us wind power: where is the money? where is the risk?
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US Wind Power: Where is the Money? Where is the Risk?. September 17th, 2007 – Houston. Disclaimer. The views presented herein are my own. They do not necessarily reflect the views of EDP, S.A., Horizon Wind Energy LLC, or any of their affiliates. Who We Are. - PowerPoint PPT PresentationTRANSCRIPT
Strictly Private and Confidential
US Wind Power: Where is the Money? Where is the Risk?
September 17th, 2007 – Houston
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Disclaimer
The views presented herein are my own. They do not necessarily reflect the views of EDP, S.A., Horizon Wind Energy LLC, or any of their affiliates.
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Who We Are
Horizon Wind Energy, formerly Zilkha Renewable Energy
Develop, construct, own and operate wind farms throughout the U.S.
Headquarters in Houston with regional offices in New York, Oregon, Illinois and California, and roughly 100 employees
Owned by EDP, purchased from Goldman Sachs in July 2007
Will own ~1350 MW by the end of 2007
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What We’ve Done
Mill Run Wind Farm15 MW, Fayette
County, PA
Tierras Morenas24 MW, Costa Rica
Somerset Wind Power Project9 MW Somerset County, PA
Meyersdale Wind Power Project30 MW, Casselman River Valley, PA
Blue Canyon Wind Farm225 MW near Lawton, OK
Top of Iowa Wind Farm80 MW Worth County,
Iowa
Madison Windpower12 MW, Madison County,
NY
Maple Ridge Wind Farm320 MW, Lewis County,
NY
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Wind Timeline in the Capital Markets
2000 2002 2003 Jun 2005 July 2007 Oct 2007
Zilkhas buy and rename International
Wind
GE buys Enron Wind for $328 mm
Goldman Sachs buys Zilkha Renewable
Energy; renames it “Horizon Wind”
EDP buys Horizon for
$2,150+ mm USD
Iberenova set to go public;
raise expected to be ~$4,000 mm USD
Slow AcceptanceWall Street Enters
Consolidation of Developers
13118642US Installed
GW
2000 2002 2003 2004 2006 2007
Wind Goes Public
Senior FPL portfolio bond
deals rated BBB-
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Not so quixotic anymore…
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Wind and the PTC
The Section 45 production tax credit allows owners of wind projects $20/MWh off their taxes for 10 years
Wind farm assets are also largely depreciated over 5 years for tax
Market share leader FPL made a business using the PTCs themselves
Now FPL is almost out of tax capacity, and foreign utilities and financial institutions are rivaling FPL in their annual construction programs
How does the market take advantage of the PTC?
What is its long-term future?
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Institutional Equity Market
JP Morgan Chase was the first in the market, investing alongside developers to help them use the PTC and accelerated depreciation
GE has entered in a dramatic way and is now JP Morgan’s biggest competitor
IRS to issue “safe harbor” rules for partnership flip structure
Deal structure gives the institutional investor a preferred return—but tax equity prices at ~6.5% after-tax while debt prices closer to ~7% pre-tax
More demand for deals than there is supply
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The Future of the PTC
Current extension through 12/31/2008, but developers already buying turbines for 2009 and 2010
House Energy Bill has 4-year extension capped at 35% of project cost
Senate Energy Bill has no tax component
– Increased taxes on oil companies would have caused filibuster
– Couldn’t muster the 60 votes for super majority
Long-term extension has bipartisan support
Let’s hope for a compromise
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Wind Derivatives
Chicago-based US Futures Exchange has launched financial wind indexes.
Based on deviations from 20-year wind speed averages
In NY and Texas regimes
Who will hold the floating leg?
Analogue to credit derivative swaps
Is CAPM really right?