HomeMy WebLinkAboutPreliminary Economic Analysis Tenakee Geothermal 2013PRELIMINARY ECONOMIC ANALYSIS
For:
TENAKEE INLET GEOTHERMAL
RECONNAISSANCE PROJECT
Prepared for:
/=ALASKA
(@@> ENERGY AUTHORITY
813 West Northern Lights Boulevard
Anchorage, Alaska 99503
Prepared by:
“‘) HATTENBURG DILLEY & LINNELL
Engineering Consultants
3335 Arctic Boulevard, Suite 100
Anchorage, Alaska 99503
On Behalf of:
a IPEC
INSIDE PASSAGE ELECTRIC COOPERATIVE
P.O. Box 210149
Auke Bay, Alaska 99821
(907) 789-3196
APRIL 2013
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TABLE OF CONTENTS 5.1 DEVELOPMENT COMPONENTS .
5.2 ESTIMATED Costs
6.0
7.0 CLOSURE AND LIMITATIONS
8.0 REFERENCES
LIST OF FIGURES
Figure 1 Location Map
Figure 2 Site Map of Hot Springs Area
Figure 3 Barge Landing Zones and Construction Access Road Alignment
Figure 4 Options C1, C2 and C3
Figure 5 Geothermal Pipeline/Transmission Line Routing Options
Figure 6 Power Plant Site Layout
Figure 6a Diagram of Binary Power Plant
Figure 7 Buried Pipeline Detail
LIST OF TABLES
Table 1 Reports on Tenakee Inlet Geothermal Resource
Table 2 Diesel Costs for Hoonah
Table 3 Estimated Total Costs for Plant Location
Table 4 Estimated Costs for Transmission from the Different Sites Table 5 Benefit-Cost Ratio Summary
LIST OF APPENDICIES
Appendix A Detailed Capital Costs
Appendix B Northern Economics Benefit Cost Ratio Analysis
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PRELIMINARY ECONOMIC ANALYSIS
TENAKEE INLET GEOTHERMAL RESOURCE
TENAKEE INLET, ALASKA
1.0 INTRODUCTION
The purpose of this report is to present the preliminary economic analysis for Tenakee Inlet Geothermal Resource located at Tenakee Inlet, Alaska. This preliminary economic analysis is based on several options to construct the project and preliminary assessment of current and future potential energy demand markets. The primary stakeholder in the project would be Inside Passage Electric Cooperative (IPEC) and its ability to supply energy to Hoonah, Alaska. Sealaska Corporation has also express interest in the project and its development. The economic analysis presented is based on the fieldwork and studies conducted as of March 2013. Table 1 presents the geological reports that have been submitted on this project and are used as the basis for this economic analysis. The interim report was a description of the fieldwork and data collected up to December 2011. The preliminary environmental report presented the different permits needed for the project and agencies that would be involved if the project moved to construction. The preliminary conceptual report presented the geological model for the geothermal resource.
Table 1: Reports on the Tenakee Inlet Geothermal Resource
REPORT TITLE DATE SUBMITTED
Interim Report for Field Exploration & Laboratory Analyses December 2011
Preliminary Environmental Overview Report December 2012
Preliminary Conceptual Report December 2012
Our capital costs are based on existing construction pricing for southeast Alaska gathered from Department of Transportation (ADOT&PF) bid tabulations; existing construction estimates for projects in southeast and in Alaska; similar size geothermal resources; Department of Energy cost data for geothermal projects; and discussions with industry personnel. Data on electrical demand, fuel pricing, and projected load was supplied by Inside Passage Electric Cooperative. A benefit-cost ratio analysis was conducted by Northern Economics and was based on AEA methodology. Currently we are completing the reconnaissance phase of the project and have made many gross assumptions in order to develop this preliminary economic analysis. If the project moves forward the economics presented in this report will change and be updated.
The vision of developing this geothermal resource goes beyond providing a cleaner, price stable energy source for Hoonah. It also creates the cornerstone for economic development by providing stable energy for the life of the project (which is typically 50 years or more). This would give rise to opportunities that do not currently exist at the local and regional level. Local officials have indicated a number of opportunities including a climate control room for housing
of artifacts; additional tourism facilities including restaurants, hotels, and services; and food processing and cold storage facilities. Hoonah as a port for the Alaska ferry and cruise ships has
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the desire to develop tourism operations however without a stable, low-cost energy supply this will be difficult.
2.0 SITE AND PROJECT DESCRIPTION
The Tenakee Inlet geothermal resource is located near the head of Tenakee Inlet on Chichagof
Island in Southeast Alaska, approximately 19 miles southwest of Hoonah along an un-named stream we have called Tenakee Creek. Figure 1 presents a location map for the hot springs. The area is characterized by rugged, steep terrain covered with thick vegetation typical of the southeastern Alaska rainforest. Topography limited the exploration area to the valley floors and to the first bench about 100 feet above the river valley. The resource is characterized at the surface by at least four small hot springs that occur together on the southeast side of Tenakee Creek located at approximately 57° 59’ 24” N and 135° 56’ 20” W.
The Tenakee Inlet springs are comprised of four small springs that flow from the base of a rock cliff approximately 40 to 50 feet in height. The hot springs area is small about 50 feet long by 20 feet wide occurring on a gravel bar that is heavily vegetated with alders, willows, and spruce
trees. The gravel bar is approximately 800 feet long and 100 feet wide. The terrain raises steeply on both sides of the stream channel. The hot spring site and the location of the four hot springs are shown in Figure 2. There is an outflow creek from the spring site that leads to Tenakee Creek. A stream named the Stairway to Heaven Creek cascades down the slope and mixes with the outflow near the spring sites. Seeps occur along the shore of the gravel bar and are periodically inundated by Tenakee Creek.
Based on the water chemistry, the hot springs fluids are most likely associated with volcanic waters and perhaps heated by steam from a deeper reservoir. Based on the dissolved silica content of the hot spring fluids the possible maximum temperature of the source water at depth is estimated to be 260°F (127°C). The average surface temperature of the hot spring waters is 170°F. These surface and subsurface temperatures are in the range that binary geothermal power plants operate. Much like Chena geothermal resource the site benefits from having cool waters and/or cool ground at approximately 40°F as a cold sink. The energy produced in a binary power plant is a function of the difference in temperatures between the hot fluid and the
cold sink.
There is limited subsurface data since there has not been exploratory drilling, therefore the size of the plant and number of wells are assumed based on other resources of similar temperature
and size. The subsurface temperature estimated from the silica concentration of the fluids is in the range of electrical production by a binary power plant. The binary power plant is assumed to generate 3 to 5 megawatts (MW) and would be situated near the resource. The resource would be developed with 2 to 4 wells to supply the plant with the necessary geothermal fluids for Operation. The size and number of wells will likely change as subsurface explorations are conducted.
