U.S. Geothermal (TSX: GTH) (NYSE MKT: HTM) said Nov. 9 that it made progress in the third quarter of this year on financial and operational goals, including development of new power projects.
“We are very pleased to have another solid quarter of performance, with corresponding financial results fully meeting our expectations. In spite of the unseasonably warm weather this year, we have delivered results which exceeded last year, and are well positioned for achieving the financial results provided as guidance. 2015 is projected to be our third consecutive year of profitability,” said Dennis Gilles, U.S. Geothermal’s Chief Executive Officer. “During the quarter a number of steps were also completed to advance our growth prospects and increase our MW output.
“At our WGP Geysers project in California our testing program confirmed a sufficient steam resource to support a 30 MW power plant. We are currently seeking a Power Purchase Agreement (‘PPA’) to enable start of plant construction. Our El Ceibillo project in Guatemala received formal approval of our concession modification in July, which allowed us to restart our drilling and subsequently led to discovery of a commercially viable geothermal reservoir. We are now expanding the area with further drilling prior to seeking a PPA.
“We have also signed an agreement to acquire three unconstructed binary power plants for a small fraction of their original cost. This provides us the flexibility to install these plants where required at existing or new projects, lowers our project capital cost, and accelerates the development timelines. We also are continuing to examine a number of synergistic acquisition opportunities.”
Advanced Development Projects:
- Completed flow test of three major steam wells at WGP Geysers project and independent reservoir report confirmed the WGP drilled wells are capable of generating approximately 30 megawatts.
- A commercial geothermal resource was discovered at the El Ceibillo Project in well EC-2A.
- Received approval from the Guatemalan Ministry of Energy and Mines for a modified project construction schedule for the El Ceibillo project and had the modified schedule formally incorporated into the concession agreement and signed.
- Drilled and tested the first and second water supply wells at Neal Hot Springs to support the potential hybrid cooling project.
- Received permits for the temperature gradient wells at San Emidio for Phase II, and drilled five temperature gradient wells.
- Signed an agreement to acquire the major and long lead equipment for three new binary power plants at a deep discount. This equipment may be used for the San Emidio II and Crescent Valley I power plants.
The company’s three operating plants produced 237,244 megawatt-hours during the first nine months of this year, which compares to 242,255 megawatt-hours during the same period of 2014. Historically warm temperatures across the west moderated during the third quarter but still had a negative impact on generation during the period. Additionally, maintenance at Raft River, and work related to the settlement under the Equipment Supply Agreement (ESA) at Neal Hot Springs, was carried out during the quarter.
Neal Hot Springs, Oregon
All three units operated smoothly, with third quarter availability for the facility at 98.5%. Generation for the first nine months was 124,229 megawatt-hours, compared to 128,922 megawatt-hours for the prior year period. The reduction in generation is primarily due to Neal being impacted by higher than average ambient temperatures and a 2.5 day maintenance outage that was taken on Unit 3 in August to replace a high pressure feed pump under the terms of the ESA settlement.
A settlement was reached with Turbine Air Systems and five of their key equipment suppliers under the terms of the Equipment Supply Agreement. The settlement agreement provided a cash payment to the project company, USG Oregon LLC, a commitment to finalize equipment repairs and upgrades, and an extended warranty for equipment that is repaired or replaced.
The PPA has a seasonal pricing structure that pays 120% of the average price for four months (July, August, November, and December), 100% of the average price for five months (January, February, June, September, and October) and 73.3% of the average price for three months (March, April, May). The average price paid under the PPA for 2015 is $106.79 per megawatt-hour.
San Emidio, Nevada
Plant performance was again exceptional, with third quarter availability of 98.9%. Total generation for the first nine months of this year was 59,170 megawatt hours, which compares to 55,149 megawatt-hours for the prior year period.
Under the terms of the PPA, generation during 2015 is paid at the average contract price of $92.08 per megawatt-hour. There is no seasonal adjustment under this PPA.
Raft River, Idaho
Third quarter availability for the facility was 82.7%. Total generation for the first nine months was 53,845 megawatt-hours, which compares to 58,184 megawatt-hours for the prior year period. Raft River took an unplanned maintenance outage of 12.5 days to replace the bearings on both power plant turbines.
The PPA has a seasonal pricing structure that pays 120% of the average price for four months (July, August, November, and December), 100% of the average price for five months (January, February, June, September, and October) and 73.5% of the average price for three months (March, April, May). The average price paid under the PPA for 2015 is $62.00 per megawatt-hour. In addition to the price paid for energy, Raft River currently receives $4.75 per megawatt-hour under a separate contract for the sale of Renewable Energy Credits, with the company preferentially receiving 70% of the REC income.
