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HomeMy WebLinkAboutAnchorage geothermal district heating Grant Application ICELAND AMERICA ENERGY, INC. Response to the Alaska Energy Authority Request for Grant Applications Pursuant to the Renewable Energy Fund Grant Recommendation Program Round III Contact: Paul E. Wilson Chief Executive Officer Iceland America Energy, Inc., a California corporation 707 Wilshire Boulevard Suite 4500 Los Angeles, California 90017 (213) 683-1700 Office (213) 943-6170 Fax paulw@icelandamericaenergy.com Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 2 10/7/2009 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-III.html Grant Application Form GrantApp3.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 Costworksheet3 .doc Summary of Cost information that should be addressed by applicants in preparing their application. Grant Budget Form GrantBudget3.d oc 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 GrantBudgetInst ructions3.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 3 AEA10-015 Grant Application Page 3 10/7/2009 SECTION 1 – APPLICANT INFORMATION Name (Name of utility, IPP, or government entity submitting proposal) Iceland America Energy, Inc. Type of Entity: Independent Power Producer Mailing Address 707 Wilshire Blvd, Suite 4500 Los Angeles, CA 90017 Physical Address 707 Wilshire Blvd, Suite 4500 Los Angeles, CA 90017 Telephone (213) 683-1700 Fax (213) 943-6170 Email iae@icelandamericaenergy.com 1.1 APPLICANT POINT OF CONTACT Name Stephen Johnson Title Project Manager Mailing Address 707 Wilshire Blvd, Suite 4500, Los Angeles, CA 90017 Telephone (213) 683-1700 Fax (213) 943-6170 Email stevej@icelandamericaenergy.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); 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 3 AEA10-015 Grant Application Page 4 10/7/2009 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) The Anchorage geothermal district heating 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. Anchorage, Alaska 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) X Reconnaissance Design and Permitting Feasibility Construction and Commissioning Conceptual Design 2.4 PROJECT DESCRIPTION Provide a brief one paragraph description of your proposed project. IAE proposes to develop the Anchorage geothermal district heating project. The reconnaissance study will be followed by a more detailed pre-feasibility study. The purpose of this additional step will be to conduct a more comprehensive field exploration and evaluation of potential geothermal resources that could supply the heat for the Anchorage project. IAE has signed a Memorandum of Understanding with the Municipality of Anchorage to facilitate these studies. The Municipality of Anchorage has agreed to support the pre-feasibility study efforts by providing to IAE information about the potential for geothermal energy use in Anchorage as well as right-of-way information. If the results of the pre-feasibility study prove to be positive for development, IAE will work towards developing the Anchorage district heating project. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 5 10/7/2009 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.) A geothermal district heating project in Anchorage would provide multiple benefits to the Anchorage community, and, in so doing, to the State of Alaska. By developing a geothermal district heating system in Anchorage the cost of future thermal power will no longer be dependent on the instability of future fossil fuel prices, but instead will be based on an environmentally sound, reliable, long-term renewable source of thermal energy. With the rising costs of fossil fuels, and the accompanying detrimental effects of greenhouse gasses, which effects are amplified in Northern climates, this will be an important benefit to the people of Anchorage. The district heating system will reduce current natural gas emissions and will promote and enhance development of renewable energy projects in Alaska. It will also foster a partnership between private industry and local governments. The reconnaissance study will assess the viability of a geothermal district heating project in Anchorage and the potential economic benefits to consumers in the community. 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. IAE estimates that the following funds will be needed to complete Phases I and II of the Anchorage geothermal district heating project: Phase I – Reconnaissance Study: $212,700 Phase II – Pre-Feasibility Study: $441,500 Phases I and II are estimated to cost a total of $654,200. This amount includes geoscientific, market and economic studies that are needed to determine whether a geothermal district heating system is feasible in Anchorage. IAE would supply 40% of the funding with the remaining 60% coming from the State of Alaska. Upon completion of Phases I and II, a decision will be made whether to proceed with a full feasibility study for the project. Assuming Phases I and II support such a study, IAE estimates the cost of the full feasibility study to range from $7.5 to $8.5 million. The total cost through construction for the system is estimated at $1,070,000,000. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 6 10/7/2009 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. $392,520 2.7.2 Other Funds to be provided (Project match) $261,680 2.7.3 Total Grant Costs (sum of 2.7.1 and 2.7.2) $654,200 Project Costs & Benefits (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 Costs (Summary from Cost Worksheet including estimates through construction) $1,070,000 2.7.5 Estimated Direct Financial Benefit (Savings) TBD 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.) TBD 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 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. Mr. Stephen Johnson will be the Project Manager for the Anchorage district heating project. Mr. Johnson has extensive resource exploration, development and operation experience in the geothermal industry having worked on most of the geothermal resources throughout California and Nevada. He brings to bear an in-depth understanding of geothermal reservoir and drilling theory and practice along with a diverse background of project management to the IAE team. Mr. Johnson has B.Sc. and M.Sc. degrees in Petroleum Engineering from Stanford University and an MBA from the University of Nevada, Reno. He is also a registered Petroleum Engineer in the states of California and Nevada. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 7 10/7/2009 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.) Figure 1 Timeline for Anchorage Geothermal Eistrict Heating System Phase I & I Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 8 10/7/2009 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.) Phase I - Reconnaissance Study: October 5, 2010 to August 30, 2011.  Collection and evaluation of geoscientific data: October 5, 2010 – January 13, 2011  Collection and evaluation of market data: October 5, 2010 – December 14, 2010  Final evaluation, report and detailed recommendations for pre-feasibility study: January 17, 2011 – April 22, 2011 Phase II – Pre-Feasibility Study: June 13, 2011 to December 18, 2011  Detailed geoscientific field surveys: June 13, 2011 – September 16, 2011  Data integration and survey evaluation: September 19, 2011 – November 4, 2011  Final evaluation and recommendation for next steps to be completed: December 18, 2011 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 project management will be conducted via a typical project structure. A steering committee will oversee the project, and will consist of a member of IAE’s management, geothermal experts and the Project Manager. The Project Manager will be in charge of all day-to-day project activities. The Project Manager will avail himself of the support of IAE’s CEO and CTO, and their respective departments. It is expected that the design and procurement activities will largely be in the hands of technical consultants in Iceland and Alaska. Once the project is underway a sit e engineer will be hired to handle all on-site operations. Project Steering Committee Project Manager Geoscience, Drilling & Reservoir Engineering Heat Balance Calc, Engineering & Procurement HV, Control & IT Engineering & Procurement Architectural Design Site Engineer Civil Design CEO CTO Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 9 10/7/2009 Figure 2 Project Management Structure IAE has executed a Memorandum of Understanding with the Municipality of Anchorage to assess the feasibility of using geothermal energy in the city. This cooperative relationship will facilitate data collection and will provide to IAE essential local knowledge of the city’s current infrastructure. IAE will also work with the Alaska Center for Energy and Power (ACEP) at the University of Alaska to develop this project. ACEP is dedicated to applied energy research and is focused on lowering the cost of energy throughout Alaska and developing economic opportunities for the State, its residents, and its industries. Their services will be very valuable in assessing the feasibility of a geothermal district heating system in Anchorage. Along with its Alaska partners IAE intends to use its current group of consultants which includes, but is not limited to, Geothermex, EMA, Icelandic Geosurvey, Verkis, Thermasource and Dongell, Lawrence, Finney. 3.5 Project Communications Discuss how you plan to monitor the project and keep the Authority informed of the status. The Project Manager will be the point of contact between IAE and the Alaska Energy Authority (“AEA”). This will establish a clear path of communication between the two entities. A clearly defined path of communication will facilitate a common understanding of the project and its status between IAE and the Authority. On February 15, 2011 IAE will provide to the AEA a progress report on the reconnaissance study. At the end of Phase I a final Reconnaissance Report will be submitted to AEA no later than two months after the reconnaissance geological and geochemical survey is completed on May 30, 2011. Depending on the recommendations contained in the final Reconnaissance Report, work may begin on Phase II, the pre-feasibility study. This is expected to occur in mid-June, 2011. On October 4, 2011 IAE will provide to AEA a progress report on the pre-feasibility study. At the end of phase II a final Pre-Feasibility Report will be submitted to AEA no later than two months after the final evaluation and recommendation for the next steps to be taken is completed on December 18, 2011. 