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HomeMy WebLinkAboutDiesel Brewing Renewable Energy Project App Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 1 of 40 9/2/2008 Application Forms and Instructions The following forms and instructions are provided for 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.html The following application forms are required to be submitted for a grant recommendation: Grant Application Form GrantApp.doc Application form in MS Word that includes an outline of information required to submit a complete application. Applicants should use the form to assure all information is provided and attach additional information as required. Application Cost Worksheet Costworksheet.doc Summary of Cost information that should be addressed by applicants in preparing their application. Grant Budget Form GrantBudget.xls A detailed grant budget that includes a breakdown of costs by task and a summary of funds available and requested to complete the work for which funds are being requested. Grant Budget Form Instructions GrantBudgetInstr.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 a plan 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. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 2 of 40 9/3/2008 SECTION 1 – APPLICANT INFORMATION Name Diesel Brewing Company, LLC (DBA Diesel Brewing of Ketchikan) Type of Entity: Independent Power Producer Mailing Address P.O. Box 4483, Salem, Oregon 97302 Physical Address 3991 Fairview Industrial Drive S, Salem, Oregon 97302 Telephone 503 588-8028 Fax 503 588-8260 Email Jeff@northwestwind.com 1.1 APPLICANT POINT OF CONTACT Name: Jeff Raines Title: Chief Executive Officer Mailing Address P.O. Box 4483, Salem, Oregon 97302 Telephone 503 588-8028 Fax: 503 588-8260 Email Jeff@northwestwind.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 XX An independent power producer, 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 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.) Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 3 of 40 9/3/2008 SECTION 2 – PROJECT SUMMARY Provide a brief 1-2 page overview of your project. 2.1 PROJECT TYPE Describe the type of project you are proposing, (Reconnaissance; Resource Assessment/ Feasibility Analysis/Conceptual Design; Final Design and Permitting; and/or Construction) as well as the kind of renewable energy you intend to use. Refer to Section 1.5 of RFA. Diesel Brewing of Ketchikan is a renewable energy project dedicated to taking low-grade or waste products from the timber industry, such as hog fuel, and turning it into a combination of liquid fuel products (diesel, heating oil and kerosene) and producing electricity as a by-product of the process. Therefore, the kind of renewable energy used will be waste forest products. Although this project spans the four phases listed within the RFA, much of the preliminary work performed is directly transferrable to the other phases. For example, information gathered for items listed under Reconnaissance is also directly transferrable to the second phase, Feasibility. Therefore, although the project spans the four phases of the State of Alaska, Renewable Energy Grant Application, less than 20% of the time and effort will go to the first three phases will more than 80% will go into the final phase, Construction, Commission, Operation and Reporting. With this in mind, the Project elements required in order to successfully complete this project are: The Project elements are: 1. Reconnaissance; which includes initial site visit and further analysis of the project potential in order to move on to a full feasibility study. 2. Resource Assessment and full Feasibility Study; the full feasibility study will include resource assessment, full permit reviews, initial engineering evaluation of selected sites, site design modifications, final economic impact study and work force assessment. 3. Final Design and Permitting; This phase will include both final site design and equipment integration engineering design. Final permitting with all agencies and first stage workforce integration. 4. Construction and Commissioning; Final phase, at this point construction and final workforce integration will lead to commissioning and operations. 2.2 PROJECT DESCRIPTION Provide a one paragraph description of your project. At a minimum include the project location, communities to be served, and who will be involved in the grant project. The proposed project is to convert bio-mass (forest products residuals) to liquid fuels, specifically heating fuels and diesel, and electricity through gasification of the bio-mass and converting the resulting synthesis gas (SynGas) to #1 heating fuel and diesel for transportation applications. Electricity is a by-product of the proposed process and will be produced to meet facility electrical needs with any excess electricity made available to the local utilities. The technologies used in the process are, for the most part, well known and proven technologies in use since the mid-1930’s. The gasses produced will be converted to liquids fuel using a catalytic Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 4 of 40 9/3/2008 conversion process called Fischer-Tropsch, and the electricity will be produced and generated by capturing the waste heat and making steam through heat exchangers and standard turbines and generators. The preferred site for this facility is Ketchikan, AK, specifically at the industrial park located adjacent to the airport and co-located with one of the mills in the area. Ketchikan has a large volume of woody bio-mass available from both the National Forest and the local wood products industries. Long term supply appears to be available and transportation of the raw material and the finished product is limited to very short distances. It is envisioned that the majority of the finished product will be consumed in the local area, off-setting high transportation costs for heating oil and diesel and providing a nominal amount of electricity to the industrial park, local area and community as needed. 2.3 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. Include a project cost summary that includes an estimated total cost through construction. The total amount of funds needed for all phases of this project is $25,625,000.00. We anticipate two sources for the funding, grant funding and cost share funding or matching funds. Cost- shared (Private) funding in the amount of $5,125,000.00 will be combined with a Renewable Energy Fund Grant of $20,500,000.00. The cost share for this project equates to a 20% cash match. A project specific corporation will be formed (Diesel Brewing of Ketchikan, LLC), to ensure project specific accounting. Private investors will become members of Diesel Brewing of Ketchikan, LLC. All private funding will be collected prior to beginning the project to avoid potential funding shortfalls once the project has begun. Project Cost Summary: The plant will be under construction for the first 14 months of the project. First year (12 months)costs: Capital Expenses:$19,235,842.00 Salaries and Wages:$501,962.92 Other Operating Expenses:$1,379,670.00 Total:$21,117,474.92 Second Year The plant is scheduled to be fully commissioned in the fourth month of the second year. Capital Expenses:$234,000 Salaries and Wages:$800,553.00 Other Operating Expenses:$2,249,646.00 Total: $3,284,199 Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 5 of 40 9/3/2008 2.4 PROJECT BENEFIT Briefly discuss the financial benefits that will result from this project, including an estimate of economic benefits (such as reduced fuel costs) and a description of other benefits to the Alaskan public. The general benefits, without a full feasibility study, are fairly straight forward; 1. The primary product produced will be #1 heating oil or diesel and secondarily electricity. Currently, liquid fuel products are transported from locations such as Seattle, Washington, on barges and are stored for a period of time for later consumption. By producing fuels locally, several costs are eliminated for the local distributor and/or the local power provider. These savings include: 1) Transportation costs are immediately reduced by the cost of barging the liquid fuels from Washington to Ketchikan. The cost per gallon of barging the liquid fuels is passed on directly to the consumer. By reducing the amount of fuel oil that is transported, cost savings can be transferred to the end user without effecting the bottom line of any of the distributers; 2) Inventory costs are reduced since there would no longer be a need to store large quantities of finished product for long periods of time, the products are produced and consumed as needed. 2. The direct community benefit is that as a company policy, Diesel Brewing Company returns a percentage of its net revenue to the local community in the form of nonprofit and educational support programs. The executive management of Diesel Brewing Company has a long track record and an ongoing commitment to support youth and youth activities in all communities that we do business in and we will continue this tradition in Alaska. 3. Lastly, because this facility is a new, local source of electricity, the strains that the power grid appear to be under, can be mitigated. In our recent discussions with KPU, the local electrical utility provider, it appears that as the price of fuel oil for domestic and commercial heat increases, the conversion to electric heat is increasing. With limited ability to wheel power across Alaska, the local utility will potentially have to generate a significant portion of their own power by using expensive diesel generated power. Excess electricity generated in this facility will be made available for purchase by the KPU, or any other user, at wholesale prices. It is interesting to note that electricity from this facility is less expensive to produce then the current hydro power (as reported to Diesel Brewing Company by the KPU) therefore there is the potential for significant savings on this renewable electricity, although Diesel Brewing Company recognizes the intricacies of selling power to local PUDs. Having said this, Diesel Brewing Company recognizes that it is difficult to fully quantify the cost savings to the community in hard numbers without a more in-depth feasibility study to include pre-negotiating pricing for its products and services. However, since the plant will produce some 900,000-1,000,000 gallons of liquid fuels per year with an additional 20,000,000- 80,000,000 kWh of electricity annually; it is easy to envision the potential for vast savings to the community. 