Wind Farm Development

Thursday 16th November 2006

Introduction to Mott MacDonald
• Technical consultancy active in power, water,
transport, buildings, communication, education,
health etc
• Leading capability in power covering renewables,
thermal and nuclear
• Approximately 800 staff active in
power…equivalent of 90 in renewables
• Mott MacDonald’s renewable energy capability
focussed in Glasgow with wind, biomass and
marine technology skills
• Currently involved in 30+ wind projects across UK,
Europe and Asia
Introduction to SgurrEnergy

• Leading independent multi-disciplinary consultancy

specialising in renewables
• Based in Glasgow and Beijing
– Further international expansion planned
• Over 40 experienced professionals
• Accumulation of decades of experience
• Experience in over 20 countries
Drivers and Regulatory Structures
 UK Wind Project Development - Status
Onshore Offshore
Operational No. & MW No. & MW
START OF COMMERCIAL
England 49 210 3 153
OPERATIONS N. Ireland 11 89 0 0
Scotland 31 568 0 0
Wales 23 254 1 60
Total 114 1124 4 213

Decommissioning
Development

Procurement

Construction

Handover
Scheme

O&M
Pre-Construction
Onshore No. Offshore Under
Planning & MW No. & MW
Onshore Offshore
construction No. & MW No. & MW
England 43 822 6 2718 England 8 111 1 90
N. Ireland 29 599 0 0 N. Ireland 2 41 0 0
Construction
Scotland 74 5399 0 0 Scotland 14 523 0 0
Wales 14 183 0 0 Wales 3 46 1 60
Total 160 7006 6 2718 Total 27 722 2 150
Revenues available to a UK wind
generator
100
90 • A UK wind generator will be
able to earn revenue from
80 three sources; sales of
70 energy and ROCs and LECs
60 LEC • ROCs and LECs are tradable
£ /M W h

50 ROC green certificates issued for

Energy renewable generation – ROCs
40 derive from the Renewable
30 Obligation and LECs derive
20 from the Climate Change
Levy
10
0
ROCs – Renewable Obligation Certificates
• Derive from the Renewable Energy Obligation
introduced in April 2002
• Obligation on retailers to buy a certain percentage
of their energy from accredited renewables
generation – set at 3.2% in 2003, now 6.7%.
• If a retailer does not comply it pays a fine – buyout
penalty - now ~£33/MWh - on top of its energy cost
• Accredited renewables generators are issued ROCs
for energy produced - 1 ROC per 1 MWh
• Retailers buy ROCs to demonstrate compliance with
RO
 ROC recycle
• Buy-out payments are collected and are recycled to
holders of ROCs in proportion to their ROC holdings
• This means that a ROC has a value greater than the
buy-out price as holders of ROCs receive a share of
buyout monies
• The recycle bonus rises as the level of shortfall
increases
• If the RO target were met the ROC price would drop
to zero!
ROC values versus RO shortfall in
2006
70

60
ROC value: £/MWh

50

40

30

20

10

0
0 10 20 30 40 50
% shortfall on RO Target
Drivers of ROC prices
• Supply and demand
• Supply will depend on amount of renewable capacity built and
its utilisation – rule changes
• Demand is set by the RO targets
• Currently set to rise linearly to 10.4% in 2010

• View is that target will be raised after 2010 possibly to the

20% target aspired to.
• Buy-out prices indexed to inflation
• Banking of ROCs by suppliers/ traders may affect prices
• Dominant suppliers (which are also the main owners of RE
plant) will ensure that RO target is not met to stop ROC values
falling to zero
• Scheme is now being reviewed
RO Review - Issues
• There are a number of concerns regarding the
RO
• Rewards to lower cost renewable generators are too
generous
• There is considerable uncertainty regarding ROC prices,
especially after 2015
• There is a cliff edge for ROC prices if full compliance of
the RO is achieved
• Rewards for high cost more innovative renewable
generation are too small to support deployment
RO Review Outcomes
• Future ROC allocation may be banded. Mature
technologies likely to issued less ROCs per MWh than
selected promising but high cost technologies (like
PV).
• Scheme likely to be rolled out to 2020

