HomeMy WebLinkAboutFourth of July Creek Hydroelectric Project App
Prepared by:
INDEPENDENCE POWER, LLC
1503 West 33rd Avenue, #310
Anchorage, Alaska 99503
Tel: (907) 258-2420
Fax: (907) 258-2419
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
AEA-09-004 - RENEWABLE ENERGY GRANT APPLICATION
FY 2009
OCTOBER 8, 2008
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE i
Table of Contents
SECTION 1. - APPLICANT INFORMATION............................................................................ 2
1.1. Applicant point of contact.................................................................................................... 2
1.2. Applicant minimum requirements ....................................................................................... 2
SECTION 2. - PROJECT SUMMARY........................................................................................ 3
2.1. Project Type......................................................................................................................... 3
2.2. Project Description............................................................................................................... 3
2.3. Project Budget Overview..................................................................................................... 3
2.4. Project Benefit ..................................................................................................................... 3
SECTION 3. - PROJECT MANAGEMENT PLAN..................................................................... 4
3.1. Project Manager................................................................................................................... 4
3.2. Project Schedule................................................................................................................... 5
3.3. Project Milestones................................................................................................................ 5
3.4. Project Resources................................................................................................................. 5
3.5. Project Communications...................................................................................................... 6
3.6. Project Risk.......................................................................................................................... 6
SECTION 4. - PROJECT DESCRIPTION AND TASKS............................................................ 6
4.1. Proposed Energy Resource..................................................................................................6
4.2. Existing Energy System....................................................................................................... 8
4.2.1. Basic configuration of Existing Energy System........................................................... 8
4.2.2. Existing Energy Resources Used.................................................................................. 8
4.2.3. Existing Energy Market................................................................................................ 9
4.3. Proposed System.................................................................................................................. 9
4.3.1. System Design .............................................................................................................. 9
4.3.2. Land Ownership..........................................................................................................10
4.3.3. Permits........................................................................................................................ 10
4.3.4. Environmental............................................................................................................. 11
4.4. Proposed New System Costs (Total Estimated Costs and proposed Revenues) ............... 11
4.4.1. Project Development Cost......................................................................................... 11
4.4.2. Project Operating and Maintenance Costs.................................................................. 12
4.4.3. Power Purchase/Sale................................................................................................... 12
4.4.4. Cost Worksheet........................................................................................................... 12
4.4.5. Business Plan.............................................................................................................. 13
4.4.6. Analysis and Recommendations................................................................................. 14
SECTION 5. - PROJECT BENEFIT........................................................................................... 14
5.1. Estimated Fuel Displacement ............................................................................................ 14
5.2. Estimated Annual Revenue................................................................................................ 15
5.3. Other Annual Revenue Streams......................................................................................... 15
5.4. Project Benefit from Direct Cost Savings.......................................................................... 16
5.5. Indirect Project Benefits .................................................................................................... 18
SECTION 6. - GRANT BUDGET.............................................................................................. 19
SECTION 7. - ADDITIONAL DOCUMENTATION AND CERTIFICATION....................... 19
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 2 OF 25
SECTION 1. - APPLICANT INFORMATION
Name Independence Power, LLC
Type of Entity: Independent Power Producer 1
Mailing/Physical
Address
1503 West 33rd Avenue, Suite 310
Anchorage, AK 99503
Telephone 258-2420
Fax 258-2419
Email joel@polarconsult.net
1.1. Applicant point of contact
Name Joel Groves, PE
Title: Project Manager
Mailing Address 1503 West 33rd Avenue, Suite 310
Anchorage, AK 99503
Telephone 258-2420
Fax 258-2419
Email joel@polarconsult.net
1.2. Applicant minimum requirements
As an Applicant, we are: (put an X in the appropriate box)
X1 An electric utility holding a certificate of public convenience and necessity under AS
42.05, or
X1 An independent power producer, or
A local government, or
A governmental entity (which includes tribal councils and housing authorities);
Endorsements
Yes Attached to this application is formal approval and endorsement for its project by its
board of directors, executive management, or other governing authority. If a
collaborative grouping, a formal approval from each participant’s governing authority is
necessary. (Indicate Yes or No in the box )
Yes 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 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.)
1 Under State Law (AS42.05.221), IPPs selling wholesale energy to a public utility are subject to RCA
jurisdiction. IP intends to apply to the RCA for an exemption from regulation as allowed in AS42.05.711. If
an exemption is not granted, then IP would need to become a certificated utility, and is fit, willing, and able to
do so. Fishhook Renewable Energy, LLC and South Fork Hydro, LLC are currently pioneering this process
for grid-tied IPPs on the railbelt, and their efforts will provide some clarity on this process for this and similar
projects.
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FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 3 OF 25
SECTION 2. - PROJECT SUMMARY
2.1. Project Type
The proposed project is for the development of a run-of-river hydroelectric project located on
Fourth of July Creek near Seward, Alaska and includes reconnaissance, feasibility, permitting,
design, and construction for that project. Fiscal year 2009 (FY09) grant funds are requested for
reconnaissance, feasibility, conceptual design, final design, and permitting. FY 2010 grant funds
are requested for project construction.
