December 2009

AN UPDATE TO ALL OUR SHAREHOLDERS

With the AGM coming up, the Board decided to summarise and report on the considerable number of

issues faced by NZ Windfarms over the last year. While there has been a moderately high profile media

interest in some issues (e.g. statements related to the IEC Certification issue), for balance that should

not obscure the considerable progress made over the year.

Around a year ago we only had five wind turbine generators commissioned at Te Rere Hau. As of now

we have 65 turbines commissioned. Our output capacity has increased from 2.5 MW to 32.5 MW.

Consistent wind over recent weeks has seen the wind farm regularly operate at outputs close to 30 MW

for sustained periods and total electricity sales for November look likely to exceed 8 GWh (8,000 MWh).

Our Company has always taken comfort from the fact that Windflow Technology Limited (WTL) was

committed to seeking International Electrotechnical Commission (IEC) Class 1A Type Certification for the

WF500 turbine. Conformity with a recognised design standard assured us that the turbines would be

suitable and that we could be confident in seeking public investment in this project. As reported in

August we learned that none of our turbines would be at the standard required for IEC Certification. At

that time WTL advised that to incorporate all the design changes in some earlier turbines would require

a fundamental refit of those turbines and the potential cost to do this could be as high as $24 million.

This meant it was essential we understood the impacts and risks of not having these design changes.

Our continuous disclosure obligations also meant that the Board had no option but to make a market

announcement on the issue.

Resolving this matter has not been easy - it has proven difficult to sort out and been time consuming.

We can report now however that the Company has made good progress on resolving this issue with

WTL. Recently, we have been provided with a copy of a report by an Independent Expert, engaged by

WTL, into the significance of the design modifications. That report has been provided to the Company

and the findings have been reported by WTL and that announcement is attached at the end of this

newsletter for your reference.

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Separate to the design issues noted above, a more recent problem has been experienced with

overheating of generator assemblies within the turbines installed at Te Rere Hau. In this regard, we are

pleased that WTL has started a project to retrofit cooling fans to the generator assemblies and replaced

generators where necessary to resolve this issue which manifests itself when the turbines are operating

for sustained periods at high output. Until the retrofits are complete our turbines have been de-rated to

400kW rating (maximum 500kW) to protect against further overheating incidents. This is expected to

result in around a 10% reduction in wind farm output during December and January while the

retrofitting occurs. We are closely monitoring the effectiveness of the solution we have been provided

by the manufacturer.

The Company has sought resource consent to build turbines in the Eastern Extension area. The

application was heard during October and early November. Our consent will allow us to locate up to 56

turbines on the Extension area, although the immediate plans are limited to locating the 32 Batch 4

turbines there. We have previously advised that there is considerable benefit in locating the Batch 4

turbines in the Extension area rather than on the remaining consented sites in the existing farm, due to

the far better wind resource in the Eastern Extension. We expect to receive the Commission’s decision

before Christmas. Consented sites in good wind locations situated close to transmission will become

increasingly valuable as it becomes harder and harder to find locales that meet these key criteria.

Resolving the resource consent issue and sorting out the certification issue delayed the progressing of

the Company’s funding plans. The Company expects to be able to make further announcements in this

regard in the near future.

Recently we were audited by the Climate Change Office to ascertain that we had correctly accounted for

carbon consumed in construction of the project. This has cleared the way for carbon credits earned by

us under the Project for Emission Reduction Scheme to be registered in our account. We earned a net

1,296 units in 2008 and anticipate earning around a further 19,000 units in 2009 which will get credited

to our account early in 2010.

As issues get resolved we expect to see the wind farm availability improve and exceed the warranted

level of 95% from the 92.7% reported for the calendar year to the end of October.

The Board will report further on these issues at the AGM.

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ATTACHMENT - NZAX ANNOUNCEMENT BY WTL ON EXPERT REPORT

NZAX STATEMENT

27 November 2009

Independent Expert Report on Windflow 500 Turbines

As part of the process of seeking to obtain International Electrotechnical Commission (IEC) Class 1A Type

Certification Windflow Technology Limited (WTL) has made various design changes to the Windflow 500

wind turbine generator (WTG). Seventeen (17) of these changes affect matters relevant to certification.

