Getting Started Implementing Small Hydropower Projects in Rural Alaska April, 2016 Jason Custer, Business Development Director Alaska Power & Telephone Company 907-225-1950 or jason.c@aptalaska.com
AP&T Established In Skagway in 1957. Currently present in 40 Alaskan communities. Existing AP&T Hydropower Facilities: Black Bear Lake 4.5 MW Prince of Wales Island South Fork 2 MW Prince of Wales Island Goat Lake 4 MW Skagway/Haines Kasidaya Creek 3 MW Skagway/Haines Dewey Lakes 900 KW Skagway/Haines (Over 100 Years Old!) Lutak 250 KW Skagway/Haines Falls Creek 800 KW Gustavus New Hydro Currently Under Construction: Reynolds Creek 5 MW Prince of Wales Island Yerrick Creek 1.5 MW Tok Additional Facilities: Over 20 diesel power plants Eagle Solar largest utility solar project in Alaska Many other hydropower projects under development.
Getting Started in Small Hydro Project Implementation 1. Team-building 2. Analyze all hydro options 3. Develop financing plan 4. Develop key commercial agreements 5. Begin permitting and licensing process These activities will take you to the point where you will be able to pursue financing for construction!
Team Building: Success Begins Here Think of hydropower development like a 10-year football game To play this game and win, you will need to create a team with a good offense, defense, special teams, coaches, money so you can afford your star athletes (consultants, engineers, lawyers), fan support and you can expect to get tackled a lot in the process!!
1. Team Building Where to Recruit Your Team Members -- Utility The utility will almost always need to be involved, and can provide operational expertise, engineering skills, financial abilities, staff time, and more. -- Tribal Government Traditional knowledge, workforce development, access to special grants and resources, staff expertise, etc. -- ANCSA Corporations (Village and Regional) -- Land owners (sometimes at hydro sites), investment capital, business professionals and programs, etc. -- Municipal Government -- Political connections and support, staff expertise, sometimes owns the utility, access to grants and investment capital (ex: bonding capability), land owner, and more. -- Developers Private developers who specialize in hydro projects may be willing to be part of your team. -- Property Owner(s) You can t develop a hydropower resources without the property owner s approval. Oftentimes, there are multiple property owners. -- Money People At multiple points in the development process, you will need funding. Having people with access to capital equity, debt, grants, and more is essential. -- Stakeholders and Customers Letters of support, public comments, will ultimately use the energy -- Consultants These will usually be added to your team as you progress through project tasks.
Team Building 101 -- Vision Statement and Initial MOU 1. Develop a Shared Vision Statement that everyone can agree to. Example: Development of clean energy to support a sustainable community, a healthy environment, economic development, and to keep young people in their traditional communities to help preserve our traditional cultures. 2. Develop a Memorandum of Understanding between key team members, stating agreements for your project. -- Include your Shared Vision Statement -- All parties agree to share key information -- All parties agree to cooperate together and work in good faith -- All parties agree to maintain open lines of communication -- All parties agree to work together in a culturally-appropriate manner -- All parties agree to develop a project that is commercially reasonable, financially feasible, and environmentally responsible. -- Does not have to be legally-binding, or a legal document just rules of the road that everyone agrees to. TIP: Grant funders love MOUs!
2. Analyze all Available Hydropower Options To identify your hydropower project and develop an initial concept, technical specialists team members and/or consultants -- will need to perform the following activities: A. Conduct a review and update existing studies / resources. -- Avoid re-work. B. Perform new reconnaissance and feasibility analysis to fill in key knowledge gaps. -- Usually requires site visits and field work C. Evaluate environmental, social, and cultural impacts. -- Oftentimes, these impacts can be minimized or avoided with good planning! Advance Warning -- This work will require substantial time, money, follow-up activities/studies, and patience. Tip: Grant funders are often willing to help support these initial activities.