3.6 Project Risk Discuss potential problems and how you would address them. The typical risks involved in a geothermal project include exploration, development, market and regulatory risks. The rewards, on the other hand, will financial, environmental, marketing and the overall well being of the community. Geothermal resource risks that pose serious constraints on geothermal projects are normally limited to:  Low temperature;  Poor permeability; Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 10 10/7/2009  Adverse chemical composition of geothermal fluid and effects due to pervasive acid magmatic fluids1; and  Fluid extraction in excess of resource capacity. To minimize these risks and to simultaneously maximize the sustainable use of the geothermal resource, a wealth of geoscientific information for that reservoir is needed. IAE will bring experienced and highly qualified scientists such as geologists, geochemists, geophysicists and reservoir engineers to analyze the potential resource and pinpoint drilling sites. The techniques that may be used to minimize the exploration risk include application of remote sensing and satellite imagery to define hot spots, surface alteration and lineaments/faults; geological mapping, chemical geothermometry, geophysical surveys such as resistivity and magnetotelluric surveys, aeromagnetic and gravity surveys and the synthesis and integration of the results of the surveys to define a geohydrologic model for the geothermal system. Technical risks in geothermal projects are the same as occur with other surface facilities. The main risk lies in false or underestimated design conditions and assumptions as well as unforeseen events. If the reconnaissance and pre-feasibility study results are positive, IAE will minimize the technology risk by using qualified and experienced designers such as electrical, civil, and mechanical engineers and architects, who will be responsible for designing the facilities according to current United States standards and who will ensure that the Anchorage district heating project meets expectations and qualifications. Known and proven technologies will be used at all levels. In order to minimize the regulatory risk attorneys and business developers familiar with geothermal development in the United States will be responsible for resolving all regulatory and legal issues. After the full design of the project is finalized the project will be contracted out to a qualified and experienced General Contractor that is familiar with Alaska for plant construction. In order to mitigate the market risk IAE will enter into long-term power purchase agreements with major thermal users in the planned heating area. 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. IAE will target the Lower Susitna Basin and its vicinity as a potential geothermal energy source for a district heating project in Anchorage, Alaska. In the early 1980s four wildcat wells drilled in the basin encountered anomalously high-temperature gradients of 41°C to 123°C/km 1 General risks from: Barnett et al, Risk and risk management in geothermal exploration and development, http://www.unep.org/gef/content/pdf/32-Barnett%20et%20al.pdf April 12 2005. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 11 10/7/2009 suggesting that a low temperature geothermal resource might be present and suitable for direct uses (State of Alaska, Department of Natural Resources, 1989). Initial studies done by the Geophysical Institute at the University of Alaska in cooperation with the Alaska Division of Geological and Geophysical Surveys in 1982 concluded that “a substantial geothermal resource may be present in the Willow-Big Lake area” and, perhaps, farther to the east. Discontinuous reservoirs maybe present in an area of approximately 40 square miles. It is however hard to estimate the possible size of the reservoir due to lack of geological, geophysical and geochemical data for the area. Large data gaps exist in the preliminary data collected in the early 1980s and as a result the reservoir depths, thicknesses and deliverability are presently unknown. The IAE Anchorage reconnaissance study will analyze the available geological , geochemical and geophysical data in detail to identify and estimate the reservoir potential as well as the survey efforts needed to confirm the existence, location and size of the geothermal resource. If the reconnaissance study results are positive, IAE will investigate the area more thoroughly by conducting geothermal surveys, including, but not limited to, a resistivity survey and the drilling of thermal gradient holes and an exploration well. Currently, more than 80% of the heating in Anchorage is provided by natural gas with most of the remainder provided by electricity produced by natural gas and hydro resources. Unlike natural gas heating, geothermal heating does not produce any greenhouse gas emissions. Also, geothermal energy is insulated from fuel price hikes unlike natural gas, which is subject to availability and market prices and conditions. However, geothermal is dependent on the existence of a nearby geothermal reservoir. Consequently, detailed reservoir exploration must be undertaken before a geothermal district heating system can be developed. 