HomeMy WebLinkAboutUpper Kobuk Valley - Preliminary Business Plan_FINAL est 2010Upper Kobuk River Valley Biomass
Preliminary Business Plan
Presented to:
Northwest Inupiat Housing Authority
P.O. Box 331
Kotzebue, Ak 99752
Presented By:
WHPacific
300 W. 31st Ave.
Anchorage, AK 99503
Kobuk River Valley Woody Biomass Preliminary Business Plan
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Table of Contents
1 EXECUTIVE SUMMARY ................................................................................................................................ 1
2 COMMUNITY OVERVIEW............................................................................................................................. 4
2.1 LOCATION .................................................................................................................................................. 4
2.2 POPULATION SERVED ................................................................................................................................. 4
2.3 TRANSPORTATION AVAILABLE ................................................................................................................... 6
2.4 CURRENT INFRASTRUCTURE ....................................................................................................................... 6
2.5 KEY ASSUMPTIONS ..................................................................................................................................... 9
3 MANAGEMENT STRUCTURE ..................................................................................................................... 10
3.1 ORGANIZATIONAL CHART ........................................................................................................................ 10
3.2 PROJECTED STAFFING AND TRAINING FOR LONG TERM PLANS ................................................................ 11
3.3 KEY PERSONNEL DURING PROJECT STAGES ............................................................................................. 12
3.4 KEY ASSUMPTIONS ................................................................................................................................... 12
4 FINANCIAL DATA.......................................................................................................................................... 13
4.1 REVENUE SOURCE .................................................................................................................................... 13
4.2 ESTIMATED ANNUAL EXPENSES ............................................................................................................... 13
4.3 OPERATIONS AND MAINTENANCE ............................................................................................................ 13
4.4 REPAIRS AND REPLACEMENT ................................................................................................................... 14
4.5 ANNUAL PROFIT ....................................................................................................................................... 14
4.6 ANNUAL ESTIMATED OPERATING CASH FLOW ........................................................................................ 15
4.7 KEY ASSUMPTIONS ................................................................................................................................... 16
5 CAPITAL REPLACEMENT SCHEDULE .................................................................................................... 17
5.1 COST OF MAJOR COMPONENTS ................................................................................................................ 17
5.2 FUNDING FOR MAJOR COMPONENTS ........................................................................................................ 18
5.3 AVAILABLE RESOURCES FOR THE INFRASTRUCTURE ................................................................................ 19
5.4 EMERGENCY AND CONTINGENCY PLAN NEEDS ........................................................................................ 19
5.5 KEY ASSUMPTIONS ................................................................................................................................... 19
6 LEGAL AUTHORITY & ISSUES .................................................................................................................. 20
6.1 OWNERSHIP .............................................................................................................................................. 20
6.2 ORDINANCES RELATED TO NEW PROJECT ................................................................................................ 20
6.3 SPECIAL PERMITS, LICENSES AND REGULATIONS ..................................................................................... 20
6.4 KEY ASSUMPTIONS ................................................................................................................................... 20
7 INTERAGENCY RELATIONSHIPS ............................................................................................................. 21
7.1 INVOLVEMENT OF OTHER AGENCIES ........................................................................................................ 21
7.2 PHASE OF LARGER PROJECT ..................................................................................................................... 21
7.3 KEY ASSUMPTIONS ................................................................................................................................... 22
8 SUMMARY ....................................................................................................................................................... 23
8.1 WRAP-UP .................................................................................................................................................. 23
8.2 TIMELINES ................................................................................................................................................ 23
8.3 EFFECT ON COMMUNITY........................................................................................................................... 23
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8.4 COST OF LIVING/RESIDENTS ABILITY TO PAY .......................................................................................... 24
8.5 KEY ASSUMPTIONS ................................................................................................................................... 24
1
1 EXECUTIVE SUMMARY
Households in rural Alaska spend over twice as much in energy costs as other parts of the state,
in some cases almost half of their income1. With little promise for fuel costs to decline, and with
an outcry of concern from members within the Northwest Arctic Region, the Northwest Inupiat
Housing Authority (NIHA) and the NANA Regional Corporation (NRC) were prompted to
search for solutions to lessen the impacts of this problem. In September 2008, NIHA submitted a
Renewable Energy Fund Grant Application to the Alaska Energy Authority (AEA) which was
approved in the fall of 2009. This funding was awarded to examine the feasibility of
implementing wood-fired district heating systems in the Upper Kobuk Villages of Ambler,
Kobuk, and Shungnak.
This project has support from NANA Regional Corporation, the Maniilaq Association, and the
city and tribal entities of the villages of Ambler, Shungnak, and Kobuk. WHPacific was hired to
oversee project management and engineering services. Dr. William Wall of Alaska Wood
Energy Associates (AWEA) was hired to provide technical support.
