Understanding and Contracting for Geothermal For Utilities

Understanding and Contracting for Geothermal For Utilities PowerPoint PPT Presentation

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Discussion Topics. Introduction of U.S. GeothermalBenefits of Geothermal PowerAbout Geothermal ResourcesGeol Power Development RequirementsPossible peaking opportunitiesGSHP Evaluation for Tri-State Utilities. About . Based in Boise, IdahoA Renewable Energy Corporation with Development Pr

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Understanding and Contracting for Geothermal For Utilities

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1. Understanding and Contracting for Geothermal For Utilities Kevin Kitz U.S. Geothermal, Inc June 2008

2. Discussion Topics Introduction of U.S. Geothermal Benefits of Geothermal Power About Geothermal Resources Geol Power Development Requirements Possible peaking opportunities GSHP Evaluation for Tri-State Utilities

3. About Based in Boise, Idaho A Renewable Energy Corporation with Development Projects in: Raft River, near Burley, ID Neal Hot Springs, near Ontario, OR San Emidio (Empire), 100 miles N. of Reno Gerlach, 150 miles N. of Reno Other information www.usgeothermal.com publicly traded on the AMEX: HTM

4. About Project Development Status – Idaho and Oregon 13 MW sales agreement with Idaho Power - RRU1 13 MW sales agreement with EWEB – RRU2 39 MW pending w/ IPCO – RRU3 & NHS U1 & U2 Geothermal rights covering >10 square miles @ RR Geothermal rights covering > 9 square miles @ NHS Transmission capacity secured for both Project Development Status – Nevada 44 square miles of resource 4 MW operating power plant – capable of 10MW 4 MW contract with Sierra Pacific Planned development to 26MW or greater

5. > BENEFITS OF GEOTHERMAL POWER Emission free (if binary plant) 100 MW eliminates 560,000 tons of CO2 No SOx, NOx, or particulates Generates continuous, reliable “baseload” power Renewable and Sustainable Full scheduable output during peak hours Fuel Hedge 100MW replaces about 6 BCF of natural gas per year Not subject to spot market, seasonal, or other price excursions No drought years

6. Geothermal Performance and Power Qualities - SUMMARY Availability: 95% Capacity Factor: 93% - 107% Capacity at Peak Load Hour: Summer (% of nameplate) 90% Winter (% of nameplate) 110% Power Shaping Requirements low to none On an hourly, daily, monthly or annual basis Effect on other generation assets Use of geothermal power permits more efficient use of hydro, coal and peaking assets

7. About Geothermal Resources for Power Generation

8. What Defines a Commercial Geothermal Resource Viable Resource Temperature, Permeability, Working Fluid, and Depth Together these define the Capital cost of wells, pipeline, and power plant Market Transmission: Access to customer(s) PPA/PSA: Reach investment criteria

9. Resource Discovery & Exploration Usually surface manifestation leads to resource investigation. Raft River discovered by drilling a hot stock water well – no surface manifestation Exploration tools: Geothermometry Geophysics: magnetics, self-potential, resistivity, microgravity, seismic (rare) Bottom Line: Drilling and flow testing

10. Cost of Exploration & Discovery Geoscience and surface investigations Temperature gradient holes Slim hole Production size well Additional wells Flow tests Other Corporate costs ========== Financeable Project $ 300,000 .2 – 2 yr $ 300,000 $1,000,000 $2,000,000 1 – 4 yr $4,000,000 $ 600,000 .2 - .5 yr $1,500,000 ================ $9,700,000 1.5 – 7 yr

11. Balance of Cost to Build Installed Cost of Plant $4,000 - $4,500 per kW of capacity Exploration and Discovery $10M For a 25MW Plant $100M total cost ($10M Exploration) ================== $90M to be financed

12. Cost and Time implications of geothermal exploration 1-3 years for any new resource in North America and Northwest Discovery cost is far higher than other renewable resources Is always done on equity alone Cannot get loans Needs a PSA in hand to get financing beyond temperature gradient holes Not all exploration programs lead to commercial resources

13. Geothermal Power Development Requirements

14. Geothermal Costs Increase as Resource Temperature Decreases


16. Heat Rejection System Size $2.5M cost for the RR CT & Condenser Serves a 13 MW geo power plant @ 280F Capacity cost = $200k/MW The same equipment would probably serve A 45 MW geo steam turbine @ 375F ($70K/MW) A 100 MW fossil steam turbine @ 1000F ($25k/MW) A 6 MW geo plant at 220F ($400k/MW) The heat rejection cost goes up as resource temperature goes down . . . And no technology in the world will fix that

