Legislature(2011 - 2012)BUTROVICH 205
01/24/2011 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Daniel Sullivan, Commissioner, Department of Natural Department of Natural Resources (dnr) | |
| Presentation: Ormat Technologies, Inc. - Mt. Spurr Geothermal Project | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 24, 2011
3:31 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Bert Stedman
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
Senator Lesil McGuire
COMMITTEE CALENDAR
PRESENTATION: DANIEL SULLIVAN, COMMISSIONER, DEPARTMENT OF
NATURAL RESOURCES (DNR)
- HEARD
PRESENTATION: ORMAT TECHNOLOGIES, INC. - MT. SPURR GEOTHERMAL
PROJECT
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
No previous action to record
WITNESS REGISTER
COMMISSIONER DAN SULLIVAN
Department of Natural Resources (DNR)
State of Alaska
POSITION STATEMENT: Presented DNR overview.
JEAN DAVIS, Director
Division of Support Services
Department of Natural Resources (DNR)
State of Alaska
POSITION STATEMENT: Added comments to DNR presentation.
PAUL THOMSEN, Director
Policy and Business Development
Ormat Technologies, Inc.
POSITION STATEMENT: Presented update of Ormat's Mt. Spurr
geothermal project.
ACTION NARRATIVE
3:31:01 PM
CO-CHAIR JOE PASKVAN called the Senate Resources Standing
Committee meeting to order at 3:31 p.m. Present at the call to
order were Senators Stevens, Wielechowski, French, Co-Chair
Wagoner and Co-Chair Paskvan; Senator McGuire was excused.
3:33:21 PM
^Presentation: Daniel Sullivan, Commissioner, Department of
Natural Department of Natural Resources (DNR)
Presentation: Daniel Sullivan, Commissioner, Department of
Natural Department of Natural Resources (DNR)
CO-CHAIR PASKVAN welcomed Department of Natural Resources (DNR)
Commissioner Dan Sullivan, who introduced Jean Davis, Director,
Support Services, Department of Natural Resources (DNR).
3:35:18 PM
COMMISSIONER SULLIVAN related his agenda and said he would weave
DNR challenges into his presentation. He mentioned testifying in
House Finance and House Resources committees and said that after
seven weeks on the job he still has a lot to learn. He was
worried about reaction to his testimony, but explained that if
he doesn't know the answer to a question he will just tell
members that. He wanted DNR's relationship with the legislature
to be respectful and responsive.
3:38:23 PM
COMMISSIONER SULLIVAN started with the department's
constitutional foundation, which is in Article 8, Sections 1 and
2, of the Constitution, saying the department's mission is to
conserve and enhance the state's natural resources for present
and future Alaskans. But, he said, besides managing its lands,
DNR carries out other important functions.
3:39:46 PM
He said the department has 1,100 employees in different regional
offices. The Governor's budget request is an increment of about
$1 million more than last year's budget. He presented a graph of
departments and their responsibilities and then moved to the
different divisions.
3:40:58 PM
COMMISSIONER SULLIVAN said the Division of Oil and Gas holds
annual oil and gas lease sales, manages exploration and
development activities on state lands, conducts resource
evaluation, and ensures appropriate oversight and maintenance of
oil and gas infrastructure and facilities, among other things.
The Division of Mining, Land and Water has the responsibility
over acquiring land from the federal government to fulfill
statehood entitlements and for public purposes, over defending
existing state ownership interests in navigable waters and
easements, managing land and mineral resources, managing water
resources and issuing water rights and use permits for personal,
commercial and industrial use. It has 207 full time positions.
3:42:31 PM
The Division of Forestry has the biggest chunk of the DNR
budget. It provides fire protection services and related fire
and aviation management activities throughout the state and
manages the three state forests - Tanana Valley, Haines and
Southeast State Forest - for multiple use and sustained yield of
renewable resources. They are also working innovatively with the
private sector on the marketing of some of those, particularly
timber resources: for instance a wood pellet mill in Fairbanks
that is now employing close to 20 people and has $12 million in
private investment.
3:43:34 PM
The Division of Geological and Geophysical Surveys is focused on
determining the potential of Alaska lands for production of
minerals and examining where those deposits exist and
cataloguing where they exist and works with industry. They are
working on digitizing this information.
