Operation & Maintenance Agreements (O&M)

Operation & Maintenance Agreements (O&M) 30 October 2012, GIZ Workshop, Ho Chi Minh City, Vietnam

Contents GL Garrad Hassan 1. 2. Technical & Commercial O&M Options 3. Service Agreement Considerations 4. Summary

Local understanding forms a global perspective Heerenveen Sint Maarten Kaiser-Wilhelm- Koog Glasgow London Slough Copenhagen Hinnerup Oldenburg Hamburg Warsaw Bristol Cork Beijing Seoul Tokyo Shanghai Mumbai Bangkok Bangalore Singapore Newcastle Wellington Melbourne Vancouver Ottawa Portland San Diego Montreal Peterborough Austin Querétaro Porto Alegre Santiago Paris Imola Lisbon Barcelona Zaragoza Madrid Izmir Cairo Cape Town GL Garrad Hassan: 1,000+ staff, 44 locations, 26 countries Part of the GL Group: renewables, oil & gas, maritime

GL Garrad Hassan Capabilities • The world’s largest renewable energy consultancy. It offers independent technical and engineering services, products, and training courses to the onshore and offshore wind, wave, tidal and solar sectors. • Has been supporting investors in wind farms for over two decades. The detailed technical understanding of its experts provides a solid basis for informing intelligent decisions, regardless of the scale of the project or investment, or the lifecycle stage. • Has worked with almost every major manufacturer. It has led the market for manufacturer services for many years and is continuously developing its industry standard turbine design software.

Wind: Experience Matters Short-term forecasting • over 20% of the world’s operational capacity Measurements • power curve measurements on 500+ turbines • load measurements on 100+ turbines • founding member of MEASNET • first ever load measurements on offshore wind farm Products / software solutions • Industry standard wind turbine design software - Bladed • Bladed used to design world’s largest turbine • world‘s largest independent SCADA supplier – 6,000 MW Offshore Wind • project management of world’s largest offshore wind farm - Thanet Energy Assessment • analysing 20,000 MW of new projects per year • 25% of all projects worldwide • 70% of UK installed capacity • 75% of Irish installed capacity Operational Assessment • 15% of the world’s installed capacity Due Diligence • over 25% of the world’s project financed wind farms • world’s largest wind farm portfolio acquisition • world’s first wind energy bond deal Independent Engineer • 45% of US wind farms • The world’s five largest wind farm financings • The first project financed offshore wind farm

FINACIAL CLOSE SITE DISCOVERY TAKE OVER DEVELOPMENT PHASE (0.5 to several years) DISCONNECTION CONCLUSION MEDIUM RISK & MEDIUM RETURN LOW RISK & LOW RETURN CASH FLOW MEDIUM RISK & HIGH RETURN HIGH RISK & HIGH INVESTMENT MEDIUM RISK & LOW INVESTMENT CONSTRUCTION PHASE (12 to 18 months) OPERATIONAL PHASE (20 to 25 years) DECOMISSIONING PHASE (3 to 4 months) BREAK EVEN (loan repaid) Wind Farm Project Cashflow

Wind Farm Investment Risks • What are some of the key investment risks in a wind farm project?

- 6 months - 5 months - 2 months - 1 month +18 months + X years Detailed Banking Model, audit & tax Initial Banking Model Construction Draw Down Operational Repayments Basic Feasibility Model FINACIALCLOSE Due Diligence Monitoring Energy Assessment Due Diligence Monitoring Due Diligence (legal, technical, insurance) Term Sheet Syndication Final Payment Final Acceptance Initial Proposal Credit Approval Wind Farm Project Financing Timeline

Why is an O&M agreement required? • To ensure that the wind farm assets continue to be cared for and operated in an appropriate and effective manner for as long as possible. • To drive an adequate return on investment on the wind farm assets through a contractual framework that incentivises the operating parties to ensure that the wind farm is always technically available to produce power, and converts the wind energy to electrical energy as efficiently as possible. • Optimisethe availability and efficiency of the asset so that valuable wind windows are not missed.

O&M Commercial Options • All turbine suppliers will typically provide some form of service agreement to support the owner for a designated period following the capital investment. • These contracts are named differently by suppliers and will vary in cost, guarantees etc.: • WOM: Warranty, Operations and Maintenance • SAA: Service and Availability Agreement • AOM: Availability, Operations and Maintenance • MSA: Maintenance and Service Agreement • Different contract packages are available at different costs depending on the level of insulation the owner is looking for from the operational risks.