2. Analyze all Available Hydropower Options (con t) Getting into the Details: D. Technical Feasibility. -- Constructability is it something you can actually build? -- Operation / Integration is it a good fit for operation within the existing system? E. Economic Feasibility. -- Project should provide energy at a lower cost than doing nothing. -- Project must beat the cost of diesel fuel (not just the residential energy costs) F. Financial Feasibility. -- Make sure there is a realistic way you will be able to finance the project. Tip: Screen out no go projects early. Don t spend your limited time and money on unrealistic projects!
Tips for Addressing Stakeholder Concerns Identify and address concerns early. Take everyone s concerns seriously. If a problem is not taken seriously, it might turn into a serious problem! Communication and trust are key Provide accurate information through: Shareholder newsletters, utility mailings to customers, community newsletters, and press releases. Create opportunities for feedback and discussion Concerns are strengths in disguise! Oftentimes, the concerns that people raise contain valuable information that can empower you to avoid adverse impacts, optimize your project for improved outcomes, and better support community and stakeholder objectives. Budget time for education and capacity building Not everyone is a utility specialist. Sometimes concerns are due to the fact that people do not understand how utility projects work. Budget time to help share your knowledge, and educate others about utility projects, technology, and processes.
3. Develop Financing Plan Your project will need a realistic plan for financing. Usually, this will be a mix of funding from multiple sources. Where to get money: Private Equity Loans Bonds Alternative Financing (ex: conduit, low interest loans, mezzanine financing) Grants Private developers, private investors, ANCSA corporations Utilities; private developers; ANCSA corporations; municipalities, and others can take out loans. Sources include commercial banks, as well as government loan programs. Utilities; government entities; Alaska Muncipal Bond Bank Various Federal, state, and sometimes municipal government. Usually, grant funders see themselves as a last resort, and like to know that you are examining some or all of the other options above.
3. Developing Your Financing Plan Develop a pro-forma, and determine if your project can provide power at less than the cost of diesel fuel.* STEP 1: with 100% equity and/or debt from a commercial bank. If not: STEP 2: using low interest loan funds. If not: HYDRO VS. DIESEL STEP 3: with a combination of low interest loan funds and grant funds. If not: STEP 4: It s time to work on getting the project cost down, or going back and looking at other project options. *Residential energy rates are higher than fuel costs, and include other costs not related to generation (ex: maintaining distribution infrastructure)
4. Develop Key Commercial Agreements A. Site Control (Lease) -- Term Sheet (first step) -- Ground Lease (based on term sheet) May need to do these for multiple property owners! B. Power Purchase Agreement -- If the utility will not own the project, you will need a legal agreement stating that the utility will purchase the project s energy, and stating the cost. -- Necessary to receive loan financing!!! (Banks want to be sure you have the money to repay them!) C. Business Agreements -- If you are starting a new utility company, you will need to incorporate a new legal entity. -- Required Documents: Business License, Tax ID, Articles of Incorporation, Bylaws, Contribution Agreement, etc. IMPORTANT: You will need all of these documents to: 1) achieve financing, and 2) achieve regulatory approvals.
5. Begin Permitting and Licensing Processes How to Prepare: A. Develop a good cost estimate, including a contingency. B. Seek funding to carry you through these lengthy processes. What to expect: Multi-year process Many studies Many follow-up studies Fairly costly No matter how long you think it might take, it will take longer than you expect! In the Meantime You will want to begin the process of actively seeking financing for construction!
If it looks like a lot of work it is!!! That is why you started out by building an all-star team! As you can see, you will need support in the following areas: -- $$$$$$$. Lots of it. -- Legal expertise -- Financial expertise -- Engineering expertise -- Technical expertise -- Writing, capacity building, and communication -- Stakeholder relations -- Politics Try to make sure your team has all of these capabilities!
Imagination+ Patience + Teamwork =Hydro Success Thank you! Jason Custer, Business Development Director Alaska Power & Telephone Company 907-225-1950 or jason.c@aptalaska.com