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Wind Energy Business Overview. FPL Energy Wind Tour 2004 Waymart Energy Center, PA. Agenda. I. Wind Industry UpdateMike O’Sullivan II. FPL EnergyPat Caramante III. Wind ForecastingAndrew Garrad. Wind Industry Update 2004 and Beyond. Mike O’Sullivan. - PowerPoint PPT Presentation
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Wind Tour 2004
Wind Energy Business Overview
FPL Energy Wind Tour 2004Waymart Energy Center, PA
2Wind Tour 2004
Agenda
I. Wind Industry Update Mike O’Sullivan
II. FPL Energy Pat Caramante
III. Wind Forecasting Andrew Garrad
Wind Tour 2004
Mike O’Sullivan
Wind Industry Update2004 and Beyond
4Wind Tour 2004
We are neither hunters nor gatherers. We are wind developers
5Wind Tour 2004
Wind – A Real and Growing Business
• Most competitive renewable technology
– with PTCs, a typical wind facility competes favorably with a combined cycle project’s output at gas prices above $4 mmBtu (non-firm energy only)
• Public policy trends support renewables
– Renewable Portfolio Standards in 12 states– IRS Section 45 production tax credits
6Wind Tour 2004
Attractive Business Profile
• Long-term contracts (15-25 years) with creditworthy off-takers – Significant value in addition to PTCs
• Attractive returns– Accretive in first full year
• Limited recourse senior debt financing is achievable for well structured deals – Validated by the FPLE American Wind financing, July
2003
7Wind Tour 2004
Then and Now“Old” Oak Creek Wind Farm, CA
60 KW turbines, 1984Solano County, CA
Vestas 1.8 MW turbines, 2003
1980 1990 2003
12 39 70 +
50 500 1,500+
60% 90% 98% +
Rotor diameter (meters) kw per turbine Availability Wind energy PPA (¢/kWh) 40 10 2-5
8Wind Tour 2004
U.S. Wind Market Share (mw) Pre 2001 2001 2002 2003 Market Size
Total New Capacity Installed 2,578 1,697 410 1,689 1 6,374 1
FPL Energy Contribution 576 843 201 2 812 2 2,719 3
FPL Energy New Contribution % 50% 49% 48%
FPL Energy Total Market % 22% 33% 37% 43%3
FPL Energy 43%
Competitors with less than 50 MW (<1%) each 18%
Competitors at
~1 to <7% each 39%
1 AWEA estimate as of 1/22/042 Excludes 123 MW of acquisitions in 2002, and 164 MW of acquisitions in 20033 Total FPL Energy 2,719 mw with acquisitions; includes Enron California (106MW)+LG&E (34MW)+PA (24MW)
US Market Share
9Wind Tour 2004
Not A Niche Industry Anymore
-
400
800
1,200
1,600
2,000
81 83 85 87 89 91 93 95 97 99 01 03-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
81 83 85 87 89 91 93 95 97 99 01 03
U.S. Wind PowerCapacity Additions
(mw)
U.S. Wind Power Cumulative Capacity
(mw)
Sources: DOE, AWEA, FPLE Estimates
10Wind Tour 2004
FPL Energy - 2003 Highlights
• 2,719 MW on Dec. 31, 2003 (total wind portfolio)
• We built in 2003, and now own and operate, 49% of all new U.S. wind installed
• 975 new MW added in 2003– Includes acquisitions (164 MW)
• Approximately $2.3 billion net-investment in wind at YE 2003
11Wind Tour 2004
2004: Key Issues We Face in the US Market
• PTC renewal uncertainty– Potentially dampens demand
• Adequate on site wind data
• Transmission and/or interconnection
• Creditworthiness of counter parties
• NIMBY, avian and environmental acceptance
12Wind Tour 2004
Our Wind Energy Focus in 2004 and Beyond
• Greenfield
• Late stage greenfield
• Acquisitions
13Wind Tour 2004
Key Factors for Success
• The right site– Land use and landowners
– Transmission and interconnection
– Wind data
• PPA with the right entity, at the
right price
• Good financials
• Public acceptance– Local community
– State-level political support
14Wind Tour 2004
The Right Site/Topography
15Wind Tour 2004
Wind Data
• Established wind regions
• Solid on-site data– 18-24+ months
– Strong correlation to long term reference tower data
• Rigorous examination of wind data– Outside consultants
– In-house meteorologist and statisticians
16Wind Tour 2004
Where the Wind Blows
Source: Pacific Northwest National Laboratory
17Wind Tour 2004
Finding Offtakers: FPLE’s Primary Focus
• Identify PPA customers
• Determine interest• Size (MW)
• Price (cents/kWh)
• Timing (2004, 2005, etc.)
