U.S. Geothermal (NYSE MKT: HTM) on Jan. 18 confirmed its previous guidance for 2015 and provided guidance for the full year 2016, with several power development projects in the mix for the future.
“While we are pleased with our 2015 performance,” said Dennis Gilles, Chief Executive Officer, “Our focus is on advancing our development projects. We have an excellent pipeline of products and, combined with the favorable legislative environment, should enable us to improve our year over year performance and advance us towards our goal of becoming the North American leader in geothermal.”
The 68 MW of projects under development are:
- WGP Geysers, California – Well test program completed. Capable of 30 MW. Interconnection Study to be completed February 2016, responding to RFPs.
- San Emidio Phase II, Nevada – Continuing drilling targeting additional 10 MW, anticipate finalizing interconnection process with NV Energy by the Q2 2016.
- El Ceibillo, Guatemala – Concession schedule amendment approved by Ministry of Energy and Mines, completed drilling of three dditional wells in support of planned 25 MW development.
- Neal Hot Springs, Oregon – Water supply well drilling continuing in January 2016 in support of hybrid cooling project which should provide additional 3+ MW.
Highlights in 2015 included:
- Achieved annual average availabilities for the twelve months for each plant (excluding planned maintenance hours) as follows: Neal Hot Springs – 97.9%, San Emidio – 98.6%, Raft River – 95.4%.
- Completed planned annual maintenance outages at all three operating facilities including a major overhaul (once in seven years) at Raft River.
- Generated fleet wide total 332,009 megawatt-hours for the period, as compared to 339,086 megawatt-hours in the prior year.
- Finalized settlement agreement with Neal Hot Springs equipment supplier Turbine Air Systems.
Strategic developments in 2015 included:
- Signed an agreement to acquire the major and long lead equipment for three new binary power plants at a deep discount. This equipment is suitable for use at the San Emidio II and Crescent Valley I development project power plants.
- Acquired 95% of Goldman Sachs‘ ownership and cash flow interest in the Raft River Power Plant, with purchase of the remaining balance planned at the end of 2017.
- Engaged Marathon Capital to investigate strategic alternatives.
- Voluntarily delisted from Toronto Stock Exchange (TSX) at year end.
U.S. Geothermal is focused on the development, production and sale of electricity from geothermal energy and is operating geothermal power projects at Neal Hot Springs, Oregon, San Emidio, Nevada and Raft River, Idaho. The company is currently developing a project at the Geysers, California, a second phase project at San Emidio, Nevada, a project at Crescent Valley, Nevada, and a project at El Ceibillo, in Guatemala.
The three operating plants produced 332,009 megawatt-hours during the twelve months, which compares to 339,086 megawatt-hours during the same period of 2014. Historically warm temperatures across the west moderated during the third quarter and turned colder in the fourth quarter, reducing the negative impact on generation seen earlier in the year. 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 year.
2015 developments by plant include:
- Neal Hot Springs, Oregon – All three units operated smoothly, with annual availability for the facility at 97.9%. Generation for the twelve months was 176,871 megawatt-hours, compared to 183,394 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. 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 was $106.79 per megawatt-hour. The average price to be paid under the PPA for 2016 will be $109.27 per megawatt-hour.
- San Emidio, Nevada – Plant performance was again exceptional, with annual availability of 98.6%. Total generation for the twelve months was 79,539 megawatt hours, which compares to 76,894 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. The average price to be paid under the PPA for 2016 will be $93.01 per megawatt-hour.
- Raft River, Idaho – Annual availability for the facility was 95.4%. Total generation for the twelve months was 75,599 megawatt-hours, which compares to 78,798 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 was $62.00 per megawatt-hour. The average price to be paid under the PPA for 2016 will be $63.30 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 (REC), with the company preferentially receiving 70% of the REC income. Starting in January 2018, a new REC contract will take effect and the price will be $17.00 per megawatt-hour with the project owning 49% of the RECs and Idaho Power owning 51%.
Status of development projects includes:
- 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 two-three 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. The transmission interconnection application is proceeding under the Independent Study Process being conducted by the California Independent System Operator. Final approval of the Interconnection Study is anticipated by February 2016. Discussions with numerous potential off-takers for the power from our power plant continue.