2.5 PROJECT COST AND BENEFIT SUMARY Include a summary of your project’s total costs and benefits below. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 6 of 40 9/3/2008 2.5.1 Total Project Cost (Including estimates through construction.) $25,625,000.00 2.5.2 Grant Funds Requested in this application. $20,500,000.00 2.5.3 Other Funds to be provided (Project match) $5,125,000.00 2.5.4 Total Grant Costs (sum of 2.5.2 and 2.5.3) $20,625,000.00 2.5.5 Estimated Benefit (Savings) $2,505,600.00 per year 2.5.6 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.) $ 5,137,439.20 in the first five years. 2.5.5 Estimated Benefit: Diesel Brewing Ketchikan will generate at least 1,560,000 total gallons of liquid fuels every year. Collectively, 900,000 gallons of synthetic diesel, 260,000 gallons of kerosene and more than 400,000 gallons of other petroleum based products. All of these renewable energy resources will be consumed directly by the city of Ketchikan or communities within Southeast Alaska. Assuming a conservative transportation cost component of $.26 per gallon savings at the retail level, multiplied by the total number of gallons produced, will easily save the community $405,600 in petroleum based energy costs every year. In addition to the liquid fuel cost savings to the public, Diesel Brewing can generate up to 10MWh of electricity from the plant facility to be made available to the public. Assuming a cost savings of $.05 cents per kilowatt, the difference between the Diesel Brewing wholesale rate of $.07 cents per kilowatt and an assumed average cost of $.12 cents per kilowatt being produced today from the Ketchikan Public Utilities, the savings benefit to the community calculated daily would equal $6,000. Assuming Diesel Brewing can solidify power purchase agreements from the local KPU for 5MWh and based on 350 days of operation every year, an annual savings to the public would equal $2,100,000. 2.5.6 Public Benefit When the plant becomes fully operational, the expected payroll and benefits will be in excess of $875.000 per year. The total Salary and Benefit costs during the first five years would be $4,087,439.21. Our estimated costs for Excavation, concrete and asphalt are $1,050,000.00. Other construction and ongoing operational needs will be purchased from the local area. The Public Benefit in Wages and hard surface construction costs alone will be $5,137,439.20. We would expect this number to be much higher once we have a more detailed plan for construction, and availability of local subcontractors. Another public benefit that would warrant further investigation to quantify the public benefit, would be conversion of Municipal Solid Waste (MSW). Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 7 of 40 9/3/2008 It appears that a significant portion of the MSW in South East Alaska and potentially all of Alaska is shipped from the point of origin in containers to Seattle for trans load to rail cars and then sending MSW to the Regional Landfill in Roosevelt Washington. By gasifying a significant portion of the MSW and converting the gas to electricity and some liquid fuels, there would be a significant reduction of tonnage being sent to Eastern Washington resulting in direct savings to the rate payer. In addition to the cost savings resulting from not moving the tonnage to Washington, there would be a new revenue stream for the Cities and Boroughs that host a MSW conversion facility. Not only would there be significant job creation (80 to 100 new jobs) there would also be the potential of revenue sharing with the operator of the conversion facility and reduced cost of electricity that is delivered on a distributed basis. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 8 of 40 9/3/2008 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. Project Manager: Kevin Caldwell, COO, Diesel Brewing Company Kevin Caldwell Mr. Caldwell comes to Diesel Brewing after more than 30 years in the Wood Products industry. Mr. Caldwell has held a variety of positions from commodity lumber trading through plant management, general management and executive management. More recently Mr. Caldwell was President of TechFuels of Oregon, a company dedicated to the thermal processing of lingo-cellulosic bio-mass to liquid fuels. After graduating with a B.S. in History from Eastern Oregon State College in 1979, Mr. Caldwell attended graduate school at Gonzaga University in Spokane Washington and then began his industrial career with Fleetwood of Oregon in LaGrande, OR as a quality control inspector. During his seven years with Fleetwood he was introduced to manufacturing methods, sales and marketing management, customer service as a Regional Customer Service manager, inventory control and purchasing. For the last 20 years, Mr. Caldwell has developed specialty wood products markets in Chile, Japan and the U.S. These markets were to meet specific production and recovery needs for an industry in transition. During the transition and consolidation of the wood products industry in the 1990’s, Mr. Caldwell was instrumental in developing not only new production facilities designed to deliver specialized products to a changing market, but also was involved in many retro-fits of existing facilities to improve efficiency of wood products and energy production. As a result of the work he was involved with in plant energy improvements, Mr. Caldwell became increasingly aware of the need to produce higher value energy products from underutilized resources in the United States, such as wood products and bio-mass. The low commercial value associated with electricity, especially in the Pacific Northwest; lead him on a ten year search for technologies and processes that would add maximum value to waste bio-mass. The culmination of this effort is the creation of Diesel Brewing Co. and the formation of the current executive business and science team of Diesel Brewing Co. Additional site supervision and management will be provided by a construction engineering company chosen for project. Strategic Business Partner: Alkai Consultants, LLC Alkai Consultants, LLC Bio Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 9 of 40 9/3/2008 World class, Consulting and Engineering ALKAI’s Engineers, Scientists & Biologists are uniquely qualified to provide exceptional professional services to our clients. We ensure the success of your projects. Our Senior personnel have authored and participated in the development of industry guidelines, regulations and methodology in all of our professional service areas.  More than 150 publications.  Over 30 prestigious awards.  Two Bronze Medals for EPA program accomplishments.  National Merit Award presented by the Vice President of the United States. ALKAI is exceptionally pleased to be able to provide our clients with this wealth of knowledge and contacts. Our unique multi-disciplinary mentoring program ensures propagation of the vast resources of ALKAI’s senior staff. We look forward to providing exceptional professional services and establishing long term relationships. Alkai Roles Alkai Consulting, LLC staff is composed of:  Environmental Engineers  Geotechnical Engineers  Chemical Engineers  Civil Engineers  Structural Engineers  Fish & Wildlife Biologists  Wetlands Scientists  Project Designers  Project Managers  Scientists  Chemists  Planners Riley D. Evans Managing Partner Mr. Evans has an exemplary history in Planning, Design, Engineering and Construction Management. He has managed design and construction teams of Architects, Civil, Environmental, Structural and Geotechnical Engineers, Surveyors and Contractors for large Commercial Construction and Industrial Waste Water Facilities for Municipalities and Puget Sound Naval Shipyard and large commercial projects of 150 to 450 unit apartment complexes and senior care facilities, . These projects have included Wetlands, Shoreline Management, Natural Resource Planning Design Development, Hearing Representation, Land Use Entitlement, Permitting, Water Systems, Storm Water Runoff, Detention Systems, Sewer Pump Stations, Waste Water Systems, Electrical Power, Natural Gas, Communications, Road, Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 10 of 40 9/3/2008 Highway design and Construction. They have involved all areas of RCRA, NPDES, NEPA/SEPA, CERCLA, and MTCA issues. Mr. Evans was CEO of a Professional Architecture Engineering and Surveying firm for 12 years. He planned and implemented a long range strategic management and marketing plans to develop the firm from under 1 million dollars a year to well over forty million dollars a year in design and construction. He planned designed permitted and successfully completed (CRID #6) “Old Town Silverdale” Kitsap County Road Improvement District #6 with AES Consultants Inc. He managed an average of four to ten of AES Consultants largest projects each year and coordinated quality control of plans and specifications for all projects. Mr. Evans organized and developed minimum plans, specification and contract standards, negotiated consulting contracts and oversaw all aspects of business administration. He represented the majority of projects at all public meetings for City annexation entitlement and hearings. He has conducted area and regional meetings and negotiations with governmental agencies and concerned citizens groups. Mr. Evans has provided Initial Conception and Preliminary Planning for many of the projects he has worked on taking each project successfully from inception to completion. Mr. Evans has an extensive successful Engineering Design, Development and Construction history. GEORGE R. WEBSTER, P.E., D.E.E. Senior Professional Environmental Engineer Mr. George R. Webster has exceptionally distinguished himself as an Environmental Engineer who over the last forty years has been awarded two Bronze Medals for EPA