLevel(m)

Open MoorlandWind Shear Zo =0.4

Forested AreaWind Shear

TheoreticalForest WindShear based onZo = 0.8

wind shear must be

accounted for infatigue life calculations


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Added Turbulence

Wake induced turbulence must alsobe investigated.

Modified Sten Frandsen modelcombined with far wake modelling

Plotting predicted CTI against IEC threshold

10%

15%

20%

25%

30%

35%

0 5 10 15 20 25

Wind Speed (m/s)

CharacteristicTurbulenceIntens

ity

CTI (V90

2MW)IEC 61400

threshold

Plotting predicted CTI against IEC threshold

10%

15%

20%

25%

30%

35%

0 5 10 15 20 25

Wind Speed (m/s)

CharacteristicTurb

ulenceIntensity

CTI (Bonus

2.3)

IEC 61400

threshold


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Impact of Complex Roughness

Complex roughness, such as buildings and forestry hassignificant impact on wind turbine operation.

These features produce higher than specified turbulenceintensity & wind shear.

Effects on:

Power Curve

Operational Loads

Fatigue Life

The effects of trees are further

complicated by growth and felling


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Extreme Wind Speed

Analysis typicallyperformed only at sitemast

Two methodologies for

Extreme Wind

WAsP Engineering tomodel gust values

across the site


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Components of a Wind Turbine(Model shown is Vestas V80)

Rotor

blades

High voltage

transformer

Gearbox

Tower

Yaw gears

Electricalgenerator

Hub

controller

Ultrasonic

sensors

Hydraulic

system

Main shaft

Oil coolerNacelle


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Technology Selection

IEC Classification

Mean & Extreme Wind Speed

Turbulence Intensity Wind Shear

Compliance

Noise Emission Grid Code Compliance

Environmental Conditions

Economic Viability Production

Cost


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Energy Yield Modelling Final layout iteration

Compromise betweenmaximum production andconstraints

Predict energy yield

Rigorous quality checks

Multiple MCP techniques

Model validation and tuning

Complex forestry modelling

Quantification of

uncertainty


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Performance Testing

Power performance testing

Noise compliance Planning & environmental compliance

Grid code compliance


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Project Procurement and Financing

f


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Overview of Contracting Strategies

- Who and Why EPC Contracts

Majority of risks on Contractor

One contract to deal with

Sometimes developers with little experience or as a pre-requisite to Project Financing

Multi-Contract Lower overall costs

Increased competition; more choice of contractors

Usually developers with sufficient in house experience orgood OE support, using own funds

Prevalent for UK onshore projects


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EPC Contracts

Single Contractor

Takes most of the risks, handles the interface workload andrisks, provides price certainty

More expensive than multi-contract; risk premium added in

Not always the WTG supplier who leads

Can be for multiple sites

Owner still needs to do front-end development andgain permits

Owner may also need technical support

M l i C


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Multi-Contract

Multiple Contractors covering several scopes

Electrical, civil, WTG supply, grid connection

Lower overall cost

Owner takes interface risk and has much higher workload

Owner still needs to do front-end development andgain permits

Several contracts to negotiate instead of one

Owner likely to need more technical or projectmanagement support

S f F di


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Sources of Funding

Equity Debt

Shares

Investors

i.e. VC

Standby

Equity

Project

FinanceBonds

Mezzanine

Finance

Subordinated

Debt

Return on Investment

Payback period Initial commitment

Guarantees/Support

Definite Term

Financial Market Rates Fees

Cover Ratios

Wh P j t Fi D d h


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Why Project FinanceDepends on who

you are?PF for Sponsors

Insulation from Project Debt and

Risks!

Spread of risks for large projects

Off balance sheetCorporate borrowing restrictions

Tax advantages

Risk sharing

PF for Utilities/Govt

Access to foreign investment

Foreign skills and know how

Outside Public Sector Borrowing

Accelerates non-priority projects

P j t Fi h t!


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Project Financewhy not!

Time..

Project scale..

P j t St t


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Project Structure

Sponsors

Banks

LocalLegislation

Government

Project Company

Suppliers

Offtakers

Operator

Contractor

SupplyAgreements

OfftakeAgreements

Consents/Permits

Concession

Agreement

CreditAgreements

ShareholderAgreements

O&MAgreement

Financial Risks Market Risks

Construction & Operation Risks

Legal & Regulatory Risks

ConstructionAgreement

Implications of Gearing and Non/Limited


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Implications of Gearing and Non/Limited

Recourse NatureTurbine Technology - turbine reliability issues ranging

from minor to very major

EPC risk Wrapped EPC no longer essential for banks

but is risk pricing sufficiently clear?

Operations - Availability of third-party maintenance

providers post warranty period

Offtake Risk Firm Power Purchase Agreement (PPA)

and confidence regarding Green Certificates

Wind Risk Confidence needed in P50 or P90 value in

FM

Summary


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Summary

DriversMarket drivers in the UK are sufficiently strong to ensure

continued growth of RE projects. ROC improvements will

reinforce this

Barriers

Availability of grid connection and planning consent are the

major obstacles to the rate of deployment

Development Focus

An awareness of project financing and project risks is a

requirement from the outset all technical and environmentalissues must ultimately relate to these

Summary


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Summary

Contract Strategy

Need to adopt contract strategy based on resources and

attitude to risk

Financing

Financing options must be considered from the outset to

ensure the project is developed appropriately

Need to understand how to match project structure and risk

profile to financing options


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