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Figure 1: Location map for Tenakee Inlet hot springs. Hot springs located approximately 19 miles southwest of Hoonah Alaska in southeast Alaska. There is a number of hot springs on Chichagof Island as shown by black circles on the vicinity map, however, Tenakee Inlet hot springs have the hottest surface temperature of any of the springs on Chichagof Island.
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HOT SPRINGS TOHEAVEN CREEK STAIRVIAY
Figure 2: Site map of hot springs area. Note the location of the four hot springs, the seeps at the edge of Tenakee Creek and the outflow from the hot springs. The first bench located above the hot springs is approximately 40 to SO feet higher than the base of the slope. The field sampling grid is partially drawn for reference. The hot springs occur at grid point A4.
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3.0 LOCAL AND REGIONAL ECONOMY
Hoonah is the only first-class city on Chichagof Island, the 109th largest island in the world and the Sth largest island in the United States. The city is a first class city and provides all municipal services including police, utilities and road maintenance. At the 2000 census the population was 860, though summer population can swell to over 1300 depending on fishing, boating, hiking and hunting conditions. There has been a decline in the population since the 2000 census to a population of 753 in 2011. There are 399 housing units in the community. Public services include piped water to all homes and facilities, piped sewage and sewage treatment plant with 98 percent of homes fully plumbed, and garbage collection services. Hoonah has a K-12 school which has approximately 120 students, 2 stores, one with a fuel dealership and hardware store, a bar, a hotel and restaurant-bar, 2 cafes, an auto service center, several gift shops, several bed and breakfasts, a U.S. Post Office, a regional U.S. Forest Service Office for Tongas National Forest, a cold storage plant and a sporting goods store. The cold storage plant was closed this year due to the high energy costs. The school uses waste heat from the diesel generators to heat the facility and the community pool. The city of Hoonah Operates a small boat harbor, a large vessel mooring harbor and a new boat haul out facility. The ADOT&PF built a new ferry facility that opened in early 2001 in Hoonah and the Hoonah Airport was expanded in 2011. Ground was broken for a new health clinic in 2011 and plans are underway to build a new public safety center and jail.
Fishing and local government are mainstays of the economy. In 2011, 70 residents held commercial fishing permits. The city and school district are the main public sector employers. Tourism, as a private sector economic stimulant, has developed into a major industry. Subsistence activities remain important components of the lifestyle. Salmon, halibut, shellfish, deer, waterfowl, and berries are harvested.
The 2006-2010 American Community Survey (ACS) estimated 330 residents as employed. The public sector employed 32.1% of all workers. The local unemployment rate was 8.1%. The percentage of workers not in labor force was 37.7%. The ACS surveys established that average median household income (in 2010 inflation-adjusted dollars) was $50,511 (+/-$14,015). The per capita income (in 2010 inflation-adjusted dollars) was $24,426 (+/-S4,057). About 12.2% of all residents had incomes below the poverty level.
The old fish cannery, which ceased operations in the 1950s, located near Icy Strait was obtained by the Hoonah Indian Association (HIA). The road to the site, Cannery Road was paved in 2000 and the site was converted into a visitor center and tourism destination for cruise ship Passengers. From May through September, 3 to 4 cruise ships anchor off Icy Strait Point and visits from ship passengers enhance Hoonah's warm weather economy. The former Hoonah Air Force Station, once a White Alice communications Cold War facility, which closed in the mid- 1970s, is now the start point of a zip line, one of the longest in the world, which ends at the cannery site. The cruise ship passengers, visiting fishing vessels and summer time boaters who dock in the small boat harbor, all bring revenue to the city. The closing of the logging industry in southeast Alaska hurt the town economically in the early 1990s but limited logging, tourism and fishing have helped to replace the void.
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Hoonah, being an island community, is only accessible by boat or plane. The Alaska Marine Highway serves Hoonah with day boats. The airport is service by bush carriers Wings of Alaska
and Alaska Seaplanes with up to five flights a day between Hoonah, Juneau and local communities. A ADOT&PF study was started in 2009 to evaluate the feasibility of a road from
Hoonah to Pelican and to allow an transportation corridor to this geothermal resource. The road would save the ADOT&PF ferry costs in summer snow-free months, by connecting these areas to Hoonah.
Tongass National Forest borders the area and has an unpaved road system of over 300 miles.
Many of the recreation areas including Game Creek, Kennel Creek, Freshwater Bay which has a small boat harbor and Whitestone boat landing and False Bay recreation area are accessible
during the summer months via these roads.
4.0 CURRENT ENERGY DEMAND
The current energy demand is from the businesses and residents of Hoonah. There are no major industries such as a fish processing plant at this time that would increase demand during a specific part of the year. IPEC operates four diesel-powered generators in Hoonah with combined capacity of 3,060 kW. Overall efficiency is 14.25 kWh/gallon of fuel. Annual
electricity usage in Hoonah is 4,860,308 kWhr.
IPEC used 331,184 gallons of diesel per year generating electricity at Hoonah. At a cost of $4.12 (IPEC’s price in 2012) per gallon, diesel costs for power generation totaled $1,364,000 per year. In the past IPEC has experienced anywhere from 5% to 50% increase in fuel prices. The last few years have seen extreme variations in the fuel prices in relatively short periods of time. Most agree that it is unlikely that the price of fossil fuels will decline substantially in the future. Demand for oil continues to rise as the world supply of relatively cheap and accessible oil continues to decline. US supply is increasing due to new supplies however the increase supply may not substantially affect the price of fossil fuels.
According to the State’s FY 2011 PCE Statistical Report residential rates in Hoonah averaged $0.60/kWhr. The cost paid by residential users is offset by Power Cost Equalization (PCE) funds. Approximately 30 percent of the cost is credited back to a residential user.
Space heating is the other component of energy consumption in Hoonah. Space heating costs represent a major portion of residential, commercial, and industrial energy expenditures in Southeast Alaska. Historically most of the space heating has used diesel. According to the Southeast Alaska Integrated Resource Plan, Hoonah uses 238,235 gallons of heating oil per year
(2012) at a cost of $ 1,093,805.
Electric heating systems are generally less efficient than other heat energy sources in Alaska. However, with cheaper energy these electrical heating systems can provide an attractive alternative. There has already been a switch as hydroelectric facilities come online and reduce the cost of electricity. When oil prices increased significantly in 2008 and again in 2010 and 2011, many customers in areas with low-cost hydroelectric generation converted to electric
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heat. This conversion significantly increased electric loads consuming excess hydroelectric generation resources and, in some cases, resulted in the operation of diesel generation when water levels of the hydroelectric projects dropped to unacceptable levels. We have conservatively estimated that geothermal produced electric energy could replace 30 percent of the space heating needs for Hoonah.
