Loading...
HomeMy WebLinkAboutMount Spurr Geo Grant Application Form Renewable Energy Fund Round IV Grant Application AEA 11-005 Application Page 1 of 34 7/21/2010 Application Forms and Instructions The following forms and instructions are provided to assist you in preparing your application for a Renewable Energy Fund Grant. An electronic version of the Request for Applications (RFA) and the forms are available online at: http://www.akenergyauthority.org/RE_Fund-IV.html Grant Application Form GrantApp4.doc Application form in MS Word that includes an outline of information required to submit a complete application. Applicants should use the form to assure all information is provided and attach additional information as required. Application Cost Worksheet Costworksheet4.doc Summary of Cost information that should be addressed by applicants in preparing their application. Grant Budget Form GrantBudget4.doc A detailed grant budget that includes a breakdown of costs by milestone and a summary of funds available and requested to complete the work for which funds are being requested. Grant Budget Form Instructions GrantBudgetInstructions4.pdf Instructions for completing the above grant budget form. • If you are applying for grants for more than one project, provide separate application forms for each project. • Multiple phases for the same project may be submitted as one application. • If you are applying for grant funding for more than one phase of a project, provide milestones and grant budget for completion of each phase. • If some work has already been completed on your project and you are requesting funding for an advanced phase, submit information sufficient to demonstrate that the preceding phases are satisfied and funding for an advanced phase is warranted. • If you have additional information or reports you would like the Authority to consider in reviewing your application, either provide an electronic version of the document with your submission or reference a web link where it can be downloaded or reviewed. REMINDER: • Alaska Energy Authority is subject to the Public Records Act AS 40.25, and materials submitted to the Authority may be subject to disclosure requirements under the act if no statutory exemptions apply. • All applications received will be posted on the Authority web site after final recommendations are made to the legislature. • In accordance with 3 AAC 107.630 (b) Applicants may request trade secrets or proprietary company data be kept confidential subject to review and approval by the Authority. If you want information is to be kept confidential the applicant must: o Request the information be kept confidential. o Clearly identify the information that is the trade secret or proprietary in their application. o Receive concurrence from the Authority that the information will be kept confidential. If the Authority determines it is not confidential it will be treated as a public record in accordance with AS 40.25 or returned to the applicant upon request. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 2 of 34 7/21/2010 SECTION 1 – APPLICANT INFORMATION Name (Name of utility, IPP, or government entity submitting proposal) Ormat Nevada, Inc. Type of Entity: IPP Mailing Address: 6225 Neil Road Reno NV, 89511 Physical Address: 6225 Neil Road Reno NV, 89511 Telephone 775-356- 9029 Fax 775-823-5401 Email rorenstein@ormat.com 1.1 APPLICANT POINT OF CONTACT Name Rahm Orenstein Title Director of Business Development and Business Project Manager Mailing Address 6225 Neil Road Reno NV, 89511 Telephone 775-356- 9029 ext 32274 Fax 775-823-5401 Email rorenstein@ormat.com 1.2 APPLICANT MINIMUM REQUIREMENTS Please check as appropriate. If you do not to meet the minimum applicant requirements, your application will be rejected. 1.2.1 As an Applicant, we are: (put an X in the appropriate box) An electric utility holding a certificate of public convenience and necessity under AS 42.05, or X An independent power producer in accordance with 3 AAC 107.695 (a) (1), or A local government, or A governmental entity (which includes tribal councils and housing authorities); X 1.2.2. Attached to this application is formal approval and endorsement for its project by its board of directors, executive management, or other governing authority. If the applicant is a collaborative grouping, a formal approval from each participant’s governing authority is necessary. (Indicate Yes or No in the box ) X 1.2.3. As an applicant, we have administrative and financial management systems and follow procurement standards that comply with the standards set forth in the grant agreement. X 1.2.4. If awarded the grant, we can comply with all terms and conditions of the attached grant form. (Any exceptions should be clearly noted and submitted with the application.) X 1.2.5 We intend to own and operate any project that may be constructed with grant funds for the benefit of the general public. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 3 of 34 7/21/2010 SECTION 2 – PROJECT SUMMARY This is intended to be no more than a 1-2 page overview of your project. 2.1 Project Title – (Provide a 4 to 5 word title for your project) Mount Spurr Geothermal Project 2.2 Project Location – Include the physical location of your project and name(s) of the community or communities that will benefit from your project. Mount Spurr is stratovolcano located 80 miles west of Anchorage, Alaska on the west side of the Cook Inlet. It is 35 miles northwest of the closest community, the village of Tyonek and 40 miles west of the gas-fired Beluga Power Plant (See Figure 1). Anchorage and the rest of the Railbelt communities, who are facing major challenges with rapidly depleting natural gas reserves in the Cook Inlet for power and heating, as well as volatile and hard to predict power prices looking forward, will benefit the most from this project. This project will play a major role in providing clean, reliable, affordable, cost-guaranteed, base-load renewable power. Some communities and tribal corporations of the west cook inlet, e.g. Tyonek Native Corporation, The Native Village of Tyonek, Cook Inlet Region Inc and communities of the Kenai Peninsula Borough, Anchorage and elsewhere in the Railbelt already enjoy opportunities for direct and indirect local hire and local services for the exploration and other work that took place and is still taking place at Mt. Spurr. The initial construction work proposed in this application will provide even greater opportunities, and many more will be created should the project move into further construction, including of supporting infrastructure (e.g. access roads and a transmission line), as well during decades of operation and maintenance. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 4 of 34 7/21/2010 Figure 1: Google Earth™ map of the region showing Ormat’s leases in red, Tyonek, the Beluga Power Plant, and Anchorage Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 5 of 34 7/21/2010 Figure 2: Google Earth™ map of the project area 2.3 PROJECT TYPE Put X in boxes as appropriate 2.3.1 Renewable Resource Type Wind Biomass or Biofuels Hydro, including run of river Transmission of Renewable Energy X Geothermal, including Heat Pumps Small Natural Gas Heat Recovery from existing sources Hydrokinetic Solar Storage of Renewable Other (Describe) 2.3.2 Proposed Grant Funded Phase(s) for this Request (Check all that apply) Reconnaissance Design and Permitting Feasibility X Construction and Commissioning Conceptual Design 2.4 PROJECT DESCRIPTION Provide a brief one paragraph description of your proposed project. Mount Spurr represents what currently appears to be the best opportunity in Alaska to develop a Utility-scale base-load geothermal energy power plant. Located 80 miles west of Anchorage on state lands leased by Ormat Nevada Inc. in October of 2008, a successful power project at Mt. Spurr would serve communities along the Railbelt through power purchased by one or more of the Railbelt electric utilities. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 6 of 34 7/21/2010 Ormat is leading a rigorous exploration campaign, to be partially cost shared by AEA using a grant to be awarded in the framework of round III of the Renewable Energy Fund. Exploration to date includes desktop studies based on exploration work done by the Alaska Volcano Observatory and others during the mid 1980’s; a field reconnaissance trip and geochemical analysis done by Ormat in August 2009; intense geological and geophysical exploration (including mainly a heli-magnetic survey, satellite imagery, LiDAR survey, ground-based Magneto-Telluric survey and ground-based gravity survey) performed during July and August 2010 and initial results of core drilling that started early September 2010 and is currently ongoing. Analysis of all data collected during the above mentioned exploration work is very encouraging as to the potential existence of a commercial size geothermal resource. However, further exploration – planned for this fall and for summer of 2011, before funds described in this application are requested - is required in order to confirm it. This grant request is for the next phase of project development – to be sometimes referenced in this application as “phase III” - which is to start construction of the geothermal well field and later on (beyond the scope of this grant application), the power plant itself. The first step in construction of a commercial geothermal well-field is to drill a full-size deep geothermal production well, in order to tap into the geothermal reservoir and flow test the geothermal fluid in order to measure its temperature, pressure, chemical composition and other attributes. The location of this well will be based on a synthesis of 2010 and 2011 exploration work mentioned before. Follow-up steps (beyond the scope of this grant application) will include drilling additional production wells; drilling one or more injection wells; performing a long-term multi-well flow test to measure the size of the geothermal reservoir; drilling additional production and injection wells and building a power plant, including a geothermal gathering system, utility interconnection facilities etc. 2.5 PROJECT BENEFIT Briefly discuss the financial and public benefits that will result from this project, (such as reduced fuel costs, lower energy costs, etc.) Benefits should a geothermal plant be ultimately constructed and operated: Cost