The Windmills are Coming; “Offshore” Steven Harris Vice President EQECAT, Inc September 19, 2011

© EQECAT, Inc America’s First Offshore Wind Farm Will it be Nantucket Martha’s Vineyard Hyannis Cape Wind Project ?

© EQECAT, Inc America’s First Offshore Wind Farm Or Galveston - Offshore Wind ? Wind Park Site "This is Texas. We don't have Walter Cronkite and Ted Kennedy whining about their back yards," Texas State General Land Office Jerry Patterson - Commissioner

© EQECAT, Inc What are Offshore Wind Farms? Wind turbines and foundation structures Underwater high voltage cables Offshore substations and operations Onshore substations Onshore high voltage transmission

© EQECAT, Inc Why are they Coming? Projected Energy Use Global energy use by fuel type From US DOE Renewables will double in the next 25 years

© EQECAT, Inc The United States has Ambitious regional growth targets State and Federal incentives Green energy renewable portfolio standards –Texas ~7% by 2025 –New Jersey ~20% by 2021 –California 33% by 2020 –Hawaii 40% by 2030 !!

© EQECAT, Inc Offshore Wind Farm Siting and Economics Siting Requires –Good wind resource –Close to load demands –Onshore transmission capacity Total Cost of Energy –Cost of generation should be around $0.10 / kWh Most wind farms are financed and require adequate insurance

© EQECAT, Inc U.S. Offshore Wind Resource and Transmission Grids to U.S. cities Cape Wind Galveston-Offshore Others?

© EQECAT, Inc What are the Catastrophic exposures? Gulf of Mexico and Caribbean hurricane West Pacific Typhoon European winter windstorm Earthquake in Japan, Western US and Canada, Caribbean, South America, and others

© EQECAT, Inc What is the Onshore Catastrophic Loss Experience? Typhoon Maemi Okinawa Japan 2003 (Ishihara et al., 2005a) Tropical Cyclone 03/A India 1998 (Winter-Jensen et al., 1999)

© EQECAT, Inc Hurricane Risks to Offshore Farms Hurricanes have damaging wind speeds for wind farms located offshore and near the coast. Hurricanes have wind speeds more than 76 mph over widths of 60 to 120 miles Hurricanes are also accompanied by large wave loadings on structural foundations

© EQECAT, Inc Wind is the Source of Power Power Generated by Turbine Wind Speed Cut-out Speed Cut-in Speed Turbine Power Operating Range Hurricane Wind and Waves are a Survival Threat to Offshore Wind Turbines Tropical and Hurricane Wind Speeds Turbines Shut-in Not Generating Power and The Peril!

© EQECAT, Inc Technology Trend for Wind Turbines Each generation is a bigger “prototype”

© EQECAT, Inc Direction in Offshore Wind Technology Capital and Energy Costs are declining –Higher capital costs than land based installations are dropping rapidly –Installed capital costs, reliability, and energy capture are all improving Technical and Infrastructure Challenges –Transmission from windy areas to the load centers are being built –Specialized vessels, purpose built portside infrastructure, robust undersea electricity transmission lines will come with development –Resource characterization is improving

© EQECAT, Inc Challenges Facing Offshore Wind Deployment (Cont.) Permitting Challenges or NIMBY – Not In My Back Yard –New and untested permitting processes –Uncertainty and risk faced by potential project developers and financiers –State and federal entities have authority over siting, permitting, and installation of offshore wind facilities

© EQECAT, Inc Emerging technology Risk Rapid paradigm shifts with growing technologies like wind turbines –Larger wind turbines and blades –Identical installations and new technologies –Highly correlated loss potential Limited cat loss damageability data makes engineering expertise critical to rate these exposures Potentially expensive coverage

© EQECAT, Inc Onshore Insurance Structures Typical Retentions / Limits Structure Common deductible structures –2-5% for CAT –15 – 45 days Business Interruption (BI) Limits driven by lenders, corporate or partnership property program, (MFL, PML studies) CAT exposures and limits can drive the overall premium Manufacturer’s warranty period for defects (2 - 5 years) Contingent business interruption Hedges can provide some BI/CBI protection

© EQECAT, Inc Insurance Questions Who will insure this new technology? How will the infrastructure be insured? –Offshore wind turbines –Offshore substations –Submarine cables –Onshore Transmission lines What will the insurance cost be?

