Mr. Jeffrey Ciachurski reports
PROJECT VALUATIONS
Western Wind Energy Corp. is providing the following additionalinformation relating to the valuation news releases dated Feb. 25and May 27, 2011, for the Windstar, Kingman I, Mesa and Yabucoa assets.
VALUATION SUMMARY(in millions $) Windstar Kingman I Mesa Yabucoa TotalFMV $358 $32 $25 $206 $624Cash grant $99 $8 $-- $58 $166Other assets $25 $1 $-- $4 $30Total assets $482 $41 $25 $268 $820LiabilitiesSenior debt ($205) ($16) ($--) ($90) ($316)Cash grant bridge ($55) ($4) ($--) ($45) ($104)Other bridge ($15) ($4) ($--) ($176) ($35)Total liabilities ($275) ($24) ($--) ($152) ($455)Net value to equity U.S.$ $207 $17 $25 $116 $365Net value to equity Cdn$ $203 $16 $24 $110 $353
Valuation methodology used by DAI Management Consultants Inc.
The fair market value, exclusive of the cash grant, was determined from a blendof the FMV as determined using the enterprise valuation income approach, also knownas the free-cash flow-to-equity approach and the replacement cost.
The total project values were determined by adding the U.S. federal cash grant to theFMV.
The total value of equity was determined by adding the total project values to balancesheet assets, such as debt service reserves and working capital, and subtracting senior debtand construction bridge loans.
Valuation figures are based on completion and assumes projects will be completed asplanned.
The U.S.-dollar equity valuations were translated to Canadian dollars using an exchangerate of $1 (U.S.) equals 98.32 Canadian cents for phase 1 and $1 (U.S.) equals 96.91 Canadian cents for phase 2.
Risks
Market conditions may change, or the owner may not locate markets at the appraisedvalues.
This appraisal is not a guarantee of a sale price.
DAI has not investigated as to the existence of any liens or encumbrances.
DAI did not inspect the sites or the proposed equipment as a part of the valuationengagement and has relied upon the representations of the independent engineer as to thecondition and operation of the Kingman and Windstar projects.
This appraisal does not recognize or consider any improper use, effect or disposal of anyhazardous substance.
Key assumptions, hypothesis and contingencies
General
The projects are assumed to be built, placed into service, and operated as described by theproject independent engineer or otherwise assumed by Western Wind.
Proper maintenance practices to occur as described by the project independent engineerand required by the project operation and maintenance agreements.
No restrictions are be placed on the project operations because of changes inenvironmental regulations or local government requirements beyond those consideredexplicitly in the valuation reports.
PROJECT SPECIFICWindstar Kingman I Mesa YabucoaProject type and size 120MW wind 10MW wind, 30MW wind 30MW solar0.5MW solarCommercial operation Dec. 31, 2011 Dec. 31, 2011 Existing Dec. 1, 2012date in valuation model operationsRemaining asset life 30 years 30 years 20 years (older 30 yearsassets)Power purchase Fixed price for Fixed price for Fixed price per Fixed price foragreement (PPA) years one to 20 via years one to 20 via CPUC MPR for years one to 20 viasigned PPA and signed PPA and years one to 20 signed PPA andmerchant prices merchant prices merchant pricesthereafter thereafter thereafterLand Owned Owned 27-year right-of- 40-year leasewayTax incentives 30% cash grant 30% cash grant None 30% cash grant,and 100% bonus and 100% bonus 50% bonusdepreciation depreciation depreciation and50% Puerto Ricoinvestment taxcreditSource of key Independent Independent Management Managementassumptions engineer engineerDebt-to-capital ratio 54% 54% 35% 43%Term of debt 20 years 20 years 15 years 20 yearsCost of debt 6.0% 6.0% 5.1% 6.0%Discount rate on equity Under PPA: Under PPA: Under PPA: Under PPA:returns 11.48%, 11.51%, merchant 10.52%, 10.96%, merchantmerchant generator: 15.85% merchant generator: 14.74%generator: 15.75% generator: n/aWeighting of income 75% 75% 100% 75%approach versus costapproachConstruction cost 5% 5% n/a 5%contingencies
Project status
Windstar
- Financing is fully committed.
- A total of 65 per cent of foundations are complete.
- Towers are being erected, and 25 per cent of the turbines have been delivered.
- Outstanding items are substations, turbine commissioning and transmission line interconnection.
Kingman
- Financing is fully committed.
- All foundations completed, and all wind turbines have been erected.
- Outstanding items are substation and solar panel installation and transmission line interconnection.
Mesa
- The project has been operating under Western Wind's ownership since 2006.
- Repower and expansion PPAs and transmission are under negotiation.
- The company has obtained full approval by the BLM for the repower and expansion.
Yabucoa
- PPA and land lease have been signed.
- EPC contract is under negotation.
- Financing mandate letter has been signed with Rabobank.
- Additional outstanding items include executing a solar panel supply agreement, obtaining government approval for the Puerto Rico investment tax credit and constructing the project.
Western Wind Energy has filed with the TSX Venture Exchange, as confidential filings, theindependent engineers report for Windstar, the lenders' final financial pro forma forWindstar, and full copies of the valuation reports for Windstar, Kingman, Yabucoa and Mesa.
The valuation listed the COD for Kingman as Dec. 31, 2011, but the contracted andexpected COD is July 27, 2011. All turbines at Kingman have been fully erected.
About DAI Management Consultants
Founded in 1987, DAI is a consulting firm specializing in valuation and risk managementservices for the power and energy infrastructure sectors. DAI provides a comprehensive suite ofanalytical services addressing the technical, regulatory, and economic issues that directly affectpower and energy projects. DAI has provided appraisal and valuation services for numerouspower projects, including some of the largest existing and proposed renewable energy projects inthe United States. Clients of DAI have included the U.S. Internal Revenue Service, state andmunicipal government agencies, major public and private utilities, financial institutions, andindependent power producers.
DAI's appraisals of Western Wind's assets have been prepared under the direction of SteveDean, ASA, PE, DAI's managing principal, who is certified by the American Society ofAppraisers as an accredited senior appraiser in the public utilities (machinery and technicalspecialties) area. Over the past three years, Mr. Dean has provided apprasials for almost 3,000megawatts of wind projects throughout the United States.
We seek Safe Harbor.