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Wind Project Development 101 Presented by Locke Liddell & Sapp LLP Bill Swanstrom (713) 223 – 1143 Elizabeth Mack (214) 740.

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Presentation on theme: "Wind Project Development 101 Presented by Locke Liddell & Sapp LLP Bill Swanstrom (713) 223 – 1143 Elizabeth Mack (214) 740."— Presentation transcript:

1 Wind Project Development 101 Presented by Locke Liddell & Sapp LLP Bill Swanstrom (713) 223 – 1143 Elizabeth Mack (214) 740 – 8598 David Montgomery (713) 226 – 1337 John Arnold (713) 226 – 1575

2 Key Market Drivers Increased Focus on Clean Energy Increased Focus on Domestic Energy Production Tax Credit Renewable Portfolio Standard

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5 Key Market Challenges Low Pricing in PPA’s Permitting Delays Turbine Availability Land Acquisition Transmission Constraints

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7 Texas Wind Development Highlights Texas is now the number one wind energy producer in the nation -- approx MW Texas is widely viewed as having the most progressive Renewable Portfolio Standards in the country –Original RPS called for 2000 MW by 2009 –In 2005, the RPS goal was increased to 5880 MW by 2015, and 10,880 MW by 2025

8 Texas Wind Development Highlights (cont.) Wind development in Texas continues to be very robust Offshore Wind -- the Next Wave?

9 Texas Wind Energy Development Existing Project or Area OwnerDate Online MWPower Purchaser/ User Turbine Wind Power Partners ('94) FPL Energy Lower Colorado River Authority 110 KVS-33 Delaware Mountain FPL Energy Lower Colorado River Authority Zond 750-kW (38) Big Spring I Howard County CaithnessApril TXU Electric & GasVestas V-47 (42) Big Spring II Howard County CaithnessJune TXU Electric & Gas / York Vestas MW (4) Southwest Mesa Wind Farm FPL EnergyMay American Electric Power NEG Micon 700-kW (107) Hueco Mountain Wind Ranch, El Paso County El Paso ElectricMar El Paso ElectricVestas V-47 (2) King Mountain Wind Ranch FPL Energy2001, Texas-New Mexico Power Co. / Reliant Energy / Austin Energy Bonus 1300 (214); Vestas 3- MW (1) Woodward Mt. I & II, Pecos County FPL EnergyApr TXU EnergyVestas V-47 (242)

10 Texas Wind Energy Development, cont. Existing Project or Area OwnerDate Online MWPower Purchaser/ User Turbine Trent MesaAmerican Electric Power (AEP) Aug TXU EnergyEnron 1500 (100) Desert Sky Wind Farm American Electric Power (AEP) Dec City Public Service of San Antonio Enron 1500 (107) Llano Estacado Wind Ranch at White Deer Shell Wind EnergyNov Southwestern Public Service (Xcel Energy) Mitsubishi 1000 (80) Brazos Wind Ranch Shell Wind Energy / Mitsui 4th Q TXU Energy / Green Mountain Power Mitsubishi 1000 (160) SweetwaterBabcock & Brown & Catamount Energy 2003, TXU Energy, Austin Energy, CPS Energy GE Wind 1.5- MW (176) Indian MesaVestas20033N.A.Vestas 3-MW (1) Callahan Divide Wind Energy Center, Taylor County FPL Energy Austin EnergyGE Wind 1500 (76) American Windmill Museum American Wind Power Center American Windmill Museum Vestas 660 kW (1)

11 Texas Wind Energy Development, cont. Existing Project or Area OwnerDate Online MWPower Purchaser/ User Turbine McKinney Wal- Mart Bergey Windpower McKinney Wal-MartBergey Windpower 50 kW (1) Buffalo GapAES Corp Direct EnergyVestas 1.8 MW (67) Horse Hollow Wind Energy Center FPL Energy2005/ variousGE Energy 1.5 MW (291); Siemens 2.3 MW (130) Red CanyonFPL Energy200684variousGE Energy 1.5 MW (56) JD Wind IDWS/John Deere Wind Energy Southwestern Public Service (Xcel Energy) Suzlon 1.25-MW (8) JD Wind IIDWS/John Deere Wind Energy Southwestern Public Service (Xcel Energy) Suzlon 1.25-MW (8) JD Wind IIIDWS/John Deere Wind Energy Southwestern Public Service (Xcel Energy) Suzlon 1.25-MW (8) JD Wind VDWS/John Deere Wind Energy Southwestern Public Service (Xcel Energy) Suzlon 1.25-MW (8) Forest Creek Wind Farm Airtricity TXU EnergySiemens 2.3-MW (54)

