Hackstaff Gessler LLC Developer Evaluation(1) Brad Haight (2) Hackstaff Gessler LLC 1601 Blake Street, Suite 301 Denver, CO 80202 303-534 534-43174317 bhaight@hackstaffgessler.com www.hackstaffgessler.com
Renewable energy drivers Federal incentives (e.g. Production Tax Credit and Investment Tax Credit and accelerated depreciation) State mandates (i.e. renewable portfolio standards) Increasing fossil-fuel fuel power costs Improved equipment and technology Increasing utility comfort and familiarity with intermittent resources Climate change concerns (and related regulatory issues) Foreign developer entry in the US wind business Threat of a carbon tax or cap and trade system
Wind energy potential, alone By the end of 2007, wind energy accounted for less than 1% of US electricity production(3) Potential for wind energy to supply 20% of US electricity(4) (compare 20% of Danish electricity supplied by wind; 9% in Spain; 7% in Germany(5) ) By third quarter 2007, 13,884 installed MW in the US, with 5720 MW under construction(6) (6) To satisfy 20% of US electricity production (based on current figures and without considering increased electricity consumption), over 250,000 MW of wind must be built
Why developer evaluation? The dynamic, rich market means more developers from which to choose and more developer competition Developers are not created equal Protect your opportunity Avoid wasting time -- At the very least, renewables project development requires an extraordinary time commitment, and you want to commit your time to the best-suited suited developer Ensure the developer s s plan and abilities match your plan and requirements
When to evaluate a developer? Principally, before signing documents, particularly before signing final agreements, but also before signing an LOI or NDA Pre-execution execution evaluation will help you define your interests and requirements During development (to keep the developer honest)
Sample developer checklist DEVELOPER BACKGROUND Formation, corporate information Human and financial resources (e.g. employee experience; principal investor(s) ) and amount(s)) Financial condition; backing Development relationships (e.g. EPC and BOP) Supply agreements (what manufacturer(s), number of units, forward pricing arrangements) Litigation
Checklist (cont d) DEVELOPMENT AND OPERATIONS HISTORY Projects developed and/or co- developed (locations, number, and size) Projects operating (locations, number, and size) Projects sold (when in the development/operation cycle, where, why, and to whom) Percentage of projects developed (historical) Development, construction, and operations financing for projects (e.g. balance sheet financing or otherwise) Equipment used and supply arrangements
Checklist (cont d) PROJECT PARTICULARS Individual developer (and his/her experience) Target project size Total acreage required Total acreage leased Intended number of MW on property Property to be encumbered Intended power purchaser(s) Project sale plans, possibilities
Checklist (cont d) PROJECT STATUS Assessment status (e.g. meteorological towers installed (if so, when and where)) Resource information (e.g. capacity factors, insolation level) Interconnection (study, application, and/or agreement) Studies (archaeological, avian, environmental, soils,.) Anticipated equipment or equipment supply arrangements (type and size; order status)
Checklist (cont d) PROJECT INTERCONNECTION AND TRANSMISSION Transmission route and interconnection location Transmission and interconnection studies Existing capacity on proposed lines and at proposed interconnection Transmission to be built, capacity to be upgraded Rights of way secured and to secure
Checklist (cont d) AGREEMENT (e.g. easement/lease) Form provided Wind, only (e.g. no separate transmission easement or easement for other forms of energy production) Term and renewal Development milestones (e.g. assessment, studies, land rights) Development covenant (e.g. minimum MW to be installed on property)
Checklist (cont d) OTHER PROJECTS Other projects being pursued Area(s) where other project(s) being pursued Intended power purchaser for other project(s) Priority rank of project proposed to other project(s)
Checklist (cont d) COMPENSATION Execution fee Option/evaluation fee Installation fee Royalty percentage and escalator; minimum royalty and escalator Miscellaneous fees (transmission, substation, roads, renewal fees)
Checklist (cont d) OWNER DEVELOPMENT Small turbine (smaller than 150 kw) development Solar development Mineral development
Conclusion Do your homework Evaluate all aspects of the developer and project, not just the economics You may only get one bite at the apple, and therefore partnering with a developer that offers the best chance of development is critical
Endnotes (1) No part of this presentation may be considered or substituted for professional advice, such as accounting, legal, and tax advice. Before considering any project opportunity, project participants should engage professional advisors. (2) Brad Haight practices renewable energy law. Primarily, he represents ents developers and landowners (both individuals and groups) in wind and solar projects in CA, CO, KS, NE, NM, TX, and WY. He also represents ents designers and manufacturers of renewable energy equipment and developers of small solar and wind projects. Lawyers with Brad s s firm are also licensed to practice in IL, KS, NE, and TX. (3) http://www.awea.org/pubs/factsheets/windpowertoday_2007.pdf (4) id. (5) http://en.wikipedia.org/wiki/wind_power (6) http://www.awea.org/projects/ (7) http://www1.eere.energy.gov/windandhydro/wind_research.html