Ormat North and South: Purchases Nevada property, backs relief on Alaskan interests

In Nevada, Ormat Technologies continued to expand its GT holdings with the announcement that it would acquire HSS II, LLC through a subsidiary – which the company says will be eligible for stimulus money – while simultaneously backing two bills being considered by the state government of Alaska that would benefit development on at least one property there.

The subsidiary, Ormat Nevada Inc., signed an agreement to acquire 100% of the membership interests in HSS II. HSS includes the Hot Sulphur Springs Geothermal Project in the northern Independence Valley of northeast Nevada, which is in an advanced stage of development and has one successful well. Ormat says it will construct and operate a geothermal plant on the site that should be operational in 2012.

In Alaska, Ormat’s public policy manager Paul Thomsen told a legislative committee that the company strongly supports two bills offered by Sen. Lesil McGuire. One bill would scrap the state’s substantial royalty tax on hot water, while the other would offer tax credits for exploration and production.

Ormat is interested in the geothermal potential at Mount Spurr and Mount Makushin. It secured geothermal the rights to some 35,000 acres on Mount Spurr in late 2008. Ormat won 15 of the 16 tracts offered for lease on the mountain, which is in is in an active volcanic region.

Thomsen told the committee that, when Alaska’s logistical challenges are added to the cost of geothermal exploration are added together, project costs can be 25% to 50% higher. He added that the royalty break is especially important, noting that extracting energy from hot water is far different from extracting the resource itself, like a hydrocarbon. Both bills are important to bringing prices in line with what local utilities will pay for the resulting energy, he said.

Still in dispute on the bill offering the exploration credit is whether to make it retroactive to June 2008. This would make Ormat eligible for credits on work done over the past two years on the Mount Spurr lease. However, lawmakers noted that reimbursing a company for past exploration would not be an incentive for future exploration as the bill intends.

Back in Nevada, Ormat is already positioned to sell any output from the new acquisition through a new 20-year power purchase agreement PPA signed early February with Nevada Power Co. Under the PPA, Nevada Power will purchase up to about 40 MW from the project, which will be developed in stages with the first stage at roughly 16 MW. It is subject to approval by the Public Utilities Commission of Nevada

Ormat’s CEO Dita Bronicki, said: “Upon closing, this acquisition will increase the number of projects that we expect will commence construction by 2010 and will therefore be eligible to benefit from the stimulus provisions targeted for renewable energy projects under the American Recovery and Reinvestment Act (ARRA).” Translated, this means that it will start building a power plant on the site this calendar year. Ormat expects to close the purchase deal in the first quarter.