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November 10, 2008
Jill Reese Investments & Brokerage
1150 S Colony Way #3
PMB 183
Palmer, AK 99645
Subject: Delia Creek Economics
Dear Jill Reese,
The following letter details our investigation into the economics of the power generation
options for the Motherlode lodge. We identified 5 different scenarios which are each
discussed below and compared economically in terms of yearly cost of power.
No Action
The reported electrical demand during 10 days in October averaged 6.9 kW with a daily
fuel usage of 31 gallons. The very poor efficiency of 5.3 kWh/gal ($0.75/kWh at $4/gal)
is no doubt due to the older and much larger than necessary 50 kW generator.
The demand throughout the rest of the year is not known but I have provided the
following table of assumed demand for the purposes of evaluating the hydroelectric
project, by itself, and combined with a connection to the electrical grid.
The total required energy for the year with these assumptions
is 93,000 kWh. At a fuel cost of $4/gallon, the total fuel
expenditure using the 50 kW generator works out to be about
$70,000 for 17,500 gallons. This expenditure represents the
no action alternative.
New Generator
We included in our analysis installing a modern generator that
is sized for your load. For the analysis, we assume you will
require a 25 kW generator that will cost $25,000 and have an
efficiency of 11 kWh/gal ($0.36/kWh at $4/gal).
Connection to Electrical Grid
Another option that you must consider is simply connecting to the electrical grid. MEA's
current tariff rate for energy would apply under this scenario. The current rate is about
$0.15/kWh. MEA quoted you $175,000 a mile for a single phase extension. We estimate
the cost will be somewhat lower at $150,000 a mile. The extension is 2.75 miles if the
Fishhook project is not built yet and 2.1 miles if it is constructed.
Should the state decide to utilize the power that would be available at the Goldmint
trailhead they would be obligated to pay half the installation cost if they connect within
the first five years. This represents a potential grant avenue in that the state could receive
the benefit of power at the parking lot at no cost with a grant for the line extension.
Month
Average
Demand (kW)
1 18
2 18
3 15
4 10
5 9
6 7
7 6
8 6
9 7
10 7
11 10
12 15
POLARCONSULT ALASKA, INC. 11/10/2008
PAGE 2 OF 3
Hydroelectric, not grid connected
When not connected to the grid, the hydro project should be sized to meet your demand.
Due to the nature of the water supply, there is no gain in power during the winter, when it
is needed most, by increasing the size of the project. For this scenario, we assume a 6"
nominal pipeline diameter with a flow of 1.0 cfs to produce up to 38 kW with a minimum
power production in the spring of 16 kW. The cost of the hydro is estimated to be about
$510,000.
The analysis only includes the value of the hydro during the payback of the loan. Once
paid off, the hydro will essentially eliminate electrical costs. However, the payback
period used in this analysis is 20 years.
Hydroelectric, grid connected
Finally, we have considered a hydroelectric project in conjunction with a grid connection.
With this option, any excess power from the hydro project can be sold to MEA. The
analysis generally shows that a larger project is going to be more economical because of
the substantial potential for power sales. For this option, we assume a 10" pipeline with a
flow of 3.5 cfs producing up to 140 kW (spring minimum production is still 16 kW). The
cost of the hydro is estimated to be about $670,000.
The potential benefit of this project is the line extension and discounted sale of electricity
to MEA after the hydro is paid off (20 years). We assume a grant amount equal to 50% of
the line extension cost in our analysis but a higher amount could be justified.
Summary of Economics
The following table summarizes the results of our analysis without any grant assistance.
Grid Connected Not Connected No action
hydro No hydro hydro No hydro
Project Cost $ 1,082,750 $ 410,000 $ 511,750 $ 25,000 $ -
Grant $ - $ - $ -
Net Cost $ 1,082,750 $ 410,000 $ 511,750 $ 25,000 $ -
term 20 20 20 5
loan interest rate 0.07 0.07 0.07 0.07
debt payment ($102,204) ($38,701) ($48,306) ($6,097)
Cost of electricity 0.15 0.15 0.75 0.36 0.75
Power cost $ (776) $ (13,968) $ (4,887) $ (33,862) $ (70,279)
Yearly Cost ($102,980) ($52,669) ($53,193) ($39,959) ($70,279)
excess power value 0.06556 0
Excess value $ 33,775 $ -
Net Cost of Power ($69,206) ($52,669) ($53,193) ($39,959) ($70,279)
The monthly cost of power generation is clearly the lowest at about $40,000 per month
with the not connected, no hydro option. This option represents installing a new
generator. The financing term of 5 years is assumed but a cash outlay would have a
payback period of less than one year.
POLARCONSULT ALASKA, INC. 11/10/2008
PAGE 3 OF 3
With a grant covering the line extension cost the following results are obtained.
Grid Connected Not Connected No action
hydro No hydro hydro No hydro
Project Cost $ 1,082,750 $ 410,000 $ 511,750 $ 25,000 $ -
Grant $ 410,000 $ - $ - $ -
Net Cost $ 672,750 $ 410,000 $ 511,750 $ 25,000 $ -
term 20 20 20 5
loan interest rate 0.07 0.07 0.07 0.07
debt payment ($63,503) ($38,701) ($48,306) ($6,097)
Cost of electricity 0.15 0.15 0.75 0.36 0.75
Power cost $ (776) $ (13,968) $ (4,887) $ (33,862) $ (70,279)
Yearly Cost ($64,279) ($52,669) ($53,193) ($39,959) ($70,279)
excess power value 0.06556 0
Excess value $ 33,775 $ -
Net Cost of Power ($30,505) ($52,669) ($53,193) ($39,959) ($70,279)
With the possibility of grant assistance the best option is clearly to build the hydroelectric
project. With increased utilization of excess power for heating and a longer term outlook
the hydro option with grid connection will be an even better alternative.
If you have any questions please feel free to contact me.
Sincerely,
Daniel Hertrich, PE