Oklahoma Renewable Energy Council May 11, 2011

1. Oklahoma Renewable Energy Council May 11, 2011 Jon Baker Project Development Manager

2. Overview Description of Acciona and how We Develop Current State of Wind Energy: US and Oklahoma Reasons for Slowdown in Wind Construction Why Wind will keep Growing Oklahoma Market Drivers

3. 1. 689.5 MW Operating or Under Construction McGrath Wind Farm 30 MW, Alberta Chin Chute Wind Farm 30 MW, Alberta Velva Wind Farm 12 MW, North Dakota Tatanka Wind Farm 180 MW, N & S Dakota Ripley Wind Farm 76 MW, Ontario EcoGrove Wind Farm 100.5 MW, Illinois Blue Canyon Wind Farm 74 MW, Oklahoma Red Hills Wind Farm 123 MW, Oklahoma

4. 1. Development Steps Land Management Wind Assessment Interconnection Permitting Power Marketing Construction • For every project the Development steps are the same … but every state, county and municipality will have different requirements • Interconnection will differ by Regional Transmission Operator. • Permitting can have state and federal requirements • Interface with US Fish and wildlife • Army Corp of Engineers • Local Environmental groups • Power markets are different by Regional transmission operators, state market. • Construction requirements will differ by county and municipality. There may be restrictions to noise, congestion, etc

5. 1. Development Steps Land Management Wind Assessment Interconnection Permitting Power Marketing Construction • Land is typically optioned for 5-7 years; Long-Term agreement is typically 20-40 years. • Land owners typically receive a royalty of the project revenue or fixed prices per MW installed • Royalty payments are typically paid every 6-12 months Landowner relations and community relations is key to having a good 20 year relationship with the community. • Oklahoma tends to have very savvy landowners due to oil/gas lease experience • Oklahoma’s large ranches with low density housing are ideal for development • Little crop damage, few drain tiles or other irrigation issues • Fewer concerns with sound and shadow flicker setbacks

6. 1. Development Steps Land Management Wind Assessment Interconnection Permitting Power Marketing Construction • Acciona typically requires 2 years of wind data for any project • Hub height data is strongly preferred and has become the norm for financing • Lidar and Sodar are not typically financeable for projects but this may be changing slowly. • Given the size of the projects it is not uncommon to have 3-4 met towers per project. The more spreadout the project sthe more met towers required • An 80m met tower will run $100 – 120 K. If power is not available solar panels and batteries may be required • In some areas, permitting to install met towers can take 6-12 months.

7. 1. Development Steps Land Management Wind Assessment Interconnection Permitting Power Marketing Construction 30 Days 30 Days 45 Days 40 Days Request System Impact Study Facility Study Feasibility Study LGIA ~ 70 Days ~ 90 Days ~ 180 Days ~ 180 Days 60 Days • The interconnection process can take 2 years. Depending on the number of projects in the queue the process could take longer • The timing of various steps in the process is extremely unpredictable with few requirement for the ISOs to follow a schedule • The cost through the facility study can range from $300K to $1MM

8. 1. Development Steps Land Management Wind Assessment Interconnection Permitting Power Marketing Construction • Permitting in Oklahoma tend to be fairly straightforward. Little NIMBY activity – general attitude that each landowner controls their land alone • Generally low population of endangered species or other environmental concerns • Whooping Crane Corridor, Eagle, some bat populations, and growing Lesser Prairie Chicken concerns are top concerns but few show stoppers. • Concern from wind developers over new USFWS Rules

9. 1. Development Steps Land Management Wind Assessment Interconnection Permitting Power Marketing Construction • Current environment nationwide is nearly all deals require Power Purchase Agreements (PPAs) to get equity financing • SPP doesn’t have true real-time markets further limiting Merchant Hedge Options Counterparties • QF • Power Purchase Agreement (PPA) • Merchant Hedge • Merchant Sales • Utilities • Power marketers • Financial institutions • ISO/RTO Energy • REC sales • Carbon offsets (future potential) • Utilities • Power marketers • Financial institutions • REC aggregators • Corporations Renewable Energy Credits (RECs) / Carbon

10. 1. Development Steps Land Management Wind Assessment Interconnection Permitting Power Marketing Construction • Requirement for building a wind project will vary by state, county and local codes • Costs in Oklahoma tend to be on the lower end due to lower labor rates and relatively easy transportation requirements • For 100-150MW project construction should take less than 1 year

11. 2. U.S. Wind Installations In 2009 Wind Energy Generated nearly 74 million MWh of Electricity Source: American Wind Energy Association (AWEA)

