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					No. 652                Mount Spurr Geothermal Project

Proposer:              Ormat Nevada, Inc.

Benefit/Cost Ratio:    Applicant: 0.67         AEA: 1.08 Increasing the life of project to
50 years yields B/C=1.71

Project Description: The proposed use of REF funds is for “phase III” of the Mount Spurr
Geothermal electrical generation project, which involves drilling a full-size deep
geothermal production well. In addition to ultimately becoming a production well if the
project goes forward, this well will flow test the geothermal fluid in the geothermal
reservoir in order to measure its temperature, pressure, chemical composition and other

Contribution to Lower the Cost of Energy: Geothermal power plants incur no fuel costs for
operation so provide a cost-stable source of electricity. This project is being developed
by a private entity attempting to sign power purchase agreements with local electric
utilities. Presumably local utilities will not sign purchase agreements if the power is more
expensive than their alternative sources. Thus, this project has the potential to lower the
cost of future Railbelt electricity relative to alternative generation means.

Assumptions Modified: The Applicant model assumed a plant size of 50 MW. Since the
possible range of plant size was 50 – 100 MW, I used 75 MW in the AEA model. In both
models, the AEA assumption of 20 year geothermal plant life was modified to 25 years.
Ormat intends to sign an initial 25 year power purchase agreement, with subsequent
agreements likely. The Geysers geothermal plant in California has operated for 50 years.

The applicant model does not account for transmission losses incurred to bring the power
to the Beluga site; in the AEA model, transmission losses of 3% were factored in. The
applicant stated that operations and maintenance costs should be $0.03 to $0.05 / kWh
and used the high $0.05/kWh value in their analysis. This $0.05/kWh figure was used in the
applicant model. The literature shows geothermal O&M varying from $0.013 to $0.033 /
kWh. In the AEA model, I used the midpoint of the applicant’s stated range, $0.04/kWh,
which is still higher than the range found in the literature.

In the AEA model, I credited the geothermal plant with supplying generating capacity
during peak load periods. The plant will operate with guaranteed availability of 95% and
generates constant power while operating. The capacity credit was valued at $950/kW
based on the typical cost of a natural gas simple-cycle combustion turbine as reported
in the R.W. Beck “Railbelt Energy Study”, January 2004. In the model, the credit was
taken in the first year of the plant’s operation, 2016.

In both the Applicant and AEA analyses, I assumed that the cost estimate provided by
Ormat included sufficient funds for road and transmission line construction. The Ormat
application was not clear on this point, but the Ormat cost estimate appeared
conservative. For a 75 MW plant, the midpoint Ormat estimate is $413 million. A 2007
study of the Mt. Spurr project by Lorrie Dilley, “Infrastructure Development For A
Geothermal Field At Mount Spurr, Alaska” estimated a cost of $170 - $368 million for a
larger 100 MW plant, including the cost of building the necessary road and transmission

Concerns: There is uncertainty concerning the magnitude and cost of developing the
geothermal resource. The benefit/cost ratio is very sensitive to the operating and
maintenance cost of the plant, which is estimated to fall within a fairly wide range of 3 –
5 cents/kWh.

Possible Enhancements: The transmission line and road required by the plant can
potentially serve other projects in the region, including a possible Chakachamna
hydroelectric project, a possible wind project, and two potential mining projects.

Long-term Sustainability: The term of the power purchase agreement is expected to be
25 years. Other geothermal plants have had lifetimes in excess of that period. Ormat is a
large company with extensive geothermal experience, having participated in $1.6 billion
in project-related financing since 1986.

Potential Public Benefits: Stable-cost and possibly low-cost electric power, preservation
of Cook Inlet natural gas reserves, construction jobs (800 person-years including induced
and indirect jobs), operation and maintenance jobs, low emission power source,
development of local geothermal expertise that could be applied to other sites in the


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