• Does this plan “fit” with customer’s long-term plans?
• Competitive with their other wholesale choices?
18Wind Tour 2004
PPA Pricing and Credit
• Must be competitive– 2-5 cents (2003 national range)
• Should reflect realities of wholesale marketplace
• Captures value at wholesale and retail levels– Often includes green credits
• Buyer must be a “third-party financeable” entity
19Wind Tour 2004
Are The Financials Right?
• IRR
• ROE
• EPS
• Wind resource analysis
20Wind Tour 2004
Three Key Financial Drivers• PPA
– 15-25 years– 2.5-3.5 cents often with escalators
• PTCs– 1.8 cents plus inflation
escalators– State incentives important
• Other Tax Benefits– 50% Year 1 bonus
depreciation (expires YE ‘04)– 5 year MACRS
21Wind Tour 2004
Today’s Wind MUST Attract Non-Recourse Financing
• Reliable, diverse technology
• Better understanding of wind resource
• Long term PPAs with credit-worthy entities
22Wind Tour 2004
Today’s Wind Also Must Have
• The potential for “non-recourse” and limited recourse financing for future wind projects
– Bank financing– Private placements– 144A– Tax-driven structures
23Wind Tour 2004
As Well As...
• Construction expertise
• Timing
• Economies of scale• Transmission/
interconnection
• Credit-worthiness
24Wind Tour 2004
FPL Energy Wind – Our Competitive Advantage
• Business scale – U.S. and world leader
• Project development track record
• Quick to market – 3 to 6 months after permitting
• Tax appetite
• Creditworthy
• Efficient third-party financing access
25Wind Tour 2004
Tax Credit Renewal Spurs GrowthUS Annual Installation of New Wind
Capacity (mw)
Sources: Cambridge Energy Research Associates/ AWEA/FPLE
PTC Expires; Renewed Five Months Later
10 60170
357442
183 13447
(7)
12950 9 6
13545 24
(114)
220
602
52
1,707
447
1,660
80 82 84 86 88 90 92 94 96 98 00 02
PTC Expires
Energy Policy Act Creates
Production Tax Credit (PTC)
Expiration of Original Tax Credit
PTC Renewal
PTC Expires
(12/31/03)
26Wind Tour 2004
PTC LATERPTC NOW
27Wind Tour 2004
“Here it is--the plain unvarnished truth.”
“Well, varnish it!”