A new hydroelectric facility is being developed at Gartina Falls near Hoonah. It is anticipated that construction will be completed between 2015 and 2018 and supply approximately 30 percent of the current energy demands for Hoonah. As energy demand increases, this facility will still only supply a certain amount and does not provide for increases in energy demand. We have adjusted the diesel costs for power generation by using a reduction of 25 percent this year but maintaining that number constant over time. Table 2 presents the diesel costs for Hoonah.
Table 2: Diesel Costs for Hoonah
City Diesel Costs Total Space 25% of Space Total Diesel Displace
for Power Heating Fuel Heating Fuel Costs
Generation Costs Costs
Hoonah $1,364,000 $1,093,800 $273,450 $1,638,000 (2012)
Hoonah w/ $954,800 $1,093,800 $273,450 $1,229,000 (2015-2018)
Gartina
4.1 Operating & Maintenance Costs
IPEC is a non-profit, consumer-owned and governed electric utility which services 1,300 members in Southeast Alaska. For 2012 the average cost per kWh sold was $0.5983. This price included operation and maintenance (O&M) costs, fuel costs, direct administration costs, and other indirect costs. O&M costs for a geothermal power plant include routine oversight of plant operation and visual inspections by plant operators and maintenance to repair and replace parts as needed. Routine resupply of consumables is also needed. Ormat estimates the O&M costs for a Mt. Spurr geothermal project to lie in the range of $0.03 to $0.06 / kWh. Akutan geothermal project estimates O&M costs at about $0.08 / kWh. A plant at Tenakee would likely have O&M costs at the high end of this range much like Akutan.
5.0 DEVELOPMENT OPTIONS
Many of geothermal power plants can be remotely operated with occasional visits by technicians. The ADOT&PF is evaluating the construction of a road from Hoonah to Pelican. If this road was to be constructed prior to the development of this project it would significantly change the cost of the transmission line and/or pipeline considered here. In the preparation of the capital costs we have assumed that the road would have to be funded and built under this project, but we have used existing roads to the extent practical. Construction access can occur from Tenakee Inlet with a minimal construction access road from a barge landing area to the site. Figure 3 presents the barge landing zones and construction access road alignment concept.
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There are five proposed power plant sites with two different transmission alignments. In all
options the well field is located near the hot springs within the Tenakee Stream valley. Figures 4
and 5 present the sites and transmission alignments. The transmission alignments would also
be the alignments for the access road. The BLUE alignment essentially follows the DOT&PF
alignment. The YELLOW alignment follows the same alignment as the BLUE except for Salt Lake
Bay to Game Creek valley. The YELLOW alignment lies to the east of the BLUE alignment and
follows a stream valley between the mountains instead of along the coast (Figure 5).
Transmission Line Alignments:
BLUE - consists of 34 miles of transmission line and access road: 19.2 miles is along
existing roads and 14.8 miles in roadless areas. The BLUE alignment follows the
roads to Game Creek and then heads west towards Salt Lake Bay site along a
cliff above the ocean. The alignment than uses existing roads to Tenakee Inlet
and then along the inlet pass Port Fredrick to the head of the inlet and Tenakee
Stream valley.
YELLOW - consists of 33 miles of transmission line and access road: 18.2 miles is along
existing roads and 14.8 miles in roadless areas. The main difference with the
YELLOW alignment is at Game Creek the road crosses through a pass to Salt
Lake Bay. The route to Tenakee Stream valley is the same as the BLUE
alignment.
Power Plant Sites:
A) A power plant located at Port Fredrick, with pipeline to the well field
B) A power plant located at Salt Lake Bay with pipeline to the well field
C) Three locations for the power plant within the Tenakee Stream valley
C1) The power plant located above the well field on the west side of the stream
valley
C2) The power plant located above the hot springs and well field on the
southeast side of the stream valley
C3) The power plant located northeast of the well field on the west side of the
stream valley along a large gravel bar.
5.1 Development Components
The following components are part of the project.
GEOTHERMAL WELLS
Geothermal wells are divided into exploration and production. Exploration drilling typically
consists of smaller diameter wells followed by well testing. We have assumed a shallow
resource, less than 4000 feet. Based on industry standards and considering an Alaskan factor,
an exploration well will cost approximately $1,500,000 for a 4000 foot deep well. A production
well due to the size of the casing for production will typically be $2,000,000 to $2,500,000 for a
4000 foot deep well. Drilling costs were quotes for Tenakee obtained from Geothermal
Resource Group. These quotes may change depending upon availability of drill rigs, accessibility
and unforseen regulatory issues. Success in exploration well drilling is only about 40 percent
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and about 60 to 80 percent for production wells. Typically twice as many wells as needed for
production are advanced during exploration. In some instances exploration wells can then be
used later in the life of the field as reinjection wells.
Using the emperical formula from Hanse 2005, MW/well = F/50 — 3.5 the number of wells
needed was estimated, where MW is megawatts and F is the resource temperature in degrees
Fahrenheit. The estimated subsurface temperature of the fluid from the geochemistry is 260°F
therefore using the above formula the wells would produce 1.7 MW/well. In order to produce 5
MW of power, three wells would be needed. The success rate for a well to actually produce
varies from 60 to 80 percent. Based on the success rate, four wells would most likely be
needed. Based on energy needs of 3 to 5 MW, we estimate three to four production wells will
be needed. The number of wells will also change based on flow rate. Until well testing on
actual drill holes are conducted we do not have an estimate for flow rate.
The well field will be located near the hot springs either on the same side of the river or
potentially across the river which provides a larger area. The well field if located on the gravel
bars in the river will most likely be located within the 100-year floodplain of the river. If located
on the bluffs above the hot springs or the potential area across the river, there would be
additional 100 to 300 feet of overburden drilling, which adds to the costs of the wells. The size
of the well field will be approximately two to three acres in size and will generally consist of a
gravel drill pad large enough to accommodate a 50,000 pound drill rig and room to move around
the three to four wells. The pad would be constructed of borrow approximately 5 feet thick to
support the drill rig. The drill pad may need to be thicker depending upon the 100-year flood
elevation. As the project moves forward this hydrological study should be conducted.
POWER PLANT SITE:
The power plant site will be approximately 6 to 7 acres in size. The three locations identified in
the stream valley, C1, C2, and C3 each will require excavation, rock blasting, and grading to
achieve a level site (Figure 4). Site C3 will require some grading but is located on relatively level
terrain. Site C3 however, may be located within the 100-year flood plain of the river and
therefore will need to be elevated and have flood protection.
