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HomeMy WebLinkAboutProgress Report AGP Phase III Narrative 2014Akutan Geothermal Development Project Alaska Energy Authority Grant Agreement Number 7040050 Phase III Progress Report For the Period 1 September 2013 – 28 February 2014 Submitted by: RMA Consulting Group 25 March 2014 Lower Hot Springs Bay Valley NOTE The report which follows is based on work completed by the Akutan geothermal project team under Alaska Energy Authority (AEA) Grant Agreement #7040050. The Grant Agreement was amended in August 2013 to allow for continuation of Phase III, Design and Cost Estimates. Fieldwork began in September 2013, followed by the preparation of preliminary plans, specifications, and reports. Active work on the project was suspended in February 2014, pending a progress review by the City of Akutan and AEA. As part of the review process, project team members were asked to submit all completed deliverables and work in progress for inclusion in this report. None of the submitted materials has been subject to team review or any comprehensive effort to integrate the findings and conclusions. Therefore, all such materials should be considered preliminary and subject to further review. Akutan Geothermal Development Project Progress Report Phase III Page 1 Akutan Geothermal Development Project Progress Report 25 March 2014 I. Background The Hot Springs Bay Valley geothermal resource area on Akutan Island is one of the most researched prospects for geothermal power production in the state of Alaska. Two sites within the prospect area have been identified as having high promise for future development. The first area, generally referred to as the Hot Springs site, is a moderate enthalpy resource located adjacent to the northeast portion of Hot Springs Creek in Hot Springs Bay Valley (HSBV). The second, generally referred to as the fumarole site, is considered a high enthalpy resource associated with the upflow of the system located in the western part of the field at approximately 1500’ elevation. The City of Akutan has obtained grants from the Alaska Energy Authority to investigate the geothermal resources in Hot Springs Bay Valley and to assess the potential for development. Exploration, including magnetotellurics (MT), reconnaissance geological mapping, a soil gas survey, and geochemical sampling, took place in the 2009 field season, leading to the development of a preliminary conceptual model. The conceptual model postulates an upflow- outflow system with a heat source located to the west, toward the Akutan volcanic center. The upflow location is generally in the area of the fumaroles. The outflow path has not been clearly delineated by existing data, so two possible outflow paths are contemplated, but both result in the surface expression of the outflow to be at the spring sites in Hot Springs Bay Valley. Four thermal gradient (TG) drilling targets were selected to gain knowledge of the subsurface temperatures, test the conceptual model and help determine the viability of the resource for commercial development. Only two of these targets were chosen for drilling in 2010, due to budget constraints. Refer to the site map, below. The Hot Springs site temperature gradient well (TG-2) was core drilled to 833’. The 3.5-inch diameter well flowed on its own at a rate of about 40 gpm from 590’. Empirical calculations, presented in the 2011 feasibility report 1, indicated that a single full-sized production well could yield a capacity ranging from 465 to 820 gpm. Based on the temperature and flow parameters, it was estimated that a full-sized well in the TG-2 well location could produce about 1.3 to 2.4 MW g of electricity. 1 Akutan Geothermal Project Feasibility Report Prepared by RMA for the City of Akutan, 16 August 2011 Akutan Geothermal Development Project Progress Report Phase III Page 2 Hot Springs Bay Akutan Harbor Project Site Map Showing Location of Fumarole and Hot Springs Development Areas Akutan Geothermal Development Project Progress Report Phase III Page 3 Despite the positive implications for the Hot Springs resource, the feasibility report set aside investigation of development there in favor of further investigation of the upflow resource, specifically in the area designated as TG-1. The screening study released in 2011 2 indicated that a 10 MW g development using a non-condensing steam plant design was the most economically feasible option. The evidence suggested that the hot springs outflow area was a relatively small resource that may not be suitable for long- term development at a scale over 5 MW g . The results of the TG drilling also led to the preliminary conclusions that the resource at the hot springs site may have cooled over geologic time and that the outflow encountered lacked sufficient permeability to support commercial development. There was also concern regarding the potential for rapid cooling during exploitation, as a result of either cold water influx from near-surface groundwater, sea water, or injection breakthrough. Some of these concerns have more recently been alleviated; especially given the release of a report from the USGS3 (Appendix A), indicating that the actual hot springs flow and the hydrothermal component of that flow have increased in the recent past. After the release of the screening study and