program accomplishments in the development and promulgation of “Industrial Waste Treatment Guidelines”. These Awards were presented by the Administrator of the Environmental Protection Agency (EPA). Mr. Webster was also appointed the US Representative to the OECD Environmental Committee in Paris, France for two years. As the US Representative, he authored numerous position “white” papers that formed the basis of International Environmental agreements on technology for environmental controls and standards and methods of industrial effluent treatments. As a Senior Environmental Engineer, he was appointed to EPA Headquarters, in Washington D.C. as a GS-15 first responsible for assisting in the development of unit operations for industrial and hazardous waste treatment techniques under the EPA Industrial Wastes Research and Development programs. He was promoted to the Director of the Industrial Branch of the Effluent Guideline Division of the Office of Water Quality Programs. With the assistance of many Consulting Engineering firms and personnel in ten Regional Offices of the EPA, he developed the database on which many of the Industrial Waste Regulations were promulgated. These programs also generated the data on which the Hazardous Waste RCRA Standards are based. Mr. Webster has designed systems from “closed loop”, zero- discharge air-water emissions systems for secondary aluminum smelters in Michigan, to the pulp and paper mill deep tank aeration waste treatment and combined primary/secondary sludge filtration systems for Weyerhaeuser Co. of Longview, Washington. Local project examples include the City of Seattle Parks Department, asbestos abatement projects for Piers 62 and 63, the Woodland Park Zoo, Evergreen Floral Building, the City of Everett, Everett Public Library, and City of Tacoma Bates Vocational Center. Mr. George R. Webster serves as Alkai Consultants Senior Environmental Professional Engineer, mentor and permit administrator. We are exceptionally pleased to be able to provide our clients and staff the wealth of his vast Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 11 of 40 9/3/2008 resources of knowledge and contacts. DONALD K. BALMER, R. H. G. Senior Environmental Hydrogeologist Mr. Balmer has over 30 years of exceptional experience managing and conducting projects in the areas of environmental site studies, petroleum and hazardous waste disposal characterization and remediation, groundwater resource evaluation and geological and geotechnical investigations. He is also an AHERA-Certified Asbestos Building Inspector. Mr. Balmer has specialized experience in site evaluation studies to determine the nature and extent of subsurface chemical contamination. He is experienced in the design and installation of monitoring well systems, the design of soil and water quality testing programs, and the design of remedial action programs for soil and aquifer remediation. He has been involved with all aspects of groundwater supply development, including resource evaluation, water well design, installation, and testing, well performance evaluation and rehabilitation, and resource (well- head) protection. Mr. Balmer is also experienced in a variety of environmental impact and geotechnical projects related to land development, including Phase I and II Environmental Site Assessments for commercial properties, geotechnical investigations, and highway EIS preparation. One of Mr. Balmer’s more notable projects has been the drafting and co-authoring of the Environmental Impact Statement and Level 1 Environmental Site Assessment of the 850 million dollar Tacoma Narrows second suspension bridge project that is currently under construction. He has managed Brownfield and Superfund site remediation on numerous projects with multiple causes and levels of contamination. His remediation approved plans and techniques have helped to set the standards for bioremediation and air sparging innovation and developments. ROBERT CIPRA Senior Environmental Program Manager Mr. Cipra has managed award winning environmental programs world wide. He has served as Naval Shipyard OSHE Standardization Program Manager at the Naval Sea Systems Command (NAVSEA), Washington, DC; Environmental Department Director, Director of Radiological Monitoring, Deputy Director of Radiological Controls, and Nuclear Project Manager at the Puget Sound Naval Shipyard (PSNS), Bremerton, WA. He has been responsible for full environmental compliance and all environmental programs world wide for NAVSEA. He participated in the Environmental Leadership Pilot Program and Project XL/ENVVEST; served as the Navy Co- chair on two Restoration Advisory Boards; and was the Navy’s Native American tribal coordinator concerning mitigation for a multi-million dollar military construction project. He worked with EFA-NW, the U.S. EPA, and the Washington State Department of Ecology (WDOE) to remediate contaminated sediments in situ in a marine operable unit through steam injection and disposal in a Pit Combined Aquatic Disposal site. He has ensured Navy compliance with environmental regulations through adherence to the Code of Federal Regulations, State of Washington and California statutes, and local and county rules and regulations. He has worked with DoD, ASN, CNO, Fleet, the regulatory and business communities, and various stakeholders in establishing an active research and development program, integrating it into the Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 12 of 40 9/3/2008 compliance program. He actively sought marketing opportunities for the PSNS Environmental Department by becoming involved with innovative technologies, such as: recycling of hazardous waste (Molten Metals Technology), piloting a part of the Navy program associated with Uniform National Discharge Standards, supporting congressionally funded research into bilge water and storm water test beds and asbestos/PCB recycling, beta testing a new bio-assay technology and underwater organic spill detection system. He participated in various ventures, such as seeking an active multi-media partnership with WDOE, and seeking to place technical personnel in a position to “affect” upcoming legislation – versus waiting to be “effected” by legislation that would have resulted in adverse impact on the business. Chairman of the Joint Test Group ensuring all work and testing accomplished safely and in accordance with the Reactor Plant and other associated Manual(s) and procedures. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 13 of 40 9/3/2008 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.) Table 1 is a rudimentary Gantt Chart that outlines the project schedule. Phases I-III will be completed in parallel while Phase IV will be the major thrust of this project. Month 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 Phase I, II, and III - Reconnaissance, Feasibility Analysis and Conceptual Design and Final Design and Permitting Proposed Energy Resource Existing Energy System Proposed System Design Proposed System Costs Project Benefits Energy Purchase/Sales Land Ownership Environmental Analysis and Recommendations Phase IV - Construction, Commission, Operation and Reporting Renewable Energy Resource Existing Energy System Proposed System Design Project Costs Permitting Analysis and Recommendations Construction Commissioning Operation Reporting Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 14 of 40 9/3/2008 As indicated in by yellow, quarterly reports will be submitted to the Authority. Also, a final report will be submitted at the completion of the project. This report will detail the operating state of the plant, expected versus actual output and any other items of interesting to the Authority. Phases I-III will be completed within the first 6 months of the project with the majority of the items completed within the first 1-3 months as detailed. In fact, some of the ground work towards these goals has been achieved already. During this period, the site assessment will be performed, all applicable permit applications pursued, preliminary engineering design will be completed and submitted to the independent engineering firm for evaluation, energy sales agreements negotiated, feedstock availability identified and long term agreements with feedstock suppliers negotiated. As required, monthly and quarterly reports will be submitted to the Authority detailing progress. Phase IV is the major thrust of this application. Once the preliminary design/analysis has been reviewed and accepted by the appropriate local officials, final plans will be drawn and construction will begin in earnest. Site preparation will take approximately 3 months. This includes leveling the site, pouring concrete for foundations, pads and flooring and installing the required buildings. Meanwhile, orders to the fabricator for the Gasifier and Fischer-Tropsch reactor will be submitted. Build time for these items is expected to be 6 months. Installation of the equipment will take an additional 6 months. Commissioning of the plant is expected to take 3-4 months with the final ramp-up of operations ensuing. The entire production of the facility, from grant award to operation is expected to take 18-24 months depending on permitting, construction and transportation of the plant infrastructure, site preparation and other intangibles such as weather. 3.3 Project Milestones Define key tasks and decision points in your project and a schedule for achieving them. Decision Points: Months 1-3 1. Resource Availability and Contract. 2. Site availability and Letter of Intent to lease. 3. Market analysis and Letter of Intent to purchase finished product. 4. Funding Availability and terms. 5. Permitting feasibility and process. Months 4-6 6. Site design feasibility and final design. 7. Permitting completion and acceptance. 8. Final contracts on land, input resource, finished product sales. 9. Funding approval and equity commitment. Months 7-21 10. Construction begins and commissioning in approximately 14 months. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 15 of 40 9/3/2008 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. One of the major keys to success for this project is to build strong alliances with people, contractors, state and local Governments, and elected officials. The principals of Diesel Brewing Company have a long track record of building consensus through partnerships and include that mind-set as part of their business strategy. Of primary importance, Diesel Brewing Company has begun to build partnerships with forest products suppliers, the Borough, local officials and contractors in order to ensure that not only is the project a good fit for the area, but the project meets with current Ketchikan economic development plans, that all applicable rules and regulations are disclosed early on so that they can be met and that there is a strong candidate base for plant managers and employees in the area. Alkai Consultants, LLC of Silverdale, WA, an engineering and consulting firm, has been selected through a competitive process to act as independent engineers for evaluation of the site, to include geotechnical, environmental and structural engineering services. A brief bio of Alkai and its employees is included in the Appendices. Key technology components will be fabricated in Oregon and shipped from Seattle to Ketchikan for assembly by the primary fabricator. The site preparation and building construction will be done by local construction companies. Local construction crews in conjunction with the primary fabricator will do final assembly and erection of the facility. Because many of the components of the finished facility are proprietary, the primary fabricator will do final assembly and calibration of the plant. The non-compete/non-disclosure that has been agreed to by the primary fabricator does not extend to third parties. All production components are individually shop fabricated by the primary fabricator. 3.5 Project Communications Discuss how you plan to monitor the project and keep the Authority informed of the status. Progress towards project deadlines, milestones and decision points will be tracked and recorded in monthly status reports. These status reports will be submitted by the Project Manager to the Authority or it’s designee by the 10th of each month. In addition, quarterly progress meetings will be held with all principals involved. These meetings are intended to record progress, shortfalls and potential issues and to determine a course of action, as required, in order to overcome any problems. Included in these meetings will be representatives from the companies and public and private interests that are key to the success of the project as listed in Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 16 of 40 9/3/2008 the Project Resources section. This necessarily includes a representative of the Authority. Minutes from these meetings will be distributed to the Authority and the representatives within 10 working days of the progress meeting. The Project Manager will schedule the first quarterly meeting upon receipt of acceptance of the grant application. As problems may arise during the course of permitting or construction, for example, that effect the project time line, the Project Manager will contact the Authority immediately upon verification that the problem exists. This contact will take the form of an informational phone conversation followed by an official, written account of what the problem is, how it affects the project time line and what the possible solutions are in order to meet the project goals. A sound working relationship with the Authority, the Project Resources and the community is one of the major keys to success to the implementation of this project. Because the community stands so much to gain from the implementation of the combined hydro-carbon products (e. g., diesel, fuel oil, etc.) and low cost electricity, it is imperative that Diesel Brewing Company has good communication with the community and the utilities. Upon notification that the grant has been approved, a town hall meet will be scheduled in order to inform the community of the scope of the project, the intended benefits and the need for skilled and unskilled jobs that will come from the community, as well as to answer any questions or concerns as necessary. 3.6 Project Risk Discuss potential problems and how you would address them. Diesel Brewing of Ketchikan has identified three major risks that impact successful, long term operation of the facility. These are: 1) loss of feedstock for the plant; 2) Under-capitalization at the onset of the project; and 3) A drop in the market price of fuel/electricity. Each of these risks are outlined below, including Diesel Brewing Company’s solution to the pitfalls of that risk. 1. Potential problem: Lack of feedstock. - The Plant depends on a reliable and consistent source of feedstock (biomass) in the form of waste wood byproducts. Diesel Brewing of Ketchikan intends to form long term alliances with one, or several, of the mills in the area to take their waste product in order to turn it into liquid fuels and electricity. There are three lumber mills in close proximity to the plant. Diesel Brewing of Ketchikan has already talked with one of the mills and are in the process of obtaining a letter of intent from that company to supply Diesel Brewing of Ketchikan with all of the fuel it needs. However, redundancy in the production of wood byproducts offers a built in solution to supply issues and therefore, Diesel Brewing of Ketchikan will strive to develop a similar working relationship with the other mills in the area. In this manner, consistent availability will be achieved. Diesel Brewing of Ketchikan will also be drying and storing a supply of feedstock on site. This will avoid down time associated with a lack of feedstock. Finally, in the extreme case that none of the mills are able to supply waste wood byproducts to Diesel Brewing of Ketchikan, the option to buy chip at market Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 17 of 40 9/3/2008 premium prices exists, at least for a short duration, in order to maintain consistent operations throughout the years. 2. Potential Problem: Lack of adequate funding prior to commissioning. - Diesel Brewing of Ketchikan will have collected private investment funds in addition to committed Renewable Energy Grant funds, prior to beginning construction. We have created a conservative business plan and construction schedule which offers a degree of flexibility for unforeseen events such as delays caused by weather, shipping, hiring, fabrication, and installation. In the event that any unforeseeable short fall does, in fact, occur, Diesel Brewing of Ketchikan will invite other investors to participate, this increasing the project matching funds supplied by Diesel Brewing of Ketchikan. 3. Potential Problem: Fuel and electric prices drop. - While the cost of energy has been rising at alarming rates over the last 10 years, and all indications and reports from the U. S. Department of Energy indicate that they will continue to rise, we have taken a conservative approach to revenue forecasts associated with the production of diesel, kerosene, and other petroleum products, and the generation of electricity. As an example, our business model is sustainable even if prices for liquid fuels such as diesel, drop as much as five percent below the average price per gallon in Alaska(1), during 2006. ((1) Energy Information Administration U.S. Government) As of June 2008, the average price per gallon of diesel in Alaska was $4.275, which is just over $1.90 per gallon higher than the average price in 2006. The retail price per gallon of diesel in Ketchikan was $5.21 as of September 30, 2008. The cost for petroleum based products is generally rising. Our Model has no increases in revenue based on price increases over the next five years. While the market will dictate pricing, our model provides sustainability in even the highly volatile energy sector. Our solution for periodic price drops is based on a business model that does not rely on prices always going up. 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 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 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. Diesel Brewing of Ketchikan will produce liquid petroleum fuels as well as electricity. Liquid fuels Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 18 of 40 9/3/2008 production includes what Diesel Brewing of Ketchikan is calling Synthetic Diesel in order to separate it from food-based bio-diesels, kerosene, and other valuable petroleum products. Diesel Brewing of Ketchikan plans to produce over 900,000 gallons of synthetic diesel, 260,000 gallons of kerosene, and more than 400,000 gallons of other petroleum products per year. The plant will also produce in excess of 33,500 kilowatt hours of electricity per year as a by-product, through the generation of steam during the cooling processes. Ketchikan is an isolated community which depends upon barge service for the transport of liquid fuels to service the community’s needs. While electricity is largely produced by Hydroelectric generation, diesel generators currently provide peak demand coverage. Ketchikan continues to rely on barges to supply heating fuel, diesel and gasoline. According to The State of Alaska, Department of Commerce, Community, and Economic Development, “Stable Market demand for both heating fuel and gasoline despite record high prices, is likely indicative of rural communities needing a consistent minimum quantity of both resources simply to meet basic survival needs. Significantly increased fuel and energy costs combined with high unemployment rates, limit local economies, and local governments struggling to provide basic local services, continue to present rural Alaska communities and households with challenging circumstances with no long term solution in sight.” Our plant will provide a long term local source for liquid fuels and electricity. The energy will be generated by the gasification of wood waste, which is currently being burned with zero positive impact on the community. It is anticipated that the local production of fuels will lower the cost of fueling and heating, while providing a cost effective addition to existing electrical generation. The number of fuel barges crossing open ocean will be reduced which will help avoid harmful spills, and environmental damage. The Diesel Brewing plant will provide Ketchikan with a greater level of energy independence, lower costs, lower environmental risk, reduced air pollution, more jobs, and more money that stays within the community. 