Anchorage Daily News

Any doubts about serious interest in geothermal energy for Southcentral Alaska were dispelled at the state's Mount Spurr geothermal lease sale last week.

The state received an estimated $3.5 million in winning bids, with all 16 tracts offered being sold.

Reno-based Ormat Nevada picked up 15 tracts. Chad Attermann of Utah got the other one.

Ormat outbid Iceland America Energy Inc. on four tracts. Two of those contested tracts lie in the center of the sale area and attracted bids of $1.5 million and $1.4 million. Attermann outