Ice Presentation Final

Wind Farm Development Thursday 16th November 2006

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

power…equivalent of 90 in renewables

• Mott MacDonald’s renewable energy capability

focussed in Glasgow with wind, biomass and marine technology skills

• Currently involved in 30+ wind projects across UK,

Europe and Asia

Introduction to SgurrEnergy • Leading independent multi-disciplinary consultancy

specialising 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

Drivers and Regulatory Structures

UK Wind Project Development - Status

O&M

Handover

Construction

Procurement

Scheme Development

START OF COMMERCIAL OPERATIONS

Decommissioning

Onshore Offshore Operational No. & MW No. & MW England 49 210 3 153 N. Ireland 11 89 0 0 Scotland 31 568 0 0 Wales 23 254 1 60 Total 114 1124 4 213

Pre-Construction

Onshore No. Offshore Planning

& MW

No. & MW

England 43 N. Ireland 29

822 599

6 0

2718 0

Scotland 74 Wales 14 Total 160

5399 183 7006

0 0 6

0 0 2718

Construction

Under construction England N. Ireland

Onshore

Offshore

No. & MW

No. & MW

8 2

111 41

1 0

90 0

Scotland Wales Total

14

523 3 46 27 722

0 1 2

0 60 150

Revenues available to a UK wind generator

£ /M W h

100 90 80 70 60 50 40 30 20 10 0

LEC ROC Energy

•

A UK wind generator will be able to earn revenue from three sources; sales of energy and ROCs and LECs

•

ROCs and LECs are tradable green certificates issued for renewable generation – ROCs derive from the Renewable Obligation and LECs derive from the Climate Change Levy

ROCs – Renewable Obligation Certificates • Derive from the Renewable Energy Obligation

introduced in April 2002

• Obligation on retailers to buy a certain percentage

of their energy from accredited renewables generation – 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 ROCs

for energy produced - 1 ROC per 1 MWh

• Retailers buy ROCs to demonstrate compliance with

RO

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 the

buy-out price as holders of ROCs receive a share of buyout monies

• The recycle bonus rises as the level of shortfall

increases

• If the RO target were met the ROC price would drop

to zero!

ROC values versus RO shortfall in 2006 70

ROC value: £/MWh

60 50 40 30 20 10 0 0

10

20

30

% shortfall on RO Target

40

50

Drivers of ROC prices • Supply and demand • Supply will depend on amount of renewable capacity built and

its 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 the 20% 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 values falling to zero

• Scheme is now being reviewed

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

RO

• Rewards to lower cost renewable generators are too

generous

• There is considerable uncertainty regarding ROC prices,

especially after 2015

• There is a cliff edge for ROC prices if full compliance of

the RO is achieved

• Rewards for high cost more innovative renewable

generation are too small to support deployment

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 (like PV).

• Scheme likely to be rolled out to 2020 • The recycle arrangements will be changed in order to

eliminate the possibility of ROC prices collapsing to zero

• EU Commission still favours that all Europe moved to

feed-in tariffs

Climate Change Levy (CCL) • Introduced in 2002, CCL is a tax on energy consumption by

large industrial and commercial users – not paid by generators

• Electricity is taxed at £4.3/MWh • Energy from certain renewable sources and from qualifying

cogeneration is exempted and is issued a Levy Exemption Certificate (LEC).

• Different set of renewables to RO – LECs include mini hydro

and municipal waste, while ROC don’t. ROCs include biomass co-firing, LECs don’t

• LECs are sold with energy to suppliers/customers who can then

offset their CCL obligation (£4.3/MWh) – Can be separated for output sold off-site

• Stand alone renewable generators can normally capture 85% of

LEC value

• Unclear how long tax will continue

Energy Review and Renewable Grid Issues •

One of the key issues that has delayed the introduction of renewables and limits the achievement of the 2010 target.

•

ER06 states there is the need to resolve a number of issues: – Final Sums Liability (paying up front for connection) – Connection queues as a result of increased interest in renewables [Clustering, i.e. group connections similar to NI, provide better network planning but can disadvantage some generators] – Renewables lower transmission use of system charges? – Need to change from ‘invest then connect’ to ‘connect and manage’ – Regulatory framework for offshore wind

•

All above issues were identified around time of ER03

Transmissionlevel issues Distribution and Transmissionlevel issues Distributionlevel issues

Stern Review of Economics of Climate Change • Sir Nicholas Stern’s review of the economics of

climate change has two key messages for renewables

• 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

Planning and Permitting Issues

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 planning

applications –

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

Planning Process – Initial Stage • Early consultation with key stakeholders – Initial approach to local authority – Seek initial views of key stakeholders

no surprises later

• Scoping of EIA – Focus on key issues through consultation and discussion with key

stakeholders – 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

Interfaces Statutory Consultees (SEPA or EA, LPA, DTI or Scottish Exec, English Nature or SNH, MOD, CAA etc)

Client

Environmental Landscape and visual Ecology Ornithology Hydrology & hydrogeology Noise Communications Archaeology Traffic & transport

Public Consultees

Technical Transport/ Routes

Engineering Geology EIA preparation

Layout Optimisation Civil

Planning

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 scope

agreed with key consultees

• Meeting project programme through management of large

environmental resource and sub-consultants

• Integration with the design process – Ensure mitigation measures consistent with project design

Planning Process – Application Stage • Maintain close interface with local planning

authority (LA) / Scottish Ministers (SM) after application

• Respond to queries/requests for more information

in timely manner

• Close integration with project design team to try

and mitigate issues to avoid Public Inquiry

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

requirements

Public Consultation • On going throughout the planning stage • Manage flow of information / publicity to local

people and organisations – information voids can fill with bad news !

• Understand the local and regional politicians –

background to phase 1 essential

• Review comments from third parties of previous

EIA’s and identify potential supporters and risks

Project Evaluation

Site Identification & Provisional Layout • Wind resource and regime – NOABL – Reanalysis

• Grid connection • Access and buildability • Constraints

Technical & Environmental Constraints Houses (noise, Shadow-flicker)

Underground Cables / Pipelines

Areas with Historical Importance

Roads

Wildlife Areas

Overhead Lines

Landowner Boundary

Wind Regime Assessment • Undertake wind regime assessment campaign using: – Wind Monitoring Masts – SODAR – LIDAR

• Monitor for 12 months or more • Monitor at multiple locations

Measured Turbulence Intensity & Wind Shear Measured and Modeled Turbulence with Height

Ambient turbulence intensity and…

60

Height (m)

50 40

Modeled Fit

30 20

Measured Data

10

Measured and Modeled Wind Shear in Forestry

0 0%

20%

30%

40%

Tubulence (%)

80 Height Above Ground Level (m)

10%

70

Open Moorland Wind Shear Zo = 0.4

60 50

Forested Area Wind Shear

40 30 20

Theoretical Forest Wind Shear based on Zo = 0.8

10 0 0

1

2

3

4

5

6

Av e rage Wind Spe e d (m/s)

7

8

…wind shear must be accounted for in fatigue life calculations

Added Turbulence • Wake induced turbulence must also

be investigated.

• Modified Sten Frandsen model

combined with far wake modelling Plotting predicted CTI against IEC threshold

30%

Plotting predicted CTI against IEC threshold 25% 35% CTI (V90

20%

15%

10% 0

5

10

15

Wind Speed (m/s)

20

25

Characteristic Turbulence Intensity

Characteristic Turbulence Intensity

35%

2MW ) IEC 61400 threshold

30%

25%

CTI (Bonus 2.3) IEC 61400 threshold

20%

15%

10% 0

5

10

15

Wind Speed (m/s)

20

25

Impact of Complex Roughness Complex roughness, such as buildings and forestry has significant impact on wind turbine operation. These features produce higher than specified turbulence intensity & wind shear. Effects on: – Power Curve – Operational Loads – Fatigue Life

The effects of trees are further complicated by growth and felling

Extreme Wind Speed • Analysis typically

performed only at site mast

• Two methodologies for

Extreme Wind

• WAsP Engineering to

model gust values across the site

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

Oil cooler Rotor blades

Ultrasonic sensors

Hub controller

High voltage transformer

Main shaft

Electrical generator Gearbox

Yaw gears Tower

Hydraulic system

Technology Selection • IEC Classification – Mean & Extreme Wind Speed – Turbulence Intensity – Wind Shear

• Compliance – Noise Emission – Grid Code Compliance – Environmental Conditions

• Economic Viability – Production – Cost

Energy Yield Modelling • Final layout iteration – Compromise between

maximum production and constraints • Predict energy yield – Rigorous quality checks – Multiple MCP techniques – Model validation and tuning – Complex forestry modelling – Quantification of

uncertainty

Performance Testing • Power performance testing • Noise compliance • Planning & environmental compliance • Grid code compliance

Project Procurement and Financing

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 or

good OE support, using own funds – Prevalent for UK onshore projects

EPC Contracts • Single Contractor – Takes most of the risks, handles the interface workload and

risks, 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 and

gain permits

• Owner may also need technical support

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 and

gain permits

• Several contracts to negotiate instead of one • Owner likely to need more technical or project

management support

Sources of Funding… Equity

Debt Project Finance

Investors i.e. VC

Shares

Standby Equity

Bonds

Subordinated Debt Mezzanine Finance

• Return on Investment

• Definite Term

• Payback period

• Financial Market Rates

• Initial commitment

• Fees

• Guarantees/Support

• Cover Ratios

Why Project Finance…Depends on who you are? PF for Sponsors • Insulation from Project Debt and Risks! •Spread of risks for large projects •Off balance sheet •Corporate 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

Project Finance…why not! • Time…..

• Project scale…..

Project Structure Market Risks

Financial Risks

Suppliers

Banks Sponsors

Supply Agreements

Credit Agreements

Shareholder Agreements

Offtakers

Offtake Agreements

Project Company O&M Agreement

Consents/ Permits

Local Legislation Government

Legal & Regulatory Risks

Concession Agreement

Construction Agreement

Construction & Operation Risks

Operator Contractor

Implications of Gearing and Non/Limited Recourse Nature •Turbine 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 •Drivers •Market 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 environmental issues must ultimately relate to these

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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