The Division of Coastal Zone and Ocean Management is focused on
administering the Alaska Coastal Management Program and
participates in the Coastal Impact Assistance Program which
distributes funds to six outer continental shelf oil and gas
producing states to help mitigate the impacts of Outer
Continental Shelf (OCS) oil and gas development.
The Division of Agriculture works on agriculture development and
local producers with the revolving loan fund program and
managing the plant materials center.
The Division of Parks and Outdoor Recreation manages has a
significant number of employees. It oversees the outdoor
recreation opportunities in Alaska state parks. Last year they
had 5.39 million visitors, and 72 percent of those were
Alaskans.
The Division of Support Services focuses on administrative
services and works as part of the state recorder's office, which
administers the statewide recording system and the UCC central
file system.
3:46:03 PM
SENATOR WIELECHOWSKI asked if he has any interest in trying to
expand the number of cabins available, so it's easier for
Alaskans and tourists to access wilderness.
COMMISSIONER SULLIVAN replied that he has heard that question
from everyone, and the answer is yes. Ben Ellis is the new
director and he brings "a ton of energy and ideas that are
trying to address exactly that, particularly on the area of
looking at public/private partnerships to really jump-start the
access issues and some other things."
COMMISSIONER SULLIVAN said the State Pipeline Coordinator's
Office did a "really fantastic job" in a stressful environment
with the recent pipeline shut-down. There were a lot of
different directions coming from certain federal agencies on
what and what not to do.
The Office of Project Management and Permitting coordinates
large-scale projects in the state and is focused on Pt. Thomson.
Another important office is the AGIA Coordinator's Office, which
focuses on facilitating permitting for the Alaska Natural Gas
pipeline under AGIA.
The Mental Health Trust Land Office manages the real property
assets of the Mental Health Trust.
In addition, Commissioner Sullivan provided a list of the many
boards and commissions associated with the department, and then
presented the big picture of this year's budget requests. He
said he is meeting with many key stakeholders, whether they are
industry or environmental groups, or Native leaders, and three
themes keep popping up.
3:50:37 PM
He said the challenge that many in the state see is the need for
partnerships with opportunities. The TAPS throughput issue is
probably the most important of these. In 2006 the state averaged
840,000 barrels of output per day; in 2007, it averaged 734,000.
Last year it averaged about 640,000 barrels per day, a loss of
200,000 barrels per day inside of four years, or a 6-7 percent
per year decline trend. He said he will give an enormous amount
of attention to this matter.
Related to that, the commissioner said, is the aging
infrastructure in Cook Inlet, as well as TAPS, and high energy
costs throughout the state, particularly in rural Alaska. The
gas pipeline, because of its size, has its special challenges.
SENATOR FRENCH asked when the pipeline coordinator position will
be filled.
COMMISSIONER SULLIVAN replied that he is meeting with potential
candidates, but hasn't picked one yet.
CO-CHAIR PASKVAN asked for an estimate of how much longer the
pipeline could have remained shut down until it would have been
in a catastrophic position, and assuming that happened, what
capacity or lack of capacity would be needed to heat the
pipeline.
COMMISSIONER SULLIVAN responded that he wanted Alyeska to
respond to that, but the day the decision and the coordination
to restart it happened he flew to Fairbanks to be part of the
decision. It was a wake-up call to the department as well as
Alyeska to doing internal reviews of starting up a pipeline in
minus 30 degree weather. The shut-down could have gone on a lot
longer. And from a national perspective oil was imported from
Russia to take up the slack for West Coast refineries -
worsening the nation's financial deficit.
SENATOR WIELECHOWSKI asked if the maintenance repairs on the
TAPS are deductible under ACES.
COMMISSIONER SULLIVAN said he didn't know the answer, but he
would get back to him on that.
COMMISSIONER SULLIVAN went to permitting efficiencies and said
his assistant, Ed Fogels, is coordinating an effort to look at
areas of overlap. The issue of timely permitting is really
important to the state, he said, and improvements can be made
that he would bring to the legislature.
SENATOR WIELECHOWSKI said he is always surprised that the
Division of Oil and Gas gets the third highest amount of the DNR
operating budget behind the Division of Forestry and the
Division of Mining, Land and Water. Considering that oil and gas
accounts for 90 percent of the state's budget, he asked if the
commissioner thought it needed to be more so the permitting
could be streamlined and so that the department could have a
better understanding of what is really going on in the field.