Additional options for the power plant site were considered outside of the stream valley due to
the valley’s steep, rugged terrain. Permits for construction in the valley from the Forest Service,
Fish & Game, US Army Corps of Engineers, and other agencies may not be approved due to the
location and Tenakee Creek being a salmon stream. We therefore chose an additional site near
Port Fredrick labeled Site A. We understand that there are several native allotments in this area
that would have to be avoided. There is also Site B located near Salt Lake Bay. These options
would require piping of the fluids from the well field to the power plant site and then back to
the well field for reinjection. One cost savings may be to reinject the fluids at the power plant
site and therefore forgo a return line.
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POWER PLANT
The temperature, flow rate, brine
chemistry, and the site will all
impact the exact design of the
facility. For the temperature
range of the geothermal brine
(fluids) determined from our
explorations, the power plant
would be a binary system and
either air or water cooled. Figure
6a presents a schematic of how a
binary system operates. Figure 6
presents a preliminary layout of
the site with the power plant,
coolers, heat exchangers,
transmission yard, and
equipment shop.
ORC Fluid (vapor)
Condenser
Vaporizer —_ Liquid Pump.
ORC Fluid (liquid)
Production Well Injection Well
Figure 6a: Diagram of Binary Power Plant 1
Low to moderately heated geothermal
fluid and a secondary "binary" fluid with a much lower boiling point than water passes through
a heat exchanger. Heat from the geothermal fluid causes the secondary fluid to flash to vapor,
which then drives the turbines and generators. Binary cycle power plants are closed-loop
systems and virtually nothing (except water vapor) is emitted to the atmosphere. Ormat’s
binary power plants are guaranteed at 95% reliability. United Technology (UTC) plants have
been field tested and proven in the harsh climate of Chena Hot Springs. Most other forms of
renewable energy do not offer base load power. Geothermal energy can be expected to provide
base load generation with a capacity factor of over 90 percent. These systems are efficient and
have been used in a variety of locations throughout the world. It is a proven and known
technology.
Historical capital cost estimates for geothermal power plants range from $2,000 to $5,000 per
kW (DOE 2013) for the entire facility which would put a 5 MW facility at approximately $20 to
$25M. As a comparison, the Snake River Power Plant in Nome (diesel generation) was
approximately $30 M including site development.
ACCESS ROAD
A graded road exists from Hoonah to approximately Game Creek as shown in Figure 5.
Additional logging roads exist throughout the area. Approximately 14 miles of new road will
need to be constructed to Port Fredrick. An additional 6 miles of road would need to be
constructed from Port Fredrick to connect the hot springs site. The 6 miles of road is needed for
construction access to the sites and to accommodate the production well drill rig. A road
corridor has been established with the US Forest Service, shown in Figure 5.
Hoonah Indian Association (HIA) uses $200,000 per mile for improved roads and $400,000 per
mile for new roads when budgeting for similar local roads. Discussion with HIA indicates that
HIA would be willing to use Bureau of Indian Affairs road money to continue building out
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towards the resource. The end of the roads currently occurs in Game Creek valley. There are
additional logging roads between Port Fredrick and Salt Lake Bay.
PIPELINE
In lieu of an electrical transmission line, a fluid pipeline pumping brine from the well heads to
the Port Fredrick or Salt Bay power plant sites could be constructed. Iceland has several large
diameter, geothermal pipelines that carry hot brine many miles. We conducted a thermal
analysis to estimate what temperature the brine would be at if delivered to a plant located in
Port Fredrick area. The estimated temperature of the brine received at Port Fredrick power plant would be about 250°F or about a 10°F drop from the estimated well head temperature of
260°F. The pipeline would consist of 6-inch diameter pipe with 2-inches of insulation
surrounding the pipe. A return pipeline of equal size would convey fluids back to the well field.
Figure 7 presents a concept for the buried pipeline. Pipeline material costs were gathered from
the manufacturer of steel pipe as will as unit pricing per foot and freight was added to arrive at a
cost per lineal foot.
TRANSMISSION LINE
With all options a transmission line would be constructed from the power plant site to Hoonah.
There is a proposed transmission line corridor already established with the US Forest Service
and it generally follows the proposed access road. The line is assumed be a 69 kV with single
wood poles. We have estimated $600,000 per mile in roadless areas and $400,000 per mile for
the segments with roads. These estimates are based on costs in the Southeast Alaska Intertie
Study and discussions with IPEC.
5.2 Estimated Costs
The costs for the five sites (A, B, C1, C2, and C3) shown in Table 3 include the power plant, site
work, local piping, mob/demob of construction equipment, and construction access road.
Exploration well costs are not included however four production wells are included in the costs.
Costs for generators and specialize electric equipment are highly dependent upon the
temperature, pressure, and nature of the brine. The costs for the two transmission alignments
shown in Table 4 were prepared with different costs for segments along roads and segments in
roadless areas. Transmission line substations are included in the costs. Costs in both tables
include design and construction management fees and 10 percent contingency. Preliminary cost
estimates are provided in Appendix A.
Table 3: Estimated Capital Costs for Plant Locations
PLANT LOCATION ESTIMATED TOTAL COST
Option A $34.0 M
Option B $28.35 M
Option C1 $32.0M
Option C2 $35.2M
Option C3 $21.4M
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Based on the estimated capital costs Option C3 located on the gravel bar in the stream valley is the least expensive option. Option C2 located on a hill above the hot springs is the most expensive option. The difference in cost between C1, C2, and C3 is due to site development. Site C2 is the most rugged of the three sites in the valley while Site C3 is the most level. Site B (Salt Lake Bay) is the next lowest cost alternative due to accessibility and also site development costs are lower compared to Site A (Port Fredrick) or C2.
Table 4: Estimated Costs for Transmission from the different sites.
TRANSMISSION ALTERNATIVE ESTIMATED TOTAL COSTS
SITE "A" ROUTE
Power Transmission Route BLUE w/ pipeline $26.4M
Power Transmission Route YELLOW w/pipeline $25.7M
SITE "B" ROUTE
Power Transmission Route BLUE w/pipeline $21.3M
Power Transmission Route YELLOW w/pipeline $20.7 M
SITE "C" ROUTE
Power Transmission Route BLUE $28.1M
Power Transmission Route YELLOW $27.5M
Two options have a total cost of $49M: Options Site C3 and Yellow transmission route or Site B and Yellow transmission route. Site C3 is the least expensive option in terms of site development whereas Site B is the least expensive in terms of transmission. The option with the highest cost was Site C2 following the BLUE route at $63.3M.