2.2. Project Description
The Fourth of July Creek hydroelectric project is a low-impact run-of-river project located near
Seward, Alaska. The project would be located east of the Spring Creek Correctional Facility,
across Resurrection Bay from the city of Seward. Energy from the project would be provided
into the Seward Electric System grid.
Independence Power, LLC (IP) is the project developer, and would contribute funding and own
and operate the project. IP would manage the pre-construction study process, completing some
efforts internally, and contracting out other activities to qualified consultants as appropriate.
Construction would be completed by qualified contractors selected through a competitive
bidding process.
2.3. Project Budget Overview
IP requests FY09 grant funds to contribute to the preconstruction phase of the project. IP has
initiated the preconstruction phase of the project, and will contribute both capital and in-kind
services to the project. IP proposes to contribute 50% to the cost of the project for
preconstruction, and 50% for construction. A project cost summary is provided below.
2.4. Project Benefit
The direct financial benefits from the proposed project are summarized below. These benefits
are based on a number of assumptions, as power sales contracts and similar items that will have a
direct bearing on these benefits have not been negotiated or finalized. These assumptions are
discussed in Section 5 of this application.
1. The project will be eligible for Renewable Energy Credits (RECs), which will be
transferred to the State or local utility as part of the public benefit from a grant.
2. The capacity of the project will be made available to the local utility at no cost. This is a
direct benefit to the owners of the local utility, which are the residents of Seward.
3. The project will decrease the amount of energy being transmitted from the CEA system to
Seward. This will reduce line losses over that transmission line, increasing overall
efficiency of both the SES and CEA transmission and distribution systems.
Project Phase Grant Funds Local Match (Capital and
In-Kind) Total Funding
PRE-CONSTRUCTION (FY 09) $196,500 $196,500 $393,000
CONSTRUCTION (FY 10) $7,641,000 $7,641,000 $15,282,000
TOTAL CAPITAL COST $7,837,500 $7,837,500 $15,675,000
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FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 4 OF 25
4. During episodes when Seward is isolated from the CEA system, SES currently uses diesel
generators. This project will reduce the quantity of diesel fuel consumed in the city’s
diesel electric plants, reducing the fuel costs passed on to ratepayers.
The project is also expected to have the following indirect benefits to the public:
1. Increased reliability and stability of the local power grid. Also, increased diversity of
fuel sources both in the Seward vicinity, and on the railbelt grid as a whole.
2. Reduced demand for Cook Inlet natural gas. This project will offset natural-gas fired
power generation, reducing natural gas consumption and incrementally extending the life
of the existing Cook Inlet fields, to the benefit of the public that relies upon these fields
for electricity and heating needs.
3. A significant portion of the project funding will go towards hiring local construction
firms to perform the work, thus boosting the local economy.
4. A local firm is performing the design and development. This benefits Alaska by
promoting local experience and can be used to develop additional future projects thus
providing additional economic development and jobs for Alaskans.
5. The project's summertime capacity may be helpful in enabling SES to provide shore
power for cruise ships when in port, and would reduce air quality impacts from on-board
power generation.
6. The project will present an opportunity for the Alaska Vocational Technical Center
(AVTEC) to develop a curriculum around hydroelectric power. This would benefit
AVTEC, the city of Seward, and the state at large, by developing a workforce that is
proficient in the special skills required to build, operate, maintain, and repair
hydroelectric systems.
Project Cost and Benefit Summary
2.1 PROJECT COST AND BENEFIT SUMMARY
Include a summary of your project’s total costs and benefits below.
FY 09 FY 10 Total
2.5.1 Total Project Cost
(Including estimates through construction.)
- - $15,675,000
2.5.2 Grant Funds Requested in this application. $ 196,500 $ 7,641,000 $ 7,837,500
2.5.3 Other Funds to be provided (Project match) $ 196,500 $ 7,641,000 $ 7,837,500
2.5.4 Total Grant Costs (sum of 2.5.2 and 2.5.3) $ 393,000 $15,282,000 $15,675,000
2.5.5 Estimated Benefit (Savings) - - $ 0
2.5.6 Public Benefit
(See section 5 for discussion)
$ - - $12,677,660
SECTION 3. - PROJECT MANAGEMENT PLAN
3.1. Project Manager
The Project Manager is Joel D. Groves, PE. Daniel J. Hertrich, PE will serve as alternate Project
Manager. Both Mr. Groves and Mr. Hertrich are members of IP, and have considerable
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 5 OF 25
experience evaluating, designing, permitting, and operating hydroelectric projects similar to the
proposed project in southcentral Alaska. Resumes and references are attached to this proposal.
No project management assistance from AEA or other government entities is expected for this
project.
3.2. Project Schedule
IP initiated field reconnaissance efforts for this project in late August 2008. To date, the
following activities have occurred:
1) Reconnaissance evaluations.
2) Begin hydrology study.
3) Initiate contact with city of Seward and Chugach Electric Association (CEA) to begin power
sales contract negotiations.
4) Initiate permitting processes for project.