3:59:14 PM
COMMISSIONER SULLIVAN answered that a lot of the permitting goes
through the Division of Mining, Land and Water; they now have
fairly significant budget requests to fill vacancies and for
capital-related projects that help with regard to the IT
infrastructure that can help streamlining. He welcomed
suggestions from the legislature. In the House Finance Committee
it was mentioned that slow DNR permitting essentially drove a
company out of the state.
CO-CHAIR PASKVAN said the gas pipeline is a major topic to many
Alaskans and asked where he is heading on that at the moment.
COMMISSIONER SULLIVAN replied his view is that significant
progress has been made under AGIA. The focus is now on precedent
agreements and commercial alignment that is taking some time.
TransCanada mentioned a certain self-imposed deadline that has
come and gone, but the negotiations are immensely complicated
and take time. He urged patience.
4:03:34 PM
COMMISSIONER SULLIVAN went to specific DNR challenges and
solutions to them. He said the department has a permitting
backlog of over 2,000 permits.
CO-CHAIR PASKVAN asked how long it would take to process those
without anything new being added.
COMMISSIONER SULLIVAN replied he didn't know, but it's a big
backlog.
SENATOR WIELECHOWSKI asked if he is talking about months or
years and what kinds of permits are backlogged.
COMMISSIONER SULLIVAN replied he would provide more granularity
on that, but he didn't have the direct answers now.
4:06:44 PM
SENATOR STEDMAN joined the committee.
COMMISSIONER SULLIVAN said the second challenge listed was
federal land conveyances where good progress is being made. The
state still needs to receive about 5 million acres under the
Statehood Entitlement Act. The smaller numbers get more
challenging because of competing interests with other land
holders. Their budget request for this is almost $700,000.
The third challenge relates to the concern about the steady
uptick in environmental challenges to the department's
permitting process, itself, which creates delay and uncertainty,
which is what they are trying to reduce.
COMMISSIONER SULLIVAN added that the department is requesting an
increment of $400,000 for maintaining existing forest access
roads and investments in reforestation and commercial thinning.
The Governor also introduced a bill doubling the size of the
state forest in Southeast Alaska. Unlocking resources and
publicizing resources are the last two items, but there are
creative ways to do that without costing a lot of money.
COMMISSIONER SULLIVAN said a specific challenge related to
management issues, and the challenge is, in general, managing
the entire department. That is because of the importance of the
Division of Oil and Gas and the gravitational pull they exert on
other issues. It is so huge that other resources could be
ignored inadvertently. Retention and recruitment are big issues,
he said, and there are too many vacancies. It is important to
recruit the best and the brightest, and this is an area that is
getting more attention.
COMMISSIONER SULLIVAN wrapped up saying Alaska has
opportunities; it is an energy storehouse. The North Slope basin
remains world class and those enormous USGS numbers don't even
include massive quantities of "unconventionals" (heavy oil,
viscous or shale).
4:12:08 PM
CO-CHAIR PASKVAN asked if the 43 million barrels is on federal
or state land or a combination.
COMMISSIONER SULLIVAN answered its 1 billion barrels and it's on
federal and state land.
CO-CHAIR PASKVAN asked what the ratio is.
COMMISSIONER SULLIVAN replied that a lot of it is on federal
land and includes the OCS. The numbers in the Alaska Arctic in
particular are very big.
COMMISSIONER SULLIVAN said in minerals - gold, zinc, silver -
that Alaska is among the top 10 countries in the world in every
category.
4:13:29 PM
SENATOR STEVENS asked how he considers renewable resources
versus non-renewable resources in relation to areas that have
both - like with the Pebble Mine.
COMMISSIONER SULLIVAN said there is no easy answer. The governor
said the state doesn't want to trade one resource for another.
The goal is "to responsibly develop our resources in a way where
you are not having to make that choice." The state has done that
well on the North Slope.
4:15:23 PM
New players are coming to Alaska and see it as a place of
opportunity. There is a sense of ongoing innovation among both
home grown companies and companies coming from out of state
given Alaska's harsh climate and remote location.
