V SEPA GREEN POWER PARTNERSHIP9 Aligning Green Power Partners with New Renewable Energy Projects Pilot Project Summary Project Name: Bear Creek Wind Project Developer Name: PlainStates Energy, LLC Contact Information: John Ihle, ljihle@rrt.net Renewable Energy Type: Wind Total Planned Megawatt (MW) Size: 47.5 MW Phase I: 30 MW Phase II: 17.5 MW The project has been permitted for 47.5 MW. The project's interconnection applications to the Midwest Independent System Operator (MISO), the governing authority over interconnection in the upper Midwest, were done through two applications. Bear Creek is part of a portfolio of projects totaling 167.5 MW in capacity. Project Location: Bear Creek is located in N.W. Todd County, Minnesota, near the community of Hewitt, Minnesota. Is the project permitted?: Yes. State permits were acquired through the Minnesota Public Utility Commission ("MPUC") for Large Wind Energy Conversion Systems "LWECS"). The permit write-up and issued permit is posted on line at the Minnesota Public Utilities Commission website. We will be pleased to provide a link for your review if there is interest in this project. The permit process included public meetings and a thorough process to review local, state and federal (including radar) concerns through a formal comment period. Concerned citizens had the right to challenge and stop the project through written responses, then by legal authority. There were no challenges and in fact the local community and county government strongly support this project. Subsequently, at the end of the 6 month comment period the MPUC issued a permit for the project that will comply with issues relating to; noise, flicker, communication disruption concerns, health (low frequency noise), transportation, traffic control, security, operations and maintenance, set-backs, pollution control (primarily erosion from construction processes), wildlife and scientific areas, production, long term operations/maintenance, project costs as well as addressing several other pertinent concerns. Some of the federal and state agencies included; the US Fish & Wildlife, U.S. Corps ------- of Engineers, Minnesota Department of Natural Resources, Minnesota Department of Transportation, local soil and water conservation districts, and a host of other agencies. As mentioned, the MPUC permit complies with local township and county concerns, however, interfacing with the local officials once the project's construction process is started will be necessary. As indicated in the permit; electrical permits, access road permits (when and where needed), as well as other interface with local officials will be necessary once construction is imminent. If not, what is the permit status? What is the status of the project's site?: Thirty five year land leases have been secured and several local and public meetings have been held to discuss the project's impacts and local concerns as well as what we think are benefits both from environmental and economic perspectives. Have land leases been filed with the county?: No. Land leases have not been filed with the county because we have not wanted to "tie up" property in a complicated process to reverse the filing in the event the project does not happen. The project developer believes it is more respectful to wait to file until construction is imminent. What is the status of interconnection, and have system impact and facility studies been completed? (Distribution or transmission level projects are both eligible): System Impact Studies, Facility Studies are completed. An interconnection agreement will be acquired the fall/winter of 2011 for 30 MW. Phase ll's interconnection time frame is uncertain although we have a completed system impact study indicating no major impacts to the transmission system. We would like to complete Phase I first. Does the transmission owner (TO) or independent system operator (ISO) have a process to study the project's impact on the local or regional grid and the subsequent cost to interconnect?: Yes. The interconnection application was filed with the Midwest Independent System Operator ("MISO"). The transmission owner ("TO") is Minnesota Power. Minnesota Power is a member of MISO. Once applications are filed MISO provides an opportunity for the TO to study the feasibility, system impact and the facility costs to interconnect. Minnesota Power completed these studies. It was found there was no adverse impact on the transmission system and subsequent facility studies indicate a relatively inexpensive interconnection that will be paid to Minnesota Power to interconnect the project to Minnesota Power's transmission system. The project's system impact study showed the project was located in a favorable location with respect to system impact which is reflected in the facility study. What is the status of the Environmental Impact Statement?: Bear Creek has a state issued permit for the construction of this project. The state site permit issued for Bear Creek includes a quasi EIS and once the state issues a permit for the project it is the final say. However, the state site permit at least meets or exceeds local permit ordinances if any are in place. The project permitting process includes input from the Minnesota Departments of Natural Resources and the Department of Transportation and the Pollution Control Agency, United States