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Neal Hot Springs

Completed Neal Hot Springs Power Plant Completed Neal Hot Springs Power Plant
Plant Close Up Plant Close Up
Plant Cooling Tower Plant Cooling Tower

In Depth

Neal Hot Springs is located in Eastern Oregon near the town of Vale, the county seat of Malheur County.  An annual average 22 net megawatt power plant, consisting of three separate, 7.33 net megawatt modules, has been constructed and is undergoing commissioning.  The facility achieved commercial operation under the terms of the power purchase agreement on November 16, 2012.  Turbine upgrades made during April and May reduced plant and unit availability during the quarter with 38 days lost by individual modules attributable to this work.  Overall plant availability was 72.2%.  Additionally, two months of the quarter (April and May) have reduced power price under the terms of the PPA, and unusually high temperatures adversely impacted power generation.  Generation from the facility during the second quarter of 2013 totaled 30,015 megawatt-hours.  On June 27, 2013, the Company accepted substantial completion by the EPC contractor of all three of the Neal Hot Springs units.

On May 27, 2012, the Company was notified by the EPC contractor that mechanical completion was achieved on the first of the three units.  On June 28, 2012, the construction contractor provided notice of mechanical completion for the second of the three modules and on July 31, 2012 notice of mechanical completion was received for the third power plant module.  All three units continued to undergo commissioning and tuning operations during the current quarter.   During the quarter, two modules were upgraded by TAS Energy with the installation of a third bearing on the turbine drive train.  Installation was completed in mid-May and testing of the modules has confirmed that vibration has been reduced to meet industry standards.

On February 26, 2009, the Company submitted a loan application for the Neal Hot Springs project to the DOE’s Energy Efficiency, Renewable Energy and Advanced Transmission and Distribution Solicitation loan guarantee program under Title XVII of the Energy Policy Act of 2005.  The financial closing for the DOE loan guarantee took place on February 23, 2011 which secured a $96.8 million loan guarantee from the Department of Energy and a direct loan from the U.S. Treasury’s Federal Financing Bank.  The DOE loan is a combined construction and 22 year term loan.  The annual interest rate on the loan is set at 37.5 basis points over the current average yield on outstanding marketable obligations of the United States of comparable maturity as determined on each date that a draw is made on the loan and is estimated to be 2.655% as an aggregate rate of the individual draws that occurred through June 30, 2013.  Subsequent to the end of the quarter, the DOE loan was closed at final completion, and the construction cost of the project has been set at $128.1 million.  Total project cost, including $11.2 million in reserves, was $139.3 million which is $4.3 million less than previously reported, which includes contingency funds unused.

Over the course of the ongoing construction, the budget was increased by $14.6 million in equity contributions by the partners.  The first increase of $7.0 million was to cover additional drilling costs and modifications in plant controls and the cooling mechanism.  Enbridge Inc., our partner at Neal Hot Springs, provided the additional investment in exchange for increased ownership interest in the project from 20% to a percentage to be calculated based on an agreed upon financial model.  A second budget increase of $6 million, also provided by Enbridge Inc., was to establish a contingency fund for potential additional drilling program to complete the well field.  Each of the additional investments made by Enbridge Inc. will be subject to calculations that will result in increased ownership interest in the project.  Current estimates show that Enbridge could own between 30% and 40% of the project depending on ITC and BETC cash grant sharing.  A $3.5 million contingency fund remains unused and is planned to be returned to Enbridge thereby adjusting the final Enbridge ownership.  Enbridge and the Company expect to finalize the ownership percentages during the third quarter 2013.

As of June 30, 2013, eleven draws totaling $76.8 million have been made upon the DOE loan, which has annual interest rates between 2.36% and 2.997%.  The project received a $32.75 million cash grant under Section 1603 Specified Energy Property in Lieu of Tax Credits from the Treasury Department.  The cash grant, originally approved at $35.4 million, was subject to an 8.7% reduction due to Federal sequestration ordered by Congress under the Budget Control Act.  The planned use of the grant proceeds is to: 1) fund cash reserves required by the DOE loan terms at the project level, 2) pay down approximately $11.9 million on the DOE loan and 3) use the balance to reimburse equity investors.

In July 2010, the Company applied to the Oregon Department of Energy (“ODOE”) for the Business Energy Tax Credit (“BETC”), which allows an income tax credit for up to $20 million in qualifying capital expenditures for a renewable energy project. On December 31, 2012, ODOE issued a Final Certificate Conditional for the Neal Hot Springs project BETC which can be sold to a pass-through tax partner and monetized at a cash value of $7.36 million.  The final certificate was issued on March 1, 2013.  It is anticipated that the BETC cash may be available during the second half of 2013.

The PPA for the project was signed on December 11, 2009 with the Idaho Power Company.  The PPA has a 25 year term with a starting average price for the year 2012 of $96.00 per megawatt-hour and escalates at a variable percentage annually.  On May 20, 2010, the Idaho Public Utilities Commission approved the PPA with no changes to the terms and conditions.  Power generated during 2013 will be paid at an average price of $99.00 per megawatt-hour.

Ongoing Development Activities

U.S. Geothermal plans on drilling some exploratory water wells at Neal Hot Springs in 2016 in an attempt to find a dependable fresh water supply to support a hybrid cooling project.  If successful, the hybrid cooling system could be on line in mid-2017 and has the potential to add an annual average of 3 MW to the project revenue stream.  In round numbers, an annual average increase of 1 MW at Neal Hot Springs is worth about $1 million in increased revenue.

Progress Report

  • Neal Hot Springs Site Before Construction
  • Well Flow Test
  • Drill Rig at Neal Hot Springs
  • Completed Neal Hot Springs Power Plant
  • Completed Neal Hot Springs Power Plant
  • Plant Close Up
  • Control Room
  • Plant Cooling Tower
  • Plant Office and Shop
  • Plant Well Head