4:16:21 PM
The importance of partnership - whether it's with different
industries, environmental groups, the executive branch or the
legislature - is key to getting many resource development
opportunities moving, Commissioner Sullivan said. One partner
can't be missing. And one of the key elements missing here is
the federal government. As Attorney General, he said he saw many
problems with permitting, for instance with critical habitat
designations, 404(c) under the Clean Water Act. "The list is
long and it's growing." He said he would focus on redoubling
efforts with the federal government explaining how important
they are to Alaskans and to the nation.
In conclusion, Commissioner Sullivan revealed a scenario
sequencing resource development opportunities that could come on
line in the next 5-10 years. It was juxtaposed with a bleaker
future without getting cooperation. An Anchorage Daily News
article reported the Arctic Slope Regional Corporation (ASRC)
said that the lack of cooperation is hurting people on the North
Slope and the rest of the country.
4:20:22 PM
CO-CHAIR PASKVAN referenced a DOR January 18, 2011 report about
DOR information that the DNR can't process or use and asked him
to comment.
COMMISSIONER SULLIVAN replied that he has good examples of
getting concrete data from energy companies. Recently the
department got detailed and confidential information with regard
to the economic aspects of two projects. DNR has been able to
use that data and make good investment decisions.
CO-CHAIR WAGONER asked him what a production forest is versus
just managing a forest, and why his department needs 280
employees versus the Division of Oil and Gas that needs 105.
COMMISSIONER SULLIVAN replied that three-quarters of the
Division of Forestry's numbers are focused on its firefighting
responsibility, but he would get back to him with more
specifics.
4:24:56 PM
JEAN DAVIS, Director, Support Services, Department of Natural
Resources (DNR), answered 133 employees are permanent-seasonal
with the fire preparedness component; some manage their
aviation, helicopter and retardant contracts. Firefighters are
not included; emergency firefighting crews are additional.
4:26:37 PM
CO-CHAIR PASKVAN called an at ease from 4:26-4:33 p.m.
4:33:28 PM
^Presentation: Ormat Technologies, Inc. - Mt. Spurr Geothermal
Project
Presentation: Ormat Technologies, Inc. - Mt. Spurr Geothermal
Project
CO-CHAIR PASKVAN invited Paul Thomsen to give his presentation
on Ormat's Mt. Spurr geothermal project.
PAUL THOMSEN, Director, Policy and Business Development, Ormat
Technologies, Inc., said Ormat is a publicly traded company. It
is the leader in geothermal development today. Their equipment
is responsible for over 1 GW of generation around the world, and
they own and operate over 500 MW of geothermal projects
worldwide. They are unique in that they are vertically
integrated. They design and manufacture equipment; they own and
operate projects and do the drilling and exploration, and
negotiate the contracts of development projects. They can bring
their own capital to a project, which allows them to develop
projects when sometimes-high interest rates in other financial
models wouldn't be viable.
Ormat employs about 470 people in the United States and over
10,000 worldwide; and it has a presence in 71 countries. For
recovered energy generation projects they use the heat from
exhaust pipes to heat a working fluid instead of the heat from
the earth. Electricity is produced with no new emissions helping
turn the nation's natural gas pipeline infrastructure into a
source of clean reliable energy on compression stations.
Designing remote power units is how Ormat kicked off their
business in Alaska and the United States. In 1975 they sold over
100 remote power units to the TAPS to control the remote gate
valves should issues occur. Those units are fossil fueled and
very reliable. That equipment is still there, and that allowed
Ormat to move their corporate headquarters from the Northeast to
Reno, Nevada, which is their corporate global headquarters
today.
MR. THOMSEN said Ormat then focused on geothermal development
and tested one of the first geothermal units in Alaska in 1979
at the University of Alaska Fairbanks at Manly Hot Springs.
Today they have put almost $5 million into developing what they
hope will be the first commercially viable large scale
geothermal project in the state.
4:38:02 PM
He recapped that Ormat looks for areas that have heat,
permeability, and water, all needed to create a geothermal
reservoir to transfer the heat to make electricity. The Mt.
Spurr project is a volcanic resource, so they know there is good
heat, but they still need to prove permeability and availability
of water to transfer that heat to the surface.
Prior to 1985, Mr. Thomsen explained that most geothermal
projects used steam turbines and that limited the geothermal
development in the United States. Ormat came in with its own
financing and brought with it the idea of a binary system.