the feasibility study in 2011, the focus for resource development shifted from the Hot Springs area to potential drilling sites that could determine the viability of the upflow resource for development of 10 MW g of power generation. The first of these, commonly called the TG-1 area, is located at the head of the valley. This site was rejected due to considerations of technical difficulties in reaching hypothesized geologic structures that control the fumarole field, and the lack of surface manifestations directly around the site. The 2012 field campaign was designed to verify the conceptual model of the resource, delineate the presence of structures controlling the geothermal system, and select targets for deeper drilling that would intersect the resource. With supporting evidence obtained during the 2012 field season, the fumarole area was identified as being most likely to support or exceed the 10 MW of geothermal production that was desired. From the beginning, it was obvious that development of this area would be technically difficult and costly, but well within the capacity of the development team to undertake. With the continued support of a Phase III AEA grant and matching City funds, planning was begun for the development of the fumarole site in fall 2013. II. Implementation of Phase III, Design and Cost Estimating The purpose of Phase III of the project is to prepare the engineering, design, and environmental documents necessary to proceed to permitting and 2 Akutan Screening Study: Conceptual Level Evaluation of Costs and Economics, Akutan Geothermal Power Project Prepared by Geothermal Resource Group, URS Corp. and Geothermal Development Associates, May 2011 3 SIR 2013-5231, Geochemical Investigation of the Hydrothermal System on Akutan Island, Alaska, July 2012. Akutan Geothermal Development Project Progress Report Phase III Page 4 construction. The proposed development plan includes cost estimates for major project elements, such as production drilling, road and infrastructure development, plant construction, and operation and maintenance costs over the 20-year life of the project. This information is used to perform an economic assessment, and to develop a business plan for presentation to prospective investors, partners and power users. The successful completion of Phase III should result in a viable, buildable project, ready for production drilling and construction. Fieldwork conducted in 2013 focused on the data collection and resource evaluation needed for project design and cost estimating. The work also included an environmental analysis to evaluate project impacts and determine permitting requirements. The fieldwork team consisted of RMA Consulting Group (RMA), Mead & Hunt Engineers, Geothermal Resource Group (GRG), and High Tide Environmental. Denali Drilling, Inc was contracted to provide rock core samples for a potential rock source at Akutan harbor. With the completion of fieldwork in September 2013, a project scoping meeting was held in Las Vegas, Nevada in October 2013. The purpose, objectives and agenda for the meeting are provided in Appendix B. The scoping meeting resulted in the following tasking/assignments: • RMA – prepare cost estimates and input for logistical support of road construction, production drilling and system construction. Coordinate activities of the project team, and communicate results to the City of Akutan and AEA. • Mead & Hunt (subcontractor to RMA) – prepare 60 percent road design plans and cost estimates for construction, including drilling pads, plant site, and water supply system. Coordinate activities and reports for High Tide and Denali Drilling. • GRG – develop well designs and drilling programs, determine equipment requirements, and power phase/power plant design expectations. • GDA (Geothermal Development Associates, subcontractor to GRG) – develop preliminary plant and system design, and cost estimates. Coordinate with other team members for design and cost estimates for transmission lines and integration with City and Trident power systems. • High Tide Environmental (subcontractor to Mead & Hunt) – prepare an environmental review and permitting package for submission to regulatory agencies. Akutan Geothermal Development Project Progress Report Phase III Page 5 • URS Engineers (subcontractor to GRG) – receive information from project team members as input to the economic analysis model, and develop various cost scenarios for a screening study. Subsequent to the Las Vegas scoping meeting, project team members began work on the above-listed tasks, and several coordination meetings were held to refine design criteria, and for work integration. A project review meeting was tentatively set for mid-January 2014. III. Progress Review and Early Findings A teleconference project review meeting was held on 16 January 2014, with all project team members participating. A copy of the meeting agenda is provided in Appendix C. Team members provided the following reports: A. Mead & Hunt Engineers Mead & Hunt’s effort to produce 60% plans, specifications, and estimates was nearing completion at the time of the 16 January project review. The work included watershed runoff computations and culvert sizing, road grades and alignments, establishment of cut and fill areas, identification of road sections requiring guard rails, layout of