competitive. Cost-wise, geothermal ranks better than most forms of renewables (Figure 4) as well as fossil-fuels e.g. coal and natural gas. As a reference, the California Energy Commission has calculated the levelized costs of a binary geothermal plant (such as the one Ormat plans to build on Mt Spurr) for a Publicly Owned Utility (POU) to be $65.55/MWh, compared with a levelized cost of $86.84/MWh for a Combined Cycle Gas Turbine (see section 4.4.4 and the Cost Worksheet) No fuel cost risk. Power generated at Mt Spurr will be guaranteed at fixed cost for the duration of the PPA, estimated at 25 years. Furthermore, based on our decades of experience, we expect that after that time period we will be able to sign a new PPA, again guaranteeing fixed price for many years. Reliability. Ormat’s geothermal technology is among the most reliable available with a guaranteed availability of 95% and actual one of 99%. Clean. Geothermal is one of the most sustainable sources of energy, with close to zero Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 7 of 34 7/21/2010 emissions of criteria pollutants or greenhouse gases such as CO2 (see Figure 3); no consumption of cooling water (since Ormat plans to build an air-cooled plat at Mt Spurr); no depletion of the geothermal reservoir (since Ormat’s technology does not evaporate any portion of the geothermal fluid but rather re-injects 100% of the geothermal fluid to the reservoir); very low visual impact; and very small surface occupancy (see Figure 6). Baseload. Unlike practically all other forms of renewable, the geothermal power plant will offer baseload 24/7 generation with a capacity factor of >90%. It is important to note that due to this baseload attribute whenever Ormat makes reference to the plant capacity, 50-100MW, the reference is to average generation (and not peak), net to the grid. Proven technology. Ormat has built over 1,000 MW of geothermal plants during the last 3 decades all over the western US and all over the world. Therefore the technology proposed for implementation at Mt. Spurr is proven and practically risk free (see Figure 5) Provide multiple opportunities for local development, local hire and services. An average 50 MW geothermal plant would provide direct, induced, and indirect jobs for 212 full- time jobs and employ an average of 800 man -year during construction (section 5). Although the initial construction work described in this application will not generate renewable electric power, the activity will create jobs, establish local infrastructure, and help develop strategic partnerships and promote local skill set in geothermal exploration from which all geothermal projects in Alaska, not only Mt Spurr, will benefit. 2.6 PROJECT BUDGET OVERVIEW Briefly discuss the amount of funds needed, the anticipated sources of funds, and the nature and source of other contributions to the project. Overall investment by Ormat in Mt Spurr geothermal exploration by the time this round IV funds are requested, is expected to reach some $6.45 million. Please refer to section 7 for details of that activity and to section 9 for a breakdown of these costs. • Requested grant funds in this round (round IV): $1,999,972 • Suggested matching funds in this round (round IV): $3,882,298, mostly cash and some in- kind by means of Ormat’s experienced staff. Ormat plans to fund the rest of the construction of the plant with its own cash, and will attempt to refinance the plant after it is in operation and generating power and revenues. Ormat may seek additional funds to help put in place some of the required infrastructure, e.g. transmission line and access road that could also serve other future projects in the region (e.g. other energy projects and mining projects). 2.7 COST AND BENEFIT SUMARY Include a summary of grant request and your project’s total costs and benefits below. Grant Costs (Summary of funds requested) 2.7.1 Grant Funds Requested in this application. $ 1,999,972 2.7.2 Other Funds to be provided (Project match) $ 3,882,298 2.7.3 Total Grant Costs (sum of 2.7.1 and 2.7.2) $ 5,882,270 Project Costs & Benefits Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 8 of 34 7/21/2010 (Summary of total project costs including work to date and future cost estimates to get to a fully operational project) 2.7.4 Total Project Cost (Summary from Cost Worksheet including estimates through construction) $ 5,000 - $6,000 / kW 2.7.5 Estimated Direct Financial Benefit (Savings) $ 40m ~ 58m / year, for 25 years or more 2.7.6 Other Public Benefit (If you can calculate the benefit in terms of dollars please provide that number here and explain how you calculated that number in your application (Section 5.) $ High CO2 offset (please refer to Cost Worksheet for details) SECTION 3 – PROJECT MANAGEMENT PLAN Describe who will be responsible for managing the project and provide a plan for successfully completing the project within the scope, schedule and budget proposed in the application. 3.1 Project Manager Tell us who will be managing the project for the Grantee and include contact information, a resume and references for the manager(s). If the applicant does not have a project manager indicate how you intend to solicit project management support. If the applicant expects project management assistance from AEA or another government entity, state that in this section. The Project Manager will be Dr. Brigette Martini, Senior Staff Geologist with Ormat Nevada, Inc. Dr. Martini’s resume is attached. 3.2 Project Schedule Include a schedule for the proposed work that will be funded by this grant. (You may include a chart or table attachment with a summary of dates below.) Phase III work = initial construction of the well-field, that is the essence of the proposed work, will center on drilling the first full-size geothermal production well. Rig mobilization via either a temporary winter road or a helicopter transportation (rig mobilization is outside the scope of this application) will take place during winter of 2012 or early summer 2012. Drilling will probably take place during the summer of 2012. Actual dates will be highly weather dependant. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 9 of 34 7/21/2010 3.3 Project Milestones Define key tasks and decision points in your project and a schedule for achieving them. The Milestones must also be included on your budget worksheet to demonstrate how you propose to manage the project cash flow. (See Section 2 of the RFA or the Budget Form.) Milestone or Task Anticipated Completion Date 1. Go/ no-go decision based on results of phase II drilling (temperature gradient wells and slim holes) and on economic/business factors 8/31/2011 2. Completion of bid documents 9/30/2011 3. Contractor selection and award 11/15/2011 4. Mobilizing a full-size geothermal drilling rig* 6/30/2012 5. Drilling one full-size geothermal production well 8/31/2012 6. Well flow test 9/31/2012 *This activity will be funded by Ormat outside this grant application 3.4 Project Resources Describe the personnel, contractors, equipment, and services you will use to accomplish the project. Include any partnerships or commitments with other entities you have or anticipate will be needed to complete your project. Describe any existing contracts and the selection process you may use for major equipment purchases or contracts. Include brief resumes and references for known, key personnel, contractors, and suppliers as an attachment to your application. Ormat Nevada Inc., a wholly owned subsidiary of Ormat Technologies Inc. (NYSE: "ORA") is a vertically- integrated company primarily engaged in the geothermal and recovered energy- based power plants around the world. The Company has more than four decades of experience in the development of environmentally-sound power, primarily in geothermal and recovered- energy generation. It also supplies remote power units such as those supplied with 60 remote gate valve buildings on the Trans Alaska Pipeline in operation since 1975. Ormat products and systems are covered by more than 75 US patents. Ormat has engineered and built power plants, that it currently owns or has supplied to utilities and developers worldwide, totaling approximately 1300 MW of gross capacity. Ormat’s current generating portfolio of 543 MW includes the following geothermal and recovered energy-based power plants: in the United States - Brady, Brawley, Heber, Mammoth, Ormesa, Puna, Steamboat, OREG 1, OREG 2, OREG 3, Peetz and GRE; in Guatemala - Zunil and Amatitlan; in Kenya – Olkaria III; and, in Nicaragua - Momotombo. As done in previous and in on-going exploration work, we plan to rely heavily on local talent and local suppliers, as well as on bringing our in-house capabilities. In previous phases key capabilities we brought in were pre-drilling exploration, exploration drilling and environmental permitting and compliance. Additional key capabilities we will bring in for this initial construction phase will include full-size deep drilling and reservoir engineering. Future phases (beyond the scope of this application) will also involve research and development, power plant design and engineering, manufacturing, utility interconnection, project management, construction, project financing, operation and maintenance. Following is a partial list of the key staff, consultants, contractors, etc. that will be pivotal in this program (resumes of most names referenced below are attached to this proposal): • Exploration, drilling and reservoir engineering: We intend to rely heavily on local service providers to perform both the geophysical and geochemical surveys and the Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 10 of 34 7/21/2010 TG/slim hole drilling. In addition, we will have our most experienced staff, which has lead geothermal development in dozens of projects around the world, to supervise, guide and train local contractors on geothermal exploration and drilling. o Key staff: Dr. Brigette A. Martini - Senior Staff Geologist and Principal Investigator / Project Manager for this program Joseph Skip Matlick – Ormat’s Vice President for Exploration, Resource Development and Drilling. Mr. Matlick has decades of experience in geothermal development and drilling, including in the Aleutian Islands in Alaska. Mr. Matlick will provide guidance and supervision for the drilling program Peter S. Drakos –Staff Geologist Benjamin M. Delwiche – Staff Geologist Patrick Walsh – Staff