- San Emidio Phase II, Nevada (10 MW) – To further define the resource, permitting for an expanded temperature gradient drilling program for an area south west of the current resource was initiated, and permits were received for a five hole temperature gradient drilling program in June. Results from the 2014 drilling program combined with 1970s era, shallow temperature gradient data, indicate a high temperature trend into this south-west zone. Geophysical surveys have also identified structural trends in this area. Drilling commenced on July 27 and the five, 1,000 foot 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, which was expected to be completed during the fourth quarter, is being permitted with the U.S. Bureau of Land Management. The second phase interconnection study, called the Facilities Study, was started in January 2015 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 to discuss the results and anticipated costs took place in late October resulting in a reduction of $4.1 million to the estimated cost of interconnection. The final stage of the interconnection process is anticipated to conclude by the second quarter of 2016. Early in the year NV Energy issued a Request for Proposal (RFP) for a total of 200 MW of renewable energy. U.S. Geothermal submitted a bid for a power plant to be developed on the Phase II project site. NV Energy shortlisted the top bids from each renewable technology. While the U.S. Geothermal project was shortlisted, NV Energy elected to award the total 200 MW to two solar projects.
- 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, and was officially incorporated into the concession agreement on Oct. 13. U.S. Geothermal requested an extension of time for a Memorandum of Understanding for a Power Purchase Agreement with the regional electricity broker due to the delay caused by the government approval of the modified schedule, but the extension was denied. 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 were sited to further extend the resource area. Both EC-3 and EC-4 intersected high permeability zones indicated by total lost circulation of drilling fluid. EC-3 found permeability at a depth of 1,365 feet (416 meters) with a measured preliminary static temperature of 392°F (200°C). Well EC-4 found permeability at a depth of 1,243 feet (379 meters) and is still heating up. Testing of the completed wells is now underway. Depending upon the results of the flow tests, a decision will be made on the location for either another slim hole or a production size well to fully test the resource to determine its size and production characteristics.
- Neal Hot Springs, Oregon (3+ MW) – Two water supply wells were drilled and flow tested for a period of six weeks. One of those wells achieved steady state production at about 170 gallons per minute. The minimum amount of water needed for a hybrid cooling system is approximately 200-300 gallons per minute for each unit. Additional studies were conducted to develop new fresh water drilling targets to support continued exploration for a reliable water source. A purchase or long term lease of existing surface water or groundwater rights is also being studied. The ability to use water cooling during the 5-6 months of summer and fall would increase power generation, when current air cooling results in a dramatic reduction in plant output. 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. Additional water well drilling is schedule to begin in January 2016.
- Crescent Valley, Nevada (25+ MW) – In light of federal legislation that extended the qualification for the 30% Investment Tax Credit to projects that began construction prior to Dec. 31, 2014, drilling of the first production CVP-001 (67-3) was initiated in December of 2014 following completion of gravity surveys, and analysis of prior temperature gradient drilling data. The well was completed on March 27 and it exhibited modest permeability. An expanded geophysical and temperature gradient drilling program has been designed but must be permitted.
The company noted in October 2015 the California governor signed into law Senate Bill SB-350, which increases the Renewable Portfolio Standard in the California to require 50% of retail sales be procured from renewable energy resources by the year 2030. The bill requires that retail sales from renewable energy total 25% by 2016, 33% by 2020, 40% by 2024, 45% by 2027, and 50% by 2030. It also provided for the evolution of the California Independent System Operator (CAISO) into a regional organization to promote the development of regional electricity transmission markets in the western states to improve access for the customers of California to those markets. “We believe these will increase demand for renewable power from our development opportunities in California as well as from the surrounding states,” the company said.
This is in addition to the passage of AB-2363 last year which required the California Public Utilities Commission to establish the appropriate adders (integration cost) for each technology that must be used when evaluating bids for long term wholesale power contracts. “We believe this change will add appropriate costs to wind and solar power generation due to their intermittent deliveries of power, which then should allow base load renewables like Geothermal and Biomass to compete for PPAs with Investor Owned Utilities based on a more accurate comparison of the full cost for power,” the company said. “That has not been the case in the past.”
Also, at year end, the federal government passed legislation that extended the tax credits available to new geothermal plants. Under the approved legislation, projects that begin construction before Dec. 31, 2016 would be eligible for a 30% Investment Tax Credit (ITC), or alternatively a 10 year Production Tax Credit (PTC).