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Building Integrated
High Velocity Wind Harvest

2008 Vestas Winnovation Business Plan
Charles Collins – IESE Business School MBA
Charles Collins
          IESE MBA
                               The Opportunity
                               Commercialize Building Integrated Wind Turbines (BUWT) on “The Island”

Island Fact Sheet:
                             What is the Product?           How to monetize?                     Why Now?
•Self-contained 8,872
 Self contained
km2 island of 3.9mn
people
                                                                                          • Strong Public support on
                             • A Building Integrated      • Building Owners allow us
•Strong Winds during 4
                                                                                            the island for using
                               Wind Turbine which can       to install the turbines and
months of the year
                                                                                            renewables for achieving
coincide with peak             be retrofit to fit on        connect to grid in
                                                                         g
energy demand due to                                                                        greater autonomy
                               existing buildings or be     exchange for 18% profit
tourist season
                               incorporated into new        share                         • Innovative new technology
•Traditional Wind
                               building developments                                        will create new market
                                                          • We generate revenues
Turbines not suitable for
                                                                                            and draw funding from
                             • Takes advantage of the       through power
strong winds
•There are ~63k                                                                             Venture Funds Private
                                                                                                     Funds,
                               amplification of wind
                                   lifi ti    f id          generation and th sale
                                                                  ti     d the l
Commercial Buildings                                                                        Equity, and Government
                               speeds by built forms        of CERs (Carbon Credit)
on the Island                                                                               grants
                             • Marries the sources and    • The installations will
•Most Costal Areas are
                                                                                          • Innovative Business Plan
                               uses of power on the         generate utility quality
densely populated (441
                                                                                            does not require tax
people/ m2) leaving little
peop e/      ea g tt e         island for maximum           cash flows through the
room for traditional                                                                        breaks for profitability
                               efficiency                   use of long term
wind farms
                                                            contracts


                                                          PRODUCT SPECIFICATIONS:
                                                                  SPECIFICATIONS
                                                          Rated Power per BUWT:                500 kWH
                                                          ~Annual Energy Production:           1,274,580 kWH
                                                          Carbon Credits (BUWT/yr):
                                                                           (    y)             680 metric tons
                                                          Installed Cost / kWH:                $1,100.00


                                                                                                                        1
Charles Collins
                     IESE MBA
                                           A New Business Model for the Wind Industry
                                           Profits do not depend on government subsidies or tax breaks

                                                                                                            Source of Revenues
                                                                                Uses of Capital


                        •BUWT siting &
           sources




                                                •Internal R&D           •Project
                        implementation          Department and          Management and
                        planning                Prototyping             Quality Control
                        •Contract               •Patent Owner
                                                 Patent                 •In house
                                                                         In
Internal Res




                        Counterparty            •Manufacturing          engineers for
                        •Presentation &                                                                              Sell Electricity
                                                Oversight and           ongoing
                        demonstration of        logistics               maintenance and
                        technology              management              operations
                                                                                                                    Gross Revenue
                                                                                                                     $191,187
                           Contract
                                                 Manufacture               Install                Operate
                                                                                                                    per yr per BUWT
                             Host
                                                   BUWTs                   BUWTs                  BUWTs
                           Buildings
                                                                                                                   @ .15 $/kWH Gross
External Partners




                        •Commercial              •Established           •Contract
                                                                                                                      Sell Carbon
                        Real Estate              production partner     Installation from
                        Consultants w/                                                                                  Credits
                                                 to manufacture         experienced turbine
                        local networks:          using existing lines   crews and building
                                                 where possible:        structure erectors:
                                                                         t   t          t                            Gross Revenue
                                                                                                                     G     R
                                                                                                                      $16,983
                                                                                                                   per yr per BUWT
                                                                                                                   @ $25.00/ton CO2



                                                                                                                                        2
Charles Collins
       IESE MBA
                         Detailed Revenue and Cost Calculations
                         The projected revenues are based on market price and BUWT efficiency assumptions