The purpose of this business plan is to present a business structure that will facilitate the
successful implementation and management of a biomass district heating system in the Upper
Kobuk River villages. The business plan follows the completion of several reports including:
• Reconnaissance Study - provided background of the communities, and an inventory of
the current energy system;
• Resources Assessment - determined the sustainable level of biomass harvest;
• Harvest Assessment - reported on a harvest cost delivery model based on small and
regional harvest scales; and a
• Boiler Feasibility and Conceptual Design - determined the most cost effective and best
fit for chip or round wood boilers and potential for district heating major buildings or
houses.
These studies concluded that it is biologically sustainable and economically feasible to install a
biomass system for district heating; however, the following factors need to be considered:
• An oil fired boiler is required for optimizing the sizing of a chip boiler, when it is very
cold.
• All buildings that are on the district heating system will be required to maintain their
current heat system with fuel oil as a back up in case the district heating system should go
off line for any reason.
1 Estimated Household Costs for Home Energy Use, Ben Saylor, Sharman Haley, Nick Szymoniak, May 2008 .
2
• The payback for the investment depends on a number of factors particularly concerning
management and operation of the system.
• The bulk rate for fuel enjoyed by the school and AVEC decreases the cost benefit ratio.
Developing a biomass energy supply in the Upper Kobuk has several advantages over heating
with diesel fuel. These advantages relate primarily to having a local supply of energy resources:
• Local control of prices
• Create local jobs
• Reduce or eliminate supply problems
• Reduce oil pollution problems
• Reduce potential fire hazard
• Enhance wildlife habitat
The following recommendations are intended to develop a sustainable energy resource in the
Upper Kobuk communities in the short, medium and long term. Table 1 provides the objectives,
action items and responsible parties associated with each phase of the overall project.
3
Table 1: Recommendations
Short Term Mid-Term Long-Term
Fall 2011 2011 - 2012 2012 - 2013 Objective To establish a supply of wood
for use in home heating in the
winter of 2011-2012
To prepare a method for sustainable
wood-fired district heating system
in an Upper Kobuk Village2.
Construct necessary improvements
and begin implementation of the
recommended biomass system. Action Items Identify harvest units Establish and meet with a steering
committee
Confirm that all design/feasibility
requirements are complete
Apply for harvest permits Prepare construction permit
applications
Develop bid documents
Harvest wood Final environmental assessment
and mitigation plans
Complete contractor/vendor selection
and award
Establish storage yard Resolution of land use and right-of-
way issues
Construct required improvements
Establish initial short-term plan Final system design Complete integration and testing
Engineer’s cost estimate Acceptance
Negotiated power sales agreements
with approved rates
Commissioning and start-up
Final business and operational plan Decommission of old systems Responsible Parties City/Tribal governments of
Upper Kobuk Villages
Upper Kobuk Biomass Steering
Committee
Upper Kobuk Biomass Steering
Committee
NIHA City/Tribal governments of Upper
Kobuk Villages
City/Tribal governments of Upper
Kobuk Villages
NRC NIHA NRC Lands Committee
NRC Lands Committee NRC Local entrepreneurs
Local entrepreneurs NRC Lands Committee
Maniilaq
2 For this phase of the project, only one of the communities will receive design, permitting and equipment specifications. The intent is to
undertake an incremental deployment of the technology. The selected community will serve as a demonstration site for the oth er two
communities.
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2 COMMUNITY OVERVIEW
2.1 Location
Located in the Northwest Arctic Borough, the Upper Kobuk River Valley region includes the
villages of Ambler, Kobuk, and Shungnak. All three villages are located along the north side of
the Kobuk River. They are located at the southern foothills of the Brooks Range, with the
Sheklukshuk Range lying to the south. Kobuk is approximately 220 miles east of Kotzebue, the
regional hub, which serves as the medical, economic, and transportation center for the region.
Figure 1 provides a map of the Upper Kobuk Region.
Figure 1. Upper Kobuk Region Location Map
2.2 Population Served
The Upper Kobuk villages are second-class incorporated cities inhabited predominantly by
Inupiaq Eskimos. Each village has a school, a clinic, and at least one grocery store. Cominco
Alaska, Maniilaq Association, and the Northwest Arctic Borough School District are the sub-
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region’s leading employers. These communities rely heavily on subsistence food gathering and
Native craft making. According to a study conducted by the Alaska Department of Fish and
Game in 2002, Shungnak residents harvested an estimated 2,813 pounds of food per household
or 610 pounds per person. This average was considered similar to harvest estimates in the other
Upper Kobuk communities.3
According to the online Alaska Division of Community and Regional Affairs database, between
the years 1990 and 2010, the population trend for Kobuk steadily increased, Shungnak remained
approximately level, while Ambler has seen an approximately 17% decrease in population.
Table 2 depicts the population trends, housing data and economic data for the three villages.
Table 2: Upper Kobuk Selected Statistics
Ambler Kobuk Shungnak
Population4
2010 258 151 262
2009 261 122 270
2008 259 109 270
2000 309 109 256
1990 311 69 223
Housing Data5
Total Housing Units 99 51 73
Occupied Housing 75 36 62
Vacant Housing 24 15 11
Avg. Household Size 3.44 4.19 4.23
Economic Data6
Unemployment Rate 16.6% 15.9% 14.6%
Median Household Income $43,500 $30,750 $44,375
Seasonal employment opportunities often arise during the summer months when construction or
mineral exploration projects become active. Construction projects typically involve upgrades to
local utilities, roads, schools, or airports. In recent years the mineral exploration activities in the
area have provided employment opportunities to local residents.