Fish and Wildlife and several other federal, state and local agencies. Also, aspects ------- of the permit include micro wave beam path studies, noise studies or stipulations that the project will ensure the project will comply with state ordinances and/or processes pertinent to wind energy construction, and operations and maintenance over the period the project is permitted for. Is any element of the project - technology or other - experimental or pilot-phase?: No. Our project intends to utilize Repower wind turbines. Repower has a long established track record and manufactures high quality equipment. It may be worth noting that one of the reasons the project developer "picked" this particular site several years ago was that its geographic location was far away from transmission constrained areas. However, the wind resource was relatively low in comparison areas where there was robust wind energy development. Technology, because of the increases in rotor diameter verses generator nameplate capacity the project can deliver comparable capacity factors (power production) with other projects in more robust areas. One additional benefit with lower wind regimes is that the wear and tear on the equipment is much less than would be in a higher wind resource area. What is the long- and short-term operations program of the project? Does the renewable energy technology manufacturer have a technical support team locally available?: The turbine manufacturer; Repower, does not have a local team in place. Several manufacturers are utilizing local maintenance teams such as EMS, Outland and others located in our state. Short term maintenance plan includes; As part of the Turbine Supply Agreement Repower will be responsible to provide operations and maintenance (O&M) during the turbine warranty period. PlainStates Energy will provide project management and support to REpower and the project finance team during the warranty period. This approach will ensure timely response to maximize production. As part of the O&M and Turbine Supply Agreement REpower will be accountable to ensure, on a year to year basis, a 97% availability for their equipment. Along with this availability Repower will be accountable to ensure their equipment produces power as per manufacturer's stated projections. Repower will be responsible for O&M during the warranty period. Towards the end of the warranty period the project will have the option to extend the warranty. During the warranty period PlainStates Energy will act as on site owner representatives. Longer term maintenance plan includes; Prior to the expiration of warranty period PlainStates intends to discuss with principals of the project the possibility to extend the warranty period. These discussions will include the choice to contract with manufacturer or independent maintenance services for O&M responsibilities. This option may include the potential for PlainStates Energy to assume O&M responsibilities. This will be a decision for the finance team to make prior to the warranty period expiring. PlainStates Energy's principals have over 45 years cumulative background in construction, operations and maintenance and have worked with or for some of the largest developer owners in the world ((Bonus (now Siemens), Acciona, PNE)). As indicated we anticipate acting as owner representatives for finance partners to ensure safe, prompt and professional response to issues which will inevitably arise. During the warranty period it is within PlainStates Energy plan to develop in house capabilities to ensure high quality operations and maintenance for projects we are participating in or that we've developed. ------- For wind projects, has a meteorological tower been installed? If yes, when was the tower installed and how much data has been collected?: A meteorological ("met") tower was installed in late fall of 2006 and started collecting data in early December of 2006. Thus far almost 4.5 years of data have been collected. With an overall height of 65 meters the met tower is collecting wind speed data at three levels; 40, 50 and 62 meters. There are two windvanes collecting wind direction data. Who has analyzed the data and what is that person's experience with respect to projects that have actually been financed?: Ron Nirenberg is a consulting meteorologist who has facilitated the finance of over 8,000 megawatts. Ron has been working as a meteorologist directly with wind projects since the early 1980's. He has been involved with several wind projects located in Minnesota and the upper Midwest. Can the turbine manufacturer be financed through "traditional" tax equity and debt in the U.S.?: Yes. Provide a short summary of how you view project finance and structure/ownership: Our energy project will be financed through a partnership between the following five entities: • financing for construction provided by local contractors and local banks • turbine manufacturer providing turbine supply financing • pre sale of renewable energy credits providing equity and/or debt • tax equity investment to capture production tax credits and depreciation • debt on remaining required capital costs. We anticipate pre REC sales for the project for a 10 year period will be required to raise enough capital to interest tax equity and to secure the debt needed to properly structure the financing. In return, the