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HomeMy WebLinkAboutSW Alaska Regional Geothermal GrantApplication4 Renewable Energy Fund Round IV Grant Application AEA 11-005 Application Page 1 of 21 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 Costworksheet 4.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 GrantBudgetInstructions 4.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 21 7/21/2010 SECTION 1 – APPLICANT INFORMATION Name (Name of utility, IPP, or government entity submitting proposal) Naknek Electric Association, Inc. (NEA) Type of Entity: 501(c)(12) Not-For-Profit Electric Generation and Distribution Cooperative Mailing Address Naknek Electric Association, Inc. PO Box 118 Naknek, Alaska 99633 Physical Address #1 School Road Naknek, Alaska 99633 Telephone 907 246 4261 Fax 907 246 261 Email dvukich@nea.coop 1.1 APPLICANT POINT OF CONTACT / GRANTS MANAGER Name Donna Vukich Title General Manager Mailing Address Naknek Electric Association, Inc. PO Box 118 Naknek, Alaska 99633 Telephone 907 246 4261 Fax 907 246 6242 Email dvukich@nea.coop 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) X An electric utility holding a certificate of public convenience and necessity under AS 42.05, or 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); Yes 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 ) Yes 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. Yes 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.) Yes 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 21 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) Southwest Alaska Regional Geothermal Energy Project 2.2 Project Location – Include the physical location of your project and name(s) of the community or communities that will b enefit from your project . All geothermal exploration and development will take place on a parcel owned by Naknek Electric Association, Inc. The allotment resides within the Bristol Bay Borough in T17S, R44W, Section 131/2SW1/4 and Section 23, NE1/4NW1/4S M. Project related administration, and billing and accounting will be performed at NEA's headquarters building in Naknek, Alaska. (Figure 1) When all phases of the project are complete a distribution intertie will link 25 + villages in the Bristol Bay Region of Southwest Alaska to geothermal energy generation at Pike’s Ridge. (Figure 2) Geothermal Project Location Map Figure 1 Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 4 of 21 7/21/2010 Figure 1 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 x 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. Phase IV: Construction, Testing, and Assessment – Naknek -G #3. The Southwest Alaska Regional Geothermal Energy Project has drilled Naknek -G#1 to depth and is ready to begin assessing its geothermal fluid production characteristics. Drilling Naknek -G #2 is scheduled to begin in October 2010 and completed before the end of the year. After Naknek -G #2 has been drilled and the capacity for geothermal fluid production for electric and h eat energy generation is thoroughly understood NEA will contract for design, permitting, and constructi on of a modular generation facility . In addition to traditional Figure 2 Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 5 of 21 7/21/2010 geologic and geophysical logging in the Naknek wells includes a logical and well -considered set of activities undertaken during and after drilling that will serve to characterize the reservoir and communication between the first two wells in the production field. Naknek-G #3 drilling tasks are scheduled to begin September 2011, and the costs of achieving its drilling (construction), testing and evaluation objectives are the substance of NEA’s request for REFGP Round IV funding. Preliminary results support temperatures and flow adequate for the production of electricity. Well field construct ion including production and injection wells will continue until required MW capacity is met. 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, et c.) Overall Project Benefit: NEA is a member-owned cooperative that provides rate based electricity to the communities of the Bristol Bay Borough, including Naknek, South Naknek, and King Salmon . These communities are a business and industrial hub for A laska’s Bristol Bay region. This project will decrease and stabilize energy costs, benefiting the public sector (e.g., schools, municipalities, and utilities) and the private sector (e.g., industry and private energy users). By decreasing and stabilizing energy costs, the project would foster economic development in the region, particularly in the main industries of fishing and resource extraction. Tourism and service section employment opportunities will likely grow because the funds that currently are dedicated to heat and electricity generation would be available for development of other projects. The project will increase economies of scale and has the potential to replace not displace the use of No.1 and No.2 diesel fuel, approximately 5.5 million gallons current requirement of the ten target communities. Phased energy infrastructure has the potential to save target communities $23.2 million annually and dramatically reduce costly and potentially hazardous transportation of fossil fuels along habitat sensitive waterways in Bristol Bay, home of the world’s largest wild salmon runs. NEA is working with the Alaska Department of Labor and Workforce Development and Southwest Alaska Vocational Education Center in King Salmon, Alaska to deliver proposed ri g technician apprenticeship