Wind Energy Business Overview FPL Energy Wind Tour
Wind Energy Business Overview FPL Energy Wind Tour 2004 Waymart Energy Center, PA Wind Tour 2004
Agenda I. Wind Industry Update Mike O’Sullivan II. FPL Energy Pat Caramante III. Wind Forecasting Wind Tour 2004 Andrew Garrad 2
Wind Industry Update 2004 and Beyond Mike O’Sullivan Wind Tour 2004
We are neither hunters nor gatherers. We are wind developers Wind Tour 2004 4
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 mm. Btu (non-firm energy only) • Public policy trends support renewables – Renewable Portfolio Standards in 12 states – IRS Section 45 production tax credits Wind Tour 2004 5
Attractive Business Profile • Long-term contracts (15 -25 years) with creditworthy offtakers – 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 Wind Tour 2004 6
Then and Now “Old” Oak Creek Wind Farm, CA 60 KW turbines, 1984 Rotor diameter (meters) kw per turbine Availability Wind energy PPA (¢/k. Wh) Wind Tour 2004 Solano County, CA Vestas 1. 8 MW turbines, 2003 1980 12 50 60% 40 1990 39 500 90% 10 2003 70 + 1, 500+ 98% + 2 -5 7
US Market Share Competitors with less than 50 MW (<1%) each 18% FPL Energy 43% Competitors at ~1 to <7% each 39% U. S. Wind Market Share (mw) Total New Capacity Installed FPL Energy Contribution FPL Energy New Contribution % FPL Energy Total Market % Pre 2001 2002 2003 2, 578 576 1, 697 843 50% 33% 410 201 2 49% 37% 1, 689 1 812 2 48% 22% Market Size 6, 374 1 2, 719 3 43%3 AWEA estimate as of 1/22/04 Excludes 123 MW of acquisitions in 2002, and 164 MW of acquisitions in 2003 3 Total FPL Energy 2, 719 mw with acquisitions; includes Enron California (106 MW)+LG&E (34 MW)+PA (24 MW) 1 2 Wind Tour 2004 8
Not A Niche Industry Anymore U. S. Wind Power Capacity Additions (mw) U. S. Wind Power Cumulative Capacity (mw) Sources: DOE, AWEA, FPLE Estimates Wind Tour 2004 9
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 Wind Tour 2004 10
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 Wind Tour 2004 11
Our Wind Energy Focus in 2004 and Beyond • Greenfield • Late stage greenfield • Acquisitions Wind Tour 2004 12
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 Wind Tour 2004 13
The Right Site/Topography Wind Tour 2004 14
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 Wind Tour 2004 15
Where the Wind Blows Source: Pacific Northwest National Laboratory Wind Tour 2004 16
Finding Offtakers: FPLE’s Primary Focus • Identify PPA customers • Determine interest • Size (MW) • Price (cents/k. Wh) • Timing (2004, 2005, etc. ) • Does this plan “fit” with customer’s long-term plans? • Competitive with their other wholesale choices? Wind Tour 2004 17
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 Wind Tour 2004 18
Are The Financials Right? • IRR • ROE • EPS • Wind resource analysis Wind Tour 2004 19
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 Wind Tour 2004 20
Today’s Wind MUST Attract Non-Recourse Financing • Reliable, diverse technology • Better understanding of wind resource • Long term PPAs with creditworthy entities Wind Tour 2004 21
Today’s Wind Also Must Have • The potential for “non-recourse” and limited recourse financing for future wind projects – – Bank financing Private placements 144 A Tax-driven structures Wind Tour 2004 22
As Well As. . . • Construction expertise • Timing • Economies of scale • Transmission/ interconnection • Credit-worthiness Wind Tour 2004 23
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 Wind Tour 2004 24
Tax Credit Renewal Spurs Growth PTC Expires (12/31/03) US Annual Installation of New Wind Capacity (mw) PTC Renewal Sources: Cambridge Energy Research Associates/ AWEA/FPLE PTC Expires Expiration of Original Tax Credit 357 10 80 84 PTC Expires; Renewed Five Months Later Energy Policy Act Creates Production Tax Credit (PTC) 602 447 60 82 1, 660 442 183 170 1, 707 86 134 129 47 88 (7) Wind Tour 2004 90 50 135 9 92 6 94 220 45 52 24 96 (114) 98 00 02 25