                         •Production per Turbine      •Carbon Credit Revenue per      •Costs per Turbine
How does this                                          Turbine
                          •Capacity Factor: 30%
                           Capacity                                                    •Maintenance and Insurance
                                                                                        Maintenance
differ f
diff from a                                            •Emission Factor (kg CO2         ($/kWH): 0.014
                          •Rated Power per Turbine
                                                        Offset/kWH):
traditional wind           (kWH): 500.0                                                •Annual M&I Costs:
                                                        0.53                            17,844
                          •Availability: 97%
Turbine?                                               •CO2 Offset (kg Per year Per    •Annual Payments to
                          •Hours Per Year: 8,760
                                                        Turbine):                       Building Owner (18% profit
                          •Annual Energy Production
                                                        679,351.14
                                                        679 351 14                      share): 37,471
                                                                                        share) 37 471
•Lower C
 L      Capacity
               it          Per Turbine (kWH):
                                                       •Sales Price ($/Ton Offset      •Total Annual Costs:
                           1,274,580
due to compact                                          Carbon):                        55,315
                         •Generation Revenue per
                                                        25.00
size and building                                                                      •Estimated Annual Net
                          Turbine
                                                       •Total Carbon Revenue Per        Income ($):
integration               •Energy Price to Consumer
                                                        Year ($):                       152,856
                                                                                            ,
                           ($/kWH): 0 2
                                     0.2
                                                        16,983.78
                                                        16 983 78                      •Estimated Installed Cost
                          •Energy Value when sold
                                                      •Estimated Total Gross
•Higher Generation                                                                      ($/kW): 1,100 (Includes
                           wholesale ($/kWH): 0.1
                                                       Annual Revenue ($):              estimated cost of Carbon
Revenues due to           •Energy Sold Onsite: 50%     208,171                          Credit Filing)
                          •Gross Revenue Rate
onsite sales at                                                                        •Estimated Installed Cost ($)
                           ($/kWH): 0.15
                                                                                        550,000
                                                                                        550 000
market rate
    kt t                  •Estimated Annual Revenue
                                                                                      •Payback Period Per Turbine
                           191,187
                                                                                       (yrs) 3.60
•Lower Installed
Cost as building
structure
str ct re replaces
                         Power                        Carbon
tower
                                                                                      Cost Structure
                         Revenues                     Revenues




                                                                                                                       3
Charles Collins
IESE MBA
                       Market Penetration Targets and Timeline
                       2642 Turbines producing 15% of Island Power will be implemented by Year 19

             Island Electricity Consumption (kWH/year)           22,450,000,000 
             Target % of Power to be Provided
             Target % of Power to be Provided                                 15%
                                                                                                                                               2642
             Required Number of Turbines                                     2,642 
                                                                                                                                       2518
             Est # Commercial Buildings on Island                           63,661 
             # of turbines/ Building                                             2                                              2347
             Target # Buildings                                              1,321                                       2176
             % of All Commercial Buildings on Island
             % f All C         i l B ildi      Il d                             2%
                                                                                                                  2005
                                                                                                           1834
                                                                                                    1663
                                                                                             1492
             Positive Cash Flow At 750 BUWTs
                                                                                      1321
                                                                              1150
              Prototype Only
                                                                       950
              Functioning BUWT in
                          g
              Year 1: Will be critical in                        750
              fund raising and contract
                                                           550
              acquisition effort
                                                  350
                                            200
                                      85
                               30
                         10
                   1

                   1      2     3      4     5         6   7      8     9       10    11     12     13     14     15     16     17     18     19   20

                                    Targeted Number of Installed BUWT by Year (Cumulative)
                                    T    t dN b      f I t ll d       bY      (C   l ti )

                                                                                                                                                        4
Charles Collins
         IESE MBA
                                       Cash Flow and Funding Needs
                                       Cash Flow Positive Starting Year 7, CAPEX Self Financed Starting Year 10
                                        $450
                                                                                                Phase 1: Venture Finance of 3.8mn over 2 yrs
Cash Flow Highlights:                   $400
                                                                                                Phase 2: Private Equity Finance of 6 4mn over 1 yr
                                                                                                                                   6.4mn
•Initial Valuation of
 Initial
                                        $350
3.8mn with Discount
                                                                                               Phase 3: Debt Financing of 105mn over 4 yrs
Rate of 35%                             $300
•Positive Cash Flow
                                        $250
achieved during year 8
                                ons