6.0 BENEFIT-COST RATIO
Based on the analysis conducted by Northern Economics (NEI) the following benefit-cost ratios (BCR) were determined. The NEI analysis is presented in Appendix B.
Table 5: Benefit-Cost Ratio Summary
Engineer's Estimate | Geothermal Standard | AEA Standard
PROJECT 50-year life span 30-year life span 20-year life span
Geothermal 0.93 0.47 0.31
The differences between the engineer's BCR and the AEA BCR analysis is due to AEA's analysis uses a shorter lifespan (20 years versus 50 years). In addition, fuel projections also affect the benefit-cost ratio. The AEA analysis uses fuel projections calculated by the University of Alaska's Institute of Social and Economic Research (ISER). The Engineer's analysis used IPEC's actual fuel prices from 2012 and extrapolating to future fuel costs based on compound annual growth rate derived from ISER fuel projections. When using ISER fuel projections and a 30 year life span then the BCR increases to 0.47. The impact of Gartina Falls is seen in the AEA Standard analysis. rr
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When the design life is changed from 20 years to 50 years in the AEA Standard analysis the BCR is increased to 0.73.
A sensitivity analysis was conducted using Monte Carlo simulation techniques to evaluate uncertainties in selected variables. A simulation using 5,000 iterations was conducted to understand significant variables and the likely range of benefit-cost ratios. Key input variables were capital costs and fuel prices. Using probabilistic-variations in capital costs and fuel prices, the analysis concluded that a benefit-cost ratio greater than one would occur approximately 12 percent of the time with a mean benefit-cost ratio of approximately 0.83. Capital costs were the major factor in the analysis. If the capital cost can be reduce to approximately $44 million then the BCR would increase to 1.0 using AEA standard methodology. This is significant since approximately 10 percent reduction in the capital costs would increase the BCR to 1.0.
7.0 CLOSURE AND LIMITATIONS
The analysis and conclusions included in this report are based on conditions as they exist in the literature and from the gathered field data. The conceptual model presents our understanding of the system at this time. With limited subsurface data, the model is preliminary. As more subsurface data is obtained, the model will most likely change to reflect the new data.
This report is based on the scientific studies conducted to date and is specific to the purpose of positioning a possible power plant for a potential geothermal resource. Use of this report for a purpose other than its intent should be limited.
Prepared by:
Hattenburg Dilley and Linnell, LLC
v Lorie M. Dilley, (led
Principal Geologist
eee Preliminary Economic Analysis Page 13 Tenakee Inlet Geothermal Resource
IPEC/AEA
HDL 11-302-7
8.0 REFERENCES
Augustine Chad, JW Tester, B Anderson, S Petty, and B Livesay. (2006) A Comparison of Geothermal With Oil and Gas Well Drilling Costs. Proceedings of 31st Workshop on Geothermal Reservoir Engineering, Stanford University, Stanford, California, Jan 30 — Feb 1, 2006.
Hanse, Cedric Nathanael. (2005) Factors Affecting Costs of Geothermal Power Development.
Geothermal Energy Association.
US Department of Energy (2013) Energy Efficiency and Renewable Energy - Geothermal Technologies Office website: www1.eere.energy.gov/geothermal/faqs.html.
— SSSeSeSSSSSSSFSSSSSSSses
Preliminary Economic Analysis Page 14 Tenakee Inlet Geothermal Resource
IPEC/AEA
HDL 11-302-7
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* ENGINEERING * ENVIRONMENTAL
BARGE LANDING ZONES AND CONSTRUCTION ACCESS ROAD ALIGNMENT TENAKEE INLET GEOTHERMAL RECONAISSANCE
+ SURVEYING + EARTH SCIENCE + PROJECT MANAGEMENT + PLANNING
1.P.E.C. / AEA
TENAKEE, ALASKA
(907) 564-2120 - ANCHORAGE (907) 746-5230 - PALMER WWW.HDLALASKA.COM
HATTENBURG DILLEY & LINNELL
Engineering Consultants
reais Pm ase gue 3 SET s280" [Ry P4300
0 250 500 ——————— SCALE IN FEET
ACCESS ROAD
PIPING
—
PROJECT VICINITY
HDD HATTENBURG DILLEY & LINNELL TENAKEE INLET GEOTHERMAL RECONNAISSANCE
Engineering Consultants OPTIONS C1, C2, C3
+ ENGINEERING + ENVIRONMENTAL L.P.E.C./AEA + SURVEYING + EARTH SCIENCE TENAKEE, ALASKA
* PROJECT MANAGEMENT + PLANNING A RAW! S T: Dave 7/5/2012 [OPN BY MMHN | SHEET FIGURE 4 _| FIGURE_4 (907) 564-2120 - ANCHORAGE — - OB NO (907) 746-5230 - PALMER 'WWW.HDLALASKA.COM - CHECKED BY LMD JOB NO.: 11-302
ngineering Consultants
Geothermal Pipeline/ Transmission Routing Options
Tenakee Inlet Geothermal Reconaissance
Project 11-302
Alaska Energy Authority
1 inch = 2 miles
2 4
Oo Power Plant
e@==== Option Blue Route
Option Yellow Route
~™ Existing Road
Potential Power
Transmission Corridor
(or DOT Road Corridor)
—tT— Proposed
TransmissionLine
Se }--——_—_—_—— 200’ |
COOL BRINE TO WELL y
HEAT ¢XCHANGER ee COOLING we SQ)
FIELD
TURBINE GEN
BUILDING
j—=— 75’ —>|
OFFICE
LIVING
QUARTERS
SUBSTATION
HDD) HATTENBURG DILLEY & LINNELL POWER PLANT SITE LAYOUT Engineering Consultants TENAKEE INLET GEOTHERMAL RECONAISSANCE + ENGINEERING + ENVIRONMENTAL .P.E.C./ AEA + SURVEYING + EARTH SCIENCE TENAKEE, ALASKA * PROJECT MANAGEMENT + PLANNING DRAWN BY. (907) 564-2120 - ANCHORAGE 4/23/2013 FIGURE 6 (907) 746-5230 - PALMER WWW.HDLALASKA.COM NONE CHECKED BY 11-302