In 2009, IP will complete reconnaissance, feasibility, contract negotiation, permitting, design,
and other activities required to advance the project. With successful completion of these
activities, IP would be in a position to construct the project in 2010, with project commissioning
occurring in late 2010.
3.3. Project Milestones
IP will continue to evaluate the viability of the project throughout the 2009 development phase.
Key factors such as hydrology, expected power generation, power sales, construction cost,
construction feasibility, and similar issues will be reviewed to validate that the project is feasible.
These key project milestones are summarized in the table below.
Milestone Scheduled Completion
Reconnaissance Study April 2009
Hydrology Report December 2009
Feasibility Study January 2010
Final Permit Approvals January 2010
Execute Power Sales Contract February 2010
Secure Project Financing February 2010
Design Drawings and Bid Package March 2010
Commence Construction May 2010
Complete Construction October 2010
Project Commissioning November 2010
3.4. Project Resources
IP's members are all professional civil engineers with extensive experience in designing,
constructing, and operating small run-of-river hydroelectric projects in Alaska, such as the
Fourth of July project. IP will manage and/or conduct pre-construction activities, such as the
reconnaissance study, feasibility study, conceptual design and final design. Some activities will
be subcontracted out to appropriate qualified entities.
IP has access to the resources of Polarconsult Alaska, Inc (PCA), the engineering consulting firm
that employs all five of the members of IP. These resources include equipment for stream
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FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 6 OF 25
gauging and hydrology work, surveying work, and similar equipment necessary for pre-
construction field investigations.
In the construction phase of the project, IP will retain bids from multiple vendors/contractors for
construction and major equipment supply. IP will select vendors/contractors based upon the best
interests of the project.
3.5. Project Communications
IP will keep AEA apprised of project status by issuing monthly project status reports. The
reports will include a brief (1 page) report including a narrative of current project status,
activities in the current month, problems encountered, and anticipated activities in the following
month. The report will also include a budget status summary.
As warranted, IP may also advise the AEA grant manager of upcoming events such as field visits
on an as-needed basis.
3.6. Project Risk
Major project risk items that IP has identified to date are listed and discussed below:
1) Bed load – Fourth of July Creek appears to have a significant bed load, and is prone to
frequent flooding. The intake structure must be designed to reliably handle frequent
flooding and high-volume sediment transport. The reconnaissance study will evaluate
the candidate intake site and means of passing the bed load in a cost-effective and reliable
manner.
2) Overall Project cost and economic feasibility. At the reconnaissance level, the project
appears viable. Economic feasibility will be reviewed at key milestones throughout the
development phase of the project.
3) Permitting risk. Based on initial findings from reconnaissance efforts, IP has not
identified any permitting issues likely to impact project viability. Based on the initial
positive results from reconnaissance, IP has started the permitting processes for the
project. This will identify any permitting issues that may impact project viability as early
as possible, mitigating permitting risk.
SECTION 4. - PROJECT DESCRIPTION AND TASKS
4.1. Proposed Energy Resource
IP has used existing available hydrology data to estimate the hydrology for the Fourth of July
Creek basin, and recently started a hydrology study for the basin. The estimated hydrology
based on existing information is presented in the figures below.
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Based on this hydrology, the project would have an installed capacity in the range of 3.0 to 4.5
MW, and an average annual energy generation of around 16,000 to 23,000 MWh. More precise
estimates for average annual energy generation and installed capacity will be possible after
hydrology studies currently under way are completed in 2009. For this grant application, an
installed capacity of 4.4 MW and the hydrology profile based on Lowell Creek is assumed.
Alternative energy resources available to this market include all alternatives available to the
railbelt energy grid, which principally include: natural gas, diesel/oil, coal, storage hydro, run-of-
river hydro, hydrokinetic, wind, geothermal, and tidal. Many of these resources are not in the
immediate Seward vicinity, and thus are not considered firm energy resources, because the
transmission line into Seward is subject to extended outages. Currently, local generation in
Seward is limited to diesel generation. There is a small hydro project behind the town that is not
operational. The various alternatives available to Seward are discussed briefly below.
¾ Natural gas and diesel have high fuel costs, and some exposure to any future carbon taxes.
¾ Coal has a relatively high capital cost. The fuel is relatively inexpensive, however it has
significant exposure to any future carbon taxes. In some areas of the state, coal has received
a stiff opposition from the public.
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¾ Storage hydro, wind, and geothermal have high capital costs.
¾ Wind has a low capacity factor (typically 25-35%, and varying from 0-100% output at any
time), and must be backed by firm stand-by generation.
¾ Tidal and hydrokinetic systems also have high capital costs, and many tidal / hydrokinetic
technologies are not yet mature.
¾ Other run-of-river hydroelectric projects may be competitive with this project on a cost basis,
however this project has very favorable economics on a capital cost per installed kW or kWh
basis.
Overall, this project is competitive with other renewable and nonrenewable generation options
available to the railbelt.
4.2. Existing Energy System
4.2.1. Basic configuration of Existing Energy System
The project would be connected to the SES grid, which is interconnected with the railbelt energy
grid. Seward's has diesel generators located in town to provide firm capacity for the town during
episodes when the transmission line is down. Seward's prime generators are reaching the end of
their useful life, and the city utility is in the process of purchasing two new diesel generators to
replace these older units.
