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HomeMy WebLinkAboutATTACHMENT F 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC ATTACHMENT F FISHHOOK HYDROELECTRIC PROJECT FEASIBILITY STUDY Primary factors affecting the technical and financial viability are as follows: · Permitting - obtaining the legal authority and public acceptance to construct the project. · Resource availability - the quantity of the water available and the ability to divert the required quantity to the project. · Soils - Unexpected or adverse soil conditions can significantly affect viability primarily in the area of construction cost. · Engineering - Any unusual technical or engineering challenges for construction can affect viability. · Construction - Project management, unexpected costs or delays during construction, or unaccounted expenses can affect the viability. · Operation - reliability and unexpected operating conditions can affect project viability. · Contracts and Energy Market - Contracts and energy price fluctuations can significantly impact the financial feasibility and project viability. Mitigating and/or limiting risk with all foreseeable and reasonable possibilities for the above issues will maximize project viability. Permitting Risk to the lender is completely mitigated because FRE is not asking for any loan money until the project is fully permitted and authorized to construct. FRE will only utilize bo rrowed money for the actual construction phase of the Project. As of this date all remaining permits should be relatively straightforward. The only foreseeable exception at this stage is obtaining a conditional use permit from the Matanuska-Susitna Borough. The following describes the permits needed for the Project and their current status: FERC exemption - Applied for this permit on February 23rd, 2007. The Project is not on federal land, does not affect navigable waters, and does not affect interstate commerce. An exemption was granted on April 30th, 2007. RCA utility application - The Regulatory Commission of Alaska (RCA) requires FRE to demonstrate a fitness, willingness, and ability to complete the Project and provide power before issuing a certific ate. They have 2 weeks upon receipt of the application to rule on its completeness and, if complete, 6 months thereafter to make a decision on the application. FRE has drafted an application for a certificate. The principle outstanding item needed before submitting the application to the RCA is a financial commitment for the Project from a lending institution. This has been held up pending receipt of an offer 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC from a utility to purchase power that has just recently been received. Power purchase contract details still need to be finalized. Based upon recent reversal of DNR's position requiring a charitable land lease for the project, FRE has elected to request an exemption from RCA regulation. DNR easement/lease application - The Department of Natural Resources land lease process is the primary state permitting process that will drive the review of the project and solicit public comments. DNR recently notified FRE that it can use the competitive lease process for this project, which is not dependent on utility certification. Based on this new information, FRE has requested that DNR proceed with the leasing process for this project. The public process (which takes 60 days) for the competitive lease will commence later in 2008. DNR water rights - FRE applied for water rights in April of 2006. Water rights will be issued after DNR Habitat Division makes a determination on the Project and the land leasing is initiated. Habitat Permit - Discussions with State fish and game review staff has resulted in a preliminary agreement regarding the Project. The tentative investigation by Habitat revealed Dolly Varden habitat in the lower 200 yards of the current Fishhook Creek mouth. The old channel, where the Project tailrace will discharge, is considered superior habitat and capable of supporting salmon spawning if the culvert is adequate. During the summer of 2007 FRE Members found juvenile salmon in the old channel reach (none were found in the current mouth reach). Habitat has tentatively stated that if the fo llowing conditions are met then a permit will be issued: · Move the powerhouse up 200 yards from the culvert, effectively creating 200 yards of new habitat to make up for the possible loss at the current mouth. Current design drawings reflect this change. · Upgrade the culvert to the standards necessary for passage of adult salmon. FRE has agreed to this and included such costs in the cost estimate for the Project. · Provide a bypass to allow for continuous flows to the tailrace during turbine maintenance. FRE has agreed to this and included such costs in the cost estimate for the Project. Matanuska-Susitna Borough - An easement application has been submitted to the Mat-Su Borough. Thus far, they have indicated that the