EXISTING GROUND SLOPE PROPOSED ROAD ELEVATION
]
7
5’ Ho
2
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— ™N °
—_
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GEOTHERMAL FLUID PIPELINES 5
SEE DETAIL A CLASSIFIED FILL PIPE BEDDING
6" STEEL PIPING
WITH 2” INSULATION
TYPICAL ACCES ROAD WITH FLUID PIPELINES DETAIL A (GEOTHERMAL FLUID PIPELINES)
SCALE:NONE SCALE:NONE
HOD ree BURIED PIPELINE DETAIL
Engineering Consultants TENAKEE INLET GEOTHERMAL RECONAISSANCE
+ ENGINEERING + ENVIRONMENTAL TENAKEE
* SURVEYING * EARTH SCIENCE TENAKEE, ALASKA
* PROJECT MANAGEMENT + PLANNING s . 4/23/2015 —| DRAWN EY oneer FIGURE 7 (907) 564-2120 - ANCHORAGE (907) 746-5230 - PALMER WWW.HDLALASKA.COM J SCALE NONE CHECKED BY 11-302
APPENDIX A
Detailed Capital Costs
Plant location A- Power Transmission BLUE w/ 6-inch geothermal pipe
Item Work Description | Unit | Estimated Unit Total |
No. Quantity Price | Price
la Transmission Line - land (road access) per mile 19.2 [. $400,000.00 $7,680,000.00
1b Transmission Line - land (no road access) per mile 10.3 $600,000.00 $6,180,000.00
2a Clearing (road access) per mile $50,000.00 $960,000.00)
2b Clearing (no road access) per mile 10.3 $150,000.00 $1,545,000.00
3 Construction access to well field with piping | per mile 6.0 $175,000.00
4 Culverts | each $75,000.00 $300,000.00
5 Substation each ; $300,000.00] $600,000.00}
6 Geothermal Piping (arctic grade) per foot 48,692.0 $1,107,743.00
7 Geothermal Piping (Freight) ton
Subtotal
IPEC Admin @ 3%
Design @ 10%
Construction Management @ 10%
Subtotal Alternative 1
Project Contingency @ 10%
Total Cost
$19,473,743
$584,212
$1,947,374
$1,947,374
$23,952,704
$2,396,000
$26,349,000
Work Description
Price
Transmission Line - land (road access) | $400,000.00] $7,280,000.00}
1b Transmission Line - land (no road access) | per mile . $600,000.00 $6,180,000.00}
2a Clearing (road access) per mile | - $50,000.00 $910,000.00
2b Clearing (no road access) per mile F $150,000.00 $1,545,000.00!
3 Construction access to well field with piping per mile $175,000.00 $1,050,000.00' 4 Culverts | each $75,000.00 $300,000.00]
5 Substation | each . $300,000.00 $600,000.00
6 Geothermal Piping (arctic grade) per foot 48,692.0 | $22.75 $1,107,743.00)
7 Geothermal Piping (Freight) ton 300.0 | $170.00 $51,000.00
Subtotal $19,023,743
IPEC Admin @ 3% $570,712
Design @ 10% $1,902,374
Construction Management @ 10% $1,902,374
Subtotal Alternative 1 $23,399,204
Project Contingency @ 10% $2,340,000
Total Cost $25,740,000
Plant location B- Power Transmission BLUE w/ 6-inch geothermal pipe
Item Work Description Unit Estimated Unit Total
No. Quantity Price Price
la Transmission Line - land (road access) per mile | 19.2 $400,000.00} $7,680,000.00
2a Clearing (road access) per mile 19.2 $50,000.00] $960,000.00) ie ee
3 Access Road to well field with piping per mile 14.8 $175,000.00] $2,590,000.00}
4 Culverts each 3.0 $75,000.00 $225,000.00!
5 Substation each . $300,000.00 $600,000.00}
6 Geothermal Piping (arctic grade) per foot 157,042.0 $22.75 $3,572,705.50|
7 Geothermal Piping (Freight) ton 600.0 | $170.00 $102,000.00}}
Subtotal $15,729,706
IPEC Admin @ 3% $471,891
Design @ 10% $1,572,971
Construction Management @ 10% $1,572,971
Subtotal Alternative 1 $19,347,538
Project Contingency @ 10% $1,935,000
Total Cost $21,283,000
: Work Description
Estimated Unit Total
Unit
Quantity Price Price
Transmission Line - land (road access) | per mile $400,000.00 $7,280,000.00
2a Clearing (road access) | per mile $50,000.00
3 Access Road to well field with piping |_per mile
4 Culverts each . $75,000.00
5 Substation each 2.0 $300,000.00
iS Geothermal Piping (arctic grade) per foot 157,042.0 $22.75 $3,572,705.50)
7 Geothermal Piping (Freight)
ton 600.0 $102,000.00
Subtotal $15,279,706
IPEC Admin @ 3% $458,391
Design @ 10% $1,527,971
Construction Management @ 10% $1,527,971
Subtotal Alternative 1 $18,794,038
Project Contingency @ 10% $1,880,000
Total Cost $20,675,000
Plant location C- Power Transmission BLUE
Work Description Unit Estimated Unit Total
No. Quantity Price
la Transmission Line - land (road access) per mile 19.2 $400,000.00
1b | Transmission Line - land (no road access) ial per mile $600,000.00
$50,000.00 2a Clearing (road access) "| per mile
2b Clearing (no road access) per mile $150,000.00
6.0 $75,000.00 5 Culverts each
2.0 $300,000.00 4 Substation each
Subtotal $20,790,000
IPEC Admin @ 3% $623,700
Design @ 10% $2,079,000
Construction Management @ 10% $2,079,000
Subtotal Alternative 1 $25,571,700
Project Contingency @ 10% $2,558,000
Total Cost $28,130,000
Work Description
Quantity
Transmission Line - land (road access) per mile 18.2 $400,000.00
Transmission Line - land (no road access) per mile $600,000.00 $8,880,000.00
2a Clearing (road access) per mile 18.2 $50,000.00 $910,000.00
2b Clearing (no road access) per mile 14.8 $150,000.00 $2,220,000.00
3 Culverts each 6.0 $75,000.00 $450,000.00
4 Substation | each | 2.0 $300,000.00] $600,000.00
Subtotal $20,340,000
IPEC Admin @ 3% $610,200
Design @ 10% $2,034,000
Construction Management @ 10% $2,034,000
Subtotal Alternative 1 $25,018,200
Project Contingency @ 10% $2,502,000
Total Cost $27,521,000