Some of these changes, but not all, have been incorporated progressively into turbines supplied to New

Zealand Windfarms Limited (NWF) for the Te Rere Hau windfarm (TRH).

An Independent Expert has provided WTL with a report of the assessed significance through calculation

of the 17 design changes and in particular whether by not incorporating them there is a materially

increased risk the WTG’s will not operate properly at TRH.

The Expert has concluded from information provided by WTL (including calculations and design

modelling) that:-

• One (1) proposed modification is no longer found to be necessary.

• In the case of seven (7) modifications, on recalculation the unmodified design is considered to be suitable for IEC Class 1A applications.

• In the case of a further three (3) modifications, the unmodified design is considered to be suitable for use at TRH without special measures.

• In respect to the remaining modifications, specific comments follow:-

Forty-four (44) WTGs at TRH have blades that are of a butt jointed construction. Two blades of this

construction failed during IEC fatigue tests undertaken in 2007. A redesigned blade has passed the IEC

fatigue testing and this redesign has been incorporated in all subsequent WTGs supplied. It has now

been established that the original test blades which failed were loaded to a considerably higher level

than was intended or calculated at the time. The Expert has determined that at the test load actually

applied, the cycles required to pass the type test were actually exceeded in both tests.

This outcome greatly reduces the degree of concern regarding these blades although there is still a

margin of uncertainty about the design validation for the blades due to the somewhat limited

information about the material properties of the butt-jointed laminate. On the basis of the new

calculations the Expert considers that these blades will not now be expected to fail but recommends

that the blades of this type be given a visual inspection at six-monthly intervals in the region where the

test blades failed. The estimated cost to replace a single blade is in the order of NZ$40,000 so the latest

analysis of the original test results is a welcome outcome for the project.

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The Expert has determined that failures of taper roller bearings and plain spherical bearings in the pitch

mechanism are likely at some stage during the turbine life if the pitch bearing friction is as assumed in

the calculations and in accordance with the theoretical model widely used by bearing manufacturers.

In service measurements from the Gebbies Pass Windflow 500 prototype suggest actual friction is lower

than assumed. If this is normally the case with the WTGs at TRH the bearings could all survive the entire

life. As this cannot be guaranteed a monitoring program has been recommended for the 49 affected

WTGs and the estimated cost of having to replace one bearing assembly with an upgraded assembly is in

the order of $16,200 per WTG providing suitable tooling and methods are developed and practiced.

35 WTGs have unmodified gearbox casing feet that could be at risk of distortion under rare extreme

load events. These 35 WTGs also have a bolted flange joint within the gearbox that is at risk under cyclic

loading. Some risk of failure of the brake adaptor on these WTGs has also been identified, but any such

failure would have safe consequences. Remedial modifications have been identified and the Expert

considers these could be incorporated at an estimated cost of $3,100 per WTG.

The Expert has identified that the mid-height welds around the 5 Batch 1 WTG towers are at some risk

of fatigue damage and has recommended that a welding specialist should be sought to develop a

suitable monitoring programme. Repairs have been estimated at an approximate $2,000 per WTG.

The Expert has estimated the total liability that would arise if all the identified issues resulted in a

requirement to repair (or a decision was made to implement a pro-active retrofit, where applicable) to

be approximately $966,200 (excluding blades or any consequential failure).

Inspection costs to monitor these potential risks are estimated at around $12,000 per annum when such

work is performed in conjunction with scheduled maintenance.

To summarise, the Expert considers that the overall risks to the project are addressed through

calculation or may be mitigated through monitoring, but acknowledges that there may be financial

implications associated with some of the above issues and the wind farm owner may wish to consider

how such potential costs might be covered.

A copy of the Expert’s report has been made available to NWF. NWF has advised WTL that it is largely

satisfied with the report. WTL looks forward to working with NWF to resolve the issues identified above.