•Initial Debt Principal
                                        $200
                           Millio



Paid by Year 10
•Possibility of Self                    $150
Financing after Year 10
                                        $100
•Leverage Never
Exceeds 81% of Firm                      $50
Value
                                           $0
•Conservative Valuation
does not include Market
                                        -$50
Price increases for                                 1       2        3           4            5             6             7             8            9           10           11            12          13          14            15           16           17           18           19            20
Electricity or Carbon
C ed ts
Credits
                                                                          20yr Cash Flow P j ti
                                                                          20 C h Fl      Projection                                                                               Cumulative C h N d
                                                                                                                                                                                  C   l ti Cash Needs

                                      Year                                                1                       2                      3                       4                      5                      6                       7                       8                       9                       10
                                      Number of Installed Turbines                        1                     10                      30                      85                    200                    350                     550                     750                     950                   1150
                                      New Turbines Per Year                               1                      9                     20                      55                    115                    150                     200                     200                     200                      200
                                      Annual Income
                                      A     lI                                152 856
                                                                              152,856             1 528 559
                                                                                                  1,528,559              4 585 678
                                                                                                                         4,585,678              12 992 753
                                                                                                                                                12,992,753              30 571 184
                                                                                                                                                                        30,571,184             53 499 571
                                                                                                                                                                                               53,499,571             84 070 755
                                                                                                                                                                                                                      84,070,755            114,641,939
                                                                                                                                                                                                                                            114 641 939             145,213,122
                                                                                                                                                                                                                                                                    145 213 122              175 784 306
                                                                                                                                                                                                                                                                                             175,784,306
                                      CapEx                                   550,000             4,950,000            11,000,000               30,250,000              63,250,000             82,500,000           110,000,000             110,000,000             110,000,000              110,000,000
                                      Simple Free Cash Flow                 (397,144)           (3,421,441)             (6,414,322)           (17,257,247)            (32,678,816)           (29,000,429)            (25,929,245)               4,641,939             35,213,122               65,784,306
                                      Cumulative Cash Needs                   397,144             3,818,585            10,232,907               27,490,154              60,168,971             89,169,399           115,098,644             110,456,705               75,243,583                  9,459,277
                                      NPV                                 3,847,204               5,590,869            10,969,114               21,222,627              45,907,793             94,654,337           156,783,783             237,587,352             316,100,987              391,523,210
                                      Implied Leverage                                10%                    61%                    58%                      81%                     71%                    31%                     17%                       0%                      0%                        0




                                                                                                                                                                                                                                                                                                                    5
Charles Collins
     IESE MBA
                        Marketing Strategy
                        BUWTs will be marketed through a consultative selling process

                       Key Marketing Question           Answer based on Firm               Marketing Action Plan
                                                        Strategy
                       What is the desired outcome of   Building Owner Signs long term     Focus on Commercial Building
                       the sales process?               contract (20yrs+) for BUWT         Segment and with emphasis on
Segmentation
                                                        installation                       portfolio owners
                       What do we offer these           Reliable,
                                                        Reliable Localized Power supply    Use Consultative Selling Process
                       Building Owners and              and 18% Profit Sharing.            to demonstrate the contract
Customer Needs
                       Operators?                       Enhanced Building Value            benefits in one to one meetings
                                                                                           and presentations
                       How do we get access to the      At first we need the help of       Partner with the top Commercial
                       Executive Level Decision         people in the professional         Real Estate Brokers to get us in
Decision Process
                       Makers?                          network of targeted owners         the door to their clients. Offer
                                                                                           finders fee for consummated
                                                                                           deals
                       How do we build credibility      We need to have demonstrated       First, successfully launch a
Branding
                       with potential contract          proof that our product works and   working prototype of the BUWT.
                       holders?                         the we can seamlessly              Salesmen will take potential
                                                        incorporate out product in their   clients for site visits and
                                                        buildings                          demonstrations
Context                Does the context (business       Yes. The island’s residents have   Develop marketing materials
                       environment) provide us with     demonstrated their desire for      focused on the alignment of our
                       any advantages?                  greater energy independence.       product with the goals of the
                                                                                           Islanders.
                                                                                           Islanders Seek out political allies
                                                                                           for our projects