Geologist Dr. Lara Owens – Staff Geologist Paul Spielman - Manager of (Resource) Operations Support Steven D. Fercho – Geologist and GIS Specialist Mark Tibbs - Geothermal Wellfield Specialist o Consultants: Allison L. Payne – Volcanologist from the Alaska Volcano Observatory who Ormat has hired as a consultant to take part in exploration and drilling; specifically tasked with core logging during drilling activities. Dr. Jennifer L. Lewicki – A seasoned geochemist who Ormat intends to hire as a consultant to lead some of the geochemical analysis in 2011 and potentially also in 2012. o Contractors: Ormat will continue to select appropriate subcontractors by means of competitive processes. Key contractors who will potentially be selected for this proposed work include: Alaska Earth Science (AES), a leading company in geophysical exploration, with recent experience in geothermal exploration with the Naknek project. Key staff who is involved with this program include Robert M. Retherford (President/ Partner) and William T. Ellis (Vice President Exploration/Partner). AES is currently leading the camp and logistical services for phases I and II and is a candidate to lead phase III as well. Tyonek Contractors LLC (TCLLC), a local company specializing in providing construction and logistical services. TCLLC has been subcontracted by AES to provide various logistic services to the phase I and phase II work, and is a potential candidate to provide similar services to this phase III work. GeoDrill LLC, an Ormat-owned affiliate and on the best geothermal drilling companies in the world. GeoDrill owns several state-of-the-art geothermal-specific rigs and has a staff of over 100 drilling and other specialists. GeoDrill is a potential candidate to perform phase III drilling as it possesses a fleet of relatively light- weight and low cost geothermal-specific drilling rigs that could reduce the cost of phase III drilling. • Permitting o Key staff: Though we intend to hire local companies to do our permitting activities for this project – as done for phases I and II, these activities will be guided and supervised by Ormat’s seasoned permitting staff, utilizing experience gained with multiple Federal, state and other jurisdictions, and while training local contractors on the unique attributes of geothermal permitting. Ronald S. Leiken (Environmental/Regulatory Affairs) o Consultants: Entrix Alaska – Entrix is a leading environmental permitting company that Ormat contracted to perform permitting work in support of phases I and II. Entrix is a Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 11 of 34 7/21/2010 potential candidate for this phase III as well. Work on the Mt Spurr project is lead by Stephan Lombard, Senior Project Scientist The Anchorage office of Perkins Coie LLP – this office has been assisting Ormat in Alaska for many years in regulatory affairs as well as other legal counsel. Key staff who are pivotal in the Mt Spurr project include: • Eric B. Fjelstad - a partner in the Environment, Energy & Resources group, managing partner of the Alaska office and leader of the firm’s Alaska ENR practice. • Amy J. MacKenzie - an associate in the Anchorage office, focuses her practice on environment and natural resources. • Engineering: o Key Staff: Zvi Reiss, Vice President for Project Management o Consultants: HDR Alaska, Inc – Ormat selected HDR in 2009 to perform an engineering cost study and propose cost-optimized solution for a transmission line, a permanent access road, temporary winter roads etc. HDR completed the work in Q2/2010 and is a candidate to provide additional engineering work in support of this phase III, e.g. detailed planning of a winter road in order to mobilize the drilling rig. 3.5 Project Communications Discuss how you plan to monitor the project and keep the Authority informed of the status. Ormat prepares periodic written status reports of geothermal projects under development as part of the Company’s basic procedures. In the case of Mount Spurr Geothermal Project, this reporting will document exploration activities, permitting activities, schedules with relation to the agreed project milestones, foreseeable issues/delays, etc. We intend to provide reports on a quarterly basis, or any other frequency preferred by AEA during the phases of the project for which grant funding is requested. 3.6 Project Risk Discuss potential problems and how you would address them. Safety Risks Helicopter-based transportation Because of Mount Spurr’s remote location and lack of a road system, transportation of crews and at least some of the gear will be via helicopters. Thus, it is critical to adhere to all safety measures and ensure all staff is fully trained to maintain the highest safety standards. Volcanic hazard Ormat’s geothermal leases are located immediately adjacent to Crater Peak, the currently active vent of Mt. Spurr that erupted in 1992 covering the immediate area (including near where a geothermal plant might be located) in pyroclastic materials and debris flows or lahars. The 1992 eruption forcibly ejected large blocks up to 3.3 feet (1m) across in a concentrated zone of fallout up to 1.9 miles (3 km) southeast of Crater Peak and blocks and bombs up to 6 miles (10 km) from Crater Peak vent. Explosive phases of the Crater Peak eruption sent ash and pulverized rock in an eruptive plume to more than 14 km (46,000 ft) altitude and during at least one explosive phase, ash was blown as far away as Manley Hot Springs, 264 mi (425 km) north of the volcano. As the eruption progressed, avalanches of hot debris cascading down the south flank of Crater Peak mixed with snow to form lahars that reached the Chakachatna River. Successive pyroclastic flows formed overlapping tongues of coarse debris that coursed down Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 12 of 34 7/21/2010 the slopes of Crater Peak and funneled into preexisting drainages. The farthest-traveled pyroclastic flows moved about 1.8 mi (3 km) from the crater rim, descending more than 3280 ft (1000 m) in elevation. Ormat currently operates a 30 MW geothermal facility, operating since 1993, in a volcanically active area on the Big Island of Hawaii as well as plants near volcanoes in Momotombo, Nicaragua; Zunil and Amatitlan in Guatemala. There are several geothermal power facilities worldwide located around or near active volcanoes and geothermal exploration has been performed in many of these settings by the geothermal industry. A volcanic eruption adjacent to Ormat’s 20 MW Amatitlan geothermal facility occurred on May 28th, 2010. The facility experienced no substantial equipment damage, and there were no injuries to the plant’s staff. The facility experienced minimal downtime, and all units were restored to operation within 4 weeks, despite also experiencing a major tropical storm during the restoration period. Emergency plans will be developed for securing the facilities and evacuating personnel if necessary. Although the risk of another Mt. Spurr volcanic eruption is not considered imminent, Ormat will plan for contingencies should volcanic activity intensify; volcanic systems and particularly those of the upper Cook Inlet, can be unpredictable and highly dangerous. Avalanches Initial construction work at Mount Spurr will be done primarily during months when the weather is more temperate, similarly to the ongoing exploration work. This is generally between late May and September. Base camps were and will need to be established far enough away from the mountain to enable crew to ride out weather events at the exploration site, if and when they may occur. Of particular concern in siting the base camp and planning exploration activities will be potential avalanche episodes in the early spring. Though our leases rise to elevations of greater than 7,000 ft, much of our land to the south is at less than 1,500 ft. allowing for easier occupation of the site in all weather. The Cook Inlet Bombing Range Apparently, large portions of Ormat’s geothermal leases on Mt. Spurr were part of the Cook Inlet Bombing Range, active in the 1940’s and 1950’s, before lands were transferred to the state. The US Air Force cleaned the area and had determined it to be safe, though some minimal risk of unexploded ordnance (UXO) cannot be ignored. In order to mitigate this risk Ormat has implemented a safely plan, including how to identify a potential UXO both visually and using metal detectors, how to avoid it and how to respond to it, including evacuation and calling in Air Force demolition teams, if necessary. This plan has proved to be appropriate and effective. Ormat has also updated its insurance policy to cover this risk for its employees and subcontractors. Resource Risks Though Mt. Spurr has high geothermal potential, as evidenced by recent exploration work, as well as volcanism, thermal springs, abundant water, the existence of a commercially viable geothermal resource has not been confirmed yet. It is not enough to simply have heat – permeability is absolutely required. Structural complexity (faults, fractures) is only partially known in this region; the potential permeability of the reservoir rocks is thus unknown. Geophysical surveys in the summer of 2010 and initial results from our first core-hole confirm the presence of at least one large fault cutting through the lease area. Extensive alteration of core at depth indicates hydrothermal fluid flow within this fault zone – however we do not know if this hydrothermal system is current or ancient. While it is clear that geothermal fluids make it to the surface in a few other restricted locations, the extent of the hydrothermal system at depth Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 13 of 34 7/21/2010 remains unknown. The young age of Mt. Spurr coupled with the extremely recent eruption (and history of high activity) may complicate our understanding of the potential hydrothermal system at depth. In addition, previous seismic and InSAR studies have indicated a deep magma chamber, which may reduce the overall heat flow extending into the shallow crust. Ormat is well-aware of these potential challenges and has tailored its 2010-2011 exploration campaign to delineate the system as accurately as possible. Confidence has increased during the 2010 exploration program, and more will be known once the first temperature gradient core holes are completed in September-October 2010 and even more when the two slim for summer 2011 are completed. Business Risks As described elsewhere in this application, Ormat is financially stable and there is very little risk on its ability to support its proposed share in the project phases proposed in this grant application. Moreover, as expressed in dozens of plants Ormat has successfully built during the last 3 decades, Ormat is financially sound enough to be able to invest much larger sums as the project moves further into construction. That said, there are still business risks e.g. of signing of a Power Purchase Agreement (PPA) with a utility. Ormat is already active in mitigating these risks, e.g. by moving towards a PPA with Chugach Electric Association as well as with other Railbelt utilities. SECTION 4 – PROJECT DESCRIPTION AND TASKS • Tell us what the project is and how you will meet the requirements outlined in Section 2 of the RFA. • The level of information will vary according to phase(s) of the project you propose to undertake with grant funds. • If you are applying for grant funding for more than one phase of a project provide a plan and grant budget form for completion of each phase. • If some work has already been completed on your project and you are requesting funding for an advanced phase, submit information sufficient to demonstrate that the preceding phases are satisfied and funding for an advanced phase is warranted. 