We NEED The PTC Extension
28Wind Tour 2004
Waymart Energy Center
29Wind Tour 2004
Waymart Site Information
• 43 GE 1.5s Wind Turbines– 64.5 MW
• 5 month Construction– October 2003
• 100% to Exelon Generation– A- / Baa1 rating
• 860 acres– 9 private landowners
• GE Wind O&M provider– 2 year agreement
30Wind Tour 2004
Wind Rose
Waymart Percent of Energy by Direction Rose
0.0%
10.0%
20.0%
30.0%
40.0%N
NNE
ENE
E
ESE
SSE
S
SSW
WSW
W
WNW
NNW
Percent of Energy
Waymart Percent of Hours by Direction Rose
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%N
NNE
ENE
E
ESE
SSE
S
SSW
WSW
W
WNW
NNW
Percent of Hours
31Wind Tour 2004
Wind Project ConstructionWind Project ConstructionManagement & OperationsManagement & Operations
Pat Caramante
32Wind Tour 2004
Topics to be Covered
1. FPL/FPLE Project Portfolio2. Wind Project Construction
– Organization– Sample Project Details
3. Wind Project Business Management / Accounting– Organization– Responsibilities
4. Wind Operations– Organization– Results
33Wind Tour 2004
A Leading U.S. Generator
OperatingUnder construction/ advanced development
3,037Wind
31,647Total
80Other
365Hydro
23,881Fossil
Generation Portfolio mw in operation 1
1 As of 1/31/04. Represents FPL Group’s gross mw in operation.Numbers may not add up due to rounding
160Solar
4,124Nuclear
34Wind Tour 2004
FPL Energy – Wind Management
• Largest Manager of Wind Generation in the World
– Manage over 3,000 MW
– 42 projects in 15 states
– Approximately $2.3 billion net-investment in wind at YE
2003
– Most experienced large scale owner/operator of wind
farms
35Wind Tour 2004
FPL Energy Wind Business
Dedicated Teams
• Development
• Special Valuation: Wind
• Construction
• Business Management
• Operations
• Accounting
Support Teams
• Finance
• Tax
• Environmental
• Legal / Real Estate
• Procurement
• Information Management
Not a Niche Business
36Wind Tour 2004
Wind Construction Organization
Steve ReuwerSenior DirectorWind Projects
Collie PowellDirector
Wind Projects
Donald MillerManager
Wind Projects
Joe MarcheseDirector
Wind Projects
Ken TalovichManager
Wind Projects
Robert HurtManager
Wind Projects
Guy HammondManager
Wind Projects
Kurt BeichelManager
Wind Projects
37Wind Tour 2004
Waymart Wind Energy CenterProject Details
• Foundations– 43 foundations
• 30 ft to 45 ft deep
– Excavations made using 15 ft diameter auger
– Approx. 50 yards of concrete and 9.25 tons of reinforcing steel per foundation
38Wind Tour 2004
Waymart Wind Energy CenterProject Details
• Weights– Turbine Nacelles - 125 tons
each– Blades - 7.25 tons each– Towers - 125 tons each
39Wind Tour 2004
Waymart Wind Energy CenterProject Details
• Roads– 23.5 miles of roads
• Collection system– 21 miles of 34.5 kV cable
connecting each WTG to the substation
• SCADA System– Starts/stops turbines– Turns turbines/blades
40Wind Tour 2004
Wind Business Management Organization
Bryan FennellVice President
Business Management - Wind
Jim KuteyBusiness Mgr
StatelineVansycle
Sunanda BeharaBusiness Mgr
CabazonGreen Power
Chuck GorsuchAssoc. Bus. Mgr.
North DakotaSouth Dakota
Wyoming
Rebecca PerreeSr. Assoc.B Mgr.Altamont Power
AIC, WPP90,WPP91, WPP93
Nancy Schilling Administrative
Assistant
Rohit ChibBusiness Director
BadgerLake Benton II
Bill HaydukBusiness MgrGRS / GRP
WPP 91-2 / 92High Winds
Henrietta McBeeBusiness MgrBackbone Mt
PA WindWaymart
Eugene CrossAssoc. Bus. Mgr.
MeyersdaleMill Run
Somerset
Tim CurleyBusiness Director
West TexasPecosUpton
Ed BullingerSr. Assoc B. Mgr.Cameron Ridge
RidgetopPacific Crest
SR / VG
John GoodwinSr. Assoc. B.Mgr.
Delaware MtIndian Mesa
NM / OK / Sooner
Glenda WrightAssoc. Bus. Mgr.