3 Source: James, S. Madganz, Robert J. Walker, and Ronald R. Paciorek, The Subsistence Harvests of Wild Foods
by Residents of Shungnak, Alaska, 2001, Technical Paper 270, August 3, 2004.
4 Source: Alaska Division of Community and Regional Affairs, Alaska Community Database In formation
Summaries, http://www.commerce.state.ak.us/dca/commdb/CF_CIS.htm
5 Source: U.S. Census Bureau American FactFinder, 2010 Census Tables,
http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml
6Source: Alaska Local and Regional Information, Workforce Info (2009), Alaska
http://labor.alaska.gov/research/alari/
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2.3 Transportation Available
The Upper Kobuk villages are located in remote Alaska, and are not connected to the rest of
Alaska by a road system. Each of the three villages has a state-owned, gravel runway. The
Ralph Wien Memorial Airport in Kotzebue accommodates jet service from Anchorage, as well
as a host of smaller aircraft that serve the surrounding communities.
When river water levels permit, goods are barged from Kotzebue up the Kobuk River. Residents
in these villages commonly travel by boat, snowmobile, and all-terrain vehicles; however,
transportation to and from these villages is predominantly by airplane. Each village has gravel
roads primarily within the village, with the exception of Kobuk which has an approximately 2-
mile gravel road that connects to the Dahl Creek camp and airstrip. From there, the road
continues another approximately 16 miles to the Bornite Mine. All three villages are connected
to one another by earthen trails that are used mainly during the winter months.
The City of Kobuk owns an excavator and a small dozer. The City of Shungnak has an
assortment of heavy equipment including two dozers, two dump trucks, a loader, an excavator, a
compactor, and a fuel truck. Information on equipment owned by the City of Ambler was not
readily available. Most residents own snowmobiles and ATVs, and a few pick-up trucks can be
found in each village.
2.4 Current Infrastructure
The following section will provide detailed information about the current infrastructure in place
in each of the Upper Kobuk villages. The primary energy source for the production of heat in the
Upper Kobuk Region is #1 fuel oil, also known as “diesel fuel” and “home heating oil”. The oil
is an arctic blend that does not gel in extremely low temperatures. Energy content of fuel oil is
typically 125,000-135,000 British Thermal Units (BTUs) per gallon. Fuel oil is burned in boilers
or furnaces to produce heat for commercial and residential facilities.
While most residents of the Upper Kobuk Region rely upon heating fuel for heating homes and
domestic hot water, many also supplement their oil heating with wood heat. Residents harvest
and process (cut, haul, and chop) their own wood from local forest stands. As a means of
earning cash, some residents provide wood to residents in their community. The cost of a “sled
load” of wood is approximately $70.00. A sled load of wood is roughly ¼ to ½ of a cord. Sled
size and snowmachine pulling power determine the exact sled-load size.
Ambler
Commercial energy systems capacity in Ambler totals 6,136 MBH (thousands of BTUs per hour)
or 6,136,000 BTUs per hour. Ten residential homes are included in the proposed system design.
Currently, most homes are equipped with both oil-fired furnaces and woodstoves. In addition to
the homes in Ambler there are five medium-large, commercial facilities. The largest facility is
the school. The commercial facilities considered for inclusion in the district heating system are
listed in Table 3.
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Table 3. Commercial Energy Use - Ambler
Building
Boiler
Capacity
(MBH)
Quantity Make Model
Total
Capacity
(MBH)
Annual Fuel
Usage (gal) S c ho o l New School 1,419 2 Weil-McLain 788 2,838
27,0007 Old Gym Bldg. 817 2 Weil-McLain BL-586 1,634
Teacher Housing 292 2 Weil-McLain BL-576 584
New Clinic 145 2 Weil-McLain WGO-4 290 1,642
Existing Water Treatment
Plant 145 2 Weil-McLain WGO-4 290 3,500
New City Office8 Est. 150 2 Unknown Unknown 300 1,500
Ambler IRA Est. 200 1 Unknown Unknown 200 8809
NANA Multipurpose Office
Building 10 Unknown Unknown Unknown Unknown Est. 500 Est. 13,000
Sewer Line Trace Unknown Unknown Unknown Unknown Unknown 12,500
Residential Subdivision Unknown Unknown Unknown Unknown Unknown 8,000
Total 68,022
Kobuk
Commercial energy systems capacity in Kobuk totals 1,096 MBH or 1,096,337 BTUs/hr. Nine
residential homes are included in the proposed system design. In addition to the residences in
Kobuk there are four medium-large, commercial facilities, the largest facility being the school.
Commercial facilities considered for inclusion in the district heating system are listed on Table 4.