17. Cost Structure and Contract Price

18. Geothermal Power Plant O&M Costs Very Low Variable O&M Cost Variable Costs are those that change with changing load Royalty – 3% of gross revenue Load reduction on steam turbines can cause increased turbine scaling and/or well damage Fixed O&M Costs Dominate Costs incurred irrespective of load Staff size about the same from 10 – 100 MW for a single plant O&M savings of 40% - 60% on second plant Make-up wells are treated as fixed, as they provide both energy and capacity. O&M excluding make-up wells GEA (8/05): $10 - $18 per MW-hr Make-up Drilling costs or Reserves GEA (8/05): $ 8 - $12 per MW-hr (US Geo interpreted data)

19. Idealized Geothermal Contract Size: OK to build anywhere from 20 – 30 MW Economy of scale Term: 25 - 30 years Lengthens financing period Captures benefit of Renewables for Consumer & Utility Pricing: Recognizes benefits of Geothermal Cost Certainty versus natural gas and carbon emissions High capacity value versus wind and coal Can deliver very low cost power in second half of contract Low transmission cost ($/MW-hr) through full use of transmission capacity Cost includes payment for renewable energy benefits PPA’s shelter ratepayer from risk of inflation and runaway energy costs

20. Idealized Geothermal Contract (cont’d) Cost Structure: Elevated for 15 years for capital recovery, then drops Power Sales: All generation from plant Incremental (variable) cost is zero Reliable forecasting provides utility planning benefit Recognizes cost of Exploration Need a signed PPA before can raise $5-$10MM for exploration. Utility Participation Provide tax-efficient partner for PTC’s (if IOU) Provides utility with rate base investments (if IOU) Low cost of funds in a pre-pay (if publicly owned)

21. What is Different About Geothermal PPA’s When Signed It is not a promise to build a power plant, nor to deliver at a guaranteed price It is a promise to try to find a commercial resource If costs are higher than expected, then the project cannot be financed Price must be revisted It cannot have liquidated damages for failing to deliver. Adds risk for something that can’t be controlled: resource existence and long-term performance

22. Resource Planning for NEW Geothermal Fields Contracting Strategy Two to three times more than you want Most grass roots developments will not come in DO NOT book any of the capacity yet Development Steps Guide Booked Capacity 10% of capacity on 1st commercial well 2.5 – 3 years out 50% when developer seeks project financing 2 years out 90% when EPC is awarded 18 months out 100% when plant delivers

23. Peaking Opportunities for Geothermal

24. Water Cooling vs. Air Cooling (Water cooled is about $2 -$3M more than air cooling, but has higher summer average and peak hour output)

25. Hybrid Air Cooling

26. Value Opportunity: Add Gas Peaker (gas peaker would be dispatchable by utility, overall heat rate would approach combined cycle with low incremental cost)

27. How would generation from peaker elements be priced? Base load portion of the plant would get baseload price ($70 - $100 per MWh) Peaking portion of the output would get a peaking price ($150 - $200 per MWh) Gas peaker dispatchable by utility with a guaranteed utilization rate or a tolling means Evaporative cooler priced for certain hours of all days of certain months i.e. (12 – 6, M-Sat, June – Oct)

28. Summary of Geo Power Has great characteristics for a utility Shape, generation forecasting, environmental Exploration is risky and expensive Needs a PPA early to eliminate market risk The PPA is not a price or delivery certain contract, as it is with other generators Risk of discovery and price escalation Geothermal PPAs need unique terms

29. An Evaluation of GSHP benefits for utility members of Tri-State G&T Association Assuming large-scale market penetration of GSHP into the residential market (Using load data from the 2006 IRP)

32. GSHP Effect on Utility Service Requirements for One Home Reduce cooling load by 753kWh Assume peak load reduction is 2kW Much Much Much higher eer during peak hours Fuel reduction is natural gas @ $8/MBTU Increase heating load by 5,600 kWh No new capacity required True incremental cost is only the fuel Coal = $.02/kwh

33. Total Ratepayer Benefit per GSHP

34. Summary of GSHP Benefits Measurable Benefits Reduction in peak demand Increase in load factor Increase in total electric sales per home Evaluated economic benefit to ratepayer $4,000 to $17,000 per home Need to find mechanism to induce high market penetration

35. Market Penetration for GSHP Homeowner Needs to get it done at no cost Needs an immediate reduction in energy cost New Builder Installed cost must be less than conventional Utility Financing the GSHP Ratepayer contributes $8,000 cash New construction ? This makes GSHP cheaper Retrofit ? the utility finances the balance at 4% RUS/USDA provides loan guarantee Homeowner re-pays loan Utility locks-out loop if don’t pay

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