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. In the city of Ketchikan, existing residential homes and commercial buildings are primarily heated with No. 2 heating oil utilizing traditional boiler furnace systems. Heating oil is distributed locally by tank trucks and stored above ground in storage tanks. Alternative sources for heat, propane and natural gas are either not available or cost prohibitive. Since 1932, Ketchikan Public Utilities (KPU) has delivered electrical power to the community of Ketchikan. Currently, KPU maintains two power generation systems, hydro electric sources and diesel backup units. The hydro electric supply comes from a number of local dams, including, Ketchikan Lake, Beaver Falls, Silvis and Swan Lake. KPU also participates in the Four Dam Pool Power Agency, a consortium of four hydroelectric projects. Total hydro capacity is about 34 megawatts. When the weather turns cold and hydroelectric is unavailable, the KPU relies on diesel generated electricity from five standby diesel units located at local substations totaling 24 megawatts of electricity. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 19 of 40 9/3/2008 Both power supply systems are entirely independent of one another and must be capable of supplying 100% of the power load to Ketchikan. In October of 2009, KPU anticipates the completion of the Swan Lake – Tyee Intertie project which will serve to provide an additional 20 megawatt capacity to Ketchikan. More importantly, this 57 mile power line will connect Ketchikan with other communities of Southeast Alaska and finally plug Ketchikan into a common power grid. 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. During the initial plant build out and until the facility is commissioned, Diesel Brewing will be purchasing the necessary electricity and other energy resource requirements from local energy retailers. Diesel Brewing will utilize propane, contained in a 1,000 gallon storage tank, as the feedstock source during the initial testing and engineering phases. Once operational, the manufacturing plant for Diesel Brewing will not require any energy resources from the community of Ketchikan. The gasification facility will be entirely self sustainable. For operations purposes, Diesel Brewing will produce and consume our own electrical and transportation fuel requirements. Diesel Brewing will be contributing too, not drawing from, the current energy resource infrastructure of Ketchikan. 4.2.3 Existing Energy Market Discuss existing energy use and its market. Discuss impacts your project may have on energy customers. Due to the high cost of petroleum based heating oil, Ketchikan home owners are finding alternative ways to heat their homes more economically including installing baseboard electric heat and burning more firewood. In 2007, the KPU reported approximately 6% of commercial and residential users converted from heating oil to electricity. This trend has put a tremendous strain on the ability of KPU to forecast peak loads and community demand. In 2007, due to severe weather conditions, the KPU generated electricity from their diesel units for a total of 88 days, resulting in substantially higher heating bills due to the higher cost of diesel generated power compared to hydroelectric power. Retail energy prices in Ketchikan, including transportation fuels, heating oil and electricity are inflated mostly due to transportation costs. The Diesel Brewing community-based energy model will substantially reduce transportation costs of energy products into Ketchikan; therefore, benefiting residents by lowering energy pricing, increasing energy redundancy, providing added capacity and ultimately achieving energy Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 20 of 40 9/3/2008 independence. The production and consumption of energy, including electricity and liquid fuels, within the same community will ensure energy sustainability for the future. Diesel Brewing will not sell energy products directly to the public. Instead, Diesel Brewing will negotiate wholesale purchase agreements with existing energy distribution companies including the KPU, liquid fuel companies and heating oil delivery businesses. Because transportation and production costs are kept low, Diesel Brewing will offer more competitive wholesale energy pricing to distribution companies. It is the assumption of Diesel Brewing, that these distribution companies will in “good faith” pass a significant portion of the energy savings down to the consumer. As an example of cost savings, Diesel Brewing can generate between 5 and 10 MWh of electricity at roughly .07 cents per kilowatt, compared to the current range of electrical costs from the KPU of between .11 and .22 cents per kilowatt. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 21 of 40 9/3/2008 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 Wood waste and low value wood products, such as hog-fuel, have been utilized as a renewable energy source for a long time. Typically, this comes in the form of co-generation or steam boilers where the waste products are used to make steam or through a gasification process to reclaim the energy units for steam or power generation. Most often, this energy, whether it is in the form of steam or electricity, is used within the plant, deferring costs of plant operation, and is not sold on the open market. This project, on the other hand, proposes to use new and emerging gasification technologies to produce liquid petroleum fuels and electricity utilizing these low grade fuel sources. The fuel and electricity is to be sold on the open market, contributing to the green power generation milestones set forth by the Federal and State Governments. Traditional wood gasification technologies produce a bio-gas containing an energy content of 120-170 Btu/ft3 of gas produced (for reference, natural gas is approximately 1020 Btu/ft3). The methodology licensed too, and utilized by Diesel Brewing of Ketchikan produces a bio-gas in excess of 350 Btu/ft3 of gas produced from the same feed stock. The bio-refinery portion (Figure 1) of the plant utilizes the wood waste to form a SynGas (a combination of CO and H2). This is accomplished through the use of a bubbling, fluidized bed gasifier coupled with a proprietary in- situ allothermal reforming unit. The combination of these devices produces a SynGas of the appropriate CO:H2 ratio to make it an ideal fuel feedstock for traditional Fischer-Tropsch catalytic fuel generation. Because this blended gas stream has roughly 3 times the energy content of traditional gases generated from wood wastes, fuel and electrical generation is more efficient, with less waste wood products required to generate the same energy content. This project proposes to install a 100 ton per day gasification unit, co-located at a mill or wood processing plant, in order to produce liquid fuels and generate power. The primary fuel source for the plants is hog fuel, which is a low grade by-product of the wood processing process. The resultant gas is then passed through an iron-catalyst Fischer Tropsch reactor in order to generate the desired liquid fuels. Throughout the process, hot gases will need to be cooled. For example, the iron-catalyst Fischer-Tropsch process operates at temperatures in the 500-750 F regime, while the fluidized bed outputs a gas in the temperature range of 1850 F. These hot exhaust gases will be utilized to generate steam through a heat recovery, steam generator system, generating enough steam to turn a 10 MW turbine. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 22 of 40 9/3/2008 Figure 1 – Bio-refinery schematic detailing the fluidized bed operations, heat recovery for power generation and liquid fuels production through the Fischer-Tropsch catalytic process. The key elements of this process are:  The bio-refinery portion which includes the feed hopper, metering bin, bubbling, circulating fluidized bed, char removal and post combustion, and ash removal. In this process, the raw SynGas is passed through to a secondary fluidized bed where the allothermal process “supercharges” it, creating a medium Btu Syngas (350 Btu/ft3). The ash from the post-combustion process is removed and stored for sale, it is an ideal additive to concrete mixes or can be used as a soil amendment.  Heat recovery is utilized through heat recover, steam generators (HRSG) in order to recover lost heat, generate process steam and to turn a steam turbine. Several HRSGs are included in this process in order to cool the flue gases as well as the SynGas.  Fischer-Trposch catalytic processing of the SynGas. The chemistry of the F.-T. process is quite simple, the catalysts take the carbon monoxide and hydrogen molecules and assemble them into complex hydro-carbon chains. The final composition of the F.