Neal Hot Springs Promises Oregon Commercial Geothermal Power

(In early September, U.S. Geothermal entered a strategic and financial partnership with Enbridge in which Enbridge agreed to invest up to $23.8 million in the geothermal project. The e equity investment funds the remaining equity share of construction costs, with the balance funded by a U.S. Department of Energy conditional commitment for a project loan. Subject to adjustment, Enbridge will acquire 20 percent direct ownership interest in the project. It will receive 24 percent of the Investment Tax Credit cash grant. U.S. Geothermal has invested $13 million in USG Oregon LLC, its subsidiary that owns the project. Up to $36.8 million in equity, together with up to $102.2 million of project debt provided under the loan guarantee program from the DOE, is now invested in or available to complete the $124.3 million project.)

Chevron Minerals drilled the first discovery well at Neal Hot Springs in 1979, confirming a commercial-grade geothermal resource. U.S. Geothermal acquired its interests in the prospect in 2006.

"With our Raft River project in Idaho and the repower and expansion plans for our recently acquired San Emidio facility in Nevada, development of Neal Hot Springs will result in our third operating geothermal power plant," said U.S. Geothermal Inc. CEO Daniel Kunz.

The company has successfully drilled two production wells, with the first finding significant flow and a temperature of 287 F at 2,305 feet in May 2008. Geothermometer analysis indicated temperatures of 322 F to 350 F at greater depths. A second production well completed 600 feet from the first in October 2009 intercepted a large aperture fracture and temperature of 286 F at 2,896 feet.

"We have 15 MW capacity in our first two production wells, subject to drilling required injection wells," said U.S. Geothermal Vice President of Exploration Bill Teplow. Trinity Drilling (based in Gillett, Wyo.) started pad construction for additional wells in 2009. Full-sized wells at the project cost about $2 million each. Necessary permits are in place with the Oregon Department of Geology and Mineral Industries and the U.S. Bureau of Land Management.

Flow test at Neal Hot Springs NHS-5, the project's second production well. Credit: U.S. Geothermal Inc.

The company initiated a temperature gradient (TG) drilling program in 2009 to define the limits of the geothermal reservoir. The 4.5-inch wells were drilled 500 to 1,000 feet deep, with some deepened to 2,000 feet. Geologic and flow data from the TG program and production wells are key components of a numerical model of the geothermal resource.

"We're drilling TG holes to help us better understand the geothermal reservoir," Teplow said. The model will help target additional wells and demonstrate the potential size and output of the resource. He said he planned a third production well for completion by early summer 2010. Additional production and injection wells will demonstrate the potential size and output capability of the geothermal reservoir at Neal Hot Springs.

The Malheur County Planning Commission issued a Conditional Use Permit for construction of the Neal Hot Springs power plant in 2009. The project is on private land, which makes permitting for drilling and construction much simpler and faster, said Kunz. The project also has good community support.

"We've employed some of the local folks for our drilling operations," said Teplow. "They're happy to get the work and to see the geothermal resource developed."

High-voltage power lines lie close to Neal Hot Springs and transmission studies are complete. Idaho Power Co. signed an interconnection agreement in February 2009 and agreed to build a $3.2 million, 10.3-mile-long transmission line and substation from the project. The utility signed a 25-year PPA in 2009 for up to 25 MW from the proposed power plant. The PPA is the second geothermal energy supply agreement U.S. Geothermal has signed with Idaho Power since development and startup of Idaho's Raft River project in 2007.

"Our PPA with Idaho Power will make this project go," said Kunz. "They know the benefits of geothermal energy."

The U.S. Department of Energy selected the project in May 2009 for due diligence review of a possible low-interest project loan that could provide up to 75 percent of estimated maximum $134-million total capital cost.

"The program applies to innovative technology, so we are building a 22 MW air-cooled, modular binary cycle power plant from Turbine Air Systems (based in Houston) that uses R134A refrigerant rather than the usual isopentane or isobutene as its working fluid," said Kunz.

To qualify for an Investment Tax Credit cash grant totaling 30 percent of total project cost, U.S. Geothermal intends to start construction before the end of 2010.

"We are very bullish on Neal Hot Springs, and hope to be in commercial operation by the first quarter of 2012," said Kunz. "We have two productive wells out there, with good production temperatures. We have a PPA in place, and with the DOE loan we have very low-cost debt, which is very positive for the project."

Ted J. Clutter is a former Executive Director of the Geothermal Resources Council. He can be reached at tclutter@cableone.net.