Cerro GordoGray County
Hancock County
Scott Scovill Assoc. Bus.Mgr.Mojave 16/17/18Mojave 3/5, TPC
41Wind Tour 2004
FPL Energy - Business Management
• 12 Business Managers dedicated to wind
– Each Project has a dedicated Business Manager
– Manages financial and commercial aspects of the projects
– Direct project P&L responsibility
• Responsibilities
– Project Management
– Contract Management
– Budget & Forecasting
– Asset Optimization
42Wind Tour 2004
FPL Energy- Project Accounting
• Independent from Business Management and Project Development
• Ensures adherence to internal controls, accounting policies & procedures, and GAAP
• 13 controllers focused on wind facilities– Average of approximately 11 years of experience– Most CPAs with national CPA firm experience
• The controllers for wind are directly and indirectly supported by approximately 45 systems, financial reporting, and processing support personnel
43Wind Tour 2004
FPL Power Generation Division Organization
Sr. Vice PresidentSr. Vice Presidentofof
Power Generation DivisionPower Generation Division
Tony RodriquezTony Rodriquez
Jim Keener
Vice PresidentVice PresidentWind Operations, PGD Wind Operations, PGD Start-up Assurance and Start-up Assurance and
CommissioningCommissioning
Vice PresidentVice PresidentFPL OperationsFPL Operations
Al AlfonsoAl Alfonso
General ManagerGeneral ManagerProduction AssuranceProduction Assurance
General ManagerGeneral ManagerBusiness ServicesBusiness Services
Sr. DirectorSr. DirectorCentral Central
MaintenanceMaintenance
Vice PresidentVice PresidentTechnical ServicesTechnical Services
Vice PresidentVice PresidentFPL Energy OperationsFPL Energy Operations
Jim KeenerJim KeenerBob FritzBob Fritz
Pam SonnelitterPam Sonnelitter Bill BrannenBill Brannen Pete KiernanPete KiernanKeith HardyKeith Hardy
OperationsOperations
SupportSupport
44Wind Tour 2004
FPLE Wind Operations Organization
Robert P FritzVice President
Bob A TrianaManager
Electrical Ops
Dan MandliGeneral Manager
New Business
Thomas KelleyPlant ManagerAPWRA & V80
Dean LandonGeneral Manager
V-47 & M750
Fernando StalkerMgr - Bus. Svcs.
James CoakleyGM - ProdAssurance
Pat CaramanteGeneral Manager
GE 1.5 & M1.5
Michael BarriosGeneral Manager
Z750 & KVS33
45Wind Tour 2004
FPL Energy – Operations
• Largest wind farm operators in the world– Operate and maintain over 6,000 WTGs– Operations Team with over 200 personnel dedicated to
the Wind Business (not just a small part of a gas group)– Fleet Teams and Project Assurance Engineers that
specialize in turbine technologies– Dedicated SMEs for each discipline including civil, wind,
turbines, electrical, and transmission
46Wind Tour 2004
Leveraging Technology to Improve Performance
• Monitors real-time and historical power plant data• Provides live video and audio links• Provides for real-time benchmarking performance
among similar components across the fleet
Fleet Performance and Diagnostic Center
47Wind Tour 2004
Quality Focus Enabling Us to Deliver Results
• Process mindset
• Utilizing quality tools and techniques ingrained in culture
• Replicating and adopting best practices across the fleet
Pe
rce
nt
- 100
SHAFT
FAILURE
D. Assembly
Possiblecause
Effect
B. T urbine Location
B1. windy ridge
C. Design
E. Incorrect Operation
E2. Power production
E1. Past Operations
Ran wind 1989 season @125KW
A1. Poor Quality Control
Surface flaws B2. Tower wake
D1. Blade Calibration
D2. Proper Power Lock torque
Incorrect Radius C4. Locking Device
SKF taper lock
Power lock
C1. Shaft Diameter
C2. Material spec
C3. Load Model
procedure
tool calibration
Control system problemallowed negative pitch angleoperation
Run @110 KW vs. rated 100KW
A. Manufacturing
YBO YBS YBI MMBMFW
Loss of Machine Assembly Pareto 1998-2002
WT
G L
oss
es
- 00 -
72 -
n=72
4003002001000
380
370
360
350
340
Blade Number
Unb
alan
ced
Bla
de W
eigh
ts
RB 146, Unbalanced Blade Weights, 4/26/03
1 1
1
Mean=357.1
UCL=373.7
LCL=340.5
USL=375
LSL=335
N=383
48Wind Tour 2004
FPL Energy - Operations Results
• Best in class availability results for wind farm operations– Fleet wide availability of greater than 96% across 6,000
WTGs– Newer WTGs operated at greater than 97% availability– Operate over 2,000, 15+ year old Kenetech WTGs with
over 92% availability
• Apply best practices and economies of scale to reduce O&M costs to lowest in industry
49Wind Tour 2004