4.1 Proposed Energy Resource Describe the potential extent/amount of the energy resource that is available. Discuss the pros and cons of your proposed energy resource vs. other alternatives that may be available for the market to be served by your project. We estimate net generation of 50-100 MW of average baseload power at Mt Spurr. Power will most likely serve Anchorage and other Railbelt communities that are currently served primarily by natural gas plants, as well some petroleum and coal plants. Other alternatives to serve the Railbelt, include primarily hydro, wind, and tidal. The pros of geothermal as a proposed energy source compared to natural gas include: • No fuel cost risk. Power generated at Mt Spurr will be guaranteed at fixed cost for the duration of the PPA, estimated at 25 years. Furthermore, based on our decades of experience, we expect that after that time period we will be able to sign a new PPA, again guaranteeing fixed price for many years. • Reliability. Ormat’s geothermal technology is among the most reliable available with a guaranteed availability of 95% and actual one of 99%. • Clean. Geothermal is one of the most sustainable sources of energy, with close to zero emissions (see Figure 3); no consumption of cooling water (since Ormat plans to build an air- cooled plat at Mt Spurr); no depletion of the geothermal reservoir (since Ormat’s technology does not evaporate any portion of the geothermal fluid but rather re-injects 100% of the Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 14 of 34 7/21/2010 geothermal fluid to the reservoir); very low visual impact; very small surface occupancy (see Figure 6). Figure 3: CO2 emissions (lbs. CO2/kW-hr) Source: K. Kit Bloomfield (INEEL), Joseph N. Moore (EGI), and Robert M. Neilson, Jr. (INEEL), GRC Bulletin, Mar/Apr 2003 The pros of this proposed energy sources compared to other forms of renewable that may serve the Railbelt (hydro, wind, tidal) include: • Baseload. Unlike practically all other forms of renewable, a geothermal power plant will offer baseload 24/7 generation with a capacity factor of >90%. It is important to note that due to this baseload attribute whenever Ormat makes reference to the plant capacity, 50-100MW, the reference is to average generation (and not peak), net to the grid. • Proven technology. Ormat has built over 1,000 MW of geothermal plants during the last 3 decades all over the western US and all over the world. Therefore the technology proposed for implementation at Mt. Spurr is proven and risk free (see Figure 5) • Clean. Geothermal compares favorably with other forms of renewables on all environmental attributes, e.g. close to zero emissions, low visual impact, small surface occupancy etc. • Levelized costs. Geothermal ranks better than most forms of renewables (Figure 4). Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 15 of 34 7/21/2010 Figure 4: Levelized costs of geothermal and other forms of energy Source Geothermal Energy Association – based on California Energy Commission Data: http://geo- energy.org/geo_basics_plant_cost.aspx. Figure 5: Technology maturity Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 16 of 34 7/21/2010 Figure 6: Forty years land use 4.2 Existing Energy System 4.2.1 Basic configuration of Existing Energy System Briefly discuss the basic configuration of the existing energy system. Include information about the number, size, age, efficiency, and type of generation. The Mt Spurr geothermal project aims at providing renewable energy to the Railbelt. The authors of this application did not find it necessary to elaborate on the existing energy system in the Railbelt, which is predominantly natural-gas based, with some petroleum, hydro, coal and other generators. 4.2.2 Existing Energy Resources Used Briefly discuss your understanding of the existing energy resources. Include a brief discussion of any impact the project may have on existing energy infrastructure and resources. We currently estimate the resource at Mt. Spurr at 50-100 MW average, net to the grid. From multiple discussions held with various stakeholders in the Railbelt energy sector, and primarily with all 6 Railbelt utilities, we believe this project will have a very positive impact on the energy market thanks to the benefits detailed elsewhere in this application. From discussions Ormat has held with Chugach Electric Association (CEA) it appears that the most reasonable point of interconnection for power generated at Mt Spurr would be at the Beluga natural gas plant. CEA has indicated that the schedule for having power on line at Mt Spurr bodes well with CEA’s plans to retire old gas turbines at Beluga, therefore freeing capacity on the transmission line connecting Beluga to Anchorage and to the rest of the CEA grid. A new Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 17 of 34 7/21/2010 40-mile transmission line, probably between 96 and 230 kV will need to be put in place, and Ormat is already in discussion with CEA as well as with other potential stakeholders on ways to fund and to build this transmission line. Based on over 3 decades of experience in developing geothermal projects, Ormat will make sure that the Mt Spurr geothermal project will have a minor impact on the geothermal resource. As explained before, Ormat’s technology does not deplete the resource but rather re-injects 100% of the geothermal fluids. Moreover, no cooling water will be consumed as the plant will be air- cooled. Some cooling of the geothermal reservoir is expected in any geothermal power project, due to the mining of heat and its conversion to electricity. However, with proper design and engineering we expect the resource to get cooled by no more than a very modest 0.5% annually and this cooling is typically mitigated by drilling a few make-up wells during the lifetime of the project. The AEA-sponsored Railbelt integrated energy resource plan identifies Mt. Spurr geothermal, if feasible, as a beneficial component of the Railbelt energy system. 4.2.3 Existing Energy Market Discuss existing energy use and its market. Discuss impacts your project may have on energy customers. The Mount Spurr geothermal resource, if developed, would serve customers in the Railbelt. Communities served by the Railbelt utilities are heavily reliant on natural gas resources produced in-state. On page 35 of the Mount Spurr Geothermal Lease Sale No. 3; Final Finding of the Director. Alaska Department of Natural Resources Division of Oil and Gas: June 16, 2008 (Attached), the Alaska Department of Natural Resources concluded that “Although current electrical demand is largely met by natural gas, gas reserves are finite and eventually Southcentral Alaska will have to find another energy source. Geothermal development resulting from this lease sale could contribute to the area’s future energy supplies. Additionally, introduction of a competing energy source in Southcentral Alaska may result in downward natural gas price pressure on local utilities.” Natural gas production in the Cook Inlet is depleting rapidly, generating concerns over future supplies for both electricity and heating. Thus, a 50-100 MW average, net to the grid, renewable base-load energy project will help bring stability to energy prices by offsetting the need to use these natural gas supplies for electricity production and will free considerable amounts of natural gas for heating (refer to calculations in the Cost Worksheet). As explained in sections 4.1 and 5 this project will also provide the benefits of clean air, of fighting climate change, of long term sustainability (refer to section 8) and will provide multiple opportunities for local hire and services. The AEA-sponsored Railbelt integrated energy resource plan identifies Mt. Spurr geothermal, if feasible, as a beneficial component of the Railbelt energy system. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 18 of 34 7/21/2010 4.3 Proposed System Include information necessary to describe the system you are intending to develop and address potential system design, land ownership, permits, and environmental issues. 