Texas Wind Energy: Where Are We Now?

Texas Wind Energy: Where Are We Now? April 2009 University of Texas Permian Basin -- Innovative Energy Commercialization Opportunities

2 Our wind corridor is second to none. New Yorker Magazine

US Wind Development Landscape 3

Texas The Saudi Arabia of Wind Kilowatt hours per square meter per hour Source: Central and South West Corp. 4

ERCOT Wind Growth Continues ERCOT is already close to exceeding the 5 GW of wind capacity required by 2015 under the Texas Renewable Portfolio Standard, making Texas the #1 state for wind development MW 10,000 Incremental wind capacity installed Cumulative wind capacity installed 9,014 7,500 5,000 4,726 4,288 2,878 2,500 0 1,857 1,848 1,387 1,175 1,021 701 817 978 470 116 116 116 161 197 212 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5 Source: Presentation on ERCOT Transmission Optimization Study http://www.gcpa.org

ERCOT Interconnection Pipeline MW 40,000 35,000 34,564 30,000 25,000 20,000 17,390 15,000 10,000 9,949 12,386 5,000 0 425 Other Coal Nuclear Natural Gas Wind 6

What are Texas Wind Farms Located? MW Region Totals New Sweetwater, 945, 7% Sweetwater, 2,912, 13% Midland, 2,358, 16% McCamey, 3,238, 15% Panhandle, 8,509, 38% McCamey, 2,883, 20% McCamey, 355, 5% Existing Panhandle, 210, 3% Panhandle, 8,299, 57% Midland, 7,580, 34% Sweetwater, 1,967, 25% Midland, 5,222, 67%

Where are Wind Farms Located? Existing Generation 450 900 1,350 1,800 Projects under Study 450 900 1,350 1,800 Projects with Interconnection Agreement 450 900 1,350 1,800 Notes Circles are not centered on county Projects in multiple counties are shown in 1 st county listed in GINR 8 02/13/2009

New and Existing Wind Farm Locations by County Crockett Armstrong Kent Castro Callahan Martin DICKENS Reagan Mitchell Motley Glasscock STERLING Haskell Roberts Deaf Smith Tom Green Gray Upton Briscoe Shackelford Nolan Howard TAYLOR Borden COKE Floyd Scurry 9

What Companies are Building New Wind Farms? Panhandle 9,250 (13,250 w/mesa) Airtricity 1,800 Babcock & Brown 1,000 BP 550 Chermac 500 Cielo/Salt Fork 640 McDowell Ranch 100+ Mesa 4,000 PPM 500 Shell 3,000 Horizon 600 RES 600 Invenergy * BP 550 Eurus 200 10 Midland/Sweetwater 3,116+ AES SeaWest 548 BP 200 (also Z7, Z12) BNB 225 FPLE 750 + Invenergy 1,393 NRG * Tierra * RES 400 McCamey 2,040+ BP 1,300 Cielo/Noelke Hill 240 Fremantle * Horizon 500 NRG * RES *

1/1/2008 1/15/2008 1/29/2008 2/12/2008 2/26/2008 3/11/2008 3/25/2008 4/8/2008 4/22/2008 5/6/2008 5/20/2008 6/3/2008 6/17/2008 7/1/2008 7/15/2008 7/29/2008 8/12/2008 8/26/2008 9/9/2008 9/23/2008 10/7/2008 10/21/2008 11/4/2008 11/18/2008 12/2/2008 12/16/2008 12/30/2008 2008 Wind Installed Capacity and Hourly Output Installed Wind Capacity 8,111 Hourly Wind Output 3,801.3 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 11

ERC Scena OT rio Co2mpetitive Renewable Energy Zones Texas plans to add 18,000 MW of transmission to support wind development Double circuit 345KV transmission line Single circuit 345KV transmission line Addition of second circuit to the existing 345KV structure Single circuit 138KV transmission line Addition of second circuit to the existing 138KV structure Existing 345KV substation Existing 138KV substation New 345KV substation New 345KV substation with 345/138KV autotransformer Wind power collection point 12

How Much Wind Power will CREZ actually add? Panhandle A 3,191 Panhandle B 2,393 McCamey 1,859 Central 3,047 Central West 1,063 Total New Wind 11,553 MW Existing Wind 6,903 Total All Wind 18,456 MW 13

CREZ Transmission Construction Contract Awards by the Texas PUC $1.34 b $789 m $750 m $564 m $402 m $394 m $390 m Oncor Electric Transmission Texas (AEP/MidAm) Lower Colorado River Authority Lone Star Transmission: (FPL) Wind Energy Transmission Texas (Insolox/Spain) Sharyland Utilities (Hunt) Cross Texas Transmission (LS Power) 14