easement will be granted after the DNR approves the project. The Mat-Su Borough has indefinitely suspended development and adoption of the Hatcher Pass Special Use District regulations. Until these are reactivated, no further permits are required. Under the SPUD, the Mat-Su Borough would likely require a conditional use permit for the project. As the name implies, such a permit is conditional and what conditions, if 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC any, may be imposed are not known. It is possible that conditions could be required that could significantly impact the project feasibility. Public Involvement - FRE has presented the Project to the Fishhook Community Council and received numerous comments, most of which were incorporated into the Project design. Overall, the comments tended towards a neutral stance. Similar reactions were obtained from the few who commented on the Project when it was displayed at the 2007 MEA annual meeting. Finally, letters describing the Project have been distributed to all Mat-Su area State Senators and Representatives and the Governor, no ne of whom have responded with comments. Resource availability The amount of power produced each year is a direct function of the available water. Accurately accounting for the quantity and fluctuations in the water supply (hydrology) are crucial in determining the overall project economics. A secondary effort in hydrology is to determine maximum flood levels which can impact the engineering of the Project. The primary basis for determining Project hydrology is analyzing and comparing measurements taken at the intake with the USGS flow measurements on the Little Susitna River which encompasses the Fishhook Creek drainage basin. The United States Geological Survey (USGS) has maintained a gauging station on the Little Susitna River at the Wasilla -Fishhook Road bridge since July 1946 (USGS Gauge #15290000). The historical record consists of daily average flow readings. These values are used for statistically estimating year to year power production including the minimum expected power output for any given year. The USGS also publishes real-time data for the gauge which consists of provisional data averaged every 15 minutes. The real time data is used to verify that instantaneous flow measurements taken at the intake site match those at the USGS gauge site after scaling for basin size. Any significant discrepancy would indicate that scaling by the basin size is not appropriate. To account for seasonal variation numerous instantaneous flow measurements at the intake were taken throughout the year and compared with the real time data at the USGS gauge. The USGS gauging station is located approximately 3 miles downstream from the mouth of Fishhook Creek. The basin and gauging location is shown in Figure 1. Daily flow data from USGS gauge #15290000 was scaled by relative basin size to determine the expected flows for Fishhook Creek. Table 1 summarizes basin areas for the USGS gauge and the Fishhook sub-basin (begins at Project intake). 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC Table 1: Attributes of Gauging Station and Project Creeks Little Susitna River USGS Gauge #15290000 Proposed Fishhook Creek Intake Location 618 42.6’ N 1498 13.8’ W 618 46.0’ N 1498 16.3’ W Drainage Area (sq. mi.) 61.90 6.66 Percentage of Gauged Basin 100% 10.76% Gauge/Intake Elevation (feet) 916.6 2,550 Basin Description Mountainous alpine areas with some alpine valley bottomlands. Generally southerly facing. Mountainous alpine areas with negligible alpine valley bottomlands. Generally easterly facing. To validate the expected stream flows based upon the USGS gauge on the Little Susitna River, actual stream flow measurements were taken using a Swoffer Current Velocity Meter. The following table summarizes these measurements where a corresponding real time flow for the Little Susitna River was published. Table 2 - Flow Measurements at Intake Compared with USGS Measurements Date Fishhook Intake Flow, cfs Little Susitna Flow, cfs Ratio, % 3/24/2006 14:15 2.2 24 9.4% 7/7/2006 13:45 33.2 401 8.3% 7/8/2006 15:00 33.2 321 10.3% 10/20/2006 17:30 23.8 201 11.9% 4/9/2007 18:00 2.8 23 12.0% 5/12/2007 15:30 5.7 65 8.7% Average 10.1% As can be seen by the table, the average flow at the intake of the Fishhook Project is slightly less than the expected 10.76% based on scaling the basin area. This could be due to several factors: · Inaccuracies in the method of the measurements at the Fishhook intake using the Swoffer flow meter. · Differences in soil type of the sub-basin on average compared to the full basin. · Differenc es in flow releases and timing due to elevation and/or precipitation/runoff relationships. 