Klondike Wind Power Project, Oregon Donald Furman Senior Vice President - Business Policy and Development December 3, 2009 Energy Bar Association Mid-Year Meeting Integrating Renewables into the Electricity Grid-Tariff and Market Issues

Iberdrola Renewables: A Leader in Execution … with excellent growth prospects A collection of exceptional assets… #2 developer in the U.S. with 3.1 GWs (1,337 MWs of new wind in 2008) 826 employees in 28 U.S. states, DC, India and Canada 826 employees in 28 U.S. states, DC, India and Canada 636 MW of CCGT & peaking capacity on the strategic CA-OR border 155 BCF of owned & contracted natural gas storage positioned for a volatile future U.S. represents 1/3 of earnings 40% of the industry’s largest development pipeline is in the U.S. US Renewables Corporate Support Wind Power Gas 2,876 MW in‘ MW CCGT 100 MW peaking 155 BCF Owned & Contracted 2

North American Asset Portfolio Updated September 1, 2009 Wind projects owned or controlled Wind projects under construction Gas storage owned Thermal generation Biomass under construction Biomass cogeneration

Wind Energy’s Impact to the Power System Four unique characteristics that affect integration: –variability –near-zero variable cost –difficulty of forecasting –remoteness These characteristics can be better accommodated in some markets structures than others Balkanized US markets makes integration difficult

Optimal Wind Integration Conditions Large balancing area with access to neighboring markets Short-term generation markets Ancillary services markets Effective use of wind forecasts by system operators Flexible transmission services Organized markets are far better for integration

Benefits of Larger Balancing Areas Diversity benefit Greater logistical flexibility - Larger pool of resources to manage variations in electric supply or demand Reduced correlation of wind resource Result is substantial cost savings –Midwest ISO estimates savings from consolidating its 26 balancing areas into one are 3.7 to 6.7 times greater than the costs –Savings are large even on power systems without wind energy Consolidation can be done physically or virtually

Consolidate Balancing Areas

Short-term Electricity Generation Markets Hourly markets = high integration costs –Variations accomodated using regulation services –Expensive 10 minute markets = low integration costs –Schedules and transactions can change 6 times per hour –Parties to the transaction adjust rather than system operator RTOs tend to provide lower integrations costs

Expanded Market Use Ancillary services markets provide incentives for generators, demand response, and other flexible resources to offer their services to the grid Markets ensure that lowest-cost resources provide needed flexibility services

Wind Forecasting Wind integration costs are largely due to uncertainty about the next day’s wind output Wind energy forecasts are already remarkably accurate Reliable wind forecasts allow system operators to significantly reduce their uncertainty about future wind output, thereby lowering the amount of reserves they need to hold to accommodate variations in wind output Largest opportunities for improvement: –Better integrating forecasts into power system operations –Providing grid operators with useful information

Flexible Transmission Services Transmission capacity is often physically available when wind output is highest, but contractual and operating rules prevent use of this capacity Conditional firm allows available transmission capacity to be used by others outside of a few peak hours Dynamic line rating determines real-time capacity of a line, instead of relying on rules of thumb that greatly underestimate available capacity

Wind Integration Solutions High Cost Low Cost Source: UWIG Low Wind Penetration Level High Wind Penetration Level Markets Additional Flexible Generation Wind Curtailment Storage Accessing Intra-hour flexibility Price Responsive Load Demand Response Dynamic Scheduling Simple Cycle GT Combined Cycle GT In Range of 1-2% Pumped Storage Batteries Flywheels SMES CAES Capacitors PHEV Accurate Forecasting Real time forecasting Centralized Forecasting

Big Horn Wind Power Project, Washington Questions?