12 Proposed Wind Projects in Texas ProjectUtility/DeveloperLocationStatusMW Cap On Line By / Turbines WildoradoXcel Energy/Tierra EnergyOldham & Potter Counties NA160NA JD Wind IVJohn Deere Credit/Distributed Wind Systems panhandleunder construction 79.8Suzlon 2.1-MW (38) JD Wind VIJohn Deere Credit/community wind Sherman Countyunder construction 10Suzlon 1.25 MW (8) Buffalo Gap, phase II AES/Direct Energynear Abileneunder construction 232.5GE Energy 1.5 MW (155) Lone StarHorizon Wind Energy under construction 200 Sweetwater Phase IVa CPS San Antonio/Babcock & Brown and Catamount Energy Corp. near Sweetwaterunder construction 135Mitsubishi 1 MW (135) Sweetwater Phase IVb CPS San Antonio/Babcock & Brown and Catamount Energy Corp. near Sweetwaterunder construction 105.8Siemens 2.3 MW (46) Sand BluffAirtricitynear Big springunder construction 90

13 New Developments Turbine Financing Merchant Wind Plants – Hedge Products Expanding Share of Tax Equity Private Equity Funds Seeding Development Strategic Investors Driving Acquisition Market Financial Structures For Municipal Project Ownership - CREBs

14 Environmental Review on Wind Farms Driven by: Required Permits Expectations/Requirements of Lenders and/or Equity Investors –Including for issuance of environmental opinions Best Practices

15 Permits Generally, if project is on private land, and privately funded, then very few permits typically required: –No material air emissions –Generally no wastewater discharge (possible sanitary or washwater) –Generally no hazardous waste –Stormwater –Wetlands (nationwide permits) –County road crossing/state highway access rights, etc. Projects on federal land may trigger full NEPA review – generally not an issue in Texas

16 Best Practice Private NEPA-style review: –Identify potentially significant issues early in process –Ensure/enhance local acceptance –Support image of wind projects as environmentally friendly and conscientious Key environmental issues in wind projects, and focus of environmental review, include: –Birds/Avian Survey –Endangered and Threatened Species –Cultural/Archeological Resources

17 Avian Impacts Most significant environmental issue raised by wind farms Migratory Bird Treaty Act – no bird kills, strict liability Four season avian survey Turbine and collection/transmission system design Generally no post construction monitoring – but winds of change are blowing

18 Endangered/Threatened Species Both avian and terrestrial Federal ESA – incidental take permits available, but easier to redesign project State endangered species laws (Parks and Wildlife Code) – no incidental take

19 Cultural Resources NHPA - extensive review, but only if federal permit Texas Antiquities Code –no protection for cultural resources on private land –development on public land requires THC review and approval – lengthy process

20 Wind Lease Aspects Options Wind Leases Easements Title Issues

21 Options Almost every Wind Lease in Texas arises from exclusive option with term of 2 – 7 years Option Fee is usually calculated as $/acre During Option Term, grants exclusive right of ingress/egress to: –install met towers and conduct wind studies –survey land and perform title work –conduct other due diligence: geotechnical, foundation and soils tests Accommodations with Owner regarding farming, ranching, hunting and other surface use aspects

22 Wind Leases Exclusive right to use as Wind Farm for a term of 30 – 80 years (incl. extensions) –Installation and operation of turbines, transmission and gathering lines, substations, O&M buildings, roads, etc. Consideration varies widely –Pre-construction bonuses/delay rental and per-turbine bonuses up to $10,000 –Royalties ranging from 3% to 6%, with Minimum Rent protections (per acre or per mW installed) –“Surface damages” for turbines, lines, roads, substations, O&M buildings, control buildings, wells, etc. As with Option, accommodations with Owner regarding farming, ranching, hunting and other surface use aspects

23 Easements Also acquired by Options, either incorporated into Wind Lease or standalone Access Easements when surrendering leased but unused land Transmission Easements to get to market Overhang Easements for turbine blades

24 Title Issues Lender subordinations Oil/gas lessee surface waivers and drillsite agreements Marital joinders – community property states Probate matters Adverse possession claims

25 Resolving the “Chicken or Egg” Dilemma Senate Bill 7 (1999): renewable portfolio standard (“RPS”) of 2,880 MW of renewable generation by SB 20 (2005) RPS of 5,880 MW of renewable generation by Texas is not maximizing its use of available wind resources, because of the “chicken or egg” dilemma:

26 For transmission utilities: difficult to know if a new transmission line should be built if there are no existing generation facilities. For wind farm developers: difficult to obtain financing or plan generation if there is no existing transmission infrastructure Stand off has prevented the development of sufficient transmission infrastructure to bring the available wind generated electricity to load centers and has led to curtailment

27 The Solution: Senate Bill 20 and the CREZ SB 20 authorized the PUC to identify CREZs to: –ensure that sufficient transmission infrastructure is built to meet RPS –improve coordination between the transmission and renewable generation –reducing the regulatory hurdles by establishing that there is a need for transmission upgrades To implement Senate Bill 20, the PUC promulgated Commission Rule

28 The CREZ Rule: To designate a CREZ or CREZs PUC considers the following criteria: –Wind: areas with sufficient renewable energy potential, i.e., wind resources –Transmission: the solution to move the power to load centers –Financial Commitment: to ensure wind developers meet their half of the chicken and egg equation

29 The CREZ Proceeding Shell WindEnergy Inc. is a participant SWE is working with Horizon and RES Americas, Inc. to support a CREZ in Briscoe County, Texas. Strong competition from FPL others with installed generation. Contested hearing in May Final Order designating a CREZ or CREZs on July 5, 2007.


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