REC purchaser will be offered an ownership option for a 35 year period. The responsibilities of these five entities are outlined below. Construction Finance/Turbine Supply. This would be provided through a combination of local banks and the turbine manufacturer. Construction costs would be paid through REC sales, the provision of tax equity and/or debt. The exit strategy for the manufacturer would include being taken out of the project within 3 months of commercial operation which will be through the same means listed above. Equitv/RECs. We would like to explore a structure with a partner to construct our project involving equity in the form of renewable energy credit ("REC") upfront sales or a binding contract for 100% of REC sales for a 5 - 10 year term. For this project REC production is estimated at over 71,000/year (1 REC equals 1,000 kwhrs). Tax Equity Once a REC purchase off take deal is imminent a tax equity partner would be found. The tax equity partner may capture all or a percentage of production tax benefits as well as depreciation. ------- Debt To mitigate risk from for a debt lender we will utilize the REC sales to buy down the required capital cost needed from a lending institution. The purpose for REC purchases is to facilitate financing needed from tax equity and/or from a lending institution by offsetting the capital needed to bring the project to construction. We know the need for tax equity and debt necessary will be substantially lower than traditionally structured projects if our project could pre-sell all of our RECs generated over a 10 year period. Energy Sales. On-going operational costs will be provided by energy sales into the locational market pricing (LMP) available in our MISO market. This market allows the project to sell into the market by way of forecasting day ahead production. Currently the LMP market average pricing is hovering at $33.00/mwhr which is adequate to service debt and operational activity of the project if enough revenue can be generated through REC sales and a tax equity partner can be found to achieve appropriate debt service coverage ratios of approximately 1.4%. Structure. The completed project will be structured with energy revenues from merchant electricity sales providing for year to year operational costs including debt service. Profits will be split between the tax equity investor to facilitate their targeted return expectation (IRR), as well as the REC purchaser and the local sponsor. We anticipate the tax equity partner receiving a return for the first 10-12 years equaling about 10 - 12% IRR along with approximately 90 - 95% of the project's ownership during this period. Once tax equity reaches their targeted return a "flip" would occur as per Internal Revenue Service (IRS) rules. The flip would return a majority of ownership to the local sponsor partnership. The local sponsors expect that the project can retain a high percentage of ownership after the flip which will be determined by tax equity and IRS rules. We are open to discuss after flip percentages of ownership with the REC purchaser. However, to simplify project ownership and finance, the project's local sponsors do not necessarily require ownership and are open to discussing any number of creative structures to facilitate construction and commercial operation. Nevertheless, we would like to explore a shared ownership structure between the local sponsors and the REC purchaser, after the flip. We believe future electricity prices will rise over the next several years once the economy recovers. The project also believes that there will be opportunity to sell to industrial end users or other utilities that fall short of state mandates. We believe there will eventually be any number of federal and state pollution control mandates stemming from coal fired plants. For these reasons we believe that merchant power off take is far superior to acquiring low power pricing through power purchase agreements; especially over the long term of 10 - 35 years and especially at the current pricing being offered by utilities which are essentially the same as the LMP (merchant pricing) of $33.00/mwhr/year. What are your ideal types of prospective institutions/partners?: Our ideal partner(s) would be those that view renewable energy as good for the environment, has an interest in lessening their carbon footprint and have an interest in facilitating locally owned wind projects. ------- What is the intended off-take for the renewable power with respect to bundled or unbundled products and is there a preference? Our preference is to bundle the project's energy attributes. The off take arrangement for the project will sell into the "merchant" market without a power purchase agreement. As we allude to above, when selling electricity as a merchant project the RECs ownership and all other attributes, including transmission, stay with the project. With a power purchase agreement green power and transmission attributes are not adequately being compensated. From a longer term view of the electricity market many believe, including Bear Creek's local sponsors, that structured merchant projects, which have the capability to bundle products, while more difficult to accomplish are far superior over the longer view to those with low priced power agreements currently available through electric utilities. ------- |