• The recycle arrangements will be changed in order to

eliminate the possibility of ROC prices collapsing to
zero
• EU Commission still favours that all Europe moved to
feed-in tariffs
Climate Change Levy (CCL)
• Introduced in 2002, CCL is a tax on energy consumption by
large industrial and commercial users – not paid by generators
• Electricity is taxed at £4.3/MWh
• Energy from certain renewable sources and from qualifying
cogeneration is exempted and is issued a Levy Exemption
Certificate (LEC).
• Different set of renewables to RO – LECs include mini hydro
and municipal waste, while ROC don’t. ROCs include biomass
co-firing, LECs don’t
• LECs are sold with energy to suppliers/customers who can then
offset their CCL obligation (£4.3/MWh) – Can be separated for
output sold off-site
• Stand alone renewable generators can normally capture 85% of
LEC value
• Unclear how long tax will continue
Energy Review and Renewable Grid Issues
• One of the key issues that has delayed the
introduction of renewables and limits the
achievement of the 2010 target.
• ER06 states there is the need to resolve a
number of issues:
– Final Sums Liability (paying up front for
connection)
– Connection queues as a result of
increased interest in renewables
[Clustering, i.e. group connections
similar to NI, provide better network
planning but can disadvantage some
generators]
Transmission-
– Renewables lower transmission use of level issues
system charges?
Distribution and
– Need to change from ‘invest then Transmission-
connect’ to ‘connect and manage’ level issues
– Regulatory framework for offshore wind Distribution-
level issues
• All above issues were identified around
time of ER03
Stern Review of Economics of Climate
Change
• Sir Nicholas Stern’s review of the economics of
climate change has two key messages for
renewables
• Renewables are central part of the carbon
mitigation strategy
• There should be a huge scale up in funding of R&D
and deployment of low carbon technologies,
including renewables
Planning and Permitting Issues
Overview of Legislation
Windfarm consent needs are driven by legislation
• Planning permission/consent to build granted under
– Section 36 of Electricity Act for over 50MW
– Town and Country Planning Act for under 50MW
• Environmental Impact Assessment (EIA) needed for planning
applications
– The Electricity Works (Environmental Impact Assessment) Regulations 2000
– Town and Country Planning (Environmental Impact Assessment)
Regulations 1999
If require consent for grid connection
• Either Section 37 of Electricity Act or Town and Country Planning Act

• Also need an EIA for grid connection consent

Planning Process – Initial Stage
• Early consultation with key stakeholders
– Initial approach to local authority
no surprises later
– Seek initial views of key stakeholders

• Scoping of EIA
– Focus on key issues through consultation and discussion with key
stakeholders
– Time spent at scoping stage could save time later in process

• Identification of likely need for baseline studies

– Identify available data / data gaps early

• Develop public consultation strategy

• Landowner consultation
Interfaces
Statutory Consultees
(SEPA or EA, LPA, DTI or Scottish Public
Exec, English Nature or Consultees
SNH, MOD, CAA etc) Client

Environmental Technical
Transport/
Landscape and visual Routes
Ecology
Ornithology Engineering
Hydrology & hydrogeology Geology Layout
Noise Optimisation
Communications EIA
Civil
Archaeology preparation
Traffic & transport

Planning
Planning Process – EIA Stage
• Ensure project assessed covers all potential technical options

• EIA scope focussed on key issues in a robust manner e.g.

– landscape and visual impact including cumulative impact
– ornithology; presence of SPAs and SSSIs close to site ecology
– radar interference

• Input from experts capable of taking to Public Inquiry

• Supporting studies commissioned in timely manner and scope

agreed with key consultees
• Meeting project programme through management of large
environmental resource and sub-consultants
• Integration with the design process
– Ensure mitigation measures consistent with project design
Planning Process – Application Stage

• Maintain close interface with local planning

authority (LA) / Scottish Ministers (SM) after
application
• Respond to queries/requests for more information
in timely manner
• Close integration with project design team to try
and mitigate issues to avoid Public Inquiry
• Agree planning conditions with LA and SM
• Translate planning conditions into contractor
requirements
Public Consultation

• On going throughout the planning stage

• Manage flow of information / publicity to local
people and organisations – information voids can
fill with bad news !
• Understand the local and regional politicians –
background to phase 1 essential
• Review comments from third parties of previous
EIA’s and identify potential supporters and risks
Project Evaluation
Site Identification & Provisional Layout

• Wind resource and regime

– NOABL

– Reanalysis

• Grid connection

• Access and buildability

• Constraints
 Technical & Environmental Constraints
Houses
(noise,
Underground Shadow-flicker)
Cables /
Pipelines
Areas with
Historical
Importance

Roads Wildlife Areas

Overhead Landowner
Lines Boundary
Wind Regime Assessment

• Undertake wind regime assessment campaign using:

– Wind Monitoring Masts

– SODAR

– LIDAR

• Monitor for 12 months or more

• Monitor at multiple locations

 Measured Turbulence Intensity & Wind Shear
Measured and Modeled Turbulence with
Height

Ambient turbulence 60

intensity and… 50

40

Height (m)
30
Modeled
Fit
20
Measured
10 Data
0
Measured and Modeled Wind Shear in Forestry
0% 10% 20% 30% 40%

80 Tubulence (%)
Height Above Ground Level (m)

70 Open Moorland
60
Wind Shear Zo =
0.4
50
Forested Area
…wind shear must be
40
Wind Shear
30

20
Theoretical accounted for in
fatigue life calculations
10 Forest Wind
Shear based on
0 Zo = 0.8
0 1 2 3 4 5 6 7 8
Av e rage Wind Spe e d (m/s)
Added Turbulence

• Wake induced turbulence must also

be investigated.
• Modified Sten Frandsen model
combined with far wake modelling
Plotting predicted CTI against IEC threshold