Who is Building the CREZ Lines? 15

CREZ Transmission Plan Which Lines are Being Built First? 16

CREZ Timeline 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ERCOT ERCOT Senate Bill 20 CREZ Rule CREZ Designation TSP Select CCN Prep CCN Design and Construct 17

Emerging Issues with Wind Energy Reliability issues: How does ERCOT keep the lights on given the intermittent, unpredictable nature of wind Supply and demand issues: How much wind can the ERCOT market support and what happens if there s too much wind? Solar development: How much solar will be built in Texas and how will it impact the grid? 18

Near Miss on the Texas Grid? Reliability Problems Caused By Wind February 22, 2008 -- Near Miss on the Texas Grid 19

ERCOT Wind Potential 40,000 22,000 18,000 ERCOT Transmission Gap 9,000 9,000 Existing Wind Capacity Incremental Projects CREZ Projects Transmission Gap Wind proposals 20

Hourly Load (MW) Impact of Wind on Base-load Generation 90,000 80,000 70,000 Load and Net Load Duration Curves 60,000 50,000 40,000 30,000 20,000 10,000 0 Publicly Announced Coal Projects: 3,800 MW Publicly Announced Nuclear Projects (NRG, Exelon, Luminant): 9,200 MW Existing Coal Generation: 15,700 MW Existing Nuclear Generation: 4,900 MW 1 1,001 2,001 3,001 4,001 5,001 6,001 7,001 8,001 Sorted Hour 2017 Load Duration Curve 2017 Net Load Duration Curve (18,456 MW Wind) 21

Pricing Problems Caused by Wind Capacity Time Period 7x16 Average 7x8 Average Number of negative intervals Max. Price Number of Instances Minimum Price Number of instances 2006 $57.41 $39.35 75 $1,003 1 ($950) 1 2007 $57.18 $42.19 338 $1,534 1 ($999) 3 Jan 2008 $52.82 $47.30 248 $1,500 2 ($86) 1 Feb 2008 $54.04 $46.02 214 $1,500 2 ($77) 1 March 2008 $43.60 $11.38 933 $2,303 2 ($1,938) 1 Unusual pricing behavior High Volatility 22

Texas s Solar Energy Opportunity 23

(MW) (MW) How does Texas s Solar Resource Compare to other States? 2007 Cumulative Installed Capacity (MW) for Texas and Comparable States 2015 Technical Potential for Texas and Comparable States 600 500 90,000 80,000 70,000 400 60,000 300 200 50,000 40,000 30,000 100 0 AZ CA CO NJ TX 20,000 10,000 0 AZ CA CO NJ TX 24

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ERCOT Wind Survey Results 2/13 ERCOT Presentation to RPG Wind Projects in Process CREZ Nominated Projects Non-CREZ Nominated Projects 22,743 28,245 29,065 5,793 861 6,654 2,318 9,039 2,603 2,318 581 Operational Inconstruction? Operational CREZ Total Wind Generation CREZ Nominated IA No INR INR Non-CREZ 27

What Companies are Building New Wind Farms? Panhandle Zone 4 5,090 (9,090 w/mesa) Airtricity 1,800 Babcock & Brown 1,000 BP 550 (½ in Zone 2) Chermac 500 Cielo/Salt Fork 640 McDowell Ranch 100+ Mesa 4,000 ( in negotiations for 200,000 ac. ) PPM 500 Panhandle Zone 2 4,160 Shell 3,000 Horizon 600 RES 600 Invenergy * BP 550 (= ½ in Zone 2) Eurus 200 Midland/Sweetwater Zones 9, 10 3,116+ AES SeaWest 548 BP 200 (also Z7, Z12) BNB 225 FPLE 750 + Invenergy 1,393 NRG * Tierra * RES 400 McCamey Zones 5, 6 2,040+ BP 1,300 Cielo/Noelke Hill 240 Fremantle * Horizon 500 NRG * RES * 28

title Wind Projects MW Under Full Studies 750 1,500 2,250 Wind Projects MW with SGIA 750 1,500 2,250 29 02/13/2009

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CREZ Timeline 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 ERCOT ERCOT Senate Bill 20 CREZ Rule CREZ Designation TSP Select CCN Prep CCN Design and Construct Dispatch Priority 31

Sources of Wind Farm Value (NPV, as %) PTCs, 24% Operating Costs, 47% Total value of tax depreciation is 26.5% of project value Accelerated Tax Depreciation, 11% 20 Year Straight Line Tax Depreciation, 11% 32

title 10 8 6 4 2 0 2007 2008 2009 2010 Isolated Med Capacity (GW) Tax equity Investments 33

Texas Has Significant Solar Resources Concentrating Solar Power Prospects of Texas 34

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Texas s Solar Energy Opportunity 36

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