Previous to that you drilled a well, water came up out of
pressure, turned into steam and then turned a steam turbine.
Ormat decided to use hot water instead of steam to heat a
secondary working fluid, which happens in a vaporizer which is a
big vessel in the middle of the ground. The secondary working
fluid vaporizes and builds pressure; the pressure wants to
relieve itself across a fan blade; that thermal energy is
converted to mechanical energy that produces electricity. This
technology proved to be very viable in places where there are
water-dominated heat resources, and today's it's the most
prevalent technology in the United States. In the last 10 years
Ormat has been responsible for 90 percent of the deployed
geothermal projects in the United States.
4:39:23 PM
What is so good about geothermal energy? Mr. Thomsen said
utilities with this technology run 24/7-days a week, 52-weeks a
year making it very suitable for base load generation.
Therefore, it is easily incorporated into an integrated resource
plan, and while being very cost competitive as well.
He said Ormat has developed projects in the Lower 48 for $4-6
million per KW (in Alaska it is closer to $5-6 million per MW).
This is a staggering number, but it incorporates a life-time
supply of free fuel. These projects are highly reliable, and
they have a greater than 95-percent availability factor. Their
design is very low entropy without a lot of extreme pressure or
heat. Once the reservoir is designed correctly they sit there
and "purr away."
MR. THOMSEN said Ormat offers a fixed price over a 20-year
period; they typically enter into a power purchase agreement
(PPA) and lock in a fixed price with some type of O&M escalator.
The closed loop system is great because it doesn't consume any
water; it has zero emissions and it has minimal surface
disturbance for how much electricity they actually produce. A
typical 30 MGW power plant takes up a five-acre pad. A 20-year
contract and a 20-year project could create long-term high
quality jobs for the State of Alaska.
4:42:04 PM
He stated that finding the resource (which Alaska has), a high
upfront CAPEX, and the risk required in order to develop these
resources are the main development inhibitors. But, Ormat has
the unique position of being able to invest their own capital in
their projects if they know they can get a contract to move the
electricity to market.
He recapped that Ormat deploys over 11,000 MW of geothermal
nationwide. States and nations that have been aggressive in
developing geothermal resources have created policies to
encourage that, whether it's tax incentives or something else.
The policies are needed to jump-start utilities out of their
comfort zone in typical fossil fuel development and into
recognizing the intrinsic attributes of the resource, and then
the quality of the energy production cost speaks for itself.
4:43:20 PM
MR. THOMSEN said the Mt. Spurr project is located 75 miles west
of Anchorage in the west Cook Inlet. They want to have their
initial 50-MW project on line by 2016. He said a power purchase
agreement is crucial to them moving forward and they haven't
entered into that phase.
He said Ormat leased 36,000 acres for $3 million from the state
of Alaska. In 2010 they drilled two exploration core holes to
1,000 ft. The core drilling began last summer and showed a
prolific geothermal resource of shallow water and good heat
despite being under a glacier. There was evidence of multiple
geologic faults that are good for this type of development and
the geochemistry further indicated that the water molecules had
reached a very high temperature at some point in their lifetime.
This is something their geochemists can look at and start to
really try to delineate this reservoir.
SENATOR WIELECHOWSKI asked if he saw any problems with putting
this project at the base of an active volcano.
MR. THOMSEN answered that most of their expenditure is finding
the resource, and "what happens on the surface inherently isn't
that important." He said Ormat operates large geothermal
projects on the Big Island of Hawaii and in Indonesia where they
have active lava flows. Once they have defined where the
resource is and drilled at depth to find it, should there and be
eruption safety measures are in place for employees to get out
of the way. They can put in GPS applications and come back to a
site after a lava flow has occurred, and still find those target
areas from a resource perspective. From a business development
perspective, they take out insurance on those projects so active
volcanoes aren't a show stopper.
SENATOR WIELECHOWSKI said he was more concerned with the
placement of their project in relation to an electrical
generation facility that could be impacted by a volcanic
eruption.
MR. THOMSEN answered they will put it in a safe place the first
time. Defining the resource is the most expensive component, not
the physical facility itself. If they have to replace it, it
pales in cost to developing the initial resources, and further
"to date no geothermal plant has been wiped out by a volcanic
eruption." Seismic activity enhances geothermal energy
development, because it creates better permeability and water
flow.