4.2.2. Existing Energy Resources Used
Under normal operating conditions, SES purchases wholesale power from Chugach Electric
Association (CEA) and Alaska Energy Authority (AEA, Bradley Lake Hydroelectric Plant).
Seward receives a small percentage of the output from Bradley Lake, and the balance of its
power is provided by CEA. When the transmission line to CEA is out of service, Seward relies
100% on local diesel generation.
The project would not significantly impact existing energy infrastructure. The project would
interconnect with the SES grid at a point where that system is capable of receiving the full
project output. In fact, this project would likely improve voltage and frequency stability on the
SES system.
Under normal operating conditions, the project would offset natural gas-fired generation in the
Cook Inlet basin. This would incrementally reduce the demand for Cook Inlet natural gas,
extending the life of the Cook Inlet gas fields. This would directly benefit the residents of the
railbelt, which rely on that gas supply for affordable electricity and heating requirements. The
volume of natural gas offset by this project is modest, but is a significant benefit to the public.
When the transmission line to CEA is out of service, this project would directly reduce the
amount of fuel burned by SES's diesel generators. During the summer months, this project could
serve approximately 30 to 50% of SES average system load. During the winter months, the
project could serve approximately 5 to 20% of SES average system load. The actual load that
could be served would depend on the size of the system load, installed project capacity, and
water availability at the time of the outage.
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4.2.3. Existing Energy Market
The existing energy market is the six railbelt utilities, SES, CEA, Homer Electric Association
(HEA), Matanuska Electric Association (MEA), Municipal Light & Power (MLP), and Golden
Valley Electric Association (GVEA). SES is the logical market for energy from this project, as
the project is located within SES service territory. Sales to other utilities are possible, although
the wheeling costs and complexity in negotiating wheeling agreements could significantly
adversely affect the project’s economic feasibility.
Initial conversations with the City of Seward have indicated some interest in providing shore
power for cruise ships when they are in port. This is a high load (10 MW) short duration (24
hour) load. Capacity from this project could be very helpful in providing shore power services to
cruise ships and reducing air quality impacts.
4.3. Proposed System
4.3.1. System Design
The Fourth of July Creek Project will consist of the following major components:
¾ Intake structure. The intake structure will be located at about the 720’ elevation on
Fourth of July Creek. It will divert water from the creek up to the design flow
(tentatively 120 cfs), pass it through a settling basin, screens, and other apparatus to
remove deleterious materials from the water and discharge it to the penstock. Filtered
materials would be returned to the creek below the intake structure. The intake structure
will be designed to handle the significant bed loads and frequent flooding characteristic
of Fourth of July Creek.
¾ Penstock. The penstock will be about 48 inches in diameter, and will convey water from
the intake about 4,600 feet to the powerhouse. The penstock will be constructed of
plastic and/or steel. The penstock will be constructed above ground, partially buried, or
fully buried depending on geotechnical conditions along the penstock route. Power and
communications between the intake and powerhouse will be co-located with the
penstock. The penstock alignment will generally serve as the access route to the intake
for construction, maintenance and operations.
¾ Powerhouse. The powerhouse will house the turbines, generators, switchgear, controls,
and associated equipment for the project. It will be located at an elevation of
approximately 130 feet near Fourth of July Creek. The powerhouse will measure
approximately 40 by 60 feet.
¾ Generation equipment. The precise turbine/generator configuration has not been
determined. Tentatively, at least two turbine-generator sets will be installed to maximize
reliability and efficiency of the project. The generation equipment will likely be
synchronous, to best integrate with the utility.
¾ Tailrace. Water from the powerhouse will be discharged via a short tailrace back into
Fourth of July Creek.
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¾ Transmission Line. Power generated by the project will be transmitted via a new
transmission line approximately two miles to SES’s existing substation at the
intersection of Nash Road and Jellison Avenue. The point of interconnection with the
SES system will be at the end of this transmission line. If existing distribution lines are
capable of carrying the energy from the project, the point of interconnection could be
closer to the Spring Creek Correctional Facility, reducing the length of this line by
approximately ½ mile.
¾ Access. Access to the project will be via approximately one mile of new unpaved road
extending east from an existing restricted-access maintenance road serving city wells just
north of the Correctional Center. Because of the proximity to the Correctional Center
and public wells, this access road will be closed to unauthorized motorized vehicles.
The project will have an installed capacity of between about 3.0 and 4.5 MW. Final installed
capacity will depend largely on the outcome of hydrology studies, final gross head, economic
evaluation to optimize project cost and resource utilization, and efficiency of the selected
turbine-generator package.
The project’s capacity factor will be determined after the conclusion of the hydrology studies.
Based upon existing information and preliminary analyses, the capacity factor will likely be in
the range of 0.45 to 0.60.
4.3.2. Land Ownership
The project intake, penstock, and powerhouse are all located entirely on state lands. Most of the
access road and roughly half of the transmission line would also be located on state lands. Some
of the access road and transmission line serving the project would be located on lands owned by
the City of Seward.