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC Most likely, the error is due to the flow meter and the associated difficulty in obtaining accurate flow readings at low velocities and in rough stream beds. However, to remain on the conservative side, the value of 10.1% of the USGS reported Little Susitna flow is assumed for the statistical analysis to estimate yearly project economics. The long term record of data on the Little Susitna is beneficial in that accurate estimates of the yearly power of the proposed project can be derived. As detailed above, the flow data will be scaled by a factor of 10.1%. Before doing so, a review of the data follows along with the procedure to obtain an average year of power production used for the economic analysis. The following chart graphically depicts yearly summaries for the dataset. A somewhat noticeable aspect of the Little Susitna record set is a trend towards decreased peak runoff values and an increase in minimum runoff values. There is also an obvious upward trend in median values. Figure 1 - USGS Little Susitna Gaging Summary This indicates that there is a trend towards higher low to moderate flows. These are the flows that are most important to the Project. This is further evidenced by the following graph depicting the average daily Project flows for the record set split into two time periods using 1979 as dividing point. The average is calculated using maximum values of 30 cfs since this is the maximum flow that can be utilized by the Project. This USGS Little Susitna Gaging Summary 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 1949 1959 1969 1979 1989 1999 YearMedian & Min Flow, cfs1 10 100 1000 Max Flow, cfsMedian Flow Min Flow Max Flow 5 per. Mov. Avg. (Median Flow) 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC streamflow trend is confirmed by USGS publications in 2005 (USGS Fact Sheets 2005- 3017 and 2005-3018). 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC Figure 2 - Daily Average Project Flows In order to remain slightly conservative, the entire record will be averaged on a daily basis to estimate average yearly power production. Actual average yearly power production, if the trend remains, should be approximately 5% higher. The following table summarizes the statistical results of the hydrology analysis in terms of Project power output (as opposed to stream flows). In conclusion, the long period of record at the USGS gaging station provides a high degree of confidence in seasonal and annual flow variations available to the project. The streamflow analysis presented tends towards the conservative side and the expected average power production should generally increase in the future based on current trends although this is not included in the economic analysis. Table 3 - Summary Statistics of Annual Power Output, kWh Annual Power Output, kWh Median 7,630,000 Average 7,440,000 Min 5,320,000 Max 9,300,000 Daily Average Project Flow 0.0 5.0 10.0 15.0 20.0 25.0 30.0 1/1 2/1 3/1 4/1 5/1 6/1 7/1 8/1 9/1 10/1 11/1 12/1 DateProject Flow, cfsPre 1979 Avg flow Post 1979 Avg flow 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC Soils The soils around the Project are generally known to consist of gravelly and/or sandy silt with cobbles and boulders strewn about. Preliminary investigations have confirmed this. The exception to this is along the creek bank at the upper section of the Project which appears to be almost entirely cobbles and boulders. Some hauled in backfill may be required for this section of pipe. However, the pipe in this area consists of HDPE which can accommodate local site conditions with its flexibility and rugged nature. Bedding requirements for the HDPE are not as stringent as for steel pipe so this will also reduce the select backfill required. The final design phase of the Project, which is scheduled for the summer of 2008, includes a full geotechnical investigation. Engineering No significant technical challenges are foreseen at this time in terms of engineering the Project. Proper feasibility, however, requires careful attention to the amount power produced. Small errors in miscalculations can have significant impacts. The following illustrates the methods employed to arrive at the quantity of energy produced by the Project. The procedure used for the energy analysis was to numerically simulate operation of the Fishhook project using actual historical daily flow values. This included accounting for head loss in the pipeline as a function of flows and calculating the turbine output based on the actual head, flow, and turbine operating efficiency at the given flow rate. The calculation of the head loss in the pipeline is based on the explicit solution of the Darcy-Weisbach equation presented by Streeter and Wylie 1. Roughness values for the high density polyethylene (HDPE) pipe and for the steel pipe are 0.000005' and 0.00015' respectively. Water kinematic viscosity has been interpolated at a temperature of 36 degrees F. For a total length of pipeline equal to 7,700’, the maximum head loss at the design flow rate of 30 cfs is 62 feet. The static head for the project is 1,048'. The total water-to-wire efficiency, which includes losses from the generator and the transformer, is multiplied with the turbine efficiency curve. Based on information provided by turbine suppliers, the turbine and generator combined efficiency is expected to be about 83%. An additional 2% is expected in the transformer. Net system efficiency should be approximately 81%. As a conservative estimate, a net turbine efficiency of 77% has been selected for calculating project output. The table to the left shows the water-to-wire efficiency used for various percentages of total project flow rate. To obtain good efficiency at low flows, the Project design includes a 1500 kW turbine and a smaller 400 kW turbine. This also provides some power production when a turbine is offline for maintenance. 