OPTONA
Construct Power Plant
Work Description Unit Estimated Unit Total
- Quantity Price Price
1 Clearing and Grubbing Acre 6.5 $15,000.00 $97,500.00
2 Unclassified Ex. | Cubic Yard 103,000.0 $50.00 $5,150,000.00|
3 Borrow Cubic Yard 25,000.0 $25.00 $625,000.00)
4 Power Plant sq ft | 20,000.0 $400.00 $8,000,000.00
5 30'x40' Equipment Building Lump Sum 2.0 $120,000.00 $240,000.00
6 Piping from Wells to Site Linear Foot any $150.00 $0.00)
7 Additional Access Linear Foot - $40.00 $0.00)
8 Mob/Demob Lump Sum 1.0 $2,500,000.00 $2,500,000.00|
9 Production Wells each I 4.0 $2,000,000.00 $8,000,000.00
11 Pumpstation each 1.0 $500,000.00 $500,000.00}
Site Subtotal $25,112,500
Subtotal Construction Alternative 1 $25,112,500
IPEC Admin @ 3% $754,000
Design @ 10% $2,512,000
Construction Management @ 10% $2,512,000
Subtotal Alternative 1 $30,890,500
Project Contingency @ 10% $3,090,000
Total Alternative 1 $33,981,000
OPTION B
Construct Power Plant
— ee
Item Work Description Unit Estimated T Unit Total ]
No. a Quantity _| Price Price
1 Clearing and Grubbing Acre 6.5 $15,000.00 $97,500.00)
2 Unclassified Ex. | Cubic Yard 27,000.0 $20.00] _ $540,000.00
3 Borrow | Cubic Yard 5,000.0 $15.00] $75,000.00)
4 Power Plant | sq ft 20,000.0 $400.00 $8,000,000.00)
5 | 30'x40' Equipment Building | Lump Sum 2.0 $120,000.00] $240,000.00}
6 Piping from Wells to Site | Linear Foot - $150.00 $0.00]
7 Additional Access | Linear Foot : $40.00 $0.00}
8 | Mob/Demob | Lump Sum 1.0 $2,500,000.00} $2,500,000.00}
9 Production Wells | each 4.0 $2,000,000.00} $8,000,000.00}
it Pumpstation | each 3.0|_ $500,000.00} $1,500,000.00}
Site Subtotal $20,952,500
Subtotal Construction Alternative 1 $20,952,500
IPEC Admin @ 3% $629,000
Design @ 10% $2,096,000
Construction Management @ 10% $2,096,000
Subtotal Alternative 1 $25,773,500
Project Contingency @ 10% $2,578,000
Total Alternative 1 $28,352,000
OPTION C1
Construct Power Plant
Item Work Description | Unit Estimated Unit Total
No. Quantity | Price Price
1 Clearing and Grubbing Acre 6.6 | $15,000.00 $99,000.00
2 Unclassified Ex. Cubic Yard 57,977.0 $50.00] $2,898,850.00)
3 Borrow Cubic Yard 20,000.0 $25.00} $500,000.00}
4 Power Plant sq ft 20,000.0 $400.00} $8,000,000.00
5 30'x40' Equipment Building Lump Sum 2.0 $120,000.00} $240,000.00) 7 6 Piping from Wells to Site Linear Foot 1,000.0 $150.00] $150,000.00
7 Additional Access Linear Foot | 2,000.0 $40.00 $80,000.00}
8 Construction Access Road miles 7.0 $175,000.00] $1,225,000.00
9 Mob/Demob Lump Sum 1.0 $2,500,000.00] $2,500,000.00}
10 | Production Wells i; each 4.0 $2,000,000.00} $8,000,000.00)
Site Subtotal $23,692,850
Subtotal Construction Alternative 1 $23,692,850
City Admin @ 3% $711,000
Design @ 10% $2,370,000
Construction Management @ 10% $2,370,000
Subtotal Alternative 1 $29,143,850
Project Contingency @ 10% $2,915,000
Total Alternative 1 $32,059,000
OPTION C-2
Construct Power Plant
a
Item Work Description Unit Estimated Unit Total
No. Quantity Price Price
1 Clearing and Grubbing Acre 7.0 $15,000.00 $105,000.00]
iz 2 Unclassified Ex. Cubic Yard 101,925.2 $50.00 $5,096,260.50
3 Borrow Cubic Yard 25,000.0 $25.00 $625,000.00
4 Power Plant sq ft 20,000.0 $400.00} _ $8,000,000.00
5 30'x40' Equipment Building Lump Sum 2.0 $120,000.00 $240,000.00
6 Piping from Wells to Site Linear Foot 1,000.0 $150.00 $150,000.00 [7 Additional Access Linear Foot 2,000.0 $40.00 $80,000.00
8 Construction Access Road miles 7.0 $175,000.00 $1,225,000.00
9 Mob/Demob Lump Sum 1.0 $2,500,000.00 $2,500,000.00
10 Production Wells each 4.0 $2,000,000.00 $8,000,000.00
Site Subtotal $26,021,261
Subtotal Construction Alternative 1 $26,021,261
IPEC Admin @ 3% $781,000
Design @ 10% $2,603,000
Construction Management @ 10% $2,603,000
Subtotal Alternative 1 $32,008,261
Project Contingency @ 10% $3,201,000
Total Alternative 1 $35,210,000
OPTION C-3
Construct Power Plant
Total Alternative 1
Item Work Description Estimated Unit Total
No. Quantity Price Price
1 Clearing and Grubbing Acre 6.6 $15,000.00 $99,000.00}
2 Unclassified Ex. Cubic Yard 20,876.0 $50.00 $1,043,800.00
3 Borrow Cubic Yard 25,000.0 $25.00 $625,000.00
4 Power Plant sq ft 5,000.0 $400.00 $2,000,000.00
5 30'x40' Equipment Building Lump Sum 2.0 $120,000.00 $240,000.00
6 Piping from Wells to Site Linear Foot 1,000.0 $150.00 $150,000.00
7 Additional Access Linear Foot 2,000.0 $40.00 $80,000.00)
| 8 Construction Access Road miles 6.0 $175,000.00 $1,050,000.00
_ 9 Mob/Demob Lump Sum 1.0 $2,500,000.00] $2,500,000.00
10 Production Wells each 4.0 $2,000,000.00] $8,000,000.00
Site Subtotal $15,787,800
Subtotal Construction Alternative 1 $15,787,800
City Admin @ 3% $474,000
Design @ 10% $1,579,000
Construction Management @ 10% $1,579,000
Subtotal Alternative 1 $19,419,800
Project Contingency @ 10% $1,942,000
$21,362,000
APPENDIX B
Northern Economics Benefit Cost Ratio Analysis
1 Cost Analysis
Northern Economics reviewed the economic feasibility of Inside Passage Electric Cooperative’s (IPEC)
proposed Tenakee Inlet Geothermal project, located near Hoonah. Our analysis used information
generated by the Hattenburg Dilley & Linnell (HDL) team along with a standardized spreadsheet model
developed for analyzing renewable energy projects prepared by the Alaska Energy Authority (AEA).