IP has filed applications with the Alaska Department of Natural Resources for land easements for
the linear features of the project, and land leases for the powerhouse and intake locations.
Easements will also be required across city of Seward property for portions of the project access
road and transmission line.
4.3.3. Permits
The following permits and approvals have been identified as being required for this project:
¾ Water Use Permit / Water Rights (ADNR)
¾ Land Lease/easement (ADNR)
¾ Fish Habitat Permit (ADFG)
¾ Nationwide Permit 17 for Hydropower Projects – for incidental wetlands fill and
similar matters (Army Corps of Engineers)
¾ Alaska Coastal Management Program Consistency Review (ACMP)
¾ Utility certification or exemption (RCA)
¾ Finding of non-jurisdiction (FERC)
¾ Archeological consultation (SHPO)
Applications and permitting processes for all of the above permits have been initiated by IP.
Based upon initial review of the permit issuance criteria, we expect that all required permits can
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be issued in time for 2010 construction. In addition to the above permits, the City of Seward
may have additional local permits that are necessary for the project.
4.3.4. Environmental
Compatibility of the project with environmental considerations has been reviewed as part of the
permitting process. Key initial findings are summarized below.
¾ Fish Habitat. The project is located above fish habitat as designated on the Atlas of
Waters Important to the Rearing and Spawning of Anadromous Fishes. ADFG has
not yet made a fish habitat determination on this project, but site reconnaissance
indicates that the project is unlikely to have any adverse impact on anadromous fish
habitat.
¾ Threatened or Endangered Species. USFWS and NMFS were contacted as part of
completing the Coastal Project Questionnaire. Neither agency has identified the
project vicinity as critical habitat for threatened or endangered species.
¾ Aesthetics. The project will have negligible if any adverse aesthetic impact. The
project’s most visible feature will be roads and power lines, which are common sights
in the general vicinity. The project is located in a part of Seward that is used for
industrial and institutional (prison) purposes. The project would be mostly located in
an undeveloped area in the mountains east of the state prison. The project would not
be visible from the city of Seward or from Resurrection Bay. The project would be
visible from the air in the project’s immediate vicinity.
¾ The project is not expected to fill a significant area of wetlands. Any required fill of
wetlands is expected to be permitted under a Corps of Engineers nationwide permit.
¾ No archeological or cultural resources are known to be in the project vicinity. SHPO
will be consulted during the course of the project.
¾ Land development constraints. None known.
¾ Telecommunications Interference. None known.
¾ Aviation Considerations. None known.
4.4. Proposed New System Costs (Total Estimated Costs and proposed
Revenues)
4.4.1. Project Development Cost
IP has prepared an opinion of probable cost for the project of $15,675,000. This includes all
development and construction costs required to commencement of operations. This value will be
refined as additional information is compiled and analyzed during the initial phases of project
development.
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4.4.2. Project Operating and Maintenance Costs
Project operation and maintenance costs are projected to be in the range of approximately
$200,000 to $300,000 annually. A more accurate annual O&M budget will be possible when the
project is more advanced. IP would establish an operating fund at project startup to fund annual
O&M expenses. This fund would likely be capitalized as part of IP’s project financing, and then
replenished on a perpetual basis from operating revenues. The fund would also cover seasonal
cash flow fluctuations, such as reduced power sales revenue during the winter months, when the
flow in Fourth of July Creek is reduced. This fund would also be used to manage longer-term
cash flow issues, such as weathering drought years and some major maintenance / repair
activities.
No grant funding is requested for operations and maintenance costs.
4.4.3. Power Purchase/Sale
The energy from the project would be sold to one of the six railbelt utilities. The most logical
purchaser would be the local utility, SES. If a contract cannot be negotiated with SES, CEA
would be the next most logical purchaser for the energy generated.
Negotiations for a power purchase contract have not been initiated. Generally, the power
purchase price would be either (1) at a fixed price, possibly with an escalator to accommodate
O&M costs over time, or (2) at the purchasing utility’s avoided cost of energy.
Based on current cost estimates and the proposed grant amount, a fixed price would need to be in
the range of 5 to 9 cents per kWh. An avoided cost contract would likely track CEA’s avoided
costs, which are projected to run in the range of 5 to 12 cents/kWh for the foreseeable future.
Based upon existing estimates and available information, the estimated rate of return for the
project would be in the range of 2 to 15% annually.
4.4.4. Cost Worksheet
Assumptions used in completing the attached AEA cost worksheet are summarized below.
¾ 1 – Annual average resource availability. Resource availability range of 0.45 to 0.60 is
based on existing hydrology for basins similar to Fourth of July Creek. The ongoing
hydrology study will determine the actual resource availability. All remaining entries on
the Cost Worksheet are based on a resource availability of 0.59.
¾ 3.b.vi – Annual renewable electricity generation. This is based upon an assumed water-
to-wire efficiency of 77%, and a plant reliability of 95%.
¾ 4. – Project Costs. These are opinions of probable cost based upon available information.