1 Fluid Mechanics, 8th Edition, Streeter and Wylie, 1985, McGraw-Hill Publishing Company Flow % Efficiency 0% 0% 5% 0% 10% 46% 20% 65% 40% 73% 60% 77% 80% 77% 100% 77% 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC With the flow data, the pipeline losses, the net water to wire efficiency, power from the Project is calculated using the potential energy remaining. The calculation is basically a units conversion having the following form: 11.3455*0.746*Flow*Head/100*Efficiency. Construction A detailed construction cost estimate was prepared in 2007. Generally, prices used were based on small quantity estimates so some savings will occur for large material orders. On the other hand, actual material prices will likely increase by the time FRE begins ordering materials so a new estimate will be generated once permitting approval is obtained and prior to accepting any loans. This will be part of the final design. The cost estimate, while detailed, incorporates a 20% contingency factor. While the construction of the Project is deemed to be relatively straightforward due to the mild slopes, road access and proximity to urban centers, and the simple nature of the Project (there are no unique challenges or aspects to this Project), a conservative approach is required to mitigate risks on the part of FRE Members and its lenders. Nearly all aspects of construction will be put out to bid to bonded contractors. Large items such as purchase of the turbine and generator and possibly the pipe will be done directly by FRE. Even so, the cost estimate includes a contractor profit of 10% on the entire construction budget - another somewhat conservative approach. The cost estimate also allows for a generous amount of labor. Total budgeted construction man hours translate into a 5 man crew working 60 hours a week for 5.5 months. The economic analysis contains a complete breakdown of the construction cost estimate. FRE’s development plan. included at the end of this application, contains a more detailed discussion on all aspects of the construction. Operation One of the most important aspects of a hydroelectric project is maintaining reliable operation. Attention to detail and identifying potential problems and finding appropriate solutions are critical. This is especially true in the first few years of operation. Run-of-river projects are particularly prone to reliability problems due to the lack of a large reservoir and the associated intake difficulties. FRE has paid particular attention to this critical component of the Project. Fortunately, the bed load and erosion potential at Fishhook Creek is significantly less than many other creeks, including McRoberts Creek which has a very high bed load. FRE Member 's experience with intake design and operation at the McRoberts Creek hydro has aided substantially in developing effective systems to handle high bed loads without project disruption. This technology will be applied to the Fishhook Creek as well. The schemes employed at McRoberts Creek are also very effective at trapping and flushing floating debris such as sticks and leaves. Such debris will likely be comparable in quantity at Fishhook Creek. Another potential problem at run of river intakes is the handling of flood flows. FRE Members witnessed first hand the massive floods of August 2006 (designated 100-year 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC floods by the USGS) in Hatcher Pass. Surprisingly, no erosion or bank jumping occurred at the intake site. FRE expects no major problems after witnessing this event given that this was nearly an all time record flood (the August 2006 flood was the second highest flow recorded in the Little Susitna River). FRE will design the intake to easily pass the record flood without any difficulty. Contracts and Energy Market Power sales contracts and the regional energy market will directly control project revenue and thus project viability. FRE is in advanced contract negotiations with MEA for the project, and expects a contract to be completed by November 2008. Power Sales Contracts FRE will sell the power to Matanuska Electric Association, Inc. (MEA). Until the end of 2014, MEA is an all-requirements customer of Chugach Electric Association, Inc. (CEA). FRE, MEA, and CEA have verbally