Table 1 summarizes the estimated benefit-cost ratios (BCRs) for the selected geothermal project.
Table 1. Benefit-Cost Ratio Summary for Geothermal Project
Benefit-Cost Ratio
Using Engineers’
Project Information Using AEA Standards’
Geothermal 0.93 0.31 1. AEA Standards reflect impact of Gartina Falls Hydroelectric and other factors.
Hoonah’s purchased power was 4,361,553 kWh in 2011, based on Power Cost Equalization data
submitted to the State. The proposed geothermal system is expected to displace this entire amount, and
is further discussed in the following sections.
1.1. Analysis of Geothermal Project
Information developed by HDL (e.g., the basic analysis) proposes installing a 3 to 5 MW system that will
displace 4,860,308 kWh of conventionally generated energy annually. A diesel generation efficiency of
14.25 kWh per gallon and expected heating fuel savings of 25 percent are anticipated to displace
400,633 gallons of heating and diesel fuel annually.
The basic analysis assumes permitting and design would begin in 2014 and would take two years to
complete. This phase would represent 15 percent of total construction costs: 5 percent of total
expenditures in the first year and 10 percent in the second year, a total of $7 million of the estimated
capital cost of $47 million.
A three-year construction phase would follow, starting in 2016. Construction expenses are allocated as
$18 million in the third year, $20 million the year following, and approximately $2 million in the final
year. Under this schedule, geothermal power would be available in 2019.
Project life is assumed to be 50 years using HDL engineer estimates, with repair and replacement costs
of $3.5 million in operating years 20 and 40. These additional costs were included in the basic analysis.
HDL states O&M costs of $0.08 per kWh are reasonable for the proposed system. This estimate is based
on a suggested range for geothermal power plants of comparable size. However, if the facility can only
sell a fraction of its annual production, O&M costs may be spread across fewer kWh and lead to an
increase above $0.08/kWh.
Our basic analysis used IPEC’s actual fuel prices from 2012. From this cost base, we extrapolated future
fuel costs using the compound annual growth rate of fuel projections calculated by the University of
Alaska’s Institute of Social and Economic Research (ISER). The same method is used for calculating
heating oil costs. HDL’s report states the 2012 annual heating fuel cost of $1,093,805 consumed 238,235
gallons at $4.59/gallon. By using actual fuel prices, rather than ISER’s proposed base, fuel prices in the
basic analysis are much higher (approximately 10-20 percent) than AEA’s forecast and lead to a higher
BCR.
Under these assumptions, the benefit-cost ratio calculated using engineering data is 0.93.
1.1.1 Results Using Alaska Energy Authority Standards
In evaluating the proposed geothermal project, Northern Economics combined the cost estimates,
useful life, and other information developed by HDL with standards used for other similar renewable
energy projects evaluated by AEA, as well as economic impacts of the Gartina Falls Hydroelectric plant.
The purpose of this approach is to benchmark the proposed facility with other similar facilities around
Alaska, and to determine the sensitivity of the findings to key parameters. As noted in Table 1, using AEA
standards in the analysis reduced the BCR of the geothermal project from 0.93 to 0.31, primarily due to
AEA’s much shorter analysis life (20 years versus 50 years).
With the other changes in this section held constant, just changing from 20 to 50 years increases the
AEA standards-based BCR to 0.73.
We have also noted a project life of 30 years is also used for geothermal projects, referenced in a 2005
study performed by Cedric Hanse for the Geothermal Energy Association. This would change the AEA
standards-based BCR to 0.47.
Also, in July 2013, HDL informed us that AEA anticipates the proposed IPEC Gartina Falls Hydroelectric
project, due for construction under Round 6 of the AEA Alternative Energy Program, to offset diesel and
heating fuel in the community of Hoonah.
Based on analysis submitted to AEA, the Gartina Falls project will have a capacity of 455 kW and is
expected to be complete by 2014 with an assumed project life of 20 years. A combined reduction of 30
percent in diesel and heating fuel are expected through 2033, according to AEA estimates provided to
HDL and incorporated in this revision of our results.
Fuel projections for the AEA standards-based BCR use ISER’s fuel projections, which are based on a
regression using the Energy Information Administration’s Annual Energy Outlook report. As stated in
1.1, these fuel projections tend to be much lower than the basic analysis.
Specific O&M costs are not identified in AEA benchmarks. However, after evaluating projects of similar
size, the O&M costs provided by engineers appear reasonable and are used in the AEA-based analysis.
1.1.2 Sensitivity Analysis
Finally, to account for potential variability in key assumptions used in the basic analysis, analysts used a
series of sensitivity analyses to evaluate the effect of changes in inputs on the BCR. By conducting these
simulations, the project team was able to determine which factors had the most impact on the BCR
under assumptions used in the basic analysis provided by HDL.
The essence of simulation is the use of probability-based estimates, while running many iterations of the
model to evaluate the likely range of outcomes; the technique is termed Monte Carlo simulation, to
highlight the uncertain aspect of selected input variables.
Our analysis conducted a simulation using 5,000 iterations to gain a better understanding about
significant variables and the likely range of BCR outcomes. A key input variable was capital cost. The
other was fuel costs. Analysts varied capital costs using the Association for the Advancement of Cost
Engineering (AACE) class-4 estimate class (-30% to +50% range of cost estimates). In addition, a per-
gallon fuel price range was selected with a minimum of $3 per gallon and a maximum of $4.50 per
gallon. Using these statistical-variations in capital costs and fuel prices, the sensitivity analysis projected
a BCR greater than one would occur approximately 12 percent of the time with a mean (i.e. 50:50
chance) BCR of approximately 0.83. A distribution of BCRs is shown in Table 2.
Table 2. Benefit Cost Ratio Distribution, Basic Analysis (HDL)
Percentile BCR
5 0.62
10 0.65
15 0.68
20 0.70
25 0.72
30 0.74
35 0.76
40 0.78
45 0.80
50 0.82
55 0.84
60 0.86
65 0.88
70 0.90
75 0.92
80 0.95
85 0.98
90 1.02
95 1.08 —<——<—____
Of the input variables used to test sensitivity, capital costs accounted for most of the variability in the
BCR. Figure 1 shows the change in the mean BCR as each input varies over its range. Therefore, the
mean BCR varied from 0.634 to 1.064 as fuel prices remained static and capital costs fluctuated within
the given range.
Figure 1. Inputs Effects on Benefit Cost Ratio
B/C Ratio / Geothermal
Inputs Ranked by Effect on Output Mean
Capital Costs / Value
$ per gallon / 2012
n nwo ne 8 2 eo ere 8 S osc Ss =
B/C Ratio / Geothermal