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Wind Energy Business Overview

Wind Energy Business Overview. FPL Energy Wind Tour 2004 Waymart Energy Center, PA. Agenda. I. Wind Industry Update Mike O’Sullivan II. FPL Energy Pat Caramante III. Wind Forecasting Andrew Garrad. Wind Industry Update 2004 and Beyond. Mike O’Sullivan.

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Wind Energy Business Overview

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  1. Wind Energy Business Overview FPL Energy Wind Tour 2004 Waymart Energy Center, PA

  2. Agenda I. Wind Industry Update Mike O’Sullivan II. FPL Energy Pat Caramante III. Wind Forecasting Andrew Garrad

  3. Wind Industry Update2004 and Beyond Mike O’Sullivan

  4. We are neither hunters nor gatherers. We are wind developers

  5. Wind – A Real and Growing Business • Most competitive renewable technology • with PTCs, a typical wind facility competes favorably with a combined cycle project’s output at gas prices above $4 mmBtu (non-firm energy only) • Public policy trends support renewables • Renewable Portfolio Standards in 12 states • IRS Section 45 production tax credits

  6. Attractive Business Profile • Long-term contracts (15-25 years) with creditworthy off-takers • Significant value in addition to PTCs • Attractive returns • Accretive in first full year • Limited recourse senior debt financing is achievable for well structured deals • Validated by the FPLE American Wind financing, July 2003

  7. “Old” Oak Creek Wind Farm, CA60 KW turbines, 1984 Solano County, CA Vestas 1.8 MW turbines, 2003 1980 1990 2003 Rotor diameter (meters) 12 39 70 + kw per turbine 50 500 1,500+ Availability 60% 90% 98% + 2-5 Wind energy PPA (¢/kWh) 40 10 Then and Now

  8. Competitors with less than 50 MW (<1%) each 18% FPL Energy 43% Competitors at ~1 to <7% each 39% US Market Share U.S. Wind Market Share (mw) Pre 2001 2001 2002 2003 Market Size Total New Capacity Installed 2,578 1,697 410 1,689 1 6,374 1 FPL Energy Contribution 576 843 201 2 812 22,719 3 FPL Energy New Contribution % 50% 49% 48% FPL Energy Total Market % 22% 33% 37% 43%3 1 AWEA estimate as of 1/22/04 2 Excludes 123 MW of acquisitions in 2002, and 164 MW of acquisitions in 2003 3 Total FPL Energy 2,719 mw with acquisitions; includes Enron California (106MW)+LG&E (34MW)+PA (24MW)

  9. Not A Niche Industry Anymore U.S. Wind Power Cumulative Capacity(mw) U.S. Wind PowerCapacity Additions(mw) Sources: DOE, AWEA, FPLE Estimates

  10. FPL Energy - 2003 Highlights • 2,719 MW on Dec. 31, 2003 (total wind portfolio) • We built in 2003, and now own and operate, 49% of all new U.S. wind installed • 975 new MW added in 2003 • Includes acquisitions (164 MW) • Approximately $2.3 billion net-investment in wind at YE 2003

  11. 2004: Key Issues We Face in the US Market • PTC renewal uncertainty • Potentially dampens demand • Adequate on site wind data • Transmission and/or interconnection • Creditworthiness of counter parties • NIMBY, avian and environmental acceptance

  12. Our Wind Energy Focus in 2004 and Beyond • Greenfield • Late stage greenfield • Acquisitions

  13. Key Factors for Success • The right site • Land use and landowners • Transmission and interconnection • Wind data • PPA with the right entity, at the right price • Good financials • Public acceptance • Local community • State-level political support

  14. The Right Site/Topography

  15. Wind Data • Established wind regions • Solid on-site data • 18-24+ months • Strong correlation to long term reference tower data • Rigorous examination of wind data • Outside consultants • In-house meteorologist and statisticians

  16. Where the Wind Blows Source: Pacific Northwest National Laboratory

  17. Finding Offtakers: FPLE’s Primary Focus • Identify PPA customers • Determine interest • Size (MW) • Price (cents/kWh) • Timing (2004, 2005, etc.) • Does this plan “fit” with customer’s long-term plans? • Competitive with their other wholesale choices?

  18. PPA Pricing and Credit • Must be competitive • 2-5 cents (2003 national range) • Should reflect realities of wholesale marketplace • Captures value at wholesale and retail levels • Often includes green credits • Buyer must be a “third-party financeable” entity

  19. IRR ROE EPS Wind resource analysis Are The Financials Right?

  20. Three Key Financial Drivers • PPA • 15-25 years • 2.5-3.5 cents often with escalators • PTCs • 1.8 cents plus inflation escalators • State incentives important • Other Tax Benefits • 50% Year 1 bonus depreciation (expires YE ‘04) • 5 year MACRS

  21. Today’s Wind MUST Attract Non-Recourse Financing • Reliable, diverse technology • Better understanding of wind resource • Long term PPAs with credit-worthy entities

  22. Today’s Wind Also Must Have • The potential for “non-recourse” and limited recourse financing for future wind projects • Bank financing • Private placements • 144A • Tax-driven structures

  23. As Well As... • Construction expertise • Timing • Economies of scale • Transmission/ interconnection • Credit-worthiness

  24. FPL Energy Wind – Our Competitive Advantage • Business scale • U.S. and world leader • Project development track record • Quick to market • 3 to 6 months after permitting • Tax appetite • Creditworthy • Efficient third-party financing access