¾ 5. – Project Benefits. Displaced fuel is based upon assumed an assumed outage rate on
the transmission line to Seward, and an assumed heat rate for CEA's incremental gas-fired
generation and costs for CEA gas supply. See section 5 for more details on these
assumptions.
¾ 6. – Power Purchase Price. Depends on contract pricing structure and future avoided
costs. Range given is likely range of contract pricing.
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4.4.5. Business Plan
All of the Members of Independence Power, LLC (IP) are Alaskan licensed Professional
Engineers. Together, they have decades of experience in all aspects of hydropower projects in
Alaska. The work completed to date without outside financial assistance illustrates IP's
commitment and capability to successfully build and operate the Fourth of July Creek
Hydroelectric Project.
IP's members have direct experience in permitting, design, construction, and operation of
hydroelectric facilities. In addition to the numerous projects that the Members have worked on
as part of their regular course of business as engineering consultants for Polarconsult Alaska, the
Members also have experience owning, operating, and maintaining the McRoberts Creek
hydroelectric project over the past 18 years.
All of IP's members are employees of Polarconsult Alaska, Inc. Attachment A includes a
Statement of Qualifications for Polarconsult that highlights IP member capabilities.
IP members have extensive experience managing a business and remaining financially secure.
Three of IP's members have jointly owned and operated a consulting engineering business since
1984. Additionally, IP will be managed in a manner that requires cash reserve and efficient
project operation.
As a for-profit entity, IP has a significant interest in maintaining long term sustainability for this
project. All members will be investing a significant amount of personal resources and work
effort to get the project started. Such investment keeps members highly motivated to operate the
project as efficiently and reliably as possible to realize the highest possible return on the
investment. Additionally, IP's members are building a track record for developing projects,
similar to the 18-year old McRobert's Creek Project. These projects include the Fishhook and
South Fork Hydroelectric Projects, both of which are now in the advanced development phase.
The five Members of IP have all successfully worked together for 14 years, since 1994. Mr.
Earle Ausman and Mr. Dahl have worked together managing an engineering company,
Polarconsult Alaska, Inc. since 1984. Mr. David Ausman joined Polarconsult in 1986 Mr.
Hertrich joined in 1993, and Mr. Groves joined in 1994. IP members, as owners and employees
of Polarconsult, have clearly demonstrated a long standing and healthy business history that will
endure well into the future.
The project financials are being tailored to ensure a low development risk coupled with long
term sustainability. This will be achieved primarily through risk mitigation using conservative
estimating, revenue analysis, and extensive cash reserves. Such efforts equate to a high
probability of profit from year to year that insures financial fitness and capability. As project
development proceeds into the feasibility phase, the economic model will have the following
conservative assumptions:
• High contingency on a detailed cost estimate (20%).
• Low turbine efficiency estimate (95% of actual).
• Low water availability estimate (95% of actual).
• Low reliability estimate (90%).
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 14 OF 25
Through our experience, IP has the knowledge, institutional framework, and processes to
sustainably operate small hydroelectric projects such as the Fourth of July Creek project. These
processes include:
¾ Financial Management Team. IP will contract with independent entities to perform
bookkeeping, accounting, and financial management functions, with the direct oversight
of IP members. Our financial management team is familiar with the unique financial
aspects of small hydroelectric projects.
¾ Operations and Maintenance Team. IP members will be directly responsible for and
involved in operations and maintenance of the hydroelectric project. The project will
employ a supervisory control and data acquisition (SCADA) system that will enable
unmanned operation of the plant. Operators will be able to monitor plant operations and
telemetry, and will be able to troubleshoot and modify plant settings remotely via secure
communications. IP will have a local representative in Seward to respond to plant
emergencies in a timely manner as needed. The project will have a rigorous preventative
and scheduled maintenance program to minimize unscheduled outages.
¾ Business Team. IP members will develop and maintain a formal business plan, that will
address key business issues such as maintaining regulatory compliance, capital
replacement needs, etc.
4.4.6. Analysis and Recommendations
Based upon work completed to date, the Fourth of July Creek project is an economically robust
run-of-river hydroelectric resource. Reconnaissance efforts have not identified any major
concerns that give IP pause in recommending that this project be advanced for development.
This is why IP has proceeded with filing permits on this project and initiating the long-lead time
hydrology study. With timely completion of the permitting process, contract negotiations, and
numerous other required tasks, construction of this project is possible in 2010.
SECTION 5. - PROJECT BENEFIT
5.1. Estimated Fuel Displacement
The project would primarily displace Cook Inlet natural gas burned by Chugach Electric for
power generation. The project would also offset some diesel fuel burned during transmission
outages. Estimated fuel displacement and assumptions used to generate the estimates are
summarized in the following table.