35%
Characteristic Turbulence Intensity

30%

Plotting predicted CTI against IEC threshold

25%
35%
CTI (V90
2MW )
IEC 61400
20%
threshold
Characteristic Turbulence Intensity

30%

15%

25% CTI (Bonus

2.3)
10%
0 5 10 15 20 25 IEC 61400
20% threshold
Wind Speed (m/s)

15%

10%
0 5 10 15 20 25
Wind Speed (m/s)
Impact of Complex Roughness
Complex roughness, such as buildings and forestry has
significant impact on wind turbine operation.
These features produce higher than specified turbulence
intensity & wind shear.
Effects on:
– Power Curve
– Operational Loads
– Fatigue Life

The effects of trees are further

complicated by growth and felling
Extreme Wind Speed

• Analysis typically
performed only at site
mast
• Two methodologies for
Extreme Wind
• WAsP Engineering to
model gust values
across the site
 Components of a Wind Turbine
(Model shown is Vestas V80)
Nacelle Oil cooler

Rotor
blades
Ultrasonic
sensors Hub
controller
High voltage
transformer
Main shaft
Electrical
generator
Gearbox Yaw gears Hydraulic
system
Tower
 Technology Selection
• IEC Classification
– Mean & Extreme Wind Speed
– Turbulence Intensity
– Wind Shear

• Compliance
– Noise Emission
– Grid Code Compliance
– Environmental Conditions

• Economic Viability
– Production
– Cost
Energy Yield Modelling
• Final layout iteration
– Compromise between
maximum production and
constraints
• Predict energy yield
– Rigorous quality checks
– Multiple MCP techniques
– Model validation and tuning
– Complex forestry modelling
– Quantification of
uncertainty
Performance Testing

• Power performance testing

• Noise compliance
• Planning & environmental compliance
• Grid code compliance
Project Procurement and Financing
Overview of Contracting Strategies
- Who and Why
• EPC Contracts
– Majority of risks on Contractor
– One contract to deal with
– Sometimes developers with little experience or as a pre-
requisite to Project Financing
• Multi-Contract
– Lower overall costs
– Increased competition; more choice of contractors
– Usually developers with sufficient in house experience or
good OE support, using own funds
– Prevalent for UK onshore projects
EPC Contracts

• Single Contractor
– Takes most of the risks, handles the interface workload and
risks, provides price certainty
– More expensive than multi-contract; risk premium added in
– Not always the WTG supplier who leads
– Can be for multiple sites

• Owner still needs to do front-end development and

gain permits
• Owner may also need technical support
Multi-Contract

• Multiple Contractors covering several scopes

– Electrical, civil, WTG supply, grid connection
– Lower overall cost
– Owner takes interface risk and has much higher workload

• Owner still needs to do front-end development and

gain permits
• Several contracts to negotiate instead of one
• Owner likely to need more technical or project
management support
Sources of Funding…

Equity Debt

Investors Project
Shares i.e. VC Finance Subordinated
Bonds Debt
Standby
Equity Mezzanine
Finance
• Return on Investment • Definite Term
• Payback period • Financial Market Rates
• Initial commitment • Fees
• Guarantees/Support • Cover Ratios
Why Project Finance…Depends on who
you are?
PF for Sponsors PF for Utilities/Govt
• Insulation from Project Debt and •Access to foreign investment
Risks!
•Foreign skills and know how
•Spread of risks for large projects
•Outside Public Sector Borrowing
•Off balance sheet
•Accelerates non-priority projects
•Corporate borrowing restrictions
•Tax advantages
•Risk sharing
Project Finance…why not!

• Time…..

• Project scale…..
Project Structure
Financial Risks Market Risks

Banks Suppliers
Credit Supply
Sponsors Agreements Agreements Offtakers

Shareholder Offtake
Agreements Agreements
Project Company

Consents/ O&M
Permits Agreement
Concession Construction
Agreement Agreement
Local
Legislation Operator
Contractor
Government Construction & Operation Risks

Legal & Regulatory Risks

Implications of Gearing and Non/Limited
Recourse Nature
•Turbine Technology - turbine reliability issues ranging
from minor to very major
•EPC risk – Wrapped EPC no longer essential for banks
but is risk pricing sufficiently clear?
•Operations - Availability of third-party maintenance
providers post warranty period
•Offtake Risk – Firm Power Purchase Agreement (PPA)
and confidence regarding Green Certificates
•Wind Risk – Confidence needed in P50 or P90 value in
FM
Summary
•Drivers
•Market drivers in the UK are sufficiently strong to ensure
continued growth of RE projects. ROC improvements will
reinforce this
•Barriers
•Availability of grid connection and planning consent are the
major obstacles to the rate of deployment
•Development Focus
•An awareness of project financing and project risks is a
requirement from the outset – all technical and environmental
issues must ultimately relate to these
Summary
•Contract Strategy
•Need to adopt contract strategy based on resources and
attitude to risk
•Financing
•Financing options must be considered from the outset to
ensure the project is developed appropriately
•Need to understand how to match project structure and risk
profile to financing options
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