4.3.1 System Design Provide the following information for the proposed renewable energy system: • A description of renewable energy technology specific to project location • Optimum installed capacity • Anticipated capacity factor • Anticipated annual generation • Anticipated barriers • Basic integration concept • Delivery methods Brief description of the proposed scope of work under this grant application Section 7 depicts the encouraging results from initial exploration so far, as well as the exploration planned ongoing this fall and planned for early summer 2011, before the program suggested in this proposal begins. This grant request is for funding the start of construction of the geothermal well-field, by means of the first full-sized, deep geothermal production well. This 36 inch hole (at surface) will telescope down through three levels of casing; 12.25 inch hole will be drilled starting at approximately 700 ft and going all the way total depth (TD). While depth of production is still unknown (and thus TD is unknown), knowledge of other volcanic edifices and their hydrothermal systems within the Aleutian arc and across the world suggest reservoirs depths from 3,000 – 5,000 ft. are reasonable assumptions. Drill location will be sited based on analysis of all information that will be available from the pre-drilling and exploration drilling work to be completed by the end of 2011. While the slim wells to be drilled in 2011 as part of phase II will provide much needed information on deeper temperature gradients, chemistry, lithology and productivity, the wide diameter, deep production holes provide the final measure of geothermal resource viability. The wider diameter allows for more accurate calculation of flow and pressure (and ultimately productivity) while the deeper depth allows us to access the most economic temperatures and realistic chemistries. Finally, multiple production wells allow for multi-well flow-tests; the only true way of measuring geothermal reservoir behavior and the best source of data for modeling long-term behavior within the field. In most renewable energy projects, “construction” typically refers to earth work and other construction work associated with the power plant itself. However, in the case of geothermal projects, construction typically starts with drilling several commercial size production and injection wells, and only after the geothermal resource is sized by means of a long-term multi- well flow test, can the second stage of construction begin, comprising of the power plant itself, the geothermal gathering system, the interconnection facility, etc. It is worthwhile to note the Department of Energy (DOE) too recognizes drilling of full-size production wells as “start of construction” of geothermal projects. Description of the power plant, the construction of which is the ultimate goal for this work (though beyond the scope of this specific grant application): The proposed system design for an eventual power plant would be based on patented power generation technology that is currently used at Ormat installed power generation facilities throughout the world. Due to Alaska’s climate, air-cooled condensers would most likely be used for the plant cooling system either through a binary cycle or combined cycle power plant. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 19 of 34 7/21/2010 Capacity factor will be higher than 95%, when calculating against the state 50-100 MW net average capacity (average and not peak, as commonly stated in wind and other generation technologies). Annual generation is therefore expected to range from 416,100,000 kWh (assuming 50 MW net to the grid) and 832,200,000 kWh (assuming 100 MW net to the grid). Since the technology we are proposing is highly mature with a vast installed base, we do not anticipate special barriers beyond those detailed in section 3.6. Integration of the Mt Spurr power into the grid is expected by building a 96 ~ 230 kV transmission line to Beluga and from there to interconnect to the CEA grid. Power is expected to serve both CEA’s customer base as well as to be shared with some/all other Railbelt utilities. CEA has already indicated that its grid, including the transmission line going from Beluga to Anchorage, will be able to accommodate power generated at Mt. Spurr Delivery method is expected to be baseload, 24/7, based on an hourly generation profile to be agreed with the off-taker(s). Description of Ormat power plants, similar to the one expected at Mt. Spurr: In the binary cycle of Figure 7, the Geothermal Fluid is produced under pressure and passes through the tubes of a tube and shell heat exchanger (the “vaporizer”), where it transfers thermal energy to an organic working fluid (pentane or n-pentane) contained in the shell side. The organic fluid vaporizes and these vapors drive the special slow speed turbine (1,800 rpm) direct coupled to the generator. The generated power is conditioned to utility standards and fed to the grid. The geothermal fluid remains under pressure and is 100% injected without any contact with the turbine train components. The organic fluid vapors leave the turbine under positive pressure and are efficiently condensed into liquid form in an air-cooled condenser. This process under normal operation produces near zero air emissions and has the lowest environmental impact of any geothermal technology. Figure 7: Simplified Binary Cycle Process Diagram Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 20 of 34 7/21/2010 Figure 8: 84 MW Steamboat Geothermal Complex supplies electricity sufficient for all households in Reno, NV Ormat supplied the 125 MW Upper Mahiao Combined Cycle Geothermal Power Plant in The Figure 9: 125 MW Upper Mahiao Geothermal Power Plant, the Philippines; in operation since 1996 Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 21 of 34 7/21/2010 Philippines. A geothermal combined cycle is most effectively applied to a steam-dominated resource. The high-pressure steam from the separator drives a back pressure turbine, which is the most efficient use of steam at this stage in the cycle. The low-pressure steam exits this turbine at a positive pressure and flows into the vaporizer of a bottoming OEC. The heat of condensation of the low-pressure stream is used to vaporize the organic motive fluid and the expansion of these vapors drives the organic turbine. The organic vapors are then condensed in a condenser, and pumped back into the pre-heater and the geothermal fluid is re-injected. Since the steam pressure in the vaporizer remains positive, the non-condensable gases (NCG) can simply be vented without any loss of power. The steam condensed in the OEC heat exchangers is re-injected as condensate to the reservoir. Figure 10: Diagram of a combined cycle geothermal power plant 4.3.2 Land Ownership Identify potential land ownership issues, including whether site owners have agreed to the project or how you intend to approach land ownership and access issues. Ormat Nevada, Inc. has acquired 35,806.9 acres of geothermal leases on Alaska State lands (see leasing documents attached). Site control requirements established by Alaska Department of Natural Resources in the: Mount Spurr Geothermal Lease Sale No. 3; Final Finding of the Director. Alaska Department of Natural Resources Division of Oil and Gas: June 16, 2008 (Attached). Ormat will comply with all lease terms and stipulations, including mitigation measures for exploration and development activities on the site. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 22 of 34 7/21/2010 4.3.3 Permits Provide the following information as it may relate to permitting and how you intend to address outstanding permit issues. • List of applicable permits • Anticipated permitting timeline • Identify and discussion of potential barriers Ormat will obtain all necessary authorizations from relevant permitting authorities for its activities. To our knowledge, the description below constitutes the major permits required for the drilling activities that would be funded under the grant sought via this application. Applicable permits for the proposed drilling plan: Alaska Oil and Gas Conservation Commission (AOGCC) • Drilling Permits DNR Division of Oil and Gas (DO&G) • Plan of Operation DNR Division of Mining Land & Water (DMLW) • Land use permit [11 AAC 96] – for staging areas • ROW [AS 38.05.850] – for roads, trails, ditches, or field gathering lines Office of Habitat Management & Permitting (ADFG) • Fish habitat permits [AS 16.05.841] for activities within or across a stream listed in the Atlas of Waters Important for Spawning, Rearing, or Migration of Anadromous Fishes. Alaska Department of Environmental Conservation (ADEC) • Temporary storage permit • Oil discharge prevention and contingency plan • Certificate of financial responsibility • Domestic water and wastewater permits • Minor air permit Borough/Local Government (Kenai Peninsula Borough) • Development permits • Approval for pad use US Army Corps of Engineers (ACOE) • Any dredging or filling of wetlands - 404 Permit Other general permits • Permits are required for establishing man camps and for transporting equipment into the field site. • Additional stipulations on required actions prior to certain exploration activities are discussed in Section R. Mitigation Measures and Lessee Advisories of the Mount Spurr Geothermal Lease Sale No. 3; Final Finding of the Director. Alaska Department of Natural Resources Division of Oil and Gas: June 16, 2008 (Attached) Regulatory; Permitting barriers • At this time, Ormat has not identified any major regulatory barriers that will affect the production drilling. To date, permitting has been completed on schedule with very positive support and Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 23 of 34 7/21/2010 cooperation from all major agencies, to include AOGCC, ADNR, ADEC, ADF&G, USFWS and other. We have worked with local partners, including Native Corporations, to assist with the permitting to ensure all permits are obtained in a timely manner, and will continue this process moving forward. • As progress is made during resource assessment, Ormat will ascertain barriers to construction and interconnection. However, these barriers are not within the scope of this application. 