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 15 OF 25
Fuel Type Natural Gas
Annual Displaced Energy 21,702,708 kWh
Displacement 100%
Efficiency of Displaced Generation (Heat Rate) 9,800 btu/kWh
Average Annual Displaced Fuel (Natural Gas) 213 MMCF
Displaced Fuel over 30 Years 6,380 MMCF
Average Market Value of Displaced Fuel $7.00/MCF
Annual Value of Displaced Fuel $1,488,806
Inflation Rate 2%
Discount Rate 5%
Present Value of Displaced Natural Gas Fuel over 30 years $29,181,250
Fuel Type Diesel
Annual Displaced Energy 92,400 kWh
Displacement 100%
Efficiency of Displaced Generation 14 kWh/gal
Average Annual Displaced Fuel (diesel) 6,600 gal
Displaced Fuel over 30 Years 198,000 gal
Average Market Value of Displaced Fuel $4.00/gal
Present Value of Displaced Diesel over 30 years $517,452
TOTAL PRESENT VALUE OF DISPLACED FUEL $29,698,701
5.2. Estimated Annual Revenue
Estimated annual revenue from power sales and assumptions used to generate the estimates are
summarized in the following table.
Contract Item Proposed Terms
Contract pricing Avoided Cost
Average avoided cost over 30 years (Power Sales Rate) $0.050/kWh
Average Annual Energy Sales 21,795,108 kWh
Average Annual Gross Revenue From Power Sales $1,035,268
Average Annual Operating Expenses $760,090
Average Annual Net Revenue (Before Taxes, Depreciation, etc.) $206,383
5.3. Other Annual Revenue Streams
IP anticipates that the project would qualify for low-impact certification under the national
standards established by Green-e, and likely other certification entities. This would make energy
from the project eligible for green tags/renewable energy certificates (RECs). RECs currently
market in Alaska for $0.02/kWh (Denali Green Tags).
IP proposes to transfer REC rights to AEA as a public benefit of this project. No project revenue
is assumed from RECs.
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FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 16 OF 25
State or federal tax credits may be available to the project over its life. Currently available
federal tax credits for renewable energy have very limited eligibility criteria for hydroelectricity,
and this project would likely not quality. Generally, the volatility in tax credits precludes
forecasting any benefit from them over the project’s life.
5.4. Project Benefit from Direct Cost Savings
IP has identified the following direct cost savings resulting from this project.
¾ Green Tag / Renewable Energy Credits (RECs): IP will transfer title and rights to RECs
the project will qualify for to AEA. These RECs could be marketed by the state or
transferred to the local utility or other utilities. The project meets the certification
criteria established by Green-e for low-impact hydropower. RECs currently market in
Alaska for $0.02/kWh (Denali Green Tags).
¾ Capacity and Energy Rate Reduction: While a power sales contract has not been
negotiated for this project, it has been our experience that the most amenable form of
contract for utilities in the railbelt to accept and execute for wholesale power from small
renewable projects is for non-firm power at the cost of avoided energy. To expedite
contract negotiations, IP would likely pursue a similar price structure for this project.
The lowest avoided cost of energy available in the Seward vicinity is likely to be CEA's
avoided cost for the foreseeable future, and this is the avoided cost upon which a contract
would likely be based. This price structure offers the project's capacity as a direct
benefit to SES at no cost.
¾ Line Efficiency: The line losses from the Fourth of July Creek project to the city of
Seward are less than the line losses from CEA generation to the city of Seward. The
project will increase the efficiency of the SES and CEA systems, reducing costs for both
utilities.
¾ Annual Property Tax Revenue: The Kenai Peninsula Borough and City of Seward will
likely levy property taxes on the project over the life of the project. These annual
property tax payments will contribute to the tax base and economic activity in the
Borough.
¾ Reduced Diesel Costs: When the transmission line to CEA is out of service, Seward
relies entirely upon diesel generators. For example, in February 2006, avalanches
isolated Seward from the CEA grid for a period of 26 days. The project will reduce the
amount of the system load that must be met by the generators, reducing the fuel
consumption during such outages and lowering utility and ratepayer costs. Similarly, the
project would also reduce the O&M costs for the diesels by reducing their running hours.
This would save costs on consumables (lube oil, filters, etc.) and overhauls.
These annual public benefits are summarized, and their present value is estimated in the
following table. Assumptions used to generate the estimates are also stated.
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 17 OF 25
DIRECT ECONOMIC BENEFITS FROM PROJECT
Green Tags / RECs
Average annual generation: 21,795,108 kWh (assumed)
Market Value: 0.02 $/kWh
Annual Value: $435,902
Term: 30 years
Inflation Rate: 2%
Discount Rate: 5%
Present Value: $8,543,875
Increased Available Capacity
value per kW $300 ( approx. cost, diesel)
kW provided (firm, summer months) 4,439 kW (estimated)
Capacity value $1,331,682
Present Value $1,331,682
Line Efficiency
Line losses from CEA G&T to SES 3.0% (CEA Tariff)
Line losses on SES System: 1.5% (assumed)
Line losses from 4th of July to SES load center: 0.5% (assumed)
Power throughput avoided by project: 21,795,108 kWh (assumed)
Avoided energy losses (CEA): 651,674 kWh
Avoided energy losses (SES): 217,951 kWh
Nominal value of energy: 0.05 $/kWh (projected over life)
Average annual savings from reduced energy losses: $43,481
Term: 30 years
Inflation Rate: 2%
Discount Rate: 5%
Present Value: $852,251
Property Tax Revenue to Mat-Su Borough
Estimated annual tax obligation: $73,080
Term: 30 years
Present Value: $1,432,400
Reduced Diesel Consumption
Annual transmission outage hours: 168 hrs (assumed)
Average hydro capacity during outage: 550 kW (assumed)
Incremental fuel efficiency: 14 kwh/gal (assumed)
Avoided fuel consumption: 6,600 gal
Fuel cost 4.00 $/gal (assumed)
Annual value: $26,400
Term: 30 years
Inflation Rate: 2%
Discount Rate: 5%
Present Value: $517,452
TOTAL DIRECT ECONOMIC BENEFITS FROM PROJECT $12,677,660
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 18 OF 25
5.5. Indirect Project Benefits
IP has identified several indirect public benefits that may result from the project. These are
summarized and briefly discussed below.