                                                                                                                                 6
Charles Collins
IESE MBA
                       Operations: Detailed Implementation Strategy
                       Deployment involves a 2 pronged approach: BUWT installation and Carbon Filing

                  ID    Task Name                               Duration    Month 1   Month 2   Month 3   Month 4   Month 5   Month 6   Month 7   Month 8   Month 9   Month 10   Month 11
                  1     BUWT Implementation Schedule             76 days
                  2       Building/Wind Assesment                    1 wk
                  3       BUWT Integration Design                  2 wks
                  4       Environmental Study                      3 wks
                  5       Contract Consumation                       1 wk
                  6       Permitting and P ublic Consultation      6 wks
                  7       Economic and Fiancia l Analysis          2 wks
                  8       Manufacturing                              1 wk
                  9       Site/B uilding Preparation                 1 wk
                  10      Construction/Installation                  1 wk
                  11      Commissioning                              1 wk
                  12      Operation and Maintenance                 1 day
                  13    CDM Proj ect Cycle                      201 days
                  14      Project Proposal (PIN Submission)       3 mons
                  15      Carbon Asset Due Diligence
                                                 g                2 mons
                  16      Validation P rocess                     2 mons
                  17      Negotiation of Project Agreements       3 mons
                  18      Periodic Verification                     1 day




                        Key Risks: BUWT Process                                                                     Key Risks: CDM Process

                  • Adverse Environmental                                                                 • Failure to achieve Regulator
                    Impact Found                                                                            Approval
                  • Contract Negotiations                                                                 • Failure to find Buyer
                    Collapse                                                                              • Fewer credits awarded than
                  • Permit Not Granted                                                                      projected in CF Analysis
                                                                                                            pj                    y
                  • Damage to Existing Building
                                                                                                                                                                                            7

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Winnovation Business Plan Competition Entry