4.3.4 Environmental Address whether the following environmental and land use issues apply, and if so how they will be addressed: • Threatened or Endangered species • Habitat issues • Wetlands and other protected areas • Archaeological and historical resources • Land development constraints • Telecommunications interference • Aviation considerations • Visual, aesthetics impacts • Identify and discuss other potential barriers Specific environmental and land issues were identified by the Alaska Department of Natural Resources in the Mount Spurr Geothermal Lease Sale No. 3; Final Finding of the Director. Alaska Department of Natural Resources Division of Oil and Gas: June 16, 2008 (Attached). Mitigation measures are specified in this document. Ormat Nevada, Inc. will adhere to these mitigation measures in order to comply with the terms of the lease agreement. Ormat does not anticipate encountering or impacting any ESA-listed species during its exploration activities. To the extent that any habitat issues are presented, Ormat will confer with the Alaska Department of Fish and Game staff in the Habitat Division and will comply with all terms and conditions of any Title 16 permits. Prior to disturbing soils, Ormat will confer with the U.S. Army Corps of Engineers regarding the need to obtain a Clean Water Act section 404 permit. If Ormat should encounter any archaeological and historical resources, it will consult with the State Historic Preservation Office. Ormat is unaware of any land development constraints. Due to the limited disturbance and low height profile of the planned activities, Ormat does not foresee any telecommunications interference, aviation concerns, or visual/aesthetic impact. However, Ormat will utilize an experienced staff trained to handle environmental and permitting issues on a site specific basis. Based on the permitting analysis and work done so far in support of the exploration and drilling work at Mt. Spurr, Ormat does not foresee any potential barriers to the work described in this application. For the sake of simplicity and clarify, other issues related to work beyond the scope suggested under this grant application are not presented at this time. 4.4 Proposed New System Costs and Projected Revenues (Total Estimated Costs and Projected Revenues) The level of cost information provided will vary according to the phase of funding requested and Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 24 of 34 7/21/2010 any previous work the applicant may have done on the project. Applicants must reference the source of their cost data. For example: Applicants Records or Analysis, Industry Standards, Consultant or Manufacturer’s estimates. 4.4.1 Project Development Cost Provide detailed project cost information based on your current knowledge and understanding of the project. Cost information should include the following: • Total anticipated project cost, and cost for this phase • Requested grant funding • Applicant matching funds – loans, capital contributions, in-kind • Identification of other funding sources • Projected capital cost of proposed renewable energy system • Projected development cost of proposed renewable energy system • Total anticipated project cost, all the way from exploration, through development and construction: Preliminary information indicates $5,000 - $6,000/ kW • Cost for the phase described in this application: $ 5,882,270 • Requested funding for this phase: $ 1,999,972 • Suggested matching funds are primarily cash with some in-kind • We have not identified other funding sources for cost sharing the drilling. Ormat will be looking for other potential sources to fund the transmission line and access road that are expected to also serve other projects in the region, e.g. the Chakachamna Hydro project, a potential wind project and two mining projects on the roadmap west of Mt. Spurr • Projected cost of development: In the geothermal industry, “development” typically refers to pre-drilling exploration and exploration drilling until resource can be confirmed by means of 2-3 successful full-size wells. In the case of Mt Spurr we expect this to be in the $20-$30 million range 4.4.2 Project Operating and Maintenance Costs Include anticipated O&M costs for new facilities constructed and how these would be funded by the applicant. (Note: Operational costs are not eligible for grant funds however grantees are required to meet ongoing reporting requirements for the purpose of reporting impacts of projects on the communities they serve.) The operation of an Ormat power plant centers on keeping the processes stable and keeping watch on the equipment and resource status. Most of this operation is done from a compurerized control room, with some routine visual inspections done to the power plant and the well-field. The operators are well familiarized with the Ormat Energy Converter (OEC) – which is the core of the power plant - and are trained to handle any scenario. Over time, such a facility needs maintenance for keeping the plant running at highest possible availability. Main maintenance actions include cleaning (equipment/ piping/ vessels/ wells/etc.), replacing failed parts (pumps, motors, valves, instruments, etc.), general upkeep (painting equipment, road repairs, etc.), maintaining inventory levels of consumables (oils, chemicals, fuel) and calibrating instruments. Planned outages are reduced to a minimum and are scheduled in coordination with the off-taker, outside peak demand hours. We currently estimate the all inclusive O&M costs (fixed + variable, including taxes, insurance, royalties, etc.) of this plant to be in the range of $0.03 - $0.05 / kWh. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 25 of 34 7/21/2010 4.4.3 Power Purchase/Sale The power purchase/sale information should include the following: • Identification of potential power buyer(s)/customer(s) • Potential power purchase/sales price - at a minimum indicate a price range • Proposed rate of return from grant-funded project Ormat has engaged in discussions with all 6 Railbelt utilities (Chugach Electric Association, Municipal Light & Power, Golden Valley Electric Association, Homer Electric Association, Matanuska Electric Association, and City of Seward). All utilities expressed high interest in this project and a desire to engage in negotiations of a Power Purchase Agreement, recognizing its key advantages: baseload, price-guarantee, high availability, technological maturity and environmental as well as economical sustainability. Chugach Electric Association has shown exceptional interest, and both parties have started preliminary negotiations of a Power Purchase Agreement, with a goal to reach such an agreement by the end of 2010. Early estimations indicate $120-$130/MWh, for a 25 year PPA starting 2016, in 2010 $ value, depending on actual construction and O&M costs. Ormat expects to get an internal rate of return (IRR) in the low teens for the entire life cycle of the Mt Spurr project. 4.4.4 Project Cost Worksheet Complete the cost worksheet form which provides summary information that will be considered in evaluating the project. The Project Cost Worksheet is attached separately. In summary, we believe that calculating the cost benefit of such a project is a complex task, since this is a utility-scale, long term, strategic project that should be compared with other long term alternatives, e.g. new fossil-fuel plants to be built (e.g. new natural gas CCGTs) as well as other large scale renewable projects. When making this comparison, several long-term factors should be taken into account, e.g. availability and projected price of natural gas in the Cook Inlet during the years 2016-2041, when the Mt. Spurr plant is planned to be in operation; the cost of environmental attributes e.g. CO2 offset; the probability of a state and/or Federal Renewable Portfolio Standard and its effect on price of fossil-fuel power; etc. The Cost Worksheet shows that a geothermal power plant at Mt Spurr is cost competitive to an equivalent natural gas fired plant. This conclusion does not come as a surprise and is in accord with industry research, e.g. the COMPARATIVE COSTS OF CALIFORNIA CENTRAL STATION ELECTRICITY GENERATION TECHNOLOGIES, by the California Energy Commission, CEC- 200-2007-011-SF, from December 2007, that state the Levelized cost of a binary geothermal plant to for a Publicly Owned Utility (POU) to be $65.55/MWh, compared with CCGT at $86.84/MWh (http://www.energy.ca.gov/2007publications/CEC-200-2007-011/CEC-200-2007- 011-SF.PDF Page 7).. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 26 of 34 7/21/2010 SECTION 5– PROJECT BENEFIT Explain the economic and public benefits of your project. Include direct cost savings, and how the people of Alaska will benefit from the project. The benefits information should include the following: • Potential annual fuel displacement (gal and $) over the lifetime of the evaluated renewable energy project • Anticipated annual revenue (based on i.e. a Proposed Power Purchase Agreement price, RCA tariff, or cost based rate) • Potential additional annual incentives (i.e. tax credits) • Potential additional annual revenue streams (i.e. green tag sales or other renewable energy subsidies or programs that might be available) • Discuss the non-economic public benefits to Alaskans over the lifetime of the project Assuming 50 MW of net generation to the grid, this project is expected to displace 2,925,183 MMBtu of natural gas per year for 25 years or more, equivalent to $22.1m in 2016 to $41m in 2041. In addition, the project will offset CO2 (compared to natural gas) assumed to be worth $13.7m / year. Please refer to the Cost Worksheet for more detailed assumptions and calculations. Assuming a cost-based power price of $120-$130/MWh, anticipated annual revenue for a 50 MW plant would be around $52 million. We do not expect additional revenue streams, since the value of renewable energy credits will probably be embedded in the power price with the credits passed to the off-taker(s). Further to the economic benefits detailed in section 4.1, and to the sustainability detailed in section 8, we believe the project will bring additional non-economic public benefits to Alaska, e.g.: Freeing some very valuable Cook Inlet natural gas for heating instead of electricity generation Reducing emissions of pollutants and green-house gases from otherwise fossil-fuel based plants, thereby improving public health and reduced contribution to climate change Providing multiple short term and long term, direct and indirect opportunities for local hire and services. Even at 50 MW, the benefits to Alaska’s economy can be significant. For example, according to a 2006 study by the Geothermal Energy Association in Washington D.C. (prepared for the U.S. Department of Energy): • An average 50 MW geothermal plant would provide direct, induced, and indirect jobs for 212 full-time jobs and employ an average of 800 man-year during construction. • Geothermal provides more jobs per MW than natural gas, according to the DOE. Not only does geothermal provide more jobs than a traditional power plant, it also provides quality, long-term jobs • Geothermal provides long-term income for people with a diversity of job skills. People employed by the sector include welders; mechanics; pipe fitters; plumbers; machinists; electricians; carpenters; construction and drilling equipment operators and excavators; surveyors; architects and designers; geologists; hydrologists; electrical, mechanical, and structural engineers; HVAC technicians; food processing specialists; aquaculture and Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 27 of 34 7/21/2010 horticulture specialists; managers; attorneys; regulatory and environmental consultants; accountants; computer techs; resort managers; spa developers; researchers; and government employees. • Source – Geothermal Energy Association http://www.geoenergy.org/publications/reports/Socioeconomics%20Guide.pdf Ormat is committed to maximize local hire and local services, in all phases of this project, while bringing on board the best talents from Ormat’s global operations and the best practices developed over 40 years to train, guide and supervise locally hired employees and local contractors and consultants. Promoting a local skill set in geothermal exploration, development, construction and operation will most likely serve to benefit not only Ormat’s Mt Spurr project, but also other geothermal projects currently pursued in Alaska (e.g. Naknek, Akutan, Unalaska, Pilgrim Hot Springs, Chena Hot Springs, etc.). SECTION 6– SUSTAINABILITY Discuss your plan for operating the completed project so that it will be sustainable. Include at a minimum: • Proposed business structure(s) and concepts that may be considered. • How you propose to finance the maintenance and operations for the life of the project • Identification of operational issues that could arise. • A description of operational costs including on-going support for any back-up or existing systems that may be require to continue operation • Commitment to reporting the savings and benefits Ormat is a financially sound company. Since 1986 Ormat, and its affiliates, have participated in arranging over US$ 1.6 Billion in project related financing. This has included construction financing, equity investments and term debt financing. Prior to 1996, much of this financing was for the benefit of third parties who were the owners or equity investors in Ormat developed or turnkey constructed geothermal power plants or complete projects. Since 1996, the company has been investing in the ownership and operation of geothermal projects, which it has developed as well as in the acquisition, rehabilitation and operation of geothermal projects developed by others. For more information about how Ormat refinances its power plants please refer to our Year-end 2009 10K Report: http://www.sec.gov/Archives/edgar/data/1296445/000095012310022121/y83042e10vk.htm (Page 31). Ormat’s total revenues for 2009 were $415.2M with an operating income of $68.8M. For 6 months ending June 30, 2010 they were respectively $178.9M and $4.5M. Ormat will implement the Mt Spurr geothermal project with over 40 years of experience in power generation, over 30 years of specific experience in O&M of geothermal power plants, a portfolio of over 1300 MW of installed geothermal and recovered energy generation plants, and of over 543 MW of owned and operated geothermal and recovered energy plants. All will serve to make sure that the power plant is run using best available know-how and techniques that would maximize generation, revenue and availability and minimize O&M costs. Thanks to our vast experience in operation worldwide, including in remote, volcanic and arctic environments, we don’t expect any unique operational issues. Ormat will make sure to locate the plant on a least hazardous area and to put all means in place to protect the crew, ranging from Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 28 of 34 7/21/2010 potential remote un-attended operation (if we decide that’s the most appropriate solution) – a modus operandi that Ormat is successfully implementing in several plants, avalanche monitoring, seismic monitoring, rapid evacuation mechanisms etc. Description of our O&M costs and procedure appears in section 4.4.2. There are no backup systems that need to operate, rather than a diesel generation that may be used for a black start. We are committed to generate detailed and credible reports on saving and benefits as will be required by all relevant agencies. Please refer to the attached 2008 Sustainability Report to learn more about how Ormat guarantees its operation is sustainable in multiple dimensions: sustainable technology, care of the environment, green corporate culture, caring and support for the communities we are part of, and more. SECTION 7 – READINESS & COMPLIANCE WITH OTHER GRANTS Discuss what you have done to prepare for this award and how quickly you intend to proceed with work once your grant is approved. Tell us what you may have already accomplished on the project to date and identify other grants that may have been previously awarded for this project and the degree you have been able to meet the requirements of previous grants. Ormat has invested substantial resources, both financial and human, in the land leasing, in pre- drilling exploration (phase I = reconnaissance) and in exploration drilling (phase II = feasibility), in an attempt to ultimately build a utility-scale geothermal power plant at Mt Spurr. Ormat is determined to turn this project into a success, assuming final results of phase II exploration drilling – currently underway and scheduled to conclude during the summer of 2011 – confirm the presence of a geothermal resource. Ormat has demonstrated its commitment to exploration thus far by following through on rigorous plan, to be partially cost-shared through the AEA Renewable Energy Fund Grant Round III, and even exceeding expectations by drilling temperature gradient core holes in September 2010, which was considered only a best case scenario when funding was requested in November 2009. Ormat is requesting the additional funds at this stage, so as to enable us to be as expeditious as possible and move straight from exploration and resource confirmation to well- field construction, without losing the short and precious 2012 work season. Ormat is willing to allocate the required funds – which are much larger than the total amount requests from AEA in rounds III and IV combined – in order to turn this into a successful project. In preparation for this award, Ormat has established a “task force” lead by Dr. Martini (PI and project manager) and Rahm Orenstein (Director of Business Development and business manager for the Mt Spurr development project) and comprising also a grant manager, a business analyst, project finance experts and a logistics project manager as well as the key staff (geologists, drilling experts, reservoir engineers, permitting experts, engineering experts) detailed in section 3.4. In addition. Key 2010 exploration activities were awarded and carried out by contractors and consultants as detailed in section 3.4, some well in advance of the 2010 Grant award such that exploration plans could be executed effectively and efficiently. Ormat has financed this initial work primarily through internal sources (with a total of some $6.4 million expected to have been invested by Ormat before the work proposed in this application Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 29 of 34 7/21/2010 begins), and is about to be awarded an additional roughly $2 million in from the AEA Renewable Energy Fund Grant Round III to cost share pre-drilling exploration (reconnaissance phase) and exploration drilling (feasibility phase). Ormat has not received any other state or federal grants for this project. Synopsis of the work and achievements done so far: • Obtaining site control: Ormat won the DNR geothermal lease sale #3 at Mt. Spurr in October 2008 • Field reconnaissance: Ormat conducted a field reconnaissance survey of Mt Spurr during the summer of 2009 with an overarching goal of future exploration plan definition. Work done included mapping, rock/soil sampling, geochemical sampling and ultimate synthesis of these data with historical data and survey information. Initial results were encouraging, with new positive indicators for the existence of a viable hydrothermal system at-depth. • Engineering cost study: Ormat contracted HDR Alaska Inc to perform an engineering cost study of required infrastructure: transmission line and roads. Work was performed from December 2009 to May 2010 • Phase I exploration: Ormat conducted an intensive exploration campaign (including geological, geochemical and geophysical studies) during July and August 2010, to be partially cost-shared by AEA Renewable Energy Fund Grant Round III. While magnetic and LiDAR surveys have located and identified surface to shallow structure (partially confirmed with in-field mapping), gravity and MT has defined deep anomalies currently conjectured to be either shallow magma intrusion along deep-seated structures (eg. dike events). Geologic mapping has confirmed geophysical anomalies mapped as structure and turned up large areas of high temperature alteration along said structures indicating past or current hydrothermal fluid flow. Geochemical sampling of seeps and other waters in the vicinities of these newly identified structures has revealed a much larger spatial extent for currently discharging hydrothermal waters at Mt.Spurr – extending several miles to the east of previously mapped hot spring discharge at Crater Hot Springs. The synthesis of these datasets has provided a far more detailed structural model for the Spurr edifice and has aided in locating three to four core holes (500-1000ft in depth) for phase II, exploration drilling. • Phase II exploration (drilling): Ormat started drilling the first core hole at Mount Spurr in early September 2010. This hole is the first of 3-4 temperature gradient core holes, each to a maximum depth of 500ft to 1000ft, planned for this fall. Results so far have confirmed the presence of large, geophysically defined faults and indicates hydrothermal fluid flow at one time at very shallow depths (less than 100ft.). Preliminary down-hole temperatures are anomalous, though a final total depth temperature has yet to be measured. • Permitting: Phases I and II described above were performed and are still taking place, after getting all the required permits from all agencies, including AOGCC, ADNR, ADEC, ADF&G, USFWS and others. This work is lead by Entrix Alaska. Synopsis of work that will have been completed by the time this grant is eligible (7/1/11): • Continuation of phase II exploration (drilling). Ormat plans to drill two slim holes during the summer of 2011, also to be cost-shared with AEA Renewable Energy Fund Grant Round III. These slim holes will provide much needed information on