1. The project will be connected to the railbelt electrical grid. This provides desirable
operational enhancements to this transmission and distribution system. There is an
increase in stability, reliability, and redundancy. These gains can only be obtained by
providing multiple, distributed generation sources which is generally not feasible with
typical large utility generation facilities. This new generation asset also improves the
diversity of fuel sources powering the grid through the addition of renewable energy.
2. This new generation asset will offset generation from existing natural gas-burning
facilities in Southcentral Alaska. This will reduce consumption of Cook Inlet basin
natural gas. Cook Inlet gas production from existing developed fields is declining, and
shortages are already occurring during periods of peak gas demand. By offsetting natural
gas demand for electricity generation, this project will be extending the useful life of the
Cook Inlet gas fields to the benefit of the public.
3. A significant portion of the project funding will go towards hiring local construction
firms to perform the work, thus providing local jobs and experience in building a
hydroelectric project. Current unemployment in the area is at 6.5% compared with a state
average of 6.0%2.
4. A local firm is performing the design and development. This benefits Alaska by
promoting local experience and can be used to develop additional future projects thus
providing even more economic development and jobs for Alaskans.
5. The project access road and penstock trail have the potential to be recreational resources
for non-motorized recreation. Such a use would need to be coordinated with the State
Department of Corrections and the Seward Water Utility, as the access route to this
potential recreational opportunity would pass closely to the state prison and city water
supply wells.
6. City officials in Seward have expressed an interest in providing shore power to cruise
ships when they are in port. This is a large short duration load, typically on the order of
10 MWs for 24 hours or so per ship. The project’s summer capacity of up to 4.5 MW
would be available to help meet this large transient load and keep the grid stable as these
ships come on and off line, and could considerably improve the feasibility of providing
shore power to cruise ships.
7. The project should coordinate with the curriculum at AVTEC to educate Alaskans on
hydroelectric power, construction, operations, maintenance, repair, and similar aspects.
This would help grow a local workforce that is skilled and knowledgeable in working
with renewable energy systems. As Alaska builds more renewable energy projects, a
workforce well-trained with these unique mechanical and electrical systems will be
critical to reducing construction costs and maximizing operational life for these projects.
2 August 2008, State of Alaska, Department of Labor and Workforce Development,
http://www.labor.state.ak.us/research/monthlyunemprate/sep08map.pdf
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008 PAGE 19 OF 25
SECTION 6. - GRANT BUDGET
The total estimated cost for project development through to commissioning is $15,675,000.
Since August 24, 2008, IP has invested approximately $14,000 in capital and in-kind services to
the project on the activities listed in Section 3.2 of this application. IP anticipates an additional
expenditure of capital and in-kind services in the range of $25,000 to $30,000 through the end of
2008 for additional field work, studies, and initial contract negotiations.
IP would contribute capital and in-kind services to the project from its private resources through
the pre-construction phases of the project. IP's share of construction funds would be in the form
of loans, either from commercial lenders or government lenders, such as AIDEA's Power Project
Fund.
IP is requesting a grant totaling $7,837,500 for this project.
The grant budget is summarized on the attached Grant Budget Form.
SECTION 7. - ADDITIONAL DOCUMENTATION AND CERTIFICATION
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 6.
D. An electronic version of the entire application per RFA Section 1.6
E. Governing Body Resolution per RFA Section 1.4
F. 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 Joel D. Groves
Signature
Title Project Manager
Date October 8, 2008
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
OCTOBER 8, 2008
A. RESUMES OF APPLICANT’S PROJECT MANAGER, KEY STAFF,
PARTNERS, CONSULTANTS, AND SUPPLIERS PER
APPLICATION FORM SECTION 3.1 AND 3.4
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FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
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B. COST WORKSHEET PER APPLICATION FORM SECTION 4.4.4
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
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C. GRANT BUDGET FORM PER APPLICATION FORM SECTION 6.
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D. AN ELECTRONIC VERSION OF THE ENTIRE APPLICATION PER
RFA SECTION 1.6
INDEPENDENCE POWER, LLC RENEWABLE ENERGY FUND GRANT APPLICATION
FOURTH OF JULY CREEK HYDROELECTRIC PROJECT
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E. GOVERNING BODY RESOLUTION PER RFA SECTION 1.4