4:48:30 PM
CO-CHAIR WAGONER remarked that his people said that water had
been much hotter than it was when they sampled it and asked if
that was because it was deeper.
MR. THOMSEN answered yes, and a full-scale production well will
help confirm the results from the preliminary well.
CO-CHAIR WAGONER asked if they would know more about their
ultimate output by 2013.
MR. THOMSEN answered yes. Ormat got funding through the Alaska
Energy Authority (AEA) and they are matching that to drill an
additional deeper 4,000 ft. core hole to look at any anomalies
in water temperature and permeability to see if it can support a
full-sized commercial geothermal project. The next step would be
to drill a full-sized production well, which they hope to do in
2012. Two more full-sized production wells would be needed to
create the flow needed to get the true measurement for how many
megawatts this reservoir can support.
4:50:31 PM
On infrastructure needs, Mr. Thomsen said this project is about
40 miles from the T-line at Chugach Electric's Beluga plant.
Preliminary studies per an HGR report have said that 40 miles of
transmission line and 25 miles of permanent road access would
range from $70-80 million. The question here is should these
infrastructure costs be borne by the project, the state or the
rate payers in paying for a higher power price after the
development of this project?
CO-CHAIR WAGONER wanted to see an overlay of this area showing
Ormat's project and proposed transportation route, Chuitna
Coal's project and proposed transportation route, and the CIRI
coal gasification project and their proposed transportation
route. Why build three roads when one road could provide a
transportation corridor for all three projects or a portion of
them?
MR. THOMSEN responded that was an excellent idea. They hired a
third-party report to come up with double proposals looking at
different routing as a base number to start with. He would give
it to staff. Chugach should receive $600,000 for a detailed
routing study from the legislature through the AEA round 4 to
look at this area and come up with their best impression. So,
there should be ample data on those routes.
SENATOR FRENCH said in the same vein it strikes him that they
are right at the base of Lake Chakachamna, too, where folks have
a proposed a hydro-electric project.
MR. THOMSEN replied that the HGR report indicated that different
routes have significantly different costs, but Chakachamna could
benefit from the transmission and infrastructure.
He said the expected amount of power from this project initially
would be 50 MW, and using an incremental approach they would
then look at developing the project further to a 100 MW
potential with 95 percent availability factor.
4:54:28 PM
He repeated that there is practically no technology risk with
this project; Ormat has built dozens of plants worldwide.
Preliminary geological analysis is encouraging. However
significant exploration is needed to prove the resource.
Business wise they are running into issues of getting power to
the market and how to get a PPA with a utility, all eight
utilities or with the state - some guarantee of a fixed price
over time to help Ormat pay off this project should they be able
to bring it to market. They are getting to the point where it is
hard to put more private capital into the project without
knowing what the power price is going to be.
MR. THOMSEN said he has nothing but positive things to say in
terms of permitting roadblocks. ADC, AOGCC, and USFWS have all
been good to work with. No major challenges have been identified
and they are kind of trail blazing in this regard.
He said he has worked aggressively to work with all the
potential impacted parties, and has met with every Railbelt
utility CEO, the new ARCTEC group, and ML&P, and they think it
is the best viable project in the near term to offset some of
the gas issues coming up. The communities have supported
development of this project and the environmental and renewable
energy communities have been there. The issue with the utilities
is price. They want it really cheap; there is difference in
price of 3 cents.
SENATOR WIELECHOWSKI said this is closed loop and asked if they
wouldn't be pulling water out of any lakes or rivers.
MR. THOMSEN replied absolutely not. Even the "geothermal brine"
is reinjected into the reservoir to be reheated. The facility is
planning to be air cooled, so the working fluid they use turns
into a vapor; it gets cooled with the cool Alaska air and it
recondenses into a liquid - zero emissions, zero water
consumption.
Ormat plans to use its own equity in this project if they can
secure the PPA; they have been awarded $2 million from the AEA
in the renewable energy grant round 3 to do the initial 2010/11
exploration work. They have been recommended for an additional
$2 million in round 4, which will hopefully be approved by the
legislature soon. That comes with a match from Ormat of about
$3.7 million as well. He said they typically refinance the
project using term debt at the completion of the project. This
sets them apart from other developers because they are not
paying high interest rates project financing during the
exploration phase. They bring a project on line, prove its
viability under contract and then they look for term debt at a
much better rate than one would get during the exploration and
risk phase of these projects.