agreed to allow FRE to sell power to MEA at the avoided energy cost that MEA pays CEA for power. This approach is revenue-neutral to MEA and CEA, and thus protects their ratepayers from incurring stranded costs. MEA and CEA are currently working to amend their contract to allow the Fishhook project, and a contract amendment is expected by spring 2008. This contract amendment will be approved by FRE, MEA, CEA and the RCA before FRE finalizes any loan obligations. After 2014, FRE will continue to sell power to MEA. The pricing terms are still being negotiated, but for project viability, continued sales on an avoided-cost basis is assumed. Energy Market To assess project viability in terms of contracts, CEA and MEA's avoided cost of energy must be projected. For both utilities, the avoided cost of energy for the life of the Project will be natural gas. MEA's generation plans have included use of coal, however this would be for their base generation. Their peaking generation, which is what would be offset by the Project, would be fired by natural gas. Cook Inlet's natural gas market is currently in a state of flux, as proven reserves are nearing depletion, and numerous gas contracts, including CEA's gas supply contracts, will be expiring in the first five years of the Project. Historical and near-term projected gas prices for CEA delivery under their existing contracts are presented in Figure 3. CEA is currently negotiating new gas supply contracts for sales starting in approximately 2010. The terms of these contracts are unknown, but similar recent supply contracts (for Enstar, Inc., the regional gas utility) have trended towards pricing based upon the Henry Hub price for natural gas. In recent years, the Henry Hub price has generally been bounded between $6 – 8 per MCF, excepting major supply disruptions, such as Hurricane Katrina in 2005, which resulted in a temporary spike to around $14 per MCF. This will result in a considerable increase in CEA's future natural gas costs. Any future MEA natural gas contract s are expected to follow a similar price structure. 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC Figure 3 – Historical and Projected Natural Gas Prices to CEA Mitigating this projected increase in future gas costs will be the increased efficiency of new generation units planned by both CEA and MEA. CEA's aggregate heat rate of their current thermal generation is approximately 10,800 MCF/kWh. With their planned new generation, CEA's aggregate heat rate is estimated to improve to as low as 8,000 MCF/kWh (if they cease providing energy to MEA and Homer Electric Association, Inc. (HEA) after 2014). This increased efficiency would largely counter the expected increase in natural gas costs, resulting in a future avoided energy cost similar to the current energy cost. A 'bullet line' has been proposed to deliver natural gas from Fairbanks to Anchorage. This line would tap the proposed North Slope Gas line. Given that the Cook Inlet natural gas market is already migrating towards a national pricing structure, the availability of gas from the bullet line is not viewed as a significant downside risk, unless this gas or the 1503 West 33rd Avenue, Anchorage, Alaska 99503 Phone: (907) 258-2420 Fax: (907) 258-2419 Fishhook Renewable Energy, LLC pipeline is heavily subsidized by the State of Alaska. Also, it is considered unlikely that this gas would be available to the Cook Inlet market until the twilight years of the Project's financing, and thus will have minimal to no impact on project viability from a revenue standpoint. CEA and Municipal Light and Power (MLP) have proposed a merger. If these two utilities completely merged, CEA could gain access to MLP's wholly-owned 1/3rd share of the Beluga Gas Field. This gas is available to MLP (and presumably a successor combined MLP-CEA) at cost, which is approximately $1 to 2 per MCF. If this gas were made wholly available to a merged MLP-CEA, it would supply generation needs for approximately 5 years. This is a worst case scenario, and is considered very unlikely, as it would require nullification of several existing gas supply contracts and retention of the all-requirements contract with MEA to impact FRE. In the event of this worst case scenario, FRE would have to evaluate mitigating strategies such as refinancing the project debt to remain solvent. While there are many considerable unknowns that directly influence any forecast of the avoided cost of energy over the life of the Project, FRE expects many of the most critical unknowns to be resolved before project financing and construction commences. Best available information regarding these unknowns at this time indicates that the project will remain viable. In consideration of these various factors in aggregate, FRE has assumed a power sales rate of $0.05/kWh, over the life of the Project. Considering the totality of variables that govern the future avoided cost of energy, FRE believes that this forecast is conservative.