7 Source: FY2008 information provided by Craig McConnnell, Northwest Arctic Borough School District.
8 New boilers not plumbed yet. Building heated with Toyotomi heater. Includes City Building and City Hall.
9 Estimated figure based on 110 gallons per winter month (Oct – May), information provided by Anthony Cravalho,
Maniilaq Association.
10 Facility planned for construction beginning in 2011.
8
Table 4. Commercial Energy Use - Kobuk
Building Boiler
Capacity
(MBH)
Qty Make Model Total
Capacity
(MBH)
Annual Fuel
Usage (gal)
School 348 2 Weil-McLain 478 696 9,00011
Water treatment plant 453 2 Weil-McLain 578 906 4,200
New Clinic 145 2 Weil-McLain WGO-4 290 1,455
City Building Est. 150 2 Unknown Unknown Est. 300 1,80012
NANA Multipurpose Office
Building13 Unknown Unknown Unknown Unknown Est. 500 Est. 13,000
Residential Subdivision (9) Unknown Unknown Unknown Unknown Unknown 7,200
Teacher Housing Unknown Unknown Unknown Unknown Unknown 1,500
Future School Unknown Unknown Unknown Unknown Unknown 16,000
Total 54,155
Shungnak
Commercial energy systems capacity in Shungnak total 3,118 MBH or 3,118,000 BTU/hr.
A total of 43 residential homes are included in the proposed system design. In addition to the
residences in Shungnak, there are four medium-large commercial facilities, with the largest
facility being the school. Facilities considered for inclusion in the district heating system are
listed on Table 5.
Table 5. Commercial Energy Use - Shungnak
11 Source: FY2008 information provided by Craig McConnnell, Northwest Arctic Borough School District. A major
addition to the Kobuk School will begin in 2011, thus increasing fuel consumption from roughly 9,000 gallons per
year to an estimated 16,000 gallons per year.
12 Source: Figure based on 200 gallons per month, Sept – May, information from Al Capsel, City of Kobuk.
13 Facility planned for construction beginning in 2011.
14 Source: FY2008 information provided by Craig McConnnell, Northwest Arctic Borough School District.
15 Facility planned for construction in next 5 years.
Building Boiler Capacity
(MBH)
Qty Make Model Total Capacity
(MBH)
Annual Fuel
Usage (gal)
School 257 6 Weil-McLain WGO-9 1,542 23,00014
New Water Treatment Plant 348 2 Weil-McLain 478 696 3,500
New Clinic 145 2 Weil-McLain WGO-4 290 2,692
City Building 150 2 Burnham Unknown 300 1,000
NANA Multipurpose Office
Building15 Unknown Unknown Unknown Unknown Est. 500 Est. 13,000
Residential Subdivision Unknown Unknown Unknown Unknown Unknown 35,520
Total 78,712
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2.5 Key Assumptions
Community related assumptions include:
• Demographic information from the Alaska Community Database is reliable.
• The proposed district heating system design includes commercial buildings and a limited
number of residential homes.
• Only houses close together are economically feasible to connect with a district heating
system.
• NANA Regional Corporation will construct one multipurpose building in each village.
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3 MANAGEMENT STRUCTURE
3.1 Organizational Chart
Short Term: A management structure for the short-term plans for a biomass system will be
informal (and non-existent from a business standpoint) and will involve representatives from
NRC, NIHA, and each of the tribal governments in the Upper Kobuk villages. It will also
involve local entrepreneurs.
Medium Term: The parties involved with efforts to develop and implement a biomass district
heating system are a part of the medium term management structure. NIHA will be the main
party involved as the primary grantee, and will facilitate efforts to move the project further
towards implementation.
Long Term: The following organization model is the proposed initial structure for the Upper
Kobuk Biomass Utility. It is comprised of an Administrative Unit and a Harvest Unit. Under
this model there are a total of three employees. The following organizational chart illustrates the
staff relationships of the proposed Kobuk River Valley Biomass Utility:
Figure 2: Proposed Organization Chart (Long Term)
Under this model the Utility Manager is responsible for managing all employees and will receive
direction and answer to the Oversight Committee. This management structure is subject to
change as the project is further developed and stakeholders (both regional and village) become
more involved.
Oversight
Committee
Commercial
Customers
Utility
Administrative
Unit
-Utility Manager
Harvest Unit
-Harvester (s)
-Boiler Operator
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3.2 Projected Staffing and Training for Long Term Plans
Utility Manger
The Utility Manager will provide operations oversight of the Upper Kobuk Biomass Utility,
which will include management of all staff and financial matters associated with the enterprise.
This person will collaborate with and answer to the oversight committee in developing and
implementing policies that support the harvest management plan and the transportation
management plan. The successful implementation of harvest management policies will ensure
responsible harvesting. Implementation of appropriate transportation management policies will
ensure responsible transport of wood products from the field to the village, and will result in
minimal disturbance to the land surrounding the village(s). The Utility Manager will also
oversee the business transactions between the utility and the customers. The Utility Manager
will handle all billing and bookkeeping activities.