crash berms, and grading of the drill pad sites. The next step would be to balance both earth and rock cuts and fills to use all of the generated material within the design cross- sections. The plans and specifications would then be ready to submit to the team members for internal review and comments. In addition to the road design work, two field investigations were completed and reports produced. In September 2013, 26 additional auger borings were completed along the road right-of-way (ROW). This data along with auger borings completed in 2012 were used to produce a Technical Memorandum, dated 13 January 2013, that summarized the near surface soil conditions along the ROW. This memorandum is provided in Appendix D. To evaluate a construction aggregate source for the project, a quarry site identified in 1982 on the north side of the new small boat harbor was investigated. The results of this exploration and testing program were presented in a Technical Memorandum dated 14 January 2014, which is attached as Appendix E. The results indicated that the bedrock at this location was not a high quality durable rock source that could be used to produce a base course material. As such, base course would have to be brought in from offsite (Dutch Harbor). The environmental work completed in September 2013 included archeological, wetland, and biological field studies and surveys. The Akutan Geothermal Development Project Progress Report Phase III Page 6 wetland delineation survey was submitted to the US Army Corps of Engineers (USACE) for jurisdiction approval, which has been received. However, no permits have been applied for. The roadway plans had been completed to a point where a first run of estimated earthwork quantities could be generated. These quantities could then be used to prepare a first draft cost estimate for roadway construction, and grading of the proposed drilling pads and plant site. B. Geothermal Resource Group Subsequent to the Las Vegas scoping meeting, GRG had reviewed the 2012 and 2013 fieldwork results with an eye toward developing the fumarole region as productively as possibly. This included an examination of options for alleviating poor results from individual wells by drilling multilateral wells, drilling vertical injection wells, adjusting the wellfield layout, and drilling a top-hole with a smaller rig in advance of mobilization of a larger rig. GRG produced a well design for the production wells, a drilling procedure, and developed equipment, personnel and vendor lists for the project. GRG also provided input on resource and site characteristics to the other team members including location data, infrastructure requirements potential chemistry, and volume and temperature of the geothermal fluids. Several obstacles to fumarole site development were identified. First, drilling costs would increase, largely due to new well design requirements and drilling techniques needed to reach the most likely targets. Second, the use of non-condensing geothermal power plant technology, which was considered the most economically viable option in the 2011 screening study, would not be acceptable due to emissions of non-condensable gases and other environmental factors. Although definitive costs have not been firmly established, GRG reported that drilling production wells at the fumarole site could exceed $20 million, and that development of two 5 MW condensing plants would double plant construction costs to more than $32 million. C. RMA After hearing and evaluating team member reports, RMA concluded that the potential total cost of the project could reach or exceed $100 million. This assumption was based on the planning budget numbers presented at the meeting: 1. Per well drilling costs: $6.4 million. Cost of 3 to 4 wells: $19 million to $24 million Akutan Geothermal Development Project Progress Report Phase III Page 7 2. Infrastructure development (drilling pads, plant site, access road, water supply system): $16 million to $21 million 3. Condensing steam plants (total of 10 MW): $30 million to $33 million 4. Transmission lines: $2 million to $3 million Total planning estimate: $67 million to $81 million These baseline estimates do not include contingency and certain logistical costs, which are estimated as 30 percent of construction costs. This presents an estimated total cost of construction at between $87 million and $105 million. In summary, RMA noted that the economic analysis and business plan tasks of Phase III would address costs beyond construction, such as financing charges, rents or royalties associated with surface and subsurface properties, and a variety of startup costs. These costs would likely ensure a total project cost of at least $100 million and an excessive per kilowatt cost, unless the project could be downsized or restructured to meet more acceptable funding levels. As a result, the team initiated an evaluation of alternatives that included: a. Continue Phase III as planned and funded. b. Downsize the target output of the fumarole site to 5 MW. c. Reconsider development at the Hot Springs outflow site. d. Terminate the project. IV. Actions Taken Subsequent to the 16 January 2014 progress review, RMA informed the City of Akutan and Alaska Energy Authority of the results of the meeting. Both were informed that the project team believes the project should