training. FY2010 and FY2011 training grant negotiations will provide approximately $250,000 for related technical instruction and on-the-job workforce training with geothermal drilling emphasis that is portable to the oil and gas industry. The project is creating thirty five (35) locally-based, full-time jobs to drill, stimulate and prepare three geothermal wells for production and another 40 temporary positions filled through subcontractors . State and federal governments are looking forward to a changed economy based on the concept of “New Energy”. American Recovery and Reinvestment funding is being flanked by additional public investment in infrastructure upgrade and construction. Beyond the immediate benefits of lower a nd stably priced geothermal energy development in the region t here will be sustained job creation and retention, apprenticeship training opportunities, and career path awareness in the renewable energy sector. Additional value lies in local project demons tration, technology transfer and applicability to other potential geothermal sites in the region. NEA’s greenfield project envisions a long-term stable source of electricity and is working with state and federal agencies to demonstrate geothermal technolo gies using indigenous resources, natural and human, in a region poised for major resource development. 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. Approximately $10 million is required to drill the third geothermal well, Naknek -G #3. The US Department of Energy, is contributing $5 million cost -share toward the drilling, testing, and assessment of Naknek -G #3 through a competitive award for EGS demonstration. We are asking the state to help advance this project with a $4 million match. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 6 of 21 7/21/2010 Project Resources Cost-Share US Department of Energy / NEA 5,624,000 Renewable Energy Fund Grant Program Funding Request 4,000,000 TOTAL 9,624,000 Project Costs Costs Phase IV: Well Construction, Testing and Assessment of Naknek -G #3 9,624,000 TOTAL 9,624,000 Project Costs & Benefits (Summary of total project costs including work to date and future cost estimate s to get to a fully operational project) 2.7.4 Total Project Cost (Summary from Cost Worksheet including estimates through construction) $160,830,500 2.7.5 Estimated Direct Financial Benefit (Savings) $23,234,046 Annually 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.) $ 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. NEA’s team has experience in Alaska project management, permitting, geological exploration, and geothermal development with significant EGS experience. Both the drilling program and the team demonstrat e a clear understanding of the hurdles t o geothermal development and how to overcome them in an expedient way. Donna Vukich, General Manager of Naknek Electric Association, will manage this project with assistance from geothermal project personnel of Alaska Earth Sciences in Anchorage , and a Company Man, experienced in geothermal exploration, who will oversee drilling operations on site. NEA’s General Manager Donna Vukich will also serve as the principal investigator. Ms. Vukich has twenty (20) years of experience managing a small utility that each year experiences a highly variable load related to Bristol Bay’s wild salmon industry . During the peak season the population and energy demand in the area increases by a factor of 5. Technical Partners •Alaska Earth Sciences •Baker Hughes •Castle Mountain Group •GeothermEx Management recognizes the importance of competent project management and has worked with a team of technical consultants to procure engineering, construction, and equipment services and contracts. They are working with managem ent to insure that permitting and construction work meet regulatory requirements in order to keep the project moving forward without costly delays. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 7 of 21 7/21/2010 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.) February 15 – March 31, 2011 - Design of well G-3. In accordance with the target selection and analyses of data from G-1 and G-2, a well design will be prepared. March 1 – April 30, 2011 - Permitting and procurement for well G -3. The drilling program and associated documents will be submitted for permitting by AOGCC. The required services will be contracted, and all needed equipment and supplies will be mobilized to the site. May 1 – 31, 2011 - Prepare Drilling Pad for Drilling Well G -3. The existing well pad, measuring approximately 300 ft x 300 ft will be extended and modified to accommodate the new well G -3, which will be located at a distance of about 60 feet away from G -2. G-3 will be directionally drilled to the specified target. Skid Drilling Equipment to Well G-3 Location. The drilling rig and supporting equipment will be moved to the location of well G-3. June 1 – September 15, 2011 - Drill Well G-3. This well is designed to reach drilling depths on the order of 8,000 – 14,000 ft, which will be conducted in several stages of different diameters so that the maximum open-hole section will not exceed 5,000 feet at any given interval. This design will allow the well to be dril led faster and safely in the presence of severe losses of circulation. The upper portion of the hole will be completed with casing diameters that will minimize pressure losses due to friction during fluid production. September 5 – 30, 2011 - Collect and Analyze G-3 Logging Data – Evaluate the suite of logs collected in G-3 including petrologic/mineralogic analyses of cuttings in order to construct a velocity model, estimate rock strength, and determine the magnitude of the vertical stress. If required, run additional geophysical logs to determine fracture characterization, understand formation properties, and deduce the orientation of the stress field. September 15 – October 31, 2011 – Flow Testing and Evaluation of Well G-3. Once completed, well G- 3 will undergo a series of production tests, including temperature and pressure logs to evaluate its potential for commercial production of geothermal fluids. November 1 -- 10 - Install Permanent Wellhead Equipment on Well G -3. Permanent valve equipment (Christmas tree) will be installed to properly and successfully complete G -3. 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.) Well Design April 1, 2011 Permitting and Procurement May 1, 2011 Prepare Drill Pad and Move Rig to G-3 Location June 1, 2011 Drill Geothermal Well G-3 September 15, 2011 Collect & Analyze Logging Data October 1, 2011 Flow Testing and Evaluation of Well G -3 November 1, 2011 Install Permanent Wellhead Equipment November 15, 2011 Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 8 of 21 7/21/2010 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. The well will be designed by Eduardo Granados of GeothermEx, a leading geothermal expl oration and development firm based in Richmond, California. Mr. Granados has been involved in the development of Naknek Wells G-1 and G-2. Permitting will be handled by Castle Mountain Group, which has extensive experience in permitting drilling operations in Alaska. Procurement will be accomplished by NEA Geothermal LLC personnel. Preparation of the drill pad for G-3 and moving of the rig to the new location will be performed by NEA Geothermal LLC in collaboration with Southwest Alaska Contractors, whi ch is based in Naknek, and Weaver Brothers of Kenai. The drilling of G-3 will be done by NEA Geothermal LLC with support from the following contractors who have been selected by competitive bids for the drilling of G -1 and G-2, and who have proven to be reliable in delivering quality and high-value services: Alaska Earth Sciences - Geological Services Baker Hughes/Inteq - Directional Drilling Services Baker Hughes - Oilfield Tools for Fishing Services Baker Atlas - Electronic Logging Services Baker Hughes - Drilling Fluids Baker Christensen - Drill Bits. BJ Services - Cementing Services Centrifuge Services - Solids Control Chancellor Oil Tool - Liner Hanging and Cementing Assemblies. DHI Services - Mud Logging. NEA Geothermal LLC - Comprehensive Drilling Contracting Services. Weatherford - Rental of Drilling Equipment and Blowout Prevention Equipment. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 9 of 21 7/21/2010 3.6 Project Risk Discuss potential problems and how you would address them. Funding Support: Nationally, the negative spin on “Pork Barrel” funding may cripple successful investment in many projects that are in the public’s best interest. Congressionally designated projects are sighted by those against earmarking as a fraudulent use of federal funds. The Southwest Alaska Regional Geothermal Energy Project is a congressionally designated proj ect slated to receive $3 million specifically for drilling a deep confirmation well. Funding for the project may be at risk because of the popular attitude toward “pork”. The upside, renewable energy projects have considerable public support and the mand ates for deep drilling technology research and development are clearly evident in DOE funding. Estimated Cost Overruns: Cost overruns are pandemic in grant funded projects. Project management experience and commitment to cost control are evident in N EA’s ability to provide quality electric service at the lowest price consistent with sound management. NEA’s financial management is note worthy in its commitment to reduce spending and aggressively seek additional load which recently minimized the effect s of a fisheries related economic downturn in the region. Project management has decades of experience with RUS borrower compliance requirements , and government standard accounting and reporting practices and consistently receives unqualified opinions from auditors. The use of standard accounting procedures and record keeping and reporting, diligent project monitoring and informed decision making will help prevent unnecessary cost overruns. Permitting and Environmental Regulations: NEA has preliminary site control through ownership of the project site and approved access easements. A deep drilling permit is being sought through the Department of Natural Resources Oil and Gas Division. Management recognizes the importance of permitting and regulatory c ompliance in keeping the project moving forward and mitigating any circumstances that result in costly delays. Development of a road map and schedule for site development, well and generation facility construction, and interconnection infrastructure environmental and ROW permitting, and all other regulatory compliance requirements will be contractual and overseen by project management and corporate counsel. Capital Equipment, Drilling Management and Material Acquisition: Drilling equipment availability , and equipment leasing could pose significant risks due to increased demand on capital equipment , materials (especially pipe), and labor because of oil, gas and geothermal exploration projects. Cooperative agreements between the state and the oil and gas industry could significantly decrease the risk. Project