-T. liquids is dictated by such operational parameters as temperature, pressure and residence time. Iron based catalysts, coupled with the ideal SynGas ratio that the gasification unit gives, lends itself naturally to producing large quantities of either diesel or heating oil. A complete accounting from all waste streams is not possible without a thorough analysis of the feedstock. However, utilizing standard spruce and hemlock hog fuel compositions, no unwanted species (e.g. high amounts of Chlorine or Sulfur) should exist. The ash will be composed of Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 23 of 40 9/3/2008 primarily silica (SiO2), magnesia (MgO), calcia (CaO) and magnetite (Fe2O3) but will also contain such elements as potassium and phosphorous in their oxide states. As is evident, the ash becomes a value-added product. The flue gas will be composed of primarily carbon dioxide. Roughly 1/3 of the carbon entering the system through the bio-mass will exit as carbon dioxide. This is a by-product of the gasification process. Note, however, that should the same waste be utilized in a combustion process or be allowed to decompose naturally, 100% of the carbon will be converted to carbon dioxide. The flue gases will be monitored continuously for composition in order to ensure that all applicable emissions regulations are met. The optimum capacity of this plant is based upon 100 dry tons per day of hog fuel feedstock. This amount of hog fuel is easily obtainable from the local forest products industry. Ideally, the plant will be co-located or adjacent to one of the forest products facilities in order to omit any transportation costs of the feedstock. Based upon 100 dry tons per day of input, the plant will make approximately 4000 gallons per day of diesel or heating oil and an additional 3000 gallons per day of kerosene and other light petroleum products. These products will be stored in on-site storage tanks until such time as there is ample supply to be transported to the re-saler. As such, Diesel Brewing of Ketchikan will install 300,000 gallons of storage capacity for the liquid fuel products. Diesel Brewing anticipates a high capacity factor but recognizes the fact that down time for maintenance is an inevitability. Therefore, all production and economic evaluations have a built in 30% capacity factor, that is, estimates are based upon the plant operating at 70% capacity. Based upon the capacity factor indicated above, it is expected that the plant will produce in excess of 900,000 gallons of diesel or heating oil per year with an additional 700,000 gallons of kerosene and other light hydro-carbons per year. Additionally, it is expected that the plant will produce 5 MWe nominally of power with approximately 4 MWe available for sale, the plant will require approximately 1 MWe for its own, internal use. This equates to an additional 31,000,000 kWh of electricity available annually. Anticipated barriers to the successful completion of this project include securing the appropriate permits to include air and waste water, permits to site liquid storage facilities, and appropriate land use permits. Also, if there is substantial resistance from either the community or the retailers of the liquid fuels and electricity, this could cause large problems with the project. Specifically, of the energy retailers do not enter into good faith negotiations for the products, the facility is left without a mechanism for selling the product and operations would come to a halt. Diesel Brewing intends to secure the retailer buy-in early on in the process in order to circumvent this potential pitfall. Diesel Brewing will either sell the liquid products FOB their plant or contract with local transportation contractors to transport the fuels to the retailer. In this case, transportation includes barging or trucking (via ferry) the fuel across the Tongass Narrows to the city of Ketchikan. Meanwhile, Diesel Brewing of Ketchikan will be tied into the local electrical grid in standard ways in order to deliver any excess electricity for sale. 4.3.2 Land Ownership Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 24 of 40 9/3/2008 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. Land Ownership and access in Ketchikan is fairly straight forward. If a project is done in Ketchikan, the Borough’s Industrial Park would be the preferred site. If construction is at the Industrial Park, the Borough has indicated that a long term lease would be available for initial site and options for expansion available. By using the Industrial Park as the site, appropriate zoning would already be in place so there would not be issues that would surround a brown field site. Moreover, all applicable environmental, archeological and geotechnical issues have been resolved in this area. 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 Known Permits without feasibility study are: o Zoning – The proposed site is in the Industrial Park near the airport. Therefore, it is not anticipated that there will be any zoning issues. o Construction permits – it is anticipated that construction permits will take up to 90 days from the submission of full, detailed and stamped engineering drawings. It is not envisioned that any untoward issues will arise with regards to the construction of the plant. o Air Quality Permitting, State and or Federal. – In general, the plant will not be putting anything into the air that the biomass itself wouldn’t already be putting into the air. As such, it is not expected to be an issue. The plant will be emitting carbon dioxide in excess of 10,000 tons per year as a point source in the industrial park. Because of this, State and Federal environmental offices will be contacted during the feasibility study in order to determine what, if any requirements and regulations must be met. In addition, because there will be a plume near the airport, the FAA will be consulted as to allowable height of stack and plume characteristics. o Water discharge permit if Industrial Park not used – This will only be required should there be a need to move the plant to another site. At this time, we do not see that this is an issue. o Coast Guard, waterways permit issues - The only potential barrier that we see at this point, without more investigation, would be the Coast Guard permitting process. Because the plant will have the ability to bring in feedstock and to transport product via barges, the Coast Guard must be consulted. This will also be performed during the feasibility study. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 25 of 40 9/3/2008 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 The primary location of choice is within the Industrial Park boundaries North of the airport. It is Diesel Brewing’s understanding that all applicable studies for Threatened and Endangered Species, Habitat Issues, Wetlands, Archaeological and Historical Resources and Land Development Constraints have already been worked out in this area. In fact, this is one of the prime motivating factors for siting the plant in this area. Considerations for telecommunications interference, aviation considerations and visual aesthetics will be addressed in during the feasibility study. The plant is not large. The plant is significantly smaller than the mills that would supply the feedstock and it does not stand extraordinarily tall. Therefore, it is not felt that any aesthetic questions will arise. However, as previously stated, there may be issues with aviation being located within a mile or so of the airport. Questions regarding the impact this has on aviation will be raised with the FAA at the earliest possible time.  Threatened or Endangered species No threatened or endangered species, including all marine and land mammals listed by the Alaskan Department of Fish and Game for the Southeast Alaskan region, will be directly or indirectly affected by a Diesel Brewing manufacturing plant located on Gravina Island.  Habitat, Wetlands and other protected areas The location site targeted for the Diesel Brewing Ketchikan plant is located on the proposed Gravina Island industrial development property managed by the Ketchikan Gateway Borough. Transportation and power improvements will be complete by the fall of 2008. Extensive environmental studies have already been completed. Diesel Brewing will utilize an already developed building site which would eliminate the need for further encroachment of undeveloped lands. Diesel Brewing does not anticipate any issues having to do with habitat, wetlands or potentially other protected areas surrounding the construction and operations of a liquid fuels manufacturing plant. Diesel Brewing would strictly adhere to any environmental regulations, as defined by state or Federal law, having to do with sensitive environmental land issues on Gravina Island.  Archaeological and historical resources Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 26 of 40 9/3/2008 The Ketchikan Gateway Borough industrial site on Gravina Island has already conducted the mandatory archaeological surveys required for industrial building permits within the properties owned by the county. There were no findings of archaeological or historical artifacts which would affect the construction of a Diesel Brewing plant within the designated industrial sites.  Land development constraints The Ketchikan Gateway Borough will incorporate land development constraints and restrictions in the lease agreements for industries wanting to build on the designated industrial sites for Gravina Island. Any land use or development issues will be disclosed in the terms and conditions of the lease and will be closely monitored for compliance. Diesel Brewing will closely adhere to the land development constraints established by the County. 4.4 Proposed New System Costs (Total Estimated Costs and proposed 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 total anticipated project cost is $25,625,000.00. The requested Grant funding is $20,500,000.00. The total applicant matching funds are $5,125,000.00. We have identified no other funding sources. The total estimated Capital Expense cost during the first year of construction would be $19,257,174.00. The Cap Ex costs for year two would be $234,000, and the following years we project Cap Ex costs of roughly $204,000.00 per year. This would include costs associated with development, engineering, and construction up to the point of commissioning the plant roughly 16 months from the start of construction. Detailed cost information can be found within the five year projections for Cost of Operations, Cash Flow, and Capital Expenditures files which are included with this application. We have budgeted for three specific phases, and identified the Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 27 of 40 9/3/2008 expected costs associated with each phase. We could not determine what specific cost elements should be included as “Development costs”, so we have included our phased approach, with detailed back up information in the spreadsheets referenced above. 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.  