Presentation to the Renewable Energy Finance Forum, London 2010, on the management of risk throughout the life-cycle of a wind energy project, and the continuing evolution of best-practice in project due diligence.

1. Neil Douglas
Technical Director, Natural Power
Managing Risk Through The Project Life-Cycle
SEPTEMBER 2010

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Content
1. Natural Power: An Overview
2. Project and Portfolio Due Diligence: Best Practice Life-cycle Approach
3. Trends and Innovation in Due Diligence
4. Emerging Challenges : Complexities in Onshore and Offshore Wind
APRIL 2010
SEPTEMBER 2010

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Life-cycle renewable Core services:
energy consultancy and Resource analysis, design and risk reduction
management services Project design, EIA and consents management
Construction and contract management
Turbine technology expertise
Established in 1996
Asset management and performance analysis
360o Due diligence
140 staff in 12 offices
throughout Europe
Technical innovation for risk reduction
and Americas ForeSite - Power forecasting
WindCentre - 24/7 control room
Ventos – CFD for Complex Flow 2010
APRIL Analysis
ZephIR – wind lidar
OceanPod – Offshore data platform
SEPTEMBER 2010

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APRIL 2010
SEPTEMBER 2010

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• Client base: International Utilities, Debt and Equity Providers, IPPs
• Key Experience:
• 20GW+ of bankable energy yield and due diligence studies
• 2000MW+ of project consent on behalf of a diverse client base
• 600MW of construction management projects
APRIL 2010
• 600MW of wind plant under our asset management services
SEPTEMBER 2010

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• Partners in offshore wind and marine renewables with SeaRoc
• Marine operations management
• Port and vessels auditing
• Offshore engineering
• Offshore QHSE
• Data management
• SeaPlanner™
• Offshore wind farm project due diligence APRIL 2010
SEPTEMBER 2010

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Project and Portfolio Due Diligence: Best Practice Approach
The 4 key criteria:
Consentable reasonable prospect of gaining workable planning permits
Buildable economic solutions to construction challenges
Financeable secure contracts (turbines, BOP, PPA) and bankable reports
Operable capable of low-risk, high-availability, long-term generation
APRIL 2010
Shift in focus throughout the project life-cycle
SEPTEMBER 2010

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• Pipeline and pre-construction projects (typically acquisition transactions)
• Focus tends to be on...
• Development team: resources and ability to deliver
• PPA market (FiT, CfP, merchant, certificate)
• Land agreements and option leases
• Environmental constraints, policy, community, stakeholders =>Consents
• Wind quantity and quality: Energy, siting and warranties
• Confirming construction and access solutions
• Grid connection agreement process
• Cost of energy model - £/GWh APRIL 2010
Focus on ensuring project is Consentable, Financeable and Buildable
SEPTEMBER 2010

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• Construction phase projects (debt, equity and acquisition transactions)
• Focus on...
• Power Purchase Agreement
• Detailed energy yield analysis and site classification
• Turbine and service suppliers; contracts and warranties
• Balance of Plant suppliers and contracts
• Grid connection agreements
• Planning conditions (discharge and risks)
Focus on ensuring project is Buildable, Financeable and Operable APRIL 2010
SEPTEMBER 2010

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• Operational projects (refinancing/acquisition transactions and ongoing
investment management)
• Focus shifts to...
• Historical energy production and budget performance analysis
• PPA
• Operational costs
• Operational management strategies
• Turbine and infrastructure condition inspections
• End of warranty issues
APRIL 2010
Focus on ensuring project is Operable and Re-financeable
SEPTEMBER 2010

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Trends in the Finance Market
• Internationalisation and consolidation (Europe and US)
• Evolution of debt and equity provider risk profiles
• Shorter debt terms leading to more pro-active investment
• The rise of private equity
• Earlier and phased due-diligence
• More depth and detail required at financial close APRIL 2010
• Life-cycle project assessment – a standardised Project Credit Rating
SEPTEMBER 2010

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Trends in the Project Market
• Fluid and growing market – consolidation
• Higher risk projects (consenting issues and technical complexity)
• Reduced number of wind projects that meet the highest standards
• More complex PPA structures
• Offshore – increasing interest from debt providers
• Biomass – significant expansion (feedstock the key)
• Marine – over the horizon (proving devices remains king) APRIL 2010
SEPTEMBER 2010

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Trends in the Approach to Due Diligence
• All players are operating in a maturing market
• Well-established stable of recognised TAs and DD providers
• Second opinion on key project issues (energy yield, foundations, etc)
• Application of present day best-practice and tools/methods
• Smart, well informed investors
• Sophisticated knowledge and experience
• Application of lessons learned
• Pro-active portfolio and fleet management APRIL 2010
• Debt investors thinking more like equity investors
SEPTEMBER 2010

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Innovation in Due Diligence: Technology
• Application of new technologies in risk management
• CFD for complex flow analysis
• Meso-scale climate modelling for use in yield prediction
• Lidar (laser anemometry) for high-density resource data collection
• Referenced and proven tools/methods/assumptions – No Black Boxes
• Sophistication in energy yield uncertainty analysis
• Beware single points – understand the curves
APRIL 2010
• Application of operational experience: reality v’s predictions
SEPTEMBER 2010

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Emerging Challenges: Complex Flow on Onshore Wind Farms
Risks:
• Increasing presence of complex flow due to forestry and complex terrain (higher
risk projects) = Turbulence, shear, inflow angle, veer
• Risk of turbine power curve under-performance and inaccuracies in EYA
• Risk of increased maintenance costs and turbine fatigue (and failures) APRIL 2010
SEPTEMBER 2010

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Emerging Challenges: Complex Flow on Onshore Wind Farms
Mitigation:
• Thorough, high-density data collection
• Take an advanced modelling approach to understand the wind quality - CFD
• Reduces risks in turbine micro-siting, site classification and energy yield analysis
• Post-construction: detailed appraisal and turbine management APRIL 2010
SEPTEMBER 2010

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Emerging Challenges: Project Complexity Offshore
• Cost of early wind data collection is often viewed as prohibitive (£3-5m)
• Wake models for vast and dense offshore projects: area of active research
• Significant implications for uncertainty of energy yield predictions
• 1% difference between P50 and P90 (10 year) for a 250MW = ~£800k of provable
revenue per annum
• Inter-dependancy between technical and operational disciplines offshore
• e.g. Vessels – MetOcean – Accessibility - O&M Strategy – Forecasting = GWh
APRIL 2010
• Mitigation: Application of state of the art modelling tools and methods
SEPTEMBER 2010

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Conclusions:
• Increasing sophistication in wind energy finance market
• Growing but challenging project market (both quantity and quality)
• Increasing capability of available tools to address risks and identify opportunity
• Trend towards a fluid market in repackaging
• Changes in risk profiles and terms
• More pro-active project management by lenders (both debt and equity)
APRIL 2010
SEPTEMBER 2010

19. Thank you.
neild@naturalpower.com
www.naturalpower.com/duediligence
SEPTEMBER 2010