Lead Manager

SECTION 3
BUSINESS OVERVIEW
Case study Sweetwater wind project,Texas
Sweetwater is a 400MW multi-stage development windpower project located in Texas that is being
developed by Babcock & Brown and DKR Development LLC, a small independent wind-development
company located in Houston, Texas. The 37.5MW Phase 1 commenced commercial operations in
December 2003. The 91.5MW Phase 2 is under construction and is scheduled to commence operations in
December 2004. The 271MW balance of site capacity is anticipated to be built out in 2005 and 2006.
Babcock & Brown also acted as financial advisor and as an investor, providing loans to DKR and other
credit support to the project. In addition, Babcock & Brown took a longer-term equity investment in the
project. Babcock & Brown placed the remaining equity with institutional investors and a utility affiliate.
Babcock & Brown has an ongoing role as fiscal administrator and investment manager which involves
overseeing the operations and maintenance at the project. Day-to-day responsibility for operation and
maintenance is outsourced to General Electric.
The transaction is notable since it represented a return to the windpower market by institutional
investors who had been absent for over a decade (recent US wind projects have been predominantly
owned on balance sheet by large utilities and power companies). Their return was facilitated by an
investment structure devised by Babcock & Brown, and the Group’s work on educating institutional
investors about the wind market.
Babcock & Brown was awarded the 2003 American Wind Energy Association Financier of the Year for
its role in the Sweetwater transaction and two other wind projects that also attracted institutional
investor support.
The windpower market is growing strongly and has significant government support worldwide as an
environmentally friendly energy source. According to BTM Consult, global windpower capacity grew at an
average compound rate of 26.3% between 1998 and 2003 to an estimated 40,301MW, and is forecast to grow at
an average compound rate of 18.9% from 2004-2008. As a result, BTM Consult estimates that total global
electricity production from windpower (as a percentage of all sources) will increase from 0.49% to 1.06% by
2008.The increased production of renewable energy is being encouraged by governments worldwide through a
combination of tariffs and other legislation such as minimum renewable energy consumption requirements and
tax credits.
FORECAST WINDPOWER CAPACITY (MW)
16,000
CAGR 17% 70,000
CAGR 18% 2,000
CAGR 50%
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
6,361
13,761
03 08
USA
Source: BTM Consult
60,000
50,000
40,000
30,000
20,000
10,000
0
29,301
65,981
03 08
EUROPE
Source: BTM Consult
1,600
1,200
800
400
0
239
1,809
03 08
AUSTRALIA
Source: BTM Consult
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