Development projects in the works
WGP Geysers, California (30 MW)
An extended flow test program of the three production wells with the highest flow rates was completed in June 2015, confirming that these wells are still open and ready for production. Based on data generated from the tests, GeothermEx Inc. (a Schlumberger company) reported in September that the four production wells are capable of initially delivering 458,000 pounds per hour of steam. Based on current power plant steam conversion rates from a detailed design for a 28.8 MW (net) power plant these wells should initially deliver 28.1 MW (gross) or 25.4 MW (net). Using the average steam production rate from the four wells, and an assumed interference factor of 30%, GeothermEx estimates that an additional 2-3 production wells will be needed to support the long term operation of a 28.8 MW (net) plant.
Engineering optimization of the power plant design is continuing with a focus on an innovative hybrid plant design that includes both water and air cooling. This design will dramatically increase the volume of water available for injection back into the reservoir, providing long term stable steam production, and will result in increased power generation over the life of the project. A new Conditional Use permit was submitted to Sonoma County in June, reflecting this modified cooling plan.
The transmission interconnection application is proceeding under the Independent Study Process being conducted by the California Independent System Operator. The first phase study, the Interconnection System Impact and Facilities Study Report, was completed on Oct. 8. The study shows that the interconnection is feasible and the preliminary cost is estimated at $1.9 million.
Discussions with numerous potential off-takers for the power from our power plant occurred this quarter, with high interest expressed by a number of them for base load, renewable power to replace fossil fuel based power generation that is being phased out of their portfolios.
El Ceibillo, Guatemala (25+ MW)
The modified development schedule was formally approved and signed by the Minister of the Guatemalan Ministry of Energy and Mines in July. The modified schedule was officially incorporated into the concession agreement on Oct. 13. Drilling began on the project with well EC-2A which tested the high temperature anomaly defined by the 2014 temperature gradient drilling program. EC-2A successfully intersected a zone of high permeability at a depth of 1,300 feet (396 meters). Flow testing indicates that a commercial resource has been discovered with a flowing temperature of 398°F (198.5°C).
Based on the discovery at EC-2A, two additional wells have been sited to further extend the resource area and to test a deeper horizon in the system. The drill pad for the first well is constructed and drilling began on October 29th. Depending upon the results of the two planned wells combined with EC-2A, a decision will be made on the location for a production size well to fully test the resource to determine its size and production characteristics.
San Emidio Phase II, Nevada (11 MW)
Permits were received for a five hole temperature gradient drilling program in June and drilling commenced on July 27. Five 1,000 feet deep temperature gradient wells were completed with all of the wells encountering high bottom hole temperatures and anomalously high temperature gradients. Bottom hole temperatures ranged from 224°F to 274°F and temperature gradients in four of the wells ranged from 12.4°F per 100 feet to 14.9°F per 100 feet. These results are considered to be indicative of a nearby, active geothermal system at depth.
A second phase program to deepen the two most prospective wells is being permitted with the Bureau of Land Management and is expected to be carried out during the fourth quarter, weather permitting. Additional temperature gradient wells to further expand the anomaly are also under consideration, but will have to be permitted separately after additional cultural surveys are conducted.
The second phase interconnection study, called the Facilities Study, was started in January and was completed in June pending a decision by NV Energy on funding upgrades to the system. NV Energy decided not to fund the upgrades and completed the Interconnection System Impact Restudy on Sept. 28. The restudy determined that the interconnection is feasible, but with an increase in the estimated cost due to a change in cost allocation by NV Energy. A meeting with the NV Energy transmission group took place in late October.
Neal Hot Springs, Oregon (3+ MW)
A second water supply well was drilled during the quarter and was flow tested for a period of six weeks, achieving steady state production at approximately 170 gallons per minute. The minimum amount of water needed for a hybrid cooling system is 200-300 gallons per minute for each unit. Additional studies are being conducted to develop new fresh water drilling targets so U.S. Geothermal can continue exploring for a reliable water source. A purchase or long term lease of existing surface water or groundwater rights is also being studied. An initial engineering evaluation of various hybrid cooling methods was completed by Power Engineers Inc., which confirms the economic viability of hybrid cooling if enough water can be found.
Mergers and Acquisitions
U.S. Geothermal said it entered into an agreement to acquire all of the major and long lead equipment for the construction of three binary geothermal power plants for approximately 5% of the equipment’s original cost. The components for the three units being purchased are all new and unused. The three equipment packages represent approximately 70% of the components needed for the company’s proposed Crescent Valley I power plant (25 MW) and San Emidio II power plant (10 (MW).