Our Vision of Wind Energy (2010) . Wind generated electricity costs will be within the range of conventional power generating sources? . leading to rapid increases in installed capacity .. supplying approximately 1.5 - 3.0% of world electricity demand 09/09/98 Wind Energy Strategy.th 2 .. Our Vision for Shell in Wind Energy (2010) - a leading and influential player (with 10% market share) - spearheading reductions in delivered electricity costs - project developer, owner and operator of major ?wind farms both off-shore and on-shore 09/09/98 Wind Energy 3 Main Features of the WindEnergy Strategy 0 A two stage ?learning by doing? approach - Participation in all parts of the value chain as project developer, builder, owner and operator - Focused Cost Reduction Alliances with designers, engineering component suppliers, equipment packagers and contractors - Innovative solutions for off-snore wind farms. 09/09/98 Wind Energy 4 Why Shell in Wind Energy? . A key renewable energy source in core RenewableS business I - Helping people build a better world - Merits management attention - big enough opportunity, growing rapidly - opportunities for cost reductions - ?do-able? - real projects immediately available 9 - risks are controlled phased We can be successful - proven ability in focused cost reduction alliances - off-shore experience - experience in power generation - commitment 09/09/98 Wind Energy Project Opportunities "Cnunny Frown Capacny 'qul Comments CAPEX Equny [Uss Shane [ea] million) s' Fugus 4 5 6 Too Electricity suppfy '9 s" Furgus gas plant UK Hwy}? 13 375 I00 mman (In exxenmn 0 chum" (rum UK Offshore x00 7 Fownexlr/FFU ruundo: connacm Norm,>> Lmumncs 38 4 5a Dunn) bsupemnondlSep 19924 Mouduk 14 a Coma Moerduk sun Near 100 220 7' anue comumum phi shore Duxch Mnnury of Economic Mm" Germany 0mm)" 20 10 Consoruum uiuompunles' Incl yawn/ramminer 09/09/93 Wind Energy Negotiating Proposal for Offshore - Addition to an existing wind farm (9 on breakwater at harbour, UK - Proposed 2 1.5 MW turbines 1km off-shore in 8m water depth - Power purchase agreement at 5.26p/kWh available under FFO4 for 15 years - Possible capital grant of ?640k under EU THERMIE - Capex ?1 .7- 3.6 for earning powers 7- 11% - No apparent obstacles to consents - High publicprofile and benefit to corporate image - Excellent fit with proposed global wind energx strategx . 09/09/98 Wind Energy 4, 7 CMD is asked to - Stage one of the strategy - medium scale wind farms - A proposal for negotiation of the off- Shore project 09/09/98 Wind Energy 8 Learning points from variOus wind farm projects Offshor Wind Power Value Chain Project Project WTG Constr. Ops Electr Planning Design Manuf Maint. Market/ a? Installn Sales Permits cturing St. Fergus offshore Norw. - developmen tS Lindesnes Norw. - - - (J) (phase 1) Lindesnes Norw(phase 2) 80121 Norw. - - - Near Shore NethWind Park M?oerdijk Neth. - - (J) Mecklenbur Germ. - - Harburg Germ. - 09/09/98 Wind Energy Strategy.ppt Further steps - Investigation of the feasibility of siting 3 1.5 MW turbines at St Fergus gas plant - pre? qualification of Shell UK team for off-shore NFFO bidding - Investigation of various other wind farm projects including Lindesnes in Norway and Shell brown field sites - 09/09/98 Wind Energy Strategy.ppt 10 Wind Energy HR planning 0 9 team in (4-6 staff) - Coordination Focussed Cost Reduction Alliances Outsourcing and assignments: Turbine manufacturers, Wind 7 Power Consultants, Shell Skill pools, Test Centres, Turbine Technology developers, Turbine designers, Equipment manufacturers, Civil Engineering firms - Project Development Support -- Business development, Project scouting and feasibility, commercial guidance Implementation teams in project area's -- Outsourcing with Wind Turbine Manufacturers, Engineering firms -- Operating and maintenance contracting 09/09/93 Wind Energy ll Wind Energy Communications - Exploit reputation value of Shell in wind energy - Link communications with ?doing? not ?saying? e.g. - Stakeholder analysis already conducted and some consultation planned at international level - Media relations (PXX) already consulted - Audiences are both internal and external 09/09/98 Wind Energy Capital cost- ?/kW - Capital Cost vs Electricity Price 1300 1200 1100 1000 900 800 700 600 "TElectricity price - 09/09/98 Wind Energy Offshore Wind Farm RT Cash-Flows USD 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Annual cash flows Cumulative cash flows 09/09/98 Wind Energy Strategy.th 09/09/98 USD 6000 5000 4000 3000 2000 1000 Offshore Wind Farm Capital Employed ROACE 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 - Capital Errployed ROACE 7010% ROACE Wind Energy INDICATIVE CASH FLOW PROFILES OF WIND ENERGY PROJECTS Project Life Cash Flow pro?le FVind Energy 20 years Flat Cash ?ows over projects life Upstream Oil 12 years Declining to zero Upstream Gas 25 years Declining to zero Oil 15 years Flat Cash ?ows over projects life 1? Chemicals Gas 25 years Higher in early years, then ?at 09/09/98 Wind Energy USD min 100 Wind Energy Capital Employed and ROACE Profile Stage 1 Projects 1999 2000 2001 2002 2003 2004 2005 2006 20072008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Capital enployed ROACE 70ROACE 09/09/98 Wind Energy 17 Wind Energy RT Cash Flows Stage 1 Projects 80000 80000 60000 60000 40000 40000 20000 0 5 U) (D -20000 ~20000 -40000 -40000 -60000 -60000 -80000 -80000 -100000 -100000 _Annual Cash Flow ?O?Cumulative Cash Flow 09/09/98 Wind Energy 18 09/09/98 WIND ENERGY PROJECTS- BENEFITS OF GEARING (Increased capacity, Without Grant) Ungeared Geared Economics GBP 000 200 529 RTEP 8% 12% 0.06 0.3 Payback 10 years 10 years Financials Capital investment USD 3 USD 6 100 basis?average ROACE first 5 years 4% 4% 100% basis?average ROACE first 10 years 4% 4% basis**?average ROACE first 5 years n/a 10% IV basis**-average ROACE first 10 years n/a 10% Geared case: assume 50% third party non recourse debt over 20 years at 8% interest Assume equity accounting with no Group control Wind Energy Strategy.ppt