Total anticipated project cost for this phase  Requested grant funding Operating and Maintenance costs will be funded by a combination of Private Capital Contributions and Renewable Energy Fund Grants. Private Capital Contributions will provide roughly 20% of the funding, and Renewable Energy Grant funds will provide the remaining 80% of the funding. Operating and Maintenance costs are projected for the first five years as shown below. The Operating and Maintenance cost detail projections can be found as “Summary of Operations Ketchikan Sep2.xls” Year One: $ 2,392,170.00 Year Two:$ 3,262,146.00 Year Three:$ 3,374,628.30 Year Four:$ 3,492,734.72 Year Five: $ 3,616,746.45 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 4.4.3 Power Purchase/Sale Potential wholesale buyers of Diesel Brewing company’s renewable energy products would include a number of both local Ketchikan businesses and regional Southeast Alaska distributors of electricity, liquid fuels and other petroleum products. By product, the list would include, but not be limited to the following company description and/or business names:  Synthetic Diesel fuels for ground transportation purposes. Petro Alaska Incorporated Ketchikan, AK Petro Marine Services Ketchikan, AK Delta Western, Inc. Wrangell, AK Petro Alaska Thorne Bay, AK  Heating Oil and Kerosene for residential and commercial purposes. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 28 of 40 9/3/2008 Anderes Oil Inc. Ketchikan, AK Petro Alaska Incorporated Ketchikan, AK Petro Marine Services Ketchikan, AK  Electricity Ketchikan Public Utility Ketchikan, AK Borough Ketchikan County Ketchikan, AK  Light and Heavy Wax products Industrial lubrication Manufacturing of household products and clothing Food Industry as preservatives for fruits, vegetables and candy Pricing for liquid fuels fluctuate on a daily basis. The price volatility is a result of a number of domestic and global factors, none of which, Diesel Brewing will have any control over. Diesel Brewing will set energy prices based on current market conditions in the Southeast region of Alaska, minus an established dollar amount per gallon for the avoided costs of transportation. As a result of this consideration, the wholesale fuel pricing to local distribution companies will be lower. The reduction of current transportation surcharges will benefit consumers by as much as $.26 cents per gallon. As transportation costs continue to climb, the consumer will continue to benefit from locally produced transportation and heating fuels. Power generation from the Diesel Brewing plant will be available for resell to the Ketchikan Public Utility. The Diesel Brewing facility can produce electricity more efficiently, more reliably and more cost effectively than the current hydro and diesel generated units supplying electricity to Ketchikan today. By connecting to the existing power transmission and distribution grids, Diesel Brewing could realistically be supplying power for as little as $.07 cents per kilowatt, a savings to the consumer of between 20% and 35% for their electrical needs. The proposed rate of return from this grant-funded Diesel Brewing Ketchikan project is described in detail in the Summary of Cash Flows Ketchikan section of this application. 4.4.4 Cost Worksheet Complete the cost worksheet form which provides summary information that will be considered in evaluating the project. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 29 of 40 9/3/2008 Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 30 of 40 9/3/2008 4.4.5 Business Plan 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. Once the project has been completed and the plant commissioned, we will begin a phase of operation where we can focus on refining various processes and procedures. The operation of a new plant in a new community will present opportunities to make adjustments. As an example we may find that feedstock may require more or less drying time during various weather conditions. We may find that we need to adjust the amount of feedstock storage capacity at the plant site based on feedstock supply from various mills. This process of refinement will never stop. The refining process will however begin to focus on smaller issues as larger challenges are solved along the way. We have broken down the various business activities in to four different categories. The four categories are Finance, Sales and Marketing, Operations, and Technology. Each of these four disciplines will be managed by individual founders of Diesel Brewing Company. Finance: Jeff Raines, Sales and Marketing: Mark Stapleton, Operations: Kevin Caldwell, and Technology: Dr. Paul King. A plant Manager, Plant Maintenance, and Plant Engineer will be hired during the early stages of development. By filling these positions while the plant is being built, they will have intimate knowledge of how the plant was constructed. Familiarity with the plant will help keep down time to a minimum after commissioning. We will also hire the balance of the work force in advance of the commissioning date. This will provide time for systems training as well as safety training prior to the plant coming on line. The plant depends upon a consistence supply of feedstock. We will have long term contracts in place for feedstock supply, from a variety of sources. We will have storage capacity for wet feedstock as well as dried ready to use feedstock. We will construct a storage facility for dried feedstock. The combination of the wet and dry storage will help mitigate any possible interruptions in feedstock availability. 4.4.6 Analysis and Recommendations Provide information about the economic analysis and the proposed project. Discuss your recommendation for additional project development work. Economic analysis for this project is based upon certain assumptions. These assumptions range from the availability and price of feedstock to the sales price of the products. With any project committed to obtaining and converting raw material into value added products, there will be variability in the price, consistency and availability of the raw material. This is true in this case as well. However, Diesel Brewing has taken a conservative approach in its analysis in order to ensure that under the most stringent of conditions, the company is still viable. This is reflected in the fact that Diesel Brewing is committing to cost share the plant with at least 20% matching funds. Some of these assumptions include:  The price of doing business is higher in Alaska then it is in the lower 48. This is primarily due to Alaska’s remoteness from the lower 48 and everything, such as concrete, must Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 31 of 40 9/3/2008 be barged to the site. Because of this, construction costs are higher, for example. Also, this dictates salaries to be higher in order to compensate workers for the added cost of living. These factors are built into the cost analysis.  Product sales are subject to negotiation with the retail suppliers. During the first phase of this project, good faith negotiations with retail suppliers will be pursued in order to obtain equitable pricing for all parties. Of paramount interest to Diesel Brewing of Ketchikan is to be able to pass on savings to the consumer, alleviating some of the high costs of living driven by a slump in the economy. Because there is little transportation costs associated with the liquid products, these savings, in the very least, should be passed on to the consumer. Currently this equates to a minimum of 26 cents per gallon (reference the private communication that Mark and Kevin had here). Through good faith negotiations with the retailers, Diesel Brewing hopes to be able to increase that savings to the consumer. Meanwhile, it is Diesel Brewings understanding that electricity sales to the KPUD may be problematic because of the structure of the KPUD. Diesel Brewing intends to negotiate with the KPUD to make available any excess electricity on an as needed basis at substantial discount to the KPUD. Diesel Brewing can do this because the power generation of the plant is a by-product of the plant, and therefore it is cost effective to generate. These savings should also be passed on to the consumer if such a mechanism exists within the KPUD.  Diesel Brewing has made the assumption that the granting of permits for the plant will not be too difficult. Because the plant is using low grade or waste biomass from the wood products industry, there is no net positive carbon foot print associated with the facility or its products. The use of biomass derived energy is considered carbon neutral. It is Diesel Brewings experience that under such conditions air permits are relatively simple to obtain. Experience within the State of Oregon has shown this to be true. However, Diesel Brewing is fully prepared to undergo all necessary evaluations in order for the appropriate permits to be granted prior to construction. Meanwhile, Diesel Brewing anticipates that construction permits will take an average amount of time. Detailed plans must be evaluated by the appropriate local and state engineers in order for a permit to be issued. Detailed plans will be submitted within the first phase of the project and ample time given to the county engineers to evaluate them. Diesel Brewing will strive to incorporate any suggestions/recommendations the county engineers have, as long as they do not affect safety or the environmental aspects of the plant. A strong symbiotic relationship with the county is of importance to Diesel Brewing, and we strive to ensure that all interested parties have their input towards a successful project.  Diesel Brewing has made the assumption that Ketchikan has a work force pool for construction and operation of the plant. It is Diesel Brewings intention to higher as much local labor as possible, both during the construction process as well as the long term operation of the plant. Should there not be a pool of qualified candidates for the construction or operations portion, Diesel Brewing will have to pay for workers from outside the area/state. This will increase the labor costs substantially. Diesel Brewing feels confident that Ketchikan has the appropriate work force pool and does not anticipate any problems with this. Phase I of the project will identify such a work force pool and, if one doesn’t exist within the community, amended budget figures will be submitted to the Authority. It may turn out that Diesel Brewing will have to absorb some of these higher costs up front and they are ready to do so in order to complete the project. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 32 of 40 9/3/2008 The economic impact of these assumptions is incorporated in the attached spreadsheets. For example, as per published salary requirements, salaries paid to Alaska workers are10%-25% higher than those in the lower 48. This salary increase is reflected in the spreadsheets. Some of the costs of permits are considered incidental while others could be substantial. The costs for permitting are included under the ‘engineering’ portion of the expenditures spreadsheet. As indicated, Diesel Brewing will enter good faith negotiations for the sale of its products to the local retailers. Diesel Brewing has made an assumption of what its sales price will be and has performed a pro-forma analysis based upon those assumptions. However, Diesel Brewing recognizes that until such time as a sales agreement is in place, they have no way of knowing what the profit/losses will be. Diesel Brewing has figured this contingency in through various conservative estimates on the sales prices and price range, and through the estimation of a capacity factor (which really is an economic safety factor). Once complete, there is no reason that the plant shouldn’t run 24/7/365, however, unplanned down times will most assuredly occur. Diesel Brewing has tried to anticipate this and incorporate these factors into the financial plan as best as possible. Recommendations for additional project development: The technology employed by Diesel Brewing is robust in nature to the feedstock used. For example, municipal solid waste (MSW) is a high carbon content feedstock that could be used to generate like quantities of liquid fuels and electricity, the difference being that MSW derived SynGas would require additional cleaning. For example, plastics within the MSW may contain chlorine. This chlorine is both a corrosive to the plant infrastructure and a poison to the catalysts. Therefore, a standard method of chlorine removal would need to be incorporated. Diesel Brewing has investigated this possibility and would recommend this as additional project development after the successful completion of this project. Plant sizing and costs for an MSW derived facility would be commensurate with the existing project, especially since some of the infrastructure would already be in place. Such a plant would serve several important functions including reducing the MSW volume that needs to be transported and/or land filled; the generation of an additional 1-2 million gallons of liquid fuels; an additional 5-10MWe of power; savings to the community in land fill or waste transportation costs; and environmental considerations for waste disposal. Permitting, under this case, is a much more stringent process, however, and would need to be addressed in an additional phase of the project. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 33 of 40 9/3/2008 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 avoided cost of ownership)  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 Community Benefits Diesel Brewing will actively invest in the city of Ketchikan. One of the largest benefits to the community will be the production of liquid fuels and electricity which will create energy redundancy, added capacity and energy independence for Ketchikan. Diesel Brewing will also stimulate the local economy through the creation of jobs, tax revenues and symbiotic business relationships with vendors, suppliers and community organizations. Diesel Brewing is also environmentally friendly by producing clean burning liquid fuels from renewable resources. The Diesel Brewing facility is expandable. Once the 100 ton a day plant is operational, an additional 100 ton a day unit can be retrofitted, essentially doubling the clean energy resources and jobs b benefits to the Ketchikan community. Liquid Fuels Diesel Brewing will be manufacturing approximately one million gallons of synthetic diesel annually. This high grade synthetic fuel will have a cetane value of 70 along with an ultra low sulfur certification. Both characteristics allow the fuel to be sold for direct consumption in standard diesel engine applications or through existing fuel distribution facilities. Because the transportation and production costs are kept low, Ketchikan’s industries will benefit with competitively-priced synthetic diesel fuel. The biomass gasification plant will generate fuel by-products other than diesel. Roughly 660,000 gallons of Kerosene and other petroleum based liquid fuels will be manufactured every year. Based on a 20 year lifespan of the facility, Diesel Brewing will produce in excess of 31,200,000 gallons of liquid renewable fuels. At an average wholesale cost of $4.00 per gallon, Diesel Brewing would generate $124,800,000 in liquid fuel sales. Electricity The generation of between 5 and 10 MW of electricity every month will benefit the city of Ketchikan. Through the gasification heating process, steam is generated internally within the plant facility. Diesel Brewing will recover this energy by converting it to electricity through the use Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 34 of 40 9/3/2008 of a steam turbine. Diesel Brewing will utilize what electricity it needs for operations and resell the excess capacity to the residents of Ketchikan by connecting to existing power transmission and distribution grids. Assuming, power purchase agreements can be negotiated with the Ketchikan Public Utilities (KPU), Diesel Brewing Ketchikan would generate a range of between 400,000,000 – 1,600,000,000 Kwh of electricity over the life of the project. At a wholesale price of $.07 cents per Kwh, the gross revenues for electricity contracts would range from $28,000,000 to $112,000,000. Economic Benefits The operations of a commercial scale diesel manufacturing plant require people. Approximately 25 jobs, ranging from entry level laborers to highly technical engineers, financial accounting personnel and plant management, will be required to operate this facility. Approximately 20% of those positions would become available immediately during the build out phase, the remaining 80% due when the plant is commissioned. Diesel Brewing will pay prevailing wages for the Ketchikan community. Diesel Brewing will also offer generous benefit packages including health care, profit sharing, paid vacation and retirement investment options. The city of Ketchikan and the State of Alaska will benefit from a number of added tax revenues. Diesel Brewing will pay corporate taxes necessary for operating a successful business. Its products and services will be taxed at the production and consumption levels and its employees will pay the appropriate employment taxes. Additional tax revenues will contribute to a stronger community and local economy. Community Involvement Diesel Brewing will demonstrate its commitment to the Ketchikan community by actively participating in activities that benefit the local community and its citizens. Diesel Brewing will make contributions and donations to worthy causes such as fund raising events, charitable organizations and youth programs. Individuals of Diesel Brewing will donate their time in the assistance of others for the benefit of the community. Supporting children’s education, sports and music programs are vital to the well being of any community. Diesel Brewing will sponsor local youth sports teams and make cash contributions to local charitable fund raising events benefiting children. Diesel Brewing will participate as an active member to local business organizations such as the Ketchikan Chamber of Commerce, Economic Development Corporations and other business groups. Environmental Benefits Diesel Brewing is devoted to the generation of cleaner transportation fuels derived from green renewable resources. These fuels are clean burning and environmentally friendly which means that when burned, they will emit substantially fewer harmful pollutants into the air including carbon dioxide, carbon monoxide and sulfur particulates. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 35 of 40 9/3/2008 As a major part of the site assessment process for where Diesel Brewing plants are considered, the availability of wood byproducts is critical. Diesel Brewing seeks out forest product residuals that are currently under utilized or not used at all. The process of converting forest waste to liquid fuels and electricity is a carbon neutral process. The environmental benefits of not having to burn timber waste products or dispose of them but rather converting them to clean energy sources is extremely beneficial to the environment. Kevin and Paul SECTION 6 – GRANT BUDGET Tell us how much your total project costs. Include any investments to date and funding sources, how much is requested in grant funds, and additional investments you will make as an applicant. Include an estimate of budget costs by tasks using the form - GrantBudget.xls The total cost of the project is $25,625,000.00. No significant investments have been made in the Ketchikan project prior to this Grant Application. We respectfully request Grant funding in the amount of $20,500,000.00. We will provide an additional $5,125,000.00 in private funding to make this project a reality. See attached GrantBudget.XLS file for budget costs by task. Renewable Energy Fund Grant Application AEA 09-004 Grant Application Page 36 of 40 9/3/2008 SECTION 7 – 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 6. D. An electronic version of the entire application per RFA Section 1.6 E. Governing Body Resolution per RFA Section 1.4 Enclose a copy of the resolution or other formal action taken by the applicant’s governing body or management that: - authorizes this application for project funding at the match amounts indicated in the application - authorizes the individual named as point of contact to represent the applicant for purposes of this application - States the applicant is in compliance with all federal state, and local, laws including existing credit and federal tax obligations. 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 Jeff Raines Signature Title Chief Executive Officer Date October 5, 2008