Harvester
The harvester(s) will operate the tree harvesting equipment, and will be responsible for following
the harvest management plan to ensure responsible harvesting practices. The harvester will also
be responsible for keeping record of amounts and types of trees harvested as well as harvest
areas.
The person hired for this position will also be responsible for transporting the felled trees to the
wood yard from the field. This person will follow the transportation management plan to ensure
responsible passage practices are upheld. Existing roads and routes will be used whenever
possible.
The harvester will also prepare biomass for processing. If a stick-fired system is installed this
will involve de-limbing, removing debris, and cutting trees to size. If a chip-fired system is
installed it will involve processing the biomass with the chipper. The harvester will need to
ensure that measures are taken to keep processed biomass in the wood yard dry and protected.
This person will also need to monitor product levels to ensure that enough biomass is kept on
hand and above a specified minimum to avoid down-time. This person will receive equipment-
specific training (depends on what type of equipment).
At this point is recommended that two people be hired for this type of position. One of the
harvesters will also serve as a boiler operator. This will involve monitoring biomass levels
available at the boiler site to ensure that biomass levels are kept above a specified minimum.
Routine boiler cleaning and other maintenance activities will be required to keep the boiler in
good working order. The boiler operator will also maintain and inspect connections to and from
other buildings in district heating system.
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3.3 Key Personnel during Project Stages
3.3.1 Business Establishment Phase
Key personnel involved in this phase will include an oversight committee. This committee will
include representatives from local and regional entities that have been involved in the project.
Possible partners include those that have already provided support (financial and/or in-kind) to
the Upper Kobuk Biomass Feasibility Study Project, including the NRC staff and/or Lands
Committee, NIHA, and Maniilaq. Local tribes have also been supportive of the project.
3.3.2 Construction Phase
Key personnel involved in this phase will likely include the oversight committee, and the Utility
Manager.
3.3.3 Operating Phase
Key personnel involved in this phase will likely include the oversight committee, the Utility
Manager, and the Harvester(s)/boiler operator.
3.4 Key Assumptions
Employee related assumptions:
• The cost of training new employees will be constant.
• Training will be available.
• Key personnel will be available for hire.
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4 FINANCIAL DATA
The Utility Manager will have the authority to submit requests for payment. The Utility will use
the accounting software QuickBooks Pro to track customer transactions and system revenue and
expenses. Budgets for each aspect of the biomass district heating system utility will be
established at the beginning of each fiscal year and will be tracked with income versus budget
statements.
The following section will provide financial information for “Scenario 2” for Ambler, as found
in the Feasibility Study: A Comparison of Automated and Hand-fed Boiler Systems for Upper
Kobuk Valley Villages report. This scenario includes six commercial buildings, and ten
residential buildings.
4.1 Revenue Source
Revenue sources will include user fees based on the following fee schedule:
Customer Category Monthly Rate # Customers Months/Yr Annual Revenue
Residential $ 150 10 12 $ 18,000
Large Commercial16 $ 7,500 2 12 $ 180,000
Small Commercial17 $ 2,000 4 12 $ 96,000
Total Revenue $ 294,000
4.2 Estimated Annual Expenses
Estimated annual expenses will include Operations and Maintenance (O&M) and Repairs and
Replacements (R&R). These two cost categories will be incurred in the ongoing operation and
maintenance of the proposed district heating system.
4.3 Operations and Maintenance
The O&M expenses are the regular ongoing costs to operate and maintain the utility. Following
are estimates of the O&M expenses that will be incurred on an annual basis to sustain the
operation of utility assets and the cost of utility administration at one site:
16 Large commercial buildings include the school and other school buildings, and the proposed NRC Multipurpose Building.
17 Small commercial buildings include the Maniilaq Health Clinic, Ambler IRA, City of Ambler, and the water treatment plant building.
14
Table 6: Estimated Annual O&M Expenses
Expense Category Annual Estimate Subtotal
Boiler and Harvest Operations
Recovered Heat $ 30,182
Biomass $ 130,562
Fuel Oil $ 1,494
Electricity $ 46,841
Total $ 209,079 $ 209,079
Other
Repair and Replacement Account $ 48,920
Capital Replacement Account $ 4,458
Total Other $ 53,378 $ 53,378
Total Operating Expenses $ 262,457
4.4 Repairs and Replacement
The R&R expenses are any expenses incurred to repair or replace system components which
exceed a certain dollar amount (ex. $1,000). These expenses are those that are not expected to
occur on an annual basis. They are the capital costs that will be depreciated over the useful life
of major system components, rather than being expensed in the year incurred.
The following table outlines the estimates of R&R expenses for major system equipment items.
The total amount is set aside on an annual basis and becomes a part of the O&M cost table
above.
Equipment Description Qty X Cost ÷ Useful Life = Depreciation
Skid Steer - Fecon TRX100L 1 X $174,700 ÷ 10 = $17,470
Backhoe Loader - JCB 4CX 1 X $244,500 ÷ 10 = $24,450
Morbark Chipper 1 X $70,000 ÷ 10 = $7,000
Total amount to be set aside annually for R&R Costs $48,920
4.5 Annual Profit
Any profit amounts accumulated each year will be applied to repair and replacement costs.