O&M Commercial Options • Three main formats of service agreement:

O&M Commercial Options • Three main formats of service agreement: • Management activities, monitoring and performance guarantees are excludedfrom a Service Only Contract. • It is expected that the owner will manage the day to day running of the wind farm, monitor its performance, schedule and coordinate routine and replacement maintenance and manage supply of spares and equipment to site. • All scheduled and unscheduled maintenance is at extra cost.

What are the turbine maintenance works? TURBINES Un Scheduled Scheduled • Gear box & Generator • Blades & pitch system • Drives, shafts, gears & brakes • Computers and Circuit boards • Hoses and cables • Fixtures & fittings • Lubrication & coolants • Lifts & ladders • Doors & hatches • Safety equipment The turbine service contractor will typically manage the following maintenance:

What is the lead time for parts? TERM & CONDITIONS When will parts fail? PRICE & SCOPE WARRANTIES & DAMAGES SPARES & MONITORING Is a reserve fund needed? How much do parts cost? What are the strategic considerations?

Other Strategic Measures • Access of owners and technicians to central experts within the turbine suppliers organisation. • Technicians based permanently on site, or at nearby service centres. • Dedicated and focused service managers working under efficient organisational structures with proven procedures and work instructions. • Motivated, skilled and well equipped service technicians, trained in the best techniques to identify and address turbine faults in a safe and efficient manner

What are the operational warranties? • DEFECTS: • Replaced • parts • - 12 months • AVAILABILITY: • Normally 95% to 97% • Often lower in first 3 months • Calculation: Total Time – Down time + Allowable events • Total Time • Allowable events: Scheduled maintenance, FM, • no wind, 3rd party stop • Damages payable if below warranted level • Sometimes bonuses above warranted level Curtailment Power Curve / Noise: WOM

Warranty Omissions & Exclusions • The warranty provider may also define a number of events that are excluded from the warranty cover, thus pushing an element of risk back onto the owner. • Safety restrictions under site rules or otherwise. • Customer ordered stops not due to the fault of the contractor. • Agreed additional services. • Operational constraints from customer or 3rd party. • Works driven out of changes in Law. • In addition, delays or damage caused by those events defined as Employer’s riskcan include: • Unauthorised repairs to the turbines; • Weather conditions outside of defined operating or design parameters; • Yearly grid drop outs above a certain frequency; and • Failure of the balance of plant equipment etc.

Service Agreement Costs & Structures • Approximately 20% to 25% of overall LCOE to be used to cover all fixed and variable operational costs associated with a typical project. • Contract pricing can be approached in two different ways, through fixed and variablepricing. • A fixed price contract will entail a specific lump sum which will include a certain defined scope of work. • A variable price component is based on a figure calculated retrospectively from the energy generated from an asset. • Often additional supplementary (sometimes called variable !!!) costs relating to management, BOP maintenance, land lease fees, utility bills, insurance fees. etc.

Total varies by • machine size, • age and supplier • €20k – 100k / WTG / Year • (Plus variable site costs) • Offshore is more • expensive again • Typically 20 -25% • of LCOE How is wind farm operating cost split? Scheduled & unscheduled maintenance services Taxes, rents, power, coms, leases, interest, community funds & insurance Coordination, monitoring & reporting

Wind Farm Operating Costs • Typical wind farm operation and maintenance costs for new projects in 2010: Source: International Renewable Energy Agency

Wind Farm Operating Costs • Operation and maintenance costs for US projects, 1980 - 2008: Source: International Renewable Energy Agency

Wind Farm Operating Costs • Operation and maintenance costs for US projects, years since commissioning: Source: International Renewable Energy Agency

Reliability, Major & Minor Failure Rates • If not FSC, consideration of major (and minor failure rates if SOC) needs to be considered over the life of the wind farm. Source: ReliaWind Project

Summary • O&M agreements ensure the wind is maintained and operated effectively, to drive an adequate return on investment and to optimise the availability and efficiency of the asset. • Different commercial options exist (ie. WOM, FSC, LSC, SOC), each requires careful consideration. • Key considerations include spare parts, resourcing, operational warranties (and there omissions and exclusions). • O&M pricing is significant, comprises multiple components (ie. fixed, variable, supplementary) and will vary by project and over time. • Reliability and failure rates of major (and minor) components is a critical consideration outside FSC.

Thank-you!Daniel Astbury – Senior Engineer, Business Development Manager – Thailanddaniel.astbury@gl-garradhassan.com

Operation & Maintenance Agreements (O&M)