be continued with the objective of developing the Hot Springs outflow site, with a target output of 2-3 MW . It was agreed that a progress report should be prepared and presented to the City and AEA, along with a comprehensive briefing and review. This report is the result of that agreement. Project team members received a stop work order for the project on 3 February 2014. However, after reviewing the status of design and cost estimating deliverables, RMA requested that plans, documents and reports be submitted in as near-final form as possible. Minimal effort was expended to Akutan Geothermal Development Project Progress Report Phase III Page 8 complete infrastructure plan sets and cost estimates, finalize the environmental assessment and permit package, and wrap-up cost estimates for production drilling. These are provided as Appendices F, G and H, respectively. At the point of work stoppage, only minimal work was in progress on plant configuration and cost estimates. Therefore, GDA was directed to submit its working papers for inclusion in this report (Appendix I). With the receipt of all available deliverables, RMA and GRG have focused their efforts on evaluating development of the outflow resource in the general area of TG-2. Factors supporting this approach include: A. The release of a USGS scientific investigations report titled Geochemical Investigation of the Hydrothermal System on Akutan Island, Alaska, July 2012. The authors of this report compared data from the 1988 Motyka investigations with data from water and gas samples acquired in 2012. The conclusion was that the heat flow of the resource, the volume of flow at the Hot Springs site, and the hydrothermal component of the springs was greater than that estimated in 1988. B. The Hot Springs site is more accessible than the fumarole site. The resource could likely be developed using smaller, lighter weight drilling equipment, thus reducing road construction costs, and minimizing surface impact. C. Drilling costs will be reduced, since production wells intersecting the resource can likely be drilled vertically and to a shallower depth than was anticipated from the fumarole site. This is based on the experience at TG- 2 and preliminary reevaluation of the existing resource information. Less expensive well cost reduces the potential losses from wells that do not achieve production or injection goals. D. A project developed in the Hot Springs site has the potential to be scalable by drilling only the number of wells needed, building the infrastructure and generation needed to achieve the lower generation goals. It may be possible to construct the system using smaller, modular generation units close to the well sites, further reducing the cost and surface impact of road construction. This is not currently considered an option at the fumarole site because of the excessive infrastructure and drilling costs required for any development of the fumarole site (road construction and deep directionally drilled wells). E. The Hot Springs site is comparable to many moderate-sized and moderate enthalpy resources scattered across Alaska, particularly in the Aleutian region; therefore, the project provides significant value as a demonstration project for well-site based generation technology, and as a solution for harnessing stranded geothermal resources. Akutan Geothermal Development Project Progress Report Phase III Page 9 For many reasons, continuing the Akutan Geothermal Development project will provide a unique opportunity for a cooperative development effort among the City, AEA, U.S. Department of Energy, DGGS, and participating Native corporations. Therefore, the project team highly recommends that the project be restructured to provide a development plan and investment strategy for the Hot Springs site, as generally outlined, below. V. Proposed Project Restructuring and Grant Amendment The City of Akutan and Alaska Energy Authority executed Akutan Geothermal Development Project grant #7040050 in September 2011. Authorized funding consisted of $2,695,000 from the State Renewable Energy grant fund, and $355,000 of City matching funds, for a project total of $3,050,000. The purpose of the grant is to complete Phase III, Design and Cost Estimates, for a proposed 10 MW geothermal power system in Akutan. There have been two executed amendments to the grant agreement: Amendment #1, dated July 2012, extended the period of performance from 1 July 2011 to 31 March 2014, and authorized the expenditure of $625,000 for project scoping and additional field investigations for “well site targeting, capacity assessment, and risk analysis.” A large part of the funding authorized by Amendment #1 was used to conduct geophysical and geological investigations of the geothermal area. The focus was to expand the data from the western portion of the field, where the fumaroles lie. This data was integrated with the previous geophysical data into a 3D geophysical model, and a detailed geologic and structural map with analysis. Focus of the selection of well targets was toward that part of the field where the surface signs of hydrothermal alteration and the geophysical signs of a robust resource were the highest. This fits the previous conceptual model, placing the up-flow resource under the fumarole area. The additional effort that was made in 2012 