15
Table 7: Estimated Annual Profit
Revenue
Residential User Fees $ 18,000
School User Fees $ 180,000
Water Treatment Plant $ 96,000
Revenue Total $ 294,000
Expenses
Annual Operation and Maintenance Costs $ 209,079
Annual Repair and Replacement Costs $ 48,920
Capital Replacement Account $ 4,458
Expense Total $ 262,457
Net Operating Income (Loss) $ 31,543
Local/Regional Capital Contribution $ -
Annual Estimated Profit $ 31,543
4.6 Estimated Annual Operating Cash Flow
Annual estimated operating cash flow depicts the annual flow of money in and out of the
business over the course of an operating year; regardless of whether or not the expenditure is
fully tax deductible, such as capital expenditures (annual R&R) or loan principal payments.
Table 8: Estimated Annual Operating Cash Flow
Cash Sources
Residential User Fees $ 18,000
School User Fees $ 180,000
Water Treatment Plant $ 96,000
Total Cash Sources $ 294,000
Cash Uses
Annual Operation and Maintenance Costs $ 209,079
Annual Repair and Replacement Costs $ 48,920
Capital Replacement Account $ 4,458
Total Cash Uses $ 262,457
Excess(Shortage) of Cash Over Expenditures $ 31,543
16
4.7 Key Assumptions
Financial assumptions are:
• All financial figures provided are preliminary estimates.
• Revenue will be generated from user fees.
• Price for BTUs will be set at a rate that pays all the expenses of the heat utility with a
small margin for profit.
• Cost to end-user is based on the amount of BTUs used by each and is expected to
stabilize the cost of heat rather than significantly reduce prices.
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5 CAPITAL REPLACEMENT SCHEDULE
5.1 Cost of Major Components
Over time, the district heating system(s) will require major capital replacement. With the given
district heating system design life of about 30 years, substantial capital replacement costs will
need to be accumulated in order to replace the major system components once they have been
depreciated.
The following table outlines the estimates for major costs associated with implementing a district
heating system.
System Component Estimated Cost
Boiler System (Boiler, piping, pumps) $ 2,051,968
Harvest Equipment $ 489,200
TOTAL Estimated Cost $ 2,541,168
Altogether, the replacement cost is estimated at about $2.5 million. Based on this estimate, the
annual portion of such an annuity, or equivalent annual cycle cost (EACC) is calculated below.
For this calculation the design life of the system is set at 30 years and the design life factor
(DFL), using an interest rate of 4% is 0.0178.
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Equivalent Annual Cycle Cost
Inflation Rate: 0.0% Reinvestment Rate: 4.0%
Project Replacement Costs Capital Replacement Fund Balance
10%
Total Assets of Total Start of Year Annual Interest End of Year
Year Inflated Cost Asset Cost Balance Deposit Earnings Balance
1 $ 2,500,000 $ 250,000 $ - $ 4,458 $ - $ 4,458
2 $ 2,500,000 $ 250,000 $ 4,458 $ 4,458 $ 178 $ 9,093
3 $ 2,500,000 $ 250,000 $ 9,093 $ 4,458 $ 364 $ 13,915
4 $ 2,500,000 $ 250,000 $ 13,915 $ 4,458 $ 557 $ 18,929
5 $ 2,500,000 $ 250,000 $ 18,929 $ 4,458 $ 757 $ 24,143
6 $ 2,500,000 $ 250,000 $ 24,143 $ 4,458 $ 966 $ 29,567
7 $ 2,500,000 $ 250,000 $ 29,567 $ 4,458 $ 1,183 $ 35,207
8 $ 2,500,000 $ 250,000 $ 35,207 $ 4,458 $ 1,408 $ 41,073
9 $ 2,500,000 $ 250,000 $ 41,073 $ 4,458 $ 1,643 $ 47,173
10 $ 2,500,000 $ 250,000 $ 47,173 $ 4,458 $ 1,887 $ 53,518
11 $ 2,500,000 $ 250,000 $ 53,518 $ 4,458 $ 2,141 $ 60,116
12 $ 2,500,000 $ 250,000 $ 60,116 $ 4,458 $ 2,405 $ 66,978
13 $ 2,500,000 $ 250,000 $ 66,978 $ 4,458 $ 2,679 $ 74,115
14 $ 2,500,000 $ 250,000 $ 74,115 $ 4,458 $ 2,965 $ 81,537
15 $ 2,500,000 $ 250,000 $ 81,537 $ 4,458 $ 3,261 $ 89,256
16 $ 2,500,000 $ 250,000 $ 89,256 $ 4,458 $ 3,570 $ 97,283
17 $ 2,500,000 $ 250,000 $ 97,283 $ 4,458 $ 3,891 $ 105,632
18 $ 2,500,000 $ 250,000 $ 105,632 $ 4,458 $ 4,225 $ 114,315
19 $ 2,500,000 $ 250,000 $ 114,315 $ 4,458 $ 4,573 $ 123,345
20 $ 2,500,000 $ 250,000 $ 123,345 $ 4,458 $ 4,934 $ 132,737
21 $ 2,500,000 $ 250,000 $ 132,737 $ 4,458 $ 5,309 $ 142,504
22 $ 2,500,000 $ 250,000 $ 142,504 $ 4,458 $ 5,700 $ 152,661
23 $ 2,500,000 $ 250,000 $ 152,661 $ 4,458 $ 6,106 $ 163,225
24 $ 2,500,000 $ 250,000 $ 163,225 $ 4,458 $ 6,529 $ 174,212
25 $ 2,500,000 $ 250,000 $ 174,212 $ 4,458 $ 6,968 $ 185,638
26 $ 2,500,000 $ 250,000 $ 185,638 $ 4,458 $ 7,426 $ 197,521
27 $ 2,500,000 $ 250,000 $ 197,521 $ 4,458 $ 7,901 $ 209,879
28 $ 2,500,000 $ 250,000 $ 209,879 $ 4,458 $ 8,395 $ 222,732
29 $ 2,500,000 $ 250,000 $ 222,732 $ 4,458 $ 8,909 $ 236,099