  25. PTC Expires (12/31/03) PTC Renewal PTC Expires 1,707 1,660 PTC Expires; Renewed Five Months Later Expiration of Original Tax Credit Energy Policy Act Creates Production Tax Credit (PTC) 602 447 442 357 220 183 170 135 134 129 60 52 47 50 45 24 10 9 6 (7) 80 82 84 86 88 90 92 94 96 98 00 02 (114) Tax Credit Renewal Spurs Growth US Annual Installation of New Wind Capacity (mw) Sources: Cambridge Energy Research Associates/ AWEA/FPLE

  26. PTC NOW PTC LATER

  27. We NEED The PTC Extension “Here it is--the plain unvarnished truth.” “Well, varnish it!”

  28. Waymart Energy Center

  29. Waymart Site Information • 43 GE 1.5s Wind Turbines • 64.5 MW • 5 month Construction • October 2003 • 100% to Exelon Generation • A- / Baa1 rating • 860 acres • 9 private landowners • GE Wind O&M provider • 2 year agreement

  30. Wind Rose

  31. Pat Caramante Wind Project ConstructionManagement & Operations

  32. Topics to be Covered • FPL/FPLE Project Portfolio • Wind Project Construction • Organization • Sample Project Details • Wind Project Business Management / Accounting • Organization • Responsibilities • Wind Operations • Organization • Results

  33. A Leading U.S. Generator Operating Under construction/ advanced development Generation Portfolio mw in operation 1 Fossil 23,881 Nuclear 4,124 Wind 3,037 Hydro 365 Solar 160 Other 80 Total 31,647 1 As of 1/31/04. Represents FPL Group’s gross mw in operation. Numbers may not add up due to rounding

  34. FPL Energy – Wind Management • Largest Manager of Wind Generation in the World • Manage over 3,000 MW • 42 projects in 15 states • Approximately $2.3 billion net-investment in wind at YE 2003 • Most experienced large scale owner/operator of wind farms

  35. Dedicated Teams • Development • Special Valuation: Wind • Construction • Business Management • Operations • Accounting FPL Energy Wind Business • Support Teams • Finance • Tax • Environmental • Legal / Real Estate • Procurement • Information Management Not a Niche Business

  36. Wind Construction Organization

  37. Waymart Wind Energy CenterProject Details • Foundations • 43 foundations • 30 ft to 45 ft deep • Excavations made using 15 ft diameter auger • Approx. 50 yards of concrete and 9.25 tons of reinforcing steel per foundation

  38. Waymart Wind Energy CenterProject Details • Weights • Turbine Nacelles - 125 tons each • Blades - 7.25 tons each • Towers - 125 tons each

  39. Waymart Wind Energy CenterProject Details • Roads • 23.5 miles of roads • Collection system • 21 miles of 34.5 kV cable connecting each WTG to the substation • SCADA System • Starts/stops turbines • Turns turbines/blades

  40. Wind Business Management Organization

  41. FPL Energy - Business Management • 12 Business Managers dedicated to wind • Each Project has a dedicated Business Manager • Manages financial and commercial aspects of the projects • Direct project P&L responsibility • Responsibilities • Project Management • Contract Management • Budget & Forecasting • Asset Optimization

  42. FPL Energy- Project Accounting • Independent from Business Management and Project Development • Ensures adherence to internal controls, accounting policies & procedures, and GAAP • 13 controllers focused on wind facilities • Average of approximately 11 years of experience • Most CPAs with national CPA firm experience • The controllers for wind are directly and indirectly supported by approximately 45 systems, financial reporting, and processing support personnel

  43. FPL Power Generation Division Organization Sr. Vice President of Power Generation Division Tony Rodriquez Operations Vice President Wind Operations, PGD Start-up Assurance and Commissioning Vice President FPL Energy Operations Jim Keener Vice President FPL Operations Al Alfonso Bob Fritz Jim Keener Sr. Director Central Maintenance General ManagerProduction Assurance Vice President Technical Services General Manager Business Services Pete Kiernan Bill Brannen Pam Sonnelitter Keith Hardy Support

  44. FPLE Wind Operations Organization

  45. FPL Energy – Operations • Largest wind farm operators in the world • Operate and maintain over 6,000 WTGs • Operations Team with over 200 personnel dedicated to the Wind Business (not just a small part of a gas group) • Fleet Teams and Project Assurance Engineers that specialize in turbine technologies • Dedicated SMEs for each discipline including civil, wind, turbines, electrical, and transmission

  46. Fleet Performance and Diagnostic Center Leveraging Technology to Improve Performance • Monitors real-time and historical power plant data • Provides live video and audio links • Provides for real-time benchmarking performance among similar components across the fleet

  47. C. Design B. T urbine A. Manufacturing Location C1. Shaft Diameter B1. windy ridge C2. Material spec A1. Poor Quality Control C3. Load Model B2. Tower wake Surface flaws - 100 Incorrect Radius C4. Locking Device Possible Effect cause SKF taper lock Power lock SHAFT FAILURE E2. Power production D2. Proper Power Lock torque Run @110 KW vs. rated 100KW procedure tool calibration E1. Past Operations D1. Blade Calibration Ran wind 1989 season @125KW Control system problem Percent allowed negative pitch angle operation D. Assembly Loss of Machine Assembly Pareto 1998-2002 E. Incorrect 72 - Operation n=72 WTG Losses 0 - - 0 YBS YBI MFW MMB YBO Quality Focus Enabling Us to Deliver Results • Process mindset • Utilizing quality tools and techniques ingrained in culture • Replicating and adopting best practices across the fleet

  48. FPL Energy - Operations Results • Best in class availability results for wind farm operations • Fleet wide availability of greater than 96% across 6,000 WTGs • Newer WTGs operated at greater than 97% availability • Operate over 2,000, 15+ year old Kenetech WTGs with over 92% availability • Apply best practices and economies of scale to reduce O&M costs to lowest in industry

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