12. 2. Goal of 20% by 2020 Projected US Wind Growth 300GW 150 GW Shortfall US wind @ global install growth rate of 9% US Target: 20% Wind 150GW Annual Install CAGR: 12 % 110GW 60GW 30GW 18GW 2007 2010 2015 2020 2030 Industry needs to scale to 1 turbine every 30 minutes

13. 2. Oklahoma Wind Farms End of 2010: 1,482 MW Ranked 8th in Nation 3% of electricity from Wind

14. 2. Future OK Projects Wind Farm 66: 150MW Dempsey Ridge: 132MW

15. 3. Natural Gas Prices Composite Spot Natural Gas Price ($/MMBTU) • Gas Prices Greater Affect Power Price • Is the fuel on the “margin” 2/3 of the time • Discover of Marcellus Shale • Financial Crisis kept prices low SPP Generation at the Margin

16. 3. Decreased Demand • US Energy Demand Fell 6.8% between 2007 and 2009 • Only third time since 1949 fell for two consecutive years • Only 1979-1983 saw bigger energy decline

17. 3. Decreased Power Prices MDU.MDU 2009 Average Price: $23.21 2008 Average Price: $45.28 Natural Gas Sensitivity: 0.57 NYISO Zone E 2009 Average Price: $36.49 2008 Average Price: $67.56 Natural Gas Sensitivity: 0.78 CAISO NP15 2009 Average Price: $35.79 2008 Average Price: $71.01 Natural Gas Sensitivity: 0.91 Eco Grove 2009 Average Price: $25.25 2008 Average Price: $48.40 Natural Gas Sensitivity: 0.50 Red Hills 2009 Average Price: $26.90 2008 Average Price: $49.77 Natural Gas Sensitivity: 0.72 ERCOT South Zone 2009 Average Price: $32.63 2008 Average Price: $73.01 Natural Gas Sensitivity: 0.96

18. 3. Decreased Power Prices, Continued • Power Prices at Historic Lows • SPP Prices already low compared with rest of US • High Degree of competitive pressure on wind developers

19. 3. Transmission Constraints Limit Development • SPP has enough renewables to meet RPS Standard • Transmission Expansion would allow for export of power • National RPS could make RECs into a commodity • Typically windy spots are not near population centers • Transmission from wind projects expensive • Free-rider problems and cost assignment issues can stall needed transmission

20. 4. Increasing RPS Standards in SPP

21. 4. Transmission Expansion • Expanded Transmission: • Reduces bottlenecks • Expansion of Wind • Value could exceed cost

22. 4. New Environmental Standards • New Rules being put forth by EPA • HAP MACT (Maximum Achievable Control Technology) • Target HCl and heavy metals • Could increase coal price by $3-8/MWh • Dependent upon technology being used • TVA announced it was shutting down 1,000 MW of Coal • National RPS standard or carbon regime would affect prices even more SPP Generating Capacity (% of MW)

23. 4. Cost Competitiveness • Wind farms are increasingly cost effective, especially in SPP • Result of more efficient turbines, strong wind resource, and decrease in price of turbines and construction • If prices remain low, utilities may add more than required by RPS standards • Could be used as an effective hedge against price fluctuations

24. 4. Wind a Large Part of SPP Queue

25. 5. Key Drivers for OK Wind • High Net Capacity Factors – 40% Plus • State Zero-Emission Facility Production Tax Credit • Facilities placed in service on or after January 1, 2007 and before January 1, 2016 the credit is $0.0050/kWh for the first ten years • Fully transferable – allows monetization at about 90% of value for companies without a tax appetite • Payments temporarily suspended through moratorium in 2011 • Property Tax Exemptions (5 years) – reimbursed to the Counties from State • Sales tax exemption as qualified manufacturer • RPS Goal of 15% - goals are sometimes effective if treated more like a mandate or it ensures cost recovery for utilities

26. 5. Risk to Oklahoma • Risks to Oklahoma • State government currently considering proposal to eliminate dozens of tax breaks • Already 1 year moratorium on wind PTC • Five year tax abatement also may be eliminated • Would likely be replaced by PILOT payments • HB1821: Oil and Gas Exploration Rights Act • Would require consent of mineral rights owners before developing wind • National Risks: • Expiration of PTC and ITC • No movement on Transmission • No national RPS or carbon tax

27. 5. Risks Continued

28. Final Thoughts • How will we address externalities? • Will GHGs and other pollutants be factored into price of electricity? • How will we value renewables as a price hedge? • Public Policy • What is the likelihood of a national RPS? • In absence of that, will SPP states increase requirements? • How will Transmission be addressed? • Will Oklahoma continue policies that encourage wind development? • Oklahoma PTC • Ad Valorem tax abatement • Mineral Right owner approval • What impact will disruptive technologies or breakthroughs have? • Electric car adoption  increased off-peak demand • Continued improvements in wind, solar and other costs • Storage