  • 1. Building Integrated High Velocity Wind Harvest 2008 Vestas Winnovation Business Plan Charles Collins – IESE Business School MBA
  • 2. Charles Collins IESE MBA The Opportunity Commercialize Building Integrated Wind Turbines (BUWT) on “The Island” Island Fact Sheet: What is the Product? How to monetize? Why Now? •Self-contained 8,872 Self contained km2 island of 3.9mn people • Strong Public support on • A Building Integrated • Building Owners allow us •Strong Winds during 4 the island for using Wind Turbine which can to install the turbines and months of the year renewables for achieving coincide with peak be retrofit to fit on connect to grid in g energy demand due to greater autonomy existing buildings or be exchange for 18% profit tourist season incorporated into new share • Innovative new technology •Traditional Wind building developments will create new market • We generate revenues Turbines not suitable for and draw funding from • Takes advantage of the through power strong winds •There are ~63k Venture Funds Private Funds, amplification of wind lifi ti f id generation and th sale ti d the l Commercial Buildings Equity, and Government speeds by built forms of CERs (Carbon Credit) on the Island grants • Marries the sources and • The installations will •Most Costal Areas are • Innovative Business Plan uses of power on the generate utility quality densely populated (441 does not require tax people/ m2) leaving little peop e/ ea g tt e island for maximum cash flows through the room for traditional breaks for profitability efficiency use of long term wind farms contracts PRODUCT SPECIFICATIONS: SPECIFICATIONS Rated Power per BUWT: 500 kWH ~Annual Energy Production: 1,274,580 kWH Carbon Credits (BUWT/yr): ( y) 680 metric tons Installed Cost / kWH: $1,100.00 1
  • 3. Charles Collins IESE MBA A New Business Model for the Wind Industry Profits do not depend on government subsidies or tax breaks Source of Revenues Uses of Capital •BUWT siting & sources •Internal R&D •Project implementation Department and Management and planning Prototyping Quality Control •Contract •Patent Owner Patent •In house In Internal Res Counterparty •Manufacturing engineers for •Presentation & Sell Electricity Oversight and ongoing demonstration of logistics maintenance and technology management operations Gross Revenue $191,187 Contract Manufacture Install Operate per yr per BUWT Host BUWTs BUWTs BUWTs Buildings @ .15 $/kWH Gross External Partners •Commercial •Established •Contract Sell Carbon Real Estate production partner Installation from Consultants w/ Credits to manufacture experienced turbine local networks: using existing lines crews and building where possible: structure erectors: t t t Gross Revenue G R $16,983 per yr per BUWT @ $25.00/ton CO2 2
  • 4. Charles Collins IESE MBA Detailed Revenue and Cost Calculations The projected revenues are based on market price and BUWT efficiency assumptions •Production per Turbine •Carbon Credit Revenue per •Costs per Turbine How does this Turbine •Capacity Factor: 30% Capacity •Maintenance and Insurance Maintenance differ f diff from a •Emission Factor (kg CO2 ($/kWH): 0.014 •Rated Power per Turbine Offset/kWH): traditional wind (kWH): 500.0 •Annual M&I Costs: 0.53 17,844 •Availability: 97% Turbine? •CO2 Offset (kg Per year Per •Annual Payments to •Hours Per Year: 8,760 Turbine): Building Owner (18% profit •Annual Energy Production 679,351.14 679 351 14 share): 37,471 share) 37 471 •Lower C L Capacity it Per Turbine (kWH): •Sales Price ($/Ton Offset •Total Annual Costs: 1,274,580 due to compact Carbon): 55,315 •Generation Revenue per 25.00 size and building •Estimated Annual Net Turbine •Total Carbon Revenue Per Income ($): integration •Energy Price to Consumer Year ($): 152,856 , ($/kWH): 0 2 0.2 16,983.78 16 983 78 •Estimated Installed Cost •Energy Value when sold •Estimated Total Gross •Higher Generation ($/kW): 1,100 (Includes wholesale ($/kWH): 0.1 Annual Revenue ($): estimated cost of Carbon Revenues due to •Energy Sold Onsite: 50% 208,171 Credit Filing) •Gross Revenue Rate onsite sales at •Estimated Installed Cost ($) ($/kWH): 0.15 550,000 550 000 market rate kt t •Estimated Annual Revenue •Payback Period Per Turbine 191,187 (yrs) 3.60 •Lower Installed Cost as building structure str ct re replaces Power Carbon tower Cost Structure Revenues Revenues 3
  • 5. Charles Collins IESE MBA Market Penetration Targets and Timeline 2642 Turbines producing 15% of Island Power will be implemented by Year 19 Island Electricity Consumption (kWH/year) 22,450,000,000  Target % of Power to be Provided Target % of Power to be Provided 15% 2642 Required Number of Turbines 2,642  2518 Est # Commercial Buildings on Island 63,661  # of turbines/ Building 2  2347 Target # Buildings 1,321  2176 % of All Commercial Buildings on Island % f All C i l B ildi Il d 2% 2005 1834 1663 1492 Positive Cash Flow At 750 BUWTs 1321 1150 Prototype Only 950 Functioning BUWT in g Year 1: Will be critical in 750 fund raising and contract 550 acquisition effort 350 200 85 30 10 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Targeted Number of Installed BUWT by Year (Cumulative) T t dN b f I t ll d bY (C l ti ) 4