4:59:00 PM
MR. THOMSEN said today they would need 12-13c/kWh (2011) to make
this project viable with a 1.5 percent negotiated escalation. In
that power price they convey all of the green (carbon)
attributes to the off-taker or utility.
SENATOR FRENCH asked if the price is exclusive of a road.
MR. THOMSEN replied yes.
SENATOR WIELECHOWSKI asked if that is the wholesale price they
hope to sell it for.
MR. THOMSEN answered yes.
SENATOR WIELECHOWSKI asked what Chugach's average mark up would
be.
MR. THOMSEN answered that he didn't know. In other states the
utilities' rate of return is fixed by the RCA or a PEC, and they
tend to get the maximum allowable under the law.
He said last legislative session they were able to pass SB 243
and modified geothermal royalties lower to the national average.
As a result they were able to cut the price they would need by 1
cent - from 13-14 cents to 12-13 cents. The utilities want 10
cents and the project is at 13 cents, so they are brainstorming
on how to make up the 3 cent difference. He said tax incentives
would be one way to do it, and a 30-percent refundable tax
credit would lower the price by about 2.5 cents. The policy
question is if the state wants to reduce the impact to
ratepayers or do they feel the ratepayers should bear the higher
number. Ormat is willing to put mechanisms in place that
guarantee the incentives are passed through to the ratepayer
since they are dealing with a fixed market.
SENATOR WIELECHOWSKI asked what the fiscal impact of a 30
percent renewable tax credit would be to the state.
MR. THOMSEN said he didn't know, but it could be calculated.
SENATOR WIELECHOWSKI asked how much the 30 percent would lower
the cost.
MR. THOMSEN answered for their project, 2.5 cents. He said Ormat
is open to ideas on how to deal with transmission
infrastructure, but cautioned them to keep in mind that the PPA
price dictates how much support will be needed on the drilling
side. With a 15 percent PPA, they could justify the transmission
and road themselves (both worth about 2 cents to the kWh price
that is not included). That would raise the price up to 16
cents.
CO-CHAIR PASKVAN said that road and lines are 2.0 cents and
asked what the 2.5 cents related to.
5:04:21 PM
MR. THOMSEN replied if the 30 percent refundable tax credit
became law that equates to about 2.5 cents in the price. It is
an option to consider in making up the 3 cent difference early
on. AEA came out with a model of what they thought the avoided
cost of electricity was across the Railbelt, which is the lowest
cost energy they can get today. So, the question is how you
develop renewable resources when you're comparing it against the
lowest cost and how do you equate that over a 20-year life
cycle. If you invest now you could save more in the future.
CO-CHAIR WAGONER remembered heated debates on the Peninsula over
Bradley Lake, a hydro project that cost $328 million: $16
million was for financing; $175 million was a direct grant from
the state; $137 million came from utilities. He said that
Bradley Lake produces 50-60 MW, and the state has already
established a precedent of participating in these projects.
SENATOR FRENCH said it sounds like they are confident of getting
50 MW and probably getting 100 MW. He asked what the total daily
electrical grid usage is for South-central.
SENATOR WIELECHOWSKI answered 300 MW in the summer with a peak
of 900 MW in the winter. He asked Mr. Thomsen what jobs would be
created during the construction phase and then full-time
afterwards.
MR. THOMSEN answered they try to use the trades from the local
market. A large number of jobs come through the construction of
the facility and the ancillary infrastructure. Ormat looked at
how Chugach modeled Beluga and estimated needing no more than 40
full-time employees at the facility once it was up and
operating. And during construction phase it could range between
200-400 construction employees.
SENATOR WIELECHOWSKI asked how long the construction phase would
be.
MR. THOMSEN replied 16-20 months.
5:10:48 PM
CO-CHAIR PSKVAN thanked everyone for their comments and
adjourned the meeting at 5:10 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| S Res DNR FY12 Overview for 1-24-2011.pptx |
SRES 1/24/2011 3:30:00 PM |
|
| Ormat_Mount Spurr_Senate Resrouce Committees 24-Jan-10_FINAL.pdf |
SRES 1/24/2011 3:30:00 PM |