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. As mentioned above, more than 80% of heating in Anchorage is supplied by natural gas, which is supplied by the natural gas company ENSTAR. Most of the remaining homes in the area use electricity supplied by Municipal Light and Power (MLP) and Chugach Electric Association to heat their homes. Finall y, a few homes, fewer than 5%, use other sources like wood as a source of heat (Institute of Social and Economic Research). The reconnaissance study will research the current energy environment in Anchorage in greater detail. The study seeks to answer questions including, but not limited to:  What is the current capacity of ENSTAR’s natural gas pipeline system and the availability of future natural gas reserves?; and  What is the age and condition of facilities currently providing electricity for home heating in Anchorage? Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 12 10/7/2009 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. The majority of Anchorage’s energy for space heating comes from natural gas, either in the form of natural gas boilers for individual structures, or from electricity produced for use on the electrical grid. Additionally, hydro supplies some of the electricity used for heating. Geothermal will be a renewable addition to the area’s energy mix, and will provide a new, sustainable source of heat and hot water for the community. It is to be expected that if a geothermal district heating system comes online in Anchorage some of that natural gas and electricity use will be displaced. The reconnaissance study will analyze the current energy infrastructure in Anchorage , and will identify the effects that a geothermal district heating system would have on that infrastructure. For instance, the reconnaissance study will analyze the heating and hot water infrastructure that is currently in place, would identify facilities that must be added or retrofitted if geothermal energy were to be used, and would further identify the age and capacity of the current infrastructure, and whether any facility replacements or upgrades are currently planned. The reconnaissance study will also estimate the costs of infrastructure changes, upgrades and construction needed to accommodate a geothermal district heating system. These estimates will be incorporated into the final economic analysis in the final Reconnaissance Report. 4.2.3 Existing Energy Market Discuss existing energy use and its market. Discuss impacts your project may have on energy customers. Three main utilities supply the energy for home heating and electric use in the Anchorage area, including Municipal Light and Power (MLP), Chugach Electric Association (CEA), and ENSTAR. MLP and CEA utilize natural gas fired facilities, and also purchase electricity from the railbelt electrical grid to supply their customers with power. ENSTAR is a natural gas company. Currently, more than 80% of home heating in Anchorage comes from natural gas while most of the remainder comes from electricity and a small amount (under 5%) comes from other sources like wood (Institute of Social and Economic Research). Anchorage’s population reached 283,823 in 2007, a 0.2% increase from 2006. The Alaska Department of Labor and Workforce predicts that Anchorage’s population will rise to about 322,000 in 2020. With the support of the Municipality of Anchorage IAE will analyze the space heating and hot water market in Anchorage. The study will explore and quantify the current Anchorage energy load for both heating and other hot water uses, and will also identify the load curves for the area. It is anticipated that if a geothermal district heating project is found to be feasible for the town of Anchorage, then at least some of the electric and natural gas heating markets in the city will be displaced by geothermal energy. Customers that traditionally used natural gas or electricity to heat their homes and water will use geothermal energy instead. Geothermal energy will supply them with a sustainable, stable, baseload serving energy source that is not subject to market fuel prices. It will provide business opportunities by supplying a new, clean energy source that can be used for greenhouse operations, spas and aqua culture to name a few. The renewable and stable energy source also has the potential to raise property values for those who utilize the system as the property becomes insulated from fossil fuel market price fluctuations for space and hot water heating. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 13 10/7/2009 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 Reinjection Pumps 110 l/s 23 MW 16 MW 77°C 40°C 2 Projection Wells 2 Reinjection Wells 100 l/s 100 l/s40°C 77°C 95°C Circulation Pumps 7 MW [130°C] 70°C 85°C Energy meter Flow meter (2 GWh) (68 GWh) (70 GWh) 35°C [90°C] TC TC 85°C (Outdoor temperature compensation) 73°C Flow meter PC 110 l/s@ 50 mWg Peak load boiler 90 kW Circulation Pumps 110 l/s@ 5 mWg 30 kW 85°C70°C Central+pumps 110 l/s Heat Central: Estimated flow and temperature values shown at maximum power. Annual energy (GWh). 