Western GeoPower’s PPA agreement at the Geysers on the line?

Alexander Richter 12 Sep 2009

Alameda Municipal Power utlility is likely to withdraw from the power purchasing agreement with Western GeoPower at the company's project at The Geysers.

Reported locally, the Alameda Municipal Power utlility is likely to withdraw from the power purchasing agreement with Western GeoPower. The article says that “At the Sept. 1 city council meeting, Interim City Manager Ann Marie Gallant recommended that the city withdraw from its agreement with Western GeoPower Incorporated (WGI). The agreement would have provided Alameda Municipal Power with geothermal energy from WGI’s plant at the Geysers geo-thermal field near Clear Lake.

Gallant’s recommendation echoes the Alameda Public Utilities Board’s (PUB) Aug. 17 approval of a resolution recommending that the council authorize Girish Balachandran, Alameda Municipal Power’s general manager, to terminate the city’s participation in the project. The PUB cited a 19.4 percent increase in WGI’s price from the originally established contract price of $98 per megawatt-hour to $117 per megawatt hour. The contract would have fixed the price for 20 years. Gallant told the council that AMP’s staff finds the price of $117 per megawatt hour is not economical.

In her memorandum Gallant said that the PUB approved a 20-year contract with WGI in February 2008 and the following month, the city council voted to establish Alameda’s participation in the geothermal project when it authorized Balachandran to execute an agreement with WGI. The company expected the power plant to be in operation in April 2010.

WGI recently revised the agreement to allow participants to withdraw from the project because of price increase.

Agreements in hand, WGI began drilling geothermal wells and ordered major equipment including turbines and generators. WGI ran out of funds and was not able to secure additional project financing. The project stalled and since December 2008, all project development work has been on hold.

Gallant explained to the council that since that time “the capital cost of the project has escalated, including associated labor.” The cost of financing and the reevaluation of the steam supply have caused WGI to reduce the plant’s size and output, which has resulted in a reduction of the company’s projected revenue.

To remedy its financial difficulties and bring the project back on track, WGI announced its intention to combine its operations with three other firms to form a new publicly traded company. The infusion of new equity financing is expected to help revive the geothermal project at the Geysers, WGI says.

In her memorandum Gallant reminded the council that cheaper, renewable resources are available at lower costs when compared to WGI’s project. She cited wind, landfill gas and biomass, small hydro and some forms of solar power. She said that the need for additional power is not expected until the years 2014-2015, so at this time the added cost of purchasing output from WGI cannot be justified. She also pointed out that the cities of Lodi and Roseville, the Truckee-Donner public utilities district and BART are also pulling out of the WGI contract.”

Source: Alameda Sun