to understand the resource prior to drilling is suited just as well to look more closely at the Hot Springs site for well targeting and development. In fact, an outside study led by a geologist that has been researching Akutan and provided some assistance to the City team, has led to an update of the previous conceptual model using the new data to better define the outflow path or paths of the Akutan resource. This new research should be of help in selecting Hot Springs well targets. Amendment #2, dated August 2013, extended the period of performance to 31 July 2014, updated budget categories and milestones, and authorized the project team to proceed with Phase III of the project, with a remaining budget of $2,285,000, as shown below. Akutan Geothermal Development Project Progress Report Phase III Page 10 Reimbursable Tasks Budget Start Date End Date Deliverables 1. Project scoping and contractor solicitation $75,000 JUN 2011 JUL 2011 Previously expensed 2. Wellsite targeting, capacity assessment, and risk analysis $690,000 JUN 2012 JUL 2013 Previously expensed 3. Design and cost estimates: production drilling, steam field and power plant, and supporting infrastructure $1,155,000 JUL 2013 FEB 2014 Plans, specifications and cost estimates, system design report 4. Logistical support for field operations $345,000 JUL 2013 OCT 2013 5. Environmental assessment and permitting $285,000 JUL 2013 APR 2014 Environmental assessment report and permits 6. Abandonment of TG - 2 and TG-4 exploratory wells $65,000 JUL 2013 DEC 2013 Abandonment report to AOGCC, acceptance of abandonment by AOGCC 7. Development agreement and site control $95,000 DEC 2013 JUL 2014 Documentation of development agreements and site control 8. Power sales agreements (PSA) and investment strategies $70,000 DEC 2013 JUL 2014 Copies and/or documentations of power sales agreements and investment strategies report 9. Updated economic and financial analysis $150,000 DEC 2013 JUL 2014 Economic and financial analysis report 10. Final business and operational plan $120,000 DEC 2013 JUL 2014 Business and operational plan Grant Budget, Tasks 3-10: $2,285,000 This progress report, and the attached deliverables, fully documents the work that has been performed to date under Amendment #2 milestones, tasks and budget allocations. According to the City of Akutan Financial Report/Request for Reimbursement submitted to AEA for January 2014, there was just over $1.64 million remaining for completion of Phase III. The project team recommends that the grant agreement be amended to allow the preparation of plans, designs, and cost estimates for a geothermal power system utilizing the resource of the Hot Springs site. The City has also received a letter of support from two of the project geologists (Hinz, Stelling) encouraging the development of the Hot Springs geothermal resource (Appendix J). The restructuring of the project will be based on the use of a less aggressive approach, where the wells and generation will be designed for staged development. The GRG project team members are prepared to investigate the nature of the resource at the Hot Springs site, the logistical implications for drilling and construction at the Hot Springs site, and explore Akutan Geothermal Development Project Progress Report Phase III Page 11 suitable generation technologies and transmission alternatives. RMA and the Mead & Hunt team can develop plans and specifications for newly proposed infrastructure, and adjust environmental and permit tasking to encompass the Hot Springs site, and Hot Springs Bay beach. A re-scoping meeting can quickly determine if this new work can be completed with the remaining grant funds. Examining the Hot Springs location from the perspective of smaller scale development presents several unique and interesting opportunities. Our initial look at the Hot Springs development alternative indicates that the drilling and drilling infrastructure costs for a 5 MW g development at the Hot Springs location could be reduced to 25 to 33 percent of the cost required at the fumarole location. It is reasonable to assume that reductions in the cost of road construction, pad sites and ancillary infrastructure will be of similar magnitude, making the economics of a development significantly more palatable. These factors alone make the case for re-scoping the project and continuing the development process. VI. Next Steps As in the past, any decision to restructure the current project and amend the existing grant agreement must be based on factual information that is properly communicated to all parties – in this case, the City, AEA, and DGGS, as a minimum. In order to accomplish this important objective, the project team recommends the following next steps: A. Distribute the progress report to all affected parties. B. Project team to prepare a briefing summary and slide presentation to address all issues identified in the progress report. C. Conduct an interactive, web-based teleconference, with all affected parties participating, to discuss the information contained in the progress report, and to define the proposed project restructuring. D. Project team to present a proposed scope of work and grant amendment. E. After thorough review by all parties, conduct a meeting between AEA and City of Akutan for final determination on project continuation.