1585 gpm170°F 170°F 104°F1585 gpm104°F 95°F 158°F 158°F 185°F 35°C 185°F [266°F] [90°C] 185°F 163°F 1744 gpm 1744 gpm 54 BTU/h (232,000 BTU)77 MW (70 GWh) 23 BTU/h (6,824 BTU) Figure 3 One line diagram of system The reconnaissance and pre-feasibility reports will explore the viability of a geothermal district heating project in Anchorage. The technology used for geothermal district heating systems is mature and widely used. For example, in Iceland about 90% of the space heating is provided by geothermal energy. Geothermal direct use systems do not need as high a resource temperature as are required in geothermal electricity production projects. The average temperature of geothermal district heating systems in the United States is approximately 160°F, or about 70°C. If found to be feasible, the Anchorage geothermal district heating system will be comprised of a well field, a primary and secondary pipeline, a heat exchanger between the geothermal fluid and Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 14 10/7/2009 the distribution system, a natural gas boiler house to handle peak loading, pump houses and a pressure boasting and/or pressure separation station as seen in the one-line diagram in Figure 3. The energy produced from a geothermal system depends on the temperature, the amount of flow of the geothermal fluid being utilized, and the temperature drop of the geothermal fluid within the system. As the resource has not been explored in detail yet it is not feasible at this time to predict what the optimum installed capacity or annual generation will be. However, Icelandic district heating technology maximizes the temperature drop in the system, which allows for maximization of resource utility (approximately 98%) as well as higher efficiency and less strain on the resource. For any district heating project to reach fruition, several basic criteria must be met. A serious deficiency in any one of these items will very likely result in failure of the project. These items include but are not limited to:  A quality resource;  Long-term, secure, low-cost land leasing and rights-of-way;  Strong local support for the project; and  No insurmountable legal or regulatory hindrances. The reconnaissance and pre-feasibility studies will address whether a quality resource is available by performing a thorough analysis of the viability and capacity of potential geothermal resources in the area. The studies will also analyze the Anchorage market, and will determine the economic feasibility of the district heating system. The studies will also address the important factor of integration into the current energy system in Anchorage to establish the economic viability of the system. 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. The reconnaissance study will analyze land rights in the area of interest, and will identify owners and potential barriers to geothermal development in the area. IAE will utilize right-of-way information obtained from the Municipality of Anchorage as a basis for that land rights analysis. If the results of the reconnaissance study are favorable, a more detailed land rights study will be performed, and landowners in the area of interest will be approached for mineral and land rights acquisition. 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 The reconnaissance study will identify the necessary permits required to develop the Anchorage district heating project. It will also research the estimated timeframe and other requirements for obtaining such entitlements. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 15 10/7/2009 If the reconnaissance study results are positive, IAE will seek to obtain, as part of the pre- feasibility study, the necessary permits for geothermal exploration and drilling in the area. 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 In the case of geothermal power plants, as is the case for every other power and/or energy production facility, associated environmental impacts may be divided into the following main categories:  Surface disturbances such as those caused during the plant construction (i.e., access roads, pipe and power lines, plant and associated land uses);  Physical effects, e.g. the effect of fluid withdrawal on natural manifestations, land subsidence, visual effects (buildings, cooling towers, surface pipelines, power transmission lines), etc.;  Noise such as equipment noise during drilling, construction and operation;  Thermal pollution due to hot liquid and steam release on the surface;  Chemical pollution due to disposal of liquid and solid waste and gaseous emissions into the atmosphere, etc.; and/or  Damage to flora and fauna. The environmental impacts would be very much development and locality specific. They would depend upon the type of power conversion cycle, the implementation stage reached, geological conditions, the topography and the characteristics of the resource being developed. The reconnaissance study will include an environmental screening for the area of interest. The screening will include research on indigenous species in the area, wetlands and protected areas, cultural issues, land development constraints, aesthetics and visual impacts and other potential environmental barriers that need to be addressed. If the reconnaissance study is positive, IAE will perform a more detailed environmental analysis addressing the environmental mitigation efforts that are needed to minimize the environmental impact of the project. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 16 10/7/2009 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 capital cost of proposed renewable energy system  Projected development cost of proposed renewable energy system The cost for Phase I is estimated at $212,700 and the cost of Phase II at $441,500. IAE is requesting $392,520 in grant funding or 60% of the estimated cost of Phases I and II. IAE will contribute $261,680 or 40% in match funding in capital and in kind contributions. The total estimated project cost is $1,070,000,000 but that number will be further defined in the reconnaissance and pre-feasibility studies. 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.) Once the system is up and running the anticipated O&M project costs are expected to be approximately $21,400,000. The O&M costs will be funded by revenue from the sale of hot water for heating and domestic use in Anchorage. 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 potential customers of a district heating system in Anchorage include the Municipality of Anchorage, its businesses and its residents. The reconnaissance and pre-feasibility studies will identify potential power purchase agreements that could be negotiated, and with whom they may be negotiated. The reconnaissance and pre-feasibility reports will determine the potential energy price. However, it is clear that the overall aim of the project is to supply the town of Anchorage with a Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 17 10/7/2009 reliable and affordable source of heat. IAE anticipates that the price of heat will be in the range of $8 - $16 per mmBtu. 4.4.4 Project Cost Worksheet Complete the cost worksheet form which provides summary information that will be considered in evaluating the project. See the Cost Worksheet in Appendix B. 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 IAE will use its extensive experience in developing, constructing, operating and maintaining Icelandic geothermal district heating systems to develop the Anchorage district heating project. Rigorous exploration of the area will establish the geothermal potential of the Lower Susitna Basin and its vicinity. A detailed market analysis will identify current energy prices in Anchorage along with the possible market share that would be gained by the district heating system. An economic analysis encompassing both the development of the resource and the construction of a distribution system will determine the viability of the project. If the feasibility study results are positive, IAE will seek to use local expertise and workforce to develop the project in cooperation with IAE’s staff and consultants. It is important to include, and cooperate with, the Anchorage community to ensure a successful project. IAE has begun this process by negotiating and executing a Memorandum of Understanding with the Municipality of Anchorage, pursuant to which IAE will analyze the feasibility of supplying to Anchorage a geothermal district heating system. In Phase II of the project IAE will develop a comprehensive business plan as a final deliverable of the Anchorage geothermal district heating feasibility study. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 18 10/7/2009 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 IAE plans to form a special purpose entity (SPE), typically a limited liability company, that will obtain site access and control and all necessary and/or appropriate government authorizations. The SPE will then develop, construct, own and operate the district heating facility for the life of the facility. The Municipality of Anchorage, or one or more worthy local entities that bring specialized knowledge and experience of geothermal systems, and, perhaps, working capital, may also join the SPE. All participants in this entity will have clearly delineated rights and obligations so that the entity functions smoothly. To the extent that the resource proves sufficient for the generation of electricity, the SPE will negotiate a power purchase agreement for the sale of the energy that is produced. The power purchase agreement can be used as collateral to obtain a construction loan. Once construction of the district heating system has been completed, the facilities and the power purchase agreement can collateralize permanent financing, which will be repaid from proceeds of electricity sales. Alternatively, if the resource proves sufficient for direct uses, the SPE would not negotiate a power purchase agreement with a utility. Rather, the SPE would contract directly with the end users of the resource, including greenhouse operations, spas and aqua culture entities, etc. Facilities that provide geothermal resources for direct uses require less infrastructure than would be found in district heating facilities. They are, thus, more cost-effective to build. However, the facilities, and the purchase and sale agreements for the delivery of geothermal resources are extremely valuable and will support construction and/or permanent financing in the same manner as are provided by district heating facilities. The SPE’s management team will call upon its unparalleled expertise in constructing, maintaining, owning and operating geothermal facilities in climates and terrain very similar to those found in Alaska in order to anticipate, identify and resolve regulatory and operational issues that may arise during the development, construction and/or operation phases of the project. IAE is uniquely positioned to develop cost-effective geothermal systems that will provide energy savings, reduce Alaska’s carbon footprint, increase the local economic base and produce climactic and other cultural benefits to the geographic areas where the facilities are constructed. IAE is committed to reporting these savings and benefits to the community. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 19 10/7/2009 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. IAE has done a preliminary review of available information on known geothermal resources in Alaska and particularly within an approximately 70-mile radius of Anchorage. The company has access to extensive district heating operation and facility designs through our Icelandic owners and our relationships with professional and engineering companies in Iceland. We are also working on a smaller district heating project for the Town of Mammoth Lakes , in California, and will incorporate the knowledge and experienced gained there to the work contemplated by this proposal. IAE expects to move quickly upon confirmation of any grant on the Anchorage district heating project with work starting no later than October, 2010. 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. IAE is committed to assisting the State of Alaska to develop its geothermal resources. While Alaska presents many physical and climactic challenges to a developer, IAE’s parent company is a public utility in Reykjavik, Iceland with more than 70 years of experience in developing geothermal district heating systems in weather, terrain and culture that are all very similar to those found in Alaska. The similarities greatly reduce guesswork, and ensure that existing district heating systems that were developed and perfected in Iceland will be very suitable for Anchorage and/or the surrounding area. Due to these similarities IAE can bring to bear all of its expertise and experience to develop and construct a district heating system that will greatly benefit the Municipality of Anchorage. To that end members of IAE’s Board of Directors, and Ólafur Ragnar Grímsson, the President of Iceland, have visited Alaska several times over the past couple of years to show their commitment to these efforts, and to garner local support. The State of Alaska and the Municipality of Anchorage have been very responsive to IAE as evidenced by the Memorandum of Understanding that was executed by and between IAE and the Municipality of Anchorage in August 2008 for the joint development and construction of a district heating project in Anchorage. This response to the request for grant applications is one of the first steps in bringing this wonderful and critically necessary project to fruition. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 20 10/7/2009 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 Provide a narrative summary regarding funding sources and your financial commitment to the project. IAE has executed a Memorandum of Understanding with the Municipality of Anchorage to perform a feasibility study on the use of geothermal energy in Anchorage. A geothermal district heating system in Anchorage is estimated to cost a total of $1,070,000,000. Initial work on the project began in November 2008, and is expected to continue as outlined in this proposal. To assess the feasibility of constructing such a system IAE intends to do a reconnaissance study and a pre-feasibility study to be followed by a comprehensive feasibility study. The reconnaissance study is estimated to cost $212,700 while the pre-feasibility study is estimated at $441,500. If this initial work confirms the potential for a resource able to support the proposed Anchorage district heating project, we plan to proceed with a comprehensive feasibility study that is expected to cost between $7.5 and $8.5 million. IAE is seeking a grant from the State of Alaska for the reconnaissance and pre-feasibility studies in the amount of $392,520. The grant represents 60% of the total costs of phases I and II of the Anchorage district heating project. IAE will supply $261,680 or 40% of the needed funds. Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application Page 21 10/7/2009 SECTION 9 – ADDITIONAL DOCUMENTATION AND CERTIFICATION SUBMIT THE FOLLOWING DOCUMENTS WITH YOUR APPLICATION: A. 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 Section 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. Governing 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. G. 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 Paul E. Wilson Signature Title Chief Executive Officer Date November 4, 2009 Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application 10/7/2009 APPENDIX A Resumes of Applicant’s Project Manager, Key Staff, Partners, Consultants and Suppliers Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application 10/7/2009 APPENDIX B Cost Worksheet Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application 10/7/2009 APPENDIX C Grant Budget Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application 10/7/2009 APPENDIX D Letters Demonstrating Local Support Renewable Energy Fund Grant Application Round 3 AEA10-015 Grant Application 10/7/2009 APPENDIX E Governing Body Resolution