deeper temperature gradients, chemistry, lithology and productivity. Therefore, by mid-summer 2011 Ormat expects to have confirmed the existence of a geothermal resource. Assuming results continue to be encouraging, the next step would be to start constructing the geothermal well-field by means of a first full-size production well, which is the essence of this grant application. • Signing a Power Purchase Agreement (PPA). Ormat has engaged in discussions with all six Railbelt utilities (Chugach Electric Association, Municipal Light & Power, Golden Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 30 of 34 7/21/2010 Valley Electric Association, Homer Electric Association, Matanuska Electric Association, and City of Seward. All utilities expressed high interest in this project and a desire to engage in negotiations of a Power Purchase Agreement. Chugach Electric Association has shown exceptional interest, and both parties have started initial discussion of a PPA, with a target to have such an agreement signed around the end of 2010. Ormat is optimistic as to the prospects of having such a PPA signed in a timely manner and sees this as a pre-requisite to engage in the cost-intensive phase III work outlines in this application. • Rig mobilization. Ormat will have been engaged in a solution to mobilize the full-size drilling rig, required to perform the proposed phase III work, by the time this mobilization is required. Based on the HDR report referenced above, this mobilization is likely to be in the form of a winter road or through helicopter transportation. This mobilization is expected to cost $2-$6 million. • Permitting. Ormat will have identified all the permitting requirements and will have a detailed permitting plan in place by the end of 2011, in support of the proposed phase III work. Overall, by mid-summer 2011, Ormat expects to have invested some $6.45 million (not including rig mobilization). Please refer to section 9 for a breakdown of these costs. Total AEA grant funds (from round III) expected by the time this grant is requested: $2 million SECTION 8– LOCAL SUPORT Discuss what local support or possible opposition there may be regarding your project. Include letters of support from the community that would benefit from this project. Ormat has been working closely with Railbelt utilities that are the likely buyers of geothermal power from Mt Spurr, with the communities of western Cook Inlet where the project resides and with various environmental and other non-profit organizations who have expressed interest in this project. To date we have encountered nothing but wide support from all constituencies, who value the potential clean, affordable, reliable, price-guaranteed, renewable energy. The following is a partial list of the primary local entities we are in touch with: Railbelt utilities: Ormat has engaged in discussions with all six Railbelt utilities (Chugach Electric Association, Municipal Light & Power, Golden Valley Electric Association, Homer Electric Association, Matanuska Electric Association, and City of Seward. All utilities expressed high interest in this project and a desire to engage in negotiations of a Power Purchase Agreement. Chugach Electric Association has shown exceptional interest, and both parties have started initial discussion of a PPA, with a target to have such an agreement signed around the end of 2010. Ormat is optimistic as to the prospects of having such a PPA signed in a timely manner and sees this as a pre- requisite to engage in the cost-intensive phase III work outlines in this application. Attached to this application is an updated letter of support from Chugach Electric Association. • Railbelt communities: The community that would benefit the most from the power from Mt. Spurr would be the ratepayers of Anchorage as well as other communities in the Railbelt. Attached to this application is a letter of support from the Mayor of Anchorage. • Communities of Western Cook Inlet: Ormat has engaged with all major constituencies Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 31 of 34 7/21/2010 in western Cook Inlet in order to seek cooperation in infrastructure development and seek local talent and services. These communities include: • Tyonek: Ormat has built a strong relationship with Tyonek Native Corporation and with the Native Village of Tyonek, laying the foundation for a long-term relationship, where Ormat would enjoy access to local talent and services and Tyonek would enjoy opportunities for local hire and services. In addition, information is exchanged bilaterally in order to make sure Tyonek is fully aware of the development plan and Ormat is aware of the special traditions and needs of the people of Tyonek. Attached to this application is an updated letter of support from Tyonek Native Corporation. • CIRI: Ormat also contacted CIRI, the biggest landowner near Ormat’s leases on Mt Spurr, as well as a major representative of the communities of western Cook Inlet. Ormat briefed CIRI on its proposed plans and initiated discussions regarding potential areas for cooperation. CIRI expressed support for Ormat’s plans for Mt Spurr. • Kenai Peninsula Borough: Ormat has engaged with the KPB to explore potential collaboration on infrastructure support, e.g. access road towards the project. The Mayor and his key staff have expressed full support for Ormat’s development plans. Attached to this application is a letter of support from the Mayor of the Kenai Peninsula Borough. • The renewable energy and the environmental community of the Cook Inlet. Ormat has reached out to the environmental community of the Cook Inlet, in order to share its plans for Mt Spurr and learn about potential areas of sensitivity. Various entities have been contacted, including Cook InletKeeper, the Renewable Energy Alaska Project (REAP), the Alaska Center for Appropriate Technologies (ACAT) and the Homer Electric Association Members Forum (HEAMF). All these entities have expressed full support of the Mt Spurr geothermal project, recognizing its great advantages to boost Alaska’s renewable energy portfolio and to fight climate change while striking the right balance between development and sustainability. Attached to this proposal are letters of support from the Cook InletKeeper, ACAT and MEAMF. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 32 of 34 7/21/2010 SECTION 9 – GRANT BUDGET Tell us how much you want in grant funds Include any investments to date and funding sources, how much is being requested in grant funds, and additional investments you will make as an applicant. Include an estimate of budget costs by milestones using the form – GrantBudget3.doc Investment by Ormat in the project so far has roughly been (further to the information depicted in section 7): • $3.5 million in leasing state lands • $200k in business and legal support • $80k in an engineering cost study for required infrastructure • $500k in geological and geophysical exploration conducted during summer of 2009 and summer of 2010 (outside the scope of the exploration program approved for AEA Renewable Energy Fund Grant Round III) • $65k in permitting for exploration activities • $550k as matching funds for geological and geophysical exploration included in phase I exploration as per the scope of work included in the AEA Renewable Energy Fund Grant Round III awarded to the Mt Spurr geothermal project • $150k as matching funds for exploration drilling included in phase II exploration as per the scope of work included in the AEA Renewable Energy Fund Grant Round III awarded to the Mt Spurr geothermal project Total Ormat investment to date: ~$5 million Additional Ormat investment to date expected to be reimbursed by AEA as part of the Renewable Energy Fund Grant Round III awarded to the Mt Spurr geothermal project: • $510k for geological and geophysical exploration included in phase I exploration • $150k as exploration drilling included in phase II Total Ormat investment expected to be reimbursed by AEA to date: $660k Forecasted investment from now until the round IV funds are requested: • $1.45 million to be investment by Ormat in order to complete phase II exploration drilling • $1.3 million to be invested by Ormat and reimbursed by AEA to complete phase II exploration drilling Grand totals: • Grand total investment by Ormat by mid-summer 2011: ~ $6.45 million • Grand total AEA round III funds to be invested by mid-summer 2011: ~$2 million In addition, Ormat will invest in mobilizing the drilling rig in order to conduct the full-size deep drilling, as proposed in this current application. This mobilization is expected to cost in the $2 million to $6 million range, depending on the mobilization method used. Requested grant funds: $1,999,972 Suggested matching funds: $ 3,882,298 Ormat plans to fund the rest of the development and construction of the plant with its own cash, and will attempt to refinance the plant after it is in operation and generating power and revenues. Ormat may seek additional funds to help put in place some of the required infrastructure that could also serve other future energy projects in the region. Please refer to the Grant Budget Form for detailed breakdown by milestones as per RFA Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 33 of 34 7/21/2010 instructions. Ormat greatly appreciates AEA’s decision to award $2 million to cost share resource exploration at Mt Spurr in 2010-2011 as part of the round III awards. Ormat is determined to make this project a success and would be highly appreciative should AEA select the proposed Mt Spurr grant application in round IV. By sharing some of the high costs of initial construction drilling of a full-size deep production well – even though the requested sum is quote small compared to Ormat’s total matching funds and other internal funds invested and to be invested in this project - AEA would ultimately help expedite the construction of a commercial, reliable and cost- effective Utility-scale geothermal power plant at Mt Spurr, that would contribute significantly to diversify the Railbelt’s generation mix, free significant amounts of depleting Cook Inlet natural gas for other uses, offer fixed prices power for decades and contribute to increasing Alaska renewable energy portfolio. Awarding the funds in this round will allow Ormat to continue development at Mt Spurr as expeditiously as possible, without losing any of the short and precious work seasons.