  • 6. Charles Collins IESE MBA Cash Flow and Funding Needs Cash Flow Positive Starting Year 7, CAPEX Self Financed Starting Year 10 $450 Phase 1: Venture Finance of 3.8mn over 2 yrs Cash Flow Highlights: $400 Phase 2: Private Equity Finance of 6 4mn over 1 yr 6.4mn •Initial Valuation of Initial $350 3.8mn with Discount Phase 3: Debt Financing of 105mn over 4 yrs Rate of 35% $300 •Positive Cash Flow $250 achieved during year 8 ons •Initial Debt Principal $200 Millio Paid by Year 10 •Possibility of Self $150 Financing after Year 10 $100 •Leverage Never Exceeds 81% of Firm $50 Value $0 •Conservative Valuation does not include Market -$50 Price increases for 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Electricity or Carbon C ed ts Credits 20yr Cash Flow P j ti 20 C h Fl Projection Cumulative C h N d C l ti Cash Needs Year                  1 2 3 4 5 6 7 8 9 10 Number of Installed Turbines                  1 10 30 85 200 350 550 750 950 1150 New Turbines Per Year                  1                    9                  20                   55                 115                 150                  200                  200                  200                   200 Annual Income A lI      152 856 152,856     1 528 559 1,528,559    4 585 678 4,585,678    12 992 753 12,992,753    30 571 184 30,571,184    53 499 571 53,499,571    84 070 755 84,070,755 114,641,939 114 641 939 145,213,122 145 213 122   175 784 306 175,784,306 CapEx      550,000     4,950,000 11,000,000    30,250,000    63,250,000    82,500,000 110,000,000 110,000,000 110,000,000   110,000,000 Simple Free Cash Flow    (397,144)   (3,421,441)   (6,414,322) (17,257,247) (32,678,816) (29,000,429)   (25,929,245)      4,641,939    35,213,122     65,784,306 Cumulative Cash Needs      397,144     3,818,585 10,232,907    27,490,154    60,168,971    89,169,399 115,098,644 110,456,705    75,243,583        9,459,277 NPV  3,847,204     5,590,869 10,969,114    21,222,627    45,907,793    94,654,337 156,783,783 237,587,352 316,100,987   391,523,210 Implied Leverage 10% 61% 58% 81% 71% 31% 17% 0% 0% 0 5
  • 7. Charles Collins IESE MBA Marketing Strategy BUWTs will be marketed through a consultative selling process Key Marketing Question Answer based on Firm Marketing Action Plan Strategy What is the desired outcome of Building Owner Signs long term Focus on Commercial Building the sales process? contract (20yrs+) for BUWT Segment and with emphasis on Segmentation installation portfolio owners What do we offer these Reliable, Reliable Localized Power supply Use Consultative Selling Process Building Owners and and 18% Profit Sharing. to demonstrate the contract Customer Needs Operators? Enhanced Building Value benefits in one to one meetings and presentations How do we get access to the At first we need the help of Partner with the top Commercial Executive Level Decision people in the professional Real Estate Brokers to get us in Decision Process Makers? network of targeted owners the door to their clients. Offer finders fee for consummated deals How do we build credibility We need to have demonstrated First, successfully launch a Branding with potential contract proof that our product works and working prototype of the BUWT. holders? the we can seamlessly Salesmen will take potential incorporate out product in their clients for site visits and buildings demonstrations Context Does the context (business Yes. The island’s residents have Develop marketing materials environment) provide us with demonstrated their desire for focused on the alignment of our any advantages? greater energy independence. product with the goals of the Islanders. Islanders Seek out political allies for our projects 6
  • 8. Charles Collins IESE MBA Operations: Detailed Implementation Strategy Deployment involves a 2 pronged approach: BUWT installation and Carbon Filing ID Task Name Duration Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 1 BUWT Implementation Schedule 76 days 2 Building/Wind Assesment 1 wk 3 BUWT Integration Design 2 wks 4 Environmental Study 3 wks 5 Contract Consumation 1 wk 6 Permitting and P ublic Consultation 6 wks 7 Economic and Fiancia l Analysis 2 wks 8 Manufacturing 1 wk 9 Site/B uilding Preparation 1 wk 10 Construction/Installation 1 wk 11 Commissioning 1 wk 12 Operation and Maintenance 1 day 13 CDM Proj ect Cycle 201 days 14 Project Proposal (PIN Submission) 3 mons 15 Carbon Asset Due Diligence g 2 mons 16 Validation P rocess 2 mons 17 Negotiation of Project Agreements 3 mons 18 Periodic Verification 1 day Key Risks: BUWT Process Key Risks: CDM Process • Adverse Environmental • Failure to achieve Regulator Impact Found Approval • Contract Negotiations • Failure to find Buyer Collapse • Fewer credits awarded than • Permit Not Granted projected in CF Analysis pj y • Damage to Existing Building 7