30 $ 2,500,000 $ 250,000 $ 236,099 $ 4,458 $ 9,444 $ 250,000
$ 133,726 $ 116,274 $ 250,000
Based on the preceding table, $4,458 will need to be deposited into a capital replacement account
annually to replace the district heating system components at the end of the 30 year design life.
5.2 Funding for Major Components
It is assumed that the majority of the funding for the implementation of a district heating system
will be funded through various grants. Other private sources of funds or in-kind support will be
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sought from various stakeholders including NRC, NIHA, Maniilaq, the Northwest Arctic
Borough and the Northwest Arctic Borough School District.
5.3 Available Resources for the infrastructure
See current infrastructure section.
5.4 Emergency and Contingency Plan Needs
Each district heating system will require that the commercial or residential client maintain their
fuel oil boilers with fuel in each building serviced by the heat utility.
This requirement will be written into each contract with each end user. The district heating
system requires redundancy, as a safety precaution if the wood fired boiler should not produce
heat for any reason. The district heating system will be installed with a heat exchanger in each
building it services and in parallel with the current heating system in each building. If the heat
from the heat exchanger should ever fall below the building’s demand, the original heat system
will come on to meet that demand.
5.5 Key Assumptions
Financial assumptions are:
• Repairs and maintenance will increase as the district heating system ages and the system
size increases.
• Replacement parts will be available.
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6 LEGAL AUTHORITY & ISSUES
6.1 Ownership
The majority of the land studied in this project is owned by NRC. NRC has been a close partner
in this project since its inception and is committed to developing alternative energy solutions in
the NANA Region. NRC became a partner of the Northwest Arctic Regional Team (NWALT)
in 2008. According to the NRC website18, “It is the vision of the Northwest Arctic region to be
75% reliant on regionally available energy sources, both renewable and non-renewable, for
heating and generation purposes by the year 2030.” A harvest management plan will be
developed in concert with NRC, and land-use permits will be sought where necessary.
Most of the commercial buildings and land within the City boundaries are owned by the
respective City governments in each village. As property owners, the City governments will be
affected by the proposed biomass district heating systems.
Other parties that can potentially be affected by the project include the native allotment owners,
the State of Alaska, or federal entities with land interests in the area. The final business plan will
further outline how this issue will be handled – whether the entity will form agreements with
private landowners to purchase biomass, or how the entity will avoid taking biomass from
private lands when not allowed.
6.2 Ordinances Related to New Project
Resolutions have been gathered from the City of Ambler, City of Shungnak, and the Native
Village of Kobuk in support of this project.
Any further required documentation will be identified in the final business plan.
6.3 Special Permits, Licenses and Regulations
Before a district heating system is constructed, some of the required permits that will need to be
obtained have been identified in the Kobuk River Valley Woody Biomass Reconnaissance Report.
They include:
• Northwest Arctic Borough – Title 9 Land Use permit
• State of Alaska – Coastal Project Questionnaire, Title 19: Fish Habitat, Title 18:
Environmental Conservation
6.4 Key Assumptions
No assumptions at this time.
18 Source: NANA Regional Corporation, Renewable Energy, http://www.nana.com/regional/resources/alternative-energy/
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7 INTERAGENCY RELATIONSHIPS
7.1 Involvement of Other Agencies
7.1.1 Involvement in Construction Phase
WHPacific, Alaska Wood Energy Associates, and eFour Engineering has provided technical
assistance to NIHA throughout the duration of this project. At this time, it is assumed that these
entities will be involved in the construction phase, also.
7.1.2 Involvement in Ongoing Operations
It is anticipated that while NIHA staff and contractors will take the lead in initiating a district
heating system utility, other regional and village-level entities will manage the ongoing
operations. These entities will be identified in the final business plan.
