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Wind Energy: Challenges & Opportunities

Wind Energy: Challenges & Opportunities. ELFA Financial Institutions Conference April, 2007 David A. Drescher V.P.- John Deere Wind Energy http://www.johndeere.com/windenergy. Project Finance Structure.

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Wind Energy: Challenges & Opportunities

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  1. Wind Energy:Challenges & Opportunities ELFA Financial Institutions Conference April, 2007 David A. Drescher V.P.- John Deere Wind Energy http://www.johndeere.com/windenergy

  2. Project Finance Structure • Characteristics are similar to large ticket leasing or project finance, with a keyexception: • “Active” investor requirement to secure Sec. 45 Production Tax Credit • Equity portion 20-40% • Debt portion- 60-80% possible • No definite rating agency guidance • Cash flows driven by a variable resource- Wind! • Operating risks: • WTG Technologies – Operation & Maintenance

  3. Wind Resource Site & permits Wind Turbines Successful Project Energy Rates Investor Key Success Factors

  4. Major Wind Players • #1 U.S. with 2,700MW+ installed; 44 wind farms in 15 states • Generated ~40% of the total wind energy in US in ‘04 • More than 830MW of wind capacity installed • Goal of 2,300MW by 2010 • Building ~400MW wind power facility in IA in’06-7 • Will serve retail customers in IA, IL, and SD • Shell WindEnergy constructed a 162 MW wind farm in CO •  PPM Energy is an equal partner in the venture • One of the world’s leading wind turbine suppliers •  7,000+ turbines installed, 5,600+MW of capacity Others include Horizon/GS, BP, European players, and Utilities

  5. WTG Technology Basics • Wind turbine consists of standard components: • 3 rotor blades • Main-shaft • Gearbox • Induction generator • Computer controlled • 70-80 meter tower A complex machine system

  6. Global Turbine Manufacturers Top Three account for nearly 70% of the world market share Other OEM’s are entering market or gaining share

  7. Challenges & other issues • Turbine Procurement • Suitable for project site and wind regime • Global supply shortage • Technical due diligence • Wind Assessment • Measurement vs. Modeling • Wind data collection & analysis • Siting assessment • Environmental studies • Permitting • FAA & DOD

  8. Challenges & other issues • Transmission & Interconnection • Inadequate transmission availability • Arcane rules and process • Critical path today for success • Power sale arrangement • Counterparty risk • Requirements for forecasts, replacement power • Long term Power Purchase agreement • “Merchant” Structures • Hedges may be derivatives • Insurance risk management • All risk /builders risk

  9. Construction Challenges • Site related • Archeological discoveries • Unexpected soil conditions • Easement conflicts • Supply chain related • Transportation logistics • Delivery schedule • Parts delivery sequence changes • Contractor or subcontractor defaults • Equipment damage or loss • Force majeure • Weather related • Excessive wind speed or precipitation • Force majeure

  10. Wind Farm Development, Ownership & Operation Power Purchase & Retail Component Manufacture Wind Turbine Assembly Wind Turbine Procurement Debt Financing Equity Investment Maintenance Operations Project Development Wind Value chain Manufacturing Service Provider Utility Site Development

  11. Benefits • New growth area for Project Financiers- • Capital intensive projects • 5 year MACRS depreciation • Costs: ~$1.7 to 2.0 million per installed MW • Effective PTC utilization is a requirement • Equates to ~30% of project revenue • Specialized Expertise & counsel is needed • Supports domestic renewable energy production, energy independence and environmental/climate change

  12. John Deere Wind Energy • A business unit of John Deere Renewables, LLC: • Financial Services focus – no manufacturing role • Commitment to rural economic growth • Delivers benefit to Deere stakeholders • Provide debt and equity investment and successful projects through Integrated development process: • Turbine Supply • Expertise in wind energy technology & construction project management and wind farm operation

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