PTC NOW Wind Tour 2004 PTC LATER 26
We NEED The PTC Extension “Here it is--the plain unvarnished truth. ” “Well, varnish it!” Wind Tour 2004 27
Waymart Energy Center Wind Tour 2004 28
Waymart Site Information • 43 GE 1. 5 s Wind Turbines – 64. 5 MW • 5 month Construction – October 2003 • 100% to Exelon Generation – A- / Baa 1 rating • 860 acres – 9 private landowners • GE Wind O&M provider – 2 year agreement Wind Tour 2004 29
Wind Rose Wind Tour 2004 30
Wind Project Construction Management & Operations Pat Caramante Wind Tour 2004 31
Topics to be Covered 1. FPL/FPLE Project Portfolio 2. Wind Project Construction – – Organization Sample Project Details 3. Wind Project Business Management / Accounting – – Organization Responsibilities 4. Wind Operations – – Organization Results Wind Tour 2004 32
A Leading U. S. Generator Generation Portfolio mw in operation 1 Fossil Nuclear Wind Hydro 23, 881 4, 124 3, 037 365 Solar 160 Other 80 Total 31, 647 1 As of 1/31/04. Represents FPL Group’s gross mw in operation. Numbers may not add up due to rounding Wind Tour 2004 Operating Under construction/ advanced development 33
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 Wind Tour 2004 34
FPL Energy Wind Business Dedicated Teams Support Teams • Development • Finance • Special Valuation: Wind • Tax • Construction • Environmental • Business Management • Legal / Real Estate • Operations • Procurement • Accounting • Information Management Not a Niche Business Wind Tour 2004 35
Wind Construction Organization Wind Tour 2004 36
Waymart Wind Energy Center Project 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 Wind Tour 2004 37
Waymart Wind Energy Center Project Details • Weights – Turbine Nacelles - 125 tons each – Blades - 7. 25 tons each – Towers - 125 tons each Wind Tour 2004 38
Waymart Wind Energy Center Project Details • Roads – 23. 5 miles of roads • Collection system – 21 miles of 34. 5 k. V cable connecting each WTG to the substation • SCADA System – Starts/stops turbines – Turns turbines/blades Wind Tour 2004 39
Wind Business Management Organization Wind Tour 2004 40
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 Wind Tour 2004 41
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 Wind Tour 2004 42
FPL Power Generation Division Organization Sr. Vice President of Power Generation Division Operations Tony Rodriquez Vice President FPL Energy Operations Vice President FPL Operations Jim Keener Al Alfonso Vice President Wind Operations, PGD Start-up Assurance and Commissioning Bob Fritz Jim Keener Vice President Technical Services General Manager Business Services Keith Hardy Pam Sonnelitter General Manager Production Assurance Bill Brannen Sr. Director Central Maintenance Pete Kiernan Support Wind Tour 2004 43
FPLE Wind Operations Organization Wind Tour 2004 44
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 Wind Tour 2004 45
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 Wind Tour 2004 46
Quality Focus Enabling Us to Deliver Results B. A. Manufacturing • Process mindset C 1. Shaft Diameter A 1. Poor Quality Control Incorrect Radius Utilizing quality tools and techniques ingrained in culture C 3. Load Model C 4. Locking Device SKF taper lock Possible cause Effect Power lock SHAFT FAILURE D 2. Proper Power Lock torque E 2. Power production Run @110 KW vs. rated 100 KW tool calibration E 1. Past Operations D 1. Blade Calibration Percent Replicating and adopting best practices across the fleet C 2. Material spec - 100 procedure Ran wind 1989 season @125 KW Control system problem allowed negative pitch angle operation D. Assembly E. Incorrect Operation 72 - Loss of Machine Assembly Pareto 1998 -2002 n=72 WTG Losses • B 1. windy ridge B 2. Tower wake Surface flaws • C. Design T urbine Location 0 - YBO YBS YBI MFW Wind Tour 2004 MMB -0 47
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 Wind Tour 2004 48
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