Delays in Material and Capital Equipment Delivery: Individuals and organization doing business in remote Alaska anticipate delays due to weather and transportation. Project management has experi ence and established working relationships with utility industry vendors, barge service operators and local transportation companies, and is proactively seeking cost saving freight rates for equipment and materials. Interconnection ROW Permitting and Construction: Unanticipated delays in project completion caused by permitting and access could postpone the delivery of affordable energy and magnify the problem in the region poses great risk. Hiring a consultant to handle permitting processes is worth th e investment. Developing a road map, schedule and plan that maintains project momentum is essential. Cooperation and open communication between local, state, federal, private and native land owners, permitting agencies and project management regarding ROW’s and transmission corridors was established in Phase III and will continue through all remaining phases of the project. 3.5 Project Communications Discuss how you plan to monitor the project and keep the Authority informed of the status. Ms. Vukich’s management experience at NEA, regional involvement and electric industry decision making at state and federal levels is evidence of oversight and communication skills necessary to bring the project online and within budget. Naknek Electric Association, Inc. and NEA Geotherm al LLC organizational charts are included in Section 9. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 10 of 21 7/21/2010 Reservoir Characteristics: Geothermal energy development through the resource confirmation phase is high risk. Based on res ource characteristics generation design can mitigate some of the risks associated with less than optimal resource temperatures, chemical composition, permeability and flow rates, but not all. The development of new technology is in high gear to utilize th e natural heat of the earth in efficient and cost effective ways. Enhanced geothermal system technology development is one example. The only way to know the characteristics of the reservoir is to confirm and qualify the resource with a deep drill program that applies appropriate engineering and technology for cost effective development. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 11 of 21 7/21/2010 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. Over the past ten years NEA board and management has researched alternative energy sources with potential for development in the region. Reliable and firm electric generation was the foremost criteria. Wind energy was considered but preliminary studies determined that the greatest wi nd resource was available during the winter months when demand was at its lowest. Wind energy is not firm and requires 100% back-up to meet load requirements. Processors would take on the risks of self generating if NEA failed to provide reliable electric service during t he peak of the Bristol Bay wild salmon harvest when they are going full speed and demand is high. Currently, the extent of geothermal energy potential on Pike’s Ridge is not fully understood. Only after the construction, testing and assessment of Naknek -G #2 and Naknek -G #3 will project management and consultants have enough data to design a generation facility. The region has various alternative energy options with some developers receiving public funding for project s. Successful projects resulting in renewable energy generation will have the opti on of putting excess generation on the distribution intertie system for utilization somewhere else along the intertie. NEA’s proposed project, including the intertie is a win -win for renewable energy especially with federal mandates for a renewable energy economy and infrastructure maintenance and construction, and a budget to make a difference. One of the most promising aspects of renewable energy development is DOE investment in geot hermal technologies, especially EGS, where public funds are being expended to define and commercialize low cost exploitation techniques and equipment that will enhance and expedite the utilization of hot rock reservoirs for clean energy power generation that will help displace coal. NEA’s project has been awarded a $12.3 million competitive award to implement an EGS demonstration project on Pike’s Ridge. 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. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 12 of 21 7/21/2010 Project management looked at the ten (10) communities that will be linked with first intertie build-out . Thos e ten communities provide a snapshot of the region where greater than 95% of all electric generation and home heating requirement s are met with diesel fuels . Diesel generators in the region range in age from new to old. NEA’s White Superior engines are 3 4 years old and are among the oldest on-line. Snapshot: Electric Rates: .46/kWh - .89/kWh Electric generation fuel costs: $3.61 - $5.09/gal Home heating fuel costs: $4.61 - $6.09 /gal Efficiency of diesel stand-alone generation ranges from 10.65 kWh/gal - 14.58 kWh/gal Combined annual fuel purchases for electric generation: 3,109,401 gallons Combined annual fuel purchases for home heating: 2,390,584 gallons Total: 5,400,985 gallons fossil fuel delivered Annual fuel c os ts for electric generation: $11,472,373 Annual fuel c ost for home heating : $11,761,673 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. Regional baseload electric generation, heating and transportation