© EQECAT, Inc Business Interruption Risks Potential impact of transformers and transmission cable losses with long lead times Limited numbers of available marine vessels and cranes Damage to onshore transmission and distribution, without damage to turbines, poses contingent BI issues Rapid obsolescence of turbines results in spare parts and extended BI issues

© EQECAT, Inc Future technology Insurance Issues Wind farms will go further offshore and into deeper waters New and technically challenging design concepts –Floating structures –Cable moored structures –And others

© EQECAT, Inc EQECAT’s Approach to Offshore Wind Farm Risk EQECAT and ABS Consulting are sister companies of the ABS Group headquartered in Houston EQECAT is a catastrophe modeling company that provides cutting edge natural hazard models to the insurance industry ABS Consulting is a global risk, safety, and integrity management firm ABS Consulting provides full life cycle engineering, operations and maintenance, and in-service inspection services to the wind energy industry

© EQECAT, Inc ABS Group Wind Energy Services Technology Development/Qualification Offshore Expertise –Structure –Stability –Mooring/soils Certification Authority Certified Verification Agent (CVA) Services

© EQECAT, Inc Wind Energy Life Cycle Services VII. IN-SERVICE ●Operational Data Management (Wind Speed, Turbulence, Wake, Power Performance) ●Maintenance Management ●Mechanical Integrity Management Systems (MMS) ●Inspection Planning including RBI (Wind Turbines and Foundations) ●Gear Box Condition Monitoring and Inspections ●Rotor Blade Condition Monitoring and Inspections ●Coating and Corrosion Protection Monitoring ●End of Warranty — Consultancy and Inspections ●HSE Consultancy II. DESIGN BASIS & SITE ASSESSMENTS ●Owner’s Representative ●Tender Support and Consultancy ●Project Management VI. COMMISSIONING ●Monitoring and Supervision ●Functional Safety and Safety Tests ●Commissioning Supervision ●HSE Consultancy V. INSTALLATION ●Monitoring and Supervision ●HSE ●Project Management IV. MANUFACTURING ●Manufacturing Quality Audits ●Supervision ●HSE ●Project Management I. CONCEPTUAL PHASE ●Technical Due Diligence (Energy Yield, Permits, Technology Grid) ●Consultancy and Project Management III. SITE SPECIFIC DESIGN: WIND TURBINE & FOUNDATION ●Owner’s Representative ●Technical Consultancy ●HSE Design and Consultancy ●Project Management

© EQECAT, Inc EQECAT Vulnerability Models Developed by Engineering Studies EQECAT uses a ground up engineering approach in the development of vulnerabilities. Claims data incorporated into vulnerabilities Failure modes of power system components, support and foundations Manufacturing processes, and control systems effects Extreme natural hazard performance measures

© EQECAT, Inc EQECAT Hazard Models

© EQECAT, Inc Key EQECAT Model Attributes Fully Probabilistic results Scenario loss simulations Underwritting and Portfolio aggregation Extra-Tropical Wind & Storm Surge Gulf of Mexico hurricane wind, and wave models Earthquake models including time dependency in California

© EQECAT, Inc Examples of EQECAT Projects Offshore wind farm portfolio for European winter storm Onshore wind farms analyses for earthquake peril Hurricane and earthquake risk models for onshore transmission grids Hurricane risk models for offshore oil & gas platforms Hurricane risk models for Gulf of Mexico oil and gas pipelines And more

© EQECAT, Inc Questions?