7.1.3 Replacement Agencies
The replacement of utilities, at the end of the design life, has not been considered in this business
plan.
7.1.4 Regulatory Agencies
Some of the regulatory agencies applicable to this project may include:
• Alaska Department of Natural Resources
o Division of Forestry
o Office of Project Management and Permitting
• Alaska Department of Fish and Game
• Alaska Department of Environmental Conservation
o Division of Air Quality
7.2 Phase of Larger Project
The first phase of this project will be a small-scale system. The purpose of this system will be to
ensure that biomass is available to community members to heat their homes with their
woodstoves. The immediate need of such a service is especially important given the fact that
fuel oil shipments are often delayed by weather or other unforeseen circumstances. It will
consist of local entrepreneurs gathering wood with their own equipment and selling the wood to
one of the village entities. This system may be managed by either the City or Tribal Office (this
is still to be determined), whereby they would pay the individuals gathering wood at the current
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market rate19 for each load of wood. The village entity will then keep a supply of wood on hand
for re-sale to local residents.
Another component of Phase I is the formation of an oversight committee. This committee will
be made up of local and regional representatives.
Phase II will be to take the steps required to implement a district heating system in one of the
three villages including permitting, final design, and an environmental assessment. The project
team will work closely with regional leaders to determine the best course of action for the
management of such a utility.
Phase III will involve finalizing the plans and the construction of the recommended biomass
system in one of the Upper Kobuk villages.
7.3 Key Assumptions
It is assumed that funding provided through Alaska Energy Authority will be available to
complete the final design studies required.
19 See Kobuk River Valley Biomass Reconnaissance Report for information about current market rates.
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8 SUMMARY
8.1 Wrap-up
This initial business plan provides information that demonstrates that a biomass district heating
system has the potential to be financially sustainable, particularly as fuel costs continue to rise.
However, additional community involvement, design and financial analysis is needed to verify
that the system is appropriate for the Upper Kobuk communities. To advance the Upper Kobuk
Biomass project a grant proposal was submitted to AEA for additional funds for final design,
permitting, and equipment specifications. The grant was selected and funds are anticipated in
fall 2011.
The following sections briefly discuss a phased approach and some of the initial benefits of
implementing a biomass heating system in the Upper Kobuk Villages.
8.2 Timelines
Phase 1
System for buying/selling wood to individuals Fall 2011
Continue study with next phase of AEA funding Fall 2011 – Fall 2012
Steering Committee Fall 2011 – Fall 2012
Phase 2
Final Design, Permitting, Environmental – 1 Village 2013
Phase 3
Implement District Heating System – 1 Village 2014 – 2015
8.3 Effect on Community
A wood energy project in the Upper Kobuk Region will potentially reduce and stabilize heating
costs to three villages with past year prices of fuel oil ranging from $7.00 - $10.00 per gallon. In
May of 2010, fuel oil was $8.50 per gallon in Ambler, $6.99 per gallon in Shungnak and $7.00
per gallon in Kobuk. A properly constructed wood energy program for a village will have
commercial customers as well as create a consistent supply of firewood for households.
Currently a cord of household wood goes for $300-$350 per cord. A wood energy program with
a regional harvest company should be able to supply split firewood at a profit for about $250 per
cord. A consistent supply of wood will allow households to more consistently rely on firewood
for heating and will encourage investment in higher efficiency wood burning appliances. A cord
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of wood at 80 percent burn efficiency will displace approximately 100 gallons of fuel.
Household savings can be more than half on heat energy in a year. A minimum range of 20,000-
60,000 gallons of heating oil will be displaced for commercial buildings (school, clinic, others)
per village with a total of 133,827 or more to be displaced.
8.4 Cost of Living/Residents Ability to Pay
The following table provides information on the typical cost of living expenses faced by
residents in the Upper Kobuk, and is meant to demonstrate the ability for residents to pay
monthly utility fees.
Description Average Rate Times Paid a Year Annual Amount
Income Per Household
Median Household Income $ 3,625 12 $ 43,500
Total Median Income $ 43,50020
Expenses Per Household
Rent $ 425 12 $ 5,100
Food $ 175 52 $ 9,100
Electricity $ 150 12 $ 1,800
Fuel $ 800 4 $ 3,200
Water and Sewer $ 105 12 $ 1,260
Airfares $ 160 2 $ 320
Clothing $ 200 12 $ 2,400
Gifts/Holidays $ 500
Other $ 100 12 $ 1,200
Total Median Expense $ 24,880
Surplus/(Deficit) $ 18,620
8.5 Key Assumptions
Key assumptions related to community impact are:
• Household incomes from State of Alaska Statistics are correct.
• There will be no significant increases in the cost of air and freight transportation.
20 Source: Alaska Local and Regional Information, Ambler Resident Snapshot (2000),
http://www.labor.state.ak.us/research/alari/4_19_13.htm#snap
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• This document has not considered the effect of natural disasters such as fire, flood, and
earthquake.