energy requirements are fueled with diesel and gasoline. Grant assisted new energy infrastructure development will help make the near-term transition to a renewable energy future possible. Yes, the region is highly invested in diesel generation , diesel fired home heating systems, and a petroleum fueled transportation system, but many small stand - alone diesel generation facilities are unable to bear the costs of fuel and are perceived as a liability to the state. Concerns in the region about energy costs, the environment , and the political attitude toward climate change are making renewal energy development necessary and desirable. The region has wind, tidal, hydro and geothermal energy potential that is virtually untapped because of intense upfront capital costs . Financial assistance for more stand-alone energy infrastructure will not solve the problem . NEA’s Southwest Alaska Regional Geothermal Energy Project will not only develop the geothermal resource at Pike’s Ridge but will push forward a distribution intertie that will link the region’s renewable energy projects and increase economy of scale that will ultimately reduce energy costs . The Renewable Energy Grant Fund Program is a step in the right direction and must be followed by sustained commitment to the idea of affordable, indigenous renewable energy for off-the-grid communities. 4.2.3 Existing Energy Market Discus s existing energy use and its market. Discuss impacts your project may have on energy customers. Energy c osts in Southwest Alaska are high by any standard. Southwest Alaska communities are in trouble. Volatile fossil fuel prices are destabilizing rura l populations and as a result, village life and culture are in decline. Schools are closing, businesses are failing and residents are moving to larger hubs and cities increasing demand on resources already struggling to keep up with population increases. Lowering and stabilizing the cost of energy will radically improve local economies, enhance resource development, expand employment opportunities and stem outmigration. Regionally, significant returns are anticipated from quality enhancement and local va lue-added manufacturing in the seafood industry. Project management knows the value of the watershed in Bristol Bay where record harvests and increased ex -vessel prices in Bristol Bay’s sustainable wild salmon fishery have mitigated high energy costs. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 13 of 21 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 syste m:  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 Overall Proposed System: Overall, the Southwest Alaska Regional Geothermal Energy Project is a multi - stage development project. Well construction, testing and assessment through Naknek -G #3 will move the project into generation facility design and construction of an electric generation and direct use system. The project will be the first utility -grade geothermal development in Alaska. NEA owns the land, has documented access to the site and has full site control with exploration drilling and site development permits , and an Environmental Assessment (EA ) which resulted in a Finding of No Significant Impact. The surface acreage surrounding the NEA parcel is owned by Paug -Vik Inc., Ltd., a village corporation with subsurface rights retained by Bristol Bay Native Corporation. NE A has a 100-ft easement to access the site with a road and utility corridor. Bristol Bay Borough and the State of Alaska have no jurisdiction over the land or the geothermal resource. Most of the land in the Bristol Bay Borough is Native-owned. Overall project design will include multiple stages of development corresponding to total geothermal potential and the potential for expansion. The project, when all phases are complete will include the following components: Overall Project Components:  Geothermal brine production wells and gathering field and injection wells  25 MW binary generation facility scaling up to 50 MW capacity over time with growth  50,000,000 kWh generation annually with growth to 75,000,000 kWh in 2 years  Phased construction of 34.5 KV distribution intertie linking stand-alone G & D systems  Initial Load: 18 MW with full potential to use 25 MW within two years and 50 MW with growth  50% capacity factor with geothermal generation  100% capacity factor with hydrogen production  Hydrogen production and storage facility Overall Project Benefits:  Dramatic drop in the cost of power production, estimated to decrease 70%  Cleaner energy with negligible emissions for reduced environmental liability and costs  E limination of 3.1 million gallons of diesel fuel for electric generation = $11,472,373 With cost -effective energy , on-shore processors have indicated that local secondary manufacturing processes are feasible; growth in that direction is visible despite high energy costs. Stable and affordable energy costs will allow affordable icing infrastructure and cold storage options for large and small seafood processors for improved quality and price. Although the project’s focus is to bring geothermal energy online in the region, natural resources, geology, proximity to international shipping l anes and the region’s emerging role in the international rush for control and exploitation of Arctic resources make Southwest Alaska an attractive region for geothermal development and infrastructure funding and financing. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 14 of 21 7/21/2010  Potential elimination of an additional 2.4 million gallons of diesel for home heating = $11,761,673  Long-term firm and reliable energy base for economic development for rural sustainability Barriers:  High upfront costs and overall high costs of infrastructure development in remote area  Project financing  Acquisition of private, state and federal ROW for distribution intertie  Permitting and ROW access delays The purpose of this proposal is to secure cost-share with REFGP funds to construct, test and assess Naknek-G #3 for geothermal fluid production and electric and direct use capacity. Phase IV: Construction, Testing and Assessment of N aknek -G #3 NEA plans to drill Naknek -G #3 NEA Rig 7. A pile driver will be used to install the 76-cm (30-inch) conductor pipe to an approximate depth of 30.5 m (100 ft). Blow-out prevention equipment will be in use on the well at all times, and all casing would be cemented back to the surface, isolating fresh -water aquifers from contact with the activities and fluids in the wellbore. Naknek -G #3 will be a deviated well reaching a maximum total vertical depth of approximately 3,658 m (12,000 ft). The surface collar will be located approximately 18.3 m (60 ft) from both Naknek-G #1 and Naknek -G #2 well collars and will deviate to an angle and depth determined by the results and analysis of Naknek -G #2. The well will be cased to a depth of 2,438 m (8,000 ft) and cemented to the surface. Hung casing strings will be cemented throughout the liner lap. W ell design will completely isolate geothermal and drilling fluids from contaminating fresh-water aquifers. The well installation process will be guided by a steering system to drill the borehole within permitted property boundaries. The well will be drilled to a depth sufficient to allow for evaluation of reservoir conditions. The present casing design calls for the well to be drilled in several stages of different diameters, so that the open-hole interval will not ex ceed 1,500 m (5,000 ft) at any stage of drilling. This design will allow the well to be drilled more quickly and more safely in the presence of any severe losses of circulation or unstable formations; the upper portion of the hole will still be completed with a large enough casing diameter to minimize pressure losses due to friction during production. The larger diameter completion in the upper portion of the well will also allow a large, shaft -driven pump to be installed, in the event that it is desirable to produce the well by pumping. Naknek -G #3 - Well Completion • The completed well will include installation of the following: • 76-cm (30-inch) conductor pipe driven to 30 m (100 ft) • 51-cm (20-inch) surface casing at 122–213 m (400–700 ft) • 33.7-cm (13 3/8-inch) casing cemented to surface inside a 44.5-cm (17 ½-inch) hole at 900 m (3,000 ft) • 24.5-cm (9 5/8-inch) casing hung inside the 33.7-cm (13 3/8-inch) casing with a 900-m (300-ft) liner tap and cemented inside a 31.1-cm (12 ¼-inch) hole from 800–2,400 m (2,700–8,000 ft) • 19.5-cm (7 5/8-inch) combination of slotted and blank liner, hung inside the 24.5 -cm (9 5/8-inch) • casing with a 30-m (100-ft) lap to total depth • 21.6-cm (8 ½-inch) open hole drilled to 3,700 m (12,000 ft) Naknek -G #3 - W ell Head Design • 30.5-cm (12-inch) master valve • 34.6-cm by 30.5-cm (13 5/8-inch by 12-inch) expansion spool • 33.7-cm by 34.6-cm (13 3/8-inch by 13 5/8-inch) casing head Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 15 of 21 7/21/2010 Naknek -G #3 - Well Testing and Logging After well completion, Naknek -G #3 will be tested to evaluate geothermal reservoir characteristics. Typically, the geothermal fluids are pumped from the well through on -site test equipment, including standard flow metering, recording, and sampling apparatus, to determine flow characteristics. The pressure and temperat ure at various depths in the wellbore would also be analyzed to determine whether the geothermal resource is sufficient for electricity generation. Additionally, core samples and wellbore logs will be analyzed to characterize the reservoir by mapping open/flowing zones and measuring the permeability within these zones. 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. NEA owns the land on Pike’s Ridge and is granted access through ownership. A copy of the property deed and is included in Section 9. 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  Project Coastal Consistency Determination, Alaska Department of Natural Resources, Division of Coastal and Ocean Management - Documents submitted to DCOM on 22 May 09, commencing 60 day review period clock  Permit to Drill a Geothermal Exploration Well, Alaska Department of Natural Resources  Inert Waste Monofill Permit, Alaska Department of Environmental Conservation  Temporary Water Use Permit, Alaska Department of Natural Resources, Division of Water Resources  Temporary Storage Plan Approval, Alaska Department of Environmental Conservation  EPA Class I Non-Hazardous Industrial Disposal Well UIC Permit, EPA Region 10  Individual State Disposal Permit (concurrent with EPA Class I Permit), Alaska Department of Environmental Conservation  Notice of Intent to Operate under Construction General Permit 2008, EPA Region 10 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 Please refer to the copies of the Environment Assessment (EA) and Finding of No Significant Impact (FONSI) in Section 9. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 16 of 21 7/21/2010 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 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 c apital cost of proposed renewable energy system  Projected development cost of proposed renewable energy system Southwest Alaska Regional Geothermal Energy Project – Phased Development Project Resources Cost Share Enhanced Geothermal Systems Demonstration United States Department of Energy - Golden Field Office 12,376,568 Congressionally Directed Project - 2009 Water and Energy Bill United States Department of Energy - Golden Field Office 2,854,500 Congressionally Directed Projec t - 2010 Water and Energy Bill United States Department of Energy - Golden Field Office 2,500,000 Renewable Energy Fund Grant Program IV - Request 4,000,000 NEA Geothermal LLC – Rig #7 and Labor In-Kind 4,100,000 Naknek Electric Association, Inc. 15,000,000 TOTAL $40,831,068 Project Costs Costs Phase III: Final Design and Permitting Construction Resource Assessment - Permitting - EGS Testing Phase IV: Construction, Commissioning, Operation, Reporting 40,831,068 Generation Facility - District Heating System 60,000,000 Phase V: Distribution Intertie - Phase I – 236 miles 60,000,000 TOTAL $160,830,500 Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 17 of 21 7/21/2010 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.) NEA is proposing REFGP project funding for Phase IV: Construction, Testing and Assessment of Naknek-G #3, one of the planned objectives in constructing a multi -well production field and gathering system for the Southwest Alaska Regional Geothermal Energy Project . The viability of geothermal resources in the proposed project area will ultimately determine the project’s operational plan; the results from drilling the first exploratory well, Naknek -G #1, will narrow the engineering scope and may determine what type of geothermal system exists. It is not known whether a conventional geothermal system exists or whether the geothermal resource requires enhancement to develop a geothermal system or maximize resource potential. Naknek -G #1 testing results will indicate t he reservoir type and provide initial hydrologic data. These test findings will assist in planning the production and operational phase of this project . O & M costs are considered the same as for a diesel system. 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 The project will s upply wholesale electricity for distribution on existing systems for the cost -of-power plus the cost of distribution. All wholesale power sales agreements will follow this model. The goal is to lower the cost of power to consumers, utilizing existing dis tribution systems owned by stand-alone cooperatives in the region. 4.4.4 Project Cost Worksheet Complete the cost worksheet form which provides summary information that will be considered in evaluating the project. Please refer to the Project Cos t/Benefit Worksheet included in Section 9. 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 Should drilling of geothermal wells G2 and G3 result in successful energy prospects, the long -term Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 18 of 21 7/21/2010 socioeconomic effect would result in power delivery to Bristol Bay Borough communities at a greatly reduced rate. The proposed project coul d result in a reduced cost for residential consumers of an estimated $35.30 to $58.85 per month. Commercial, state, and federal consumers, as well as public schools, can expect to see a reduction in monthly costs of between $111.40 and $137.90 per 500 k Wh used. Long-term effects are expected to be positive. The operation of the Southwest Alaska Regional Geothermal Energy Project would result in the closure of the existing NEA diesel -fired generation facility and reduction of 1.5 million gallons of diesel fuel currently used to generate power for the NEA service area. This would result in the reduction of 33.3 million pounds of GHGs, primarily carbon dioxide, not entering the atmosphere. Local Bristol Bay Borough residents, of whom 18 are Native Alaskans , were employed during the peak employment period in November 2009. Local vendors, including hotel, food service, and hardware suppliers, have benefited from spending to support past and ongoing project activities. Construction activities are likely to employ a significant number of local residents, including Native Alaskans. Upon completion of the project, the availability of lower-cost electricity to the region will benefit residents by increasing their disposable income, thereby improving their quality of life, and would benefit local businesses by freeing up more capital. 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 t hat 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 The Southwest Alaska Regional Geothermal Project will be owned and operated by NEA. NEA is incorporated as a not -for-profit 501 (C) (12) cooperative and employs the cooperative business model to provide its members with reliable electric energy at the lowest possible cost consistent with sound business practices. This business model returns excess margins to its members on a patronage bases. Net margins above expenses belong to consumer members and may be allocated for distribution or retained as working capital to expand, improve or maintain operations. Short -term gains are not the focus in a cooperative business model but rather the creation of long -t erm value and sustainability for consumer members. NEA is an efficiently run electric utility and has a proven record with RUS. In over 48 years of operation debt service expenses have not posed difficulty. Since 1960 most capital improvements were financed with member money. NEA will apply the cooperative business model and all audit, regulatory and reporting for grants, financing and contractual agreements will be accomplished according to the participating agency guidelines and NEA management standar ds. In the long-term, building locally produced renewable energy electric generation and distribution infrastructure will bring security and sustainability to the region. Energy Resource Economics is working with project management to develop a business plan. Southwest Alaska is poised both geographically and geologically for major economic productivity. Transforming strategic natural resources like seafood, oil, gas and minerals, into globally viable market commodities will provide economic benefit t o the region, state and the nation. Government renewable energy systems investments supporting natural resource development is important for long -term rural sustainability and independence. By whom and for whom these resources are developed is a question that needs to be addressed by all participants. The development of low -cost renewable energy for seafood processing and cold storage will bring sustainable economic benefits to the region. As a result of resource availability, geography, potential strat egic oil, gas and mineral value-added manufacturing such as refining, smelting, cold storage, and transportation and service sector growth local economies will stabilize and diversify. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 19 of 21 7/21/2010 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. The NEA Southwest Alaska Regional Geothermal Energy Project is underway and is preparing to test and assess Naknek -G #1 and installed the conductor for Naknek -G #2. As part of this project, the following activities have been performed and infrastructure has been developed: • NEPA requirements for an EA have been satisfied and a FONSI issued • An EE for the proposed first buildout of the distribution intertie has been completed • A 2.9-km (1.8-mi) long gravel road from Lake Camp Road to the project site has been constructed • Two gravel pads, each approximately 91 m by 107 m (300 ft by 350 ft) have been constructed • A laydown and storage area has been developed on the southern gravel pad • Three containment areas for waste have been developed: an inert monofill, a drilling waste monofill and a temporary waste storage area • A small pond has been developed and permitted as a water source, with a permitted withdrawal rate of up to 12 million gallons over a 2-year period • A project office and work area supplied with electricity, heat, and other necessary facilities have been established to support drilling efforts 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 . Everyone in the region is affected by high cost energy; they are concerned about rural sustainability and independence, and are searching for sustainable alternatives. They support their development but without public fund support, they balk at the prospect of even higher energy costs to cover debt service . The required high front end capital project costs are limiting renewable energy development. Long-term financing and one-time grants for equipment purchases and construction projects is necessary. Southwest Alaska Regional Geothermal Energy Project goals are supported by native organization representing villages, and borough governing boards. Letters of Support are included in Section 9. Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 20 of 21 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 Phase IV: Construction, Testing, and Assessment – Naknek-G #3 Milestone or Task TOTALS Well Design $24,000 Permitting and Procurement $50,000 Prepare Drill Pad and Move Rig to G -3 Location $250,000 Drill Geothermal Well G-3 $8,000,000 Collect & Analyze Logging Data $1,000,000 Flow Testing and Evaluation of Well G-3 $250,000 Install Permanent Wellhead Equipment $50,000 TOTAL $9,624,000 Renewable Energy Fund Grant Application Round IV AEA11-005 Grant Application Page 21 of 21 7/21/2010 SECTION 9 – ADDITIONAL DOCUMENTATION AND CERTIFICATION SUBMIT THE FOLLOWING DOCUMENTS WITH YOUR APPLICATION: A. Contact information, resumes of Applicant’s Project Manager, key staff, partners, consultants, and suppliers per application form Section 3.1 and 3.4. B. Cost Worksheet per application form Sectio n 4.4.4. C. Grant Budget Form per application form Section 9. D. Letters demonstrating local support per application form Section 8. E. An electronic version of the entire application on CD per RFA Section 1.6 . F. Authorized Signers Form. G. Gove rning Body Resolution or other formal action taken by the applicant’s governing body or management per RFA Section 1.4 that: - Commits the organization to provide the matching resources for project at the match amounts indicated in the application. - Authorizes the individual who signs the application has the authority to commit the organization to the obligations under the grant. - Provides as point of contact to represent the applicant for purposes of this application. - Certifies the applicant is in compliance with applicable federal, state, and local, laws including existing credit and federal tax obligations. H. CERTIFICATION The undersigned certifies that this application for a renewable energy grant is truthful and correct, and that the applicant is in compliance with, and will continue to comply with, all federal and state laws including existing credit and federal tax obligations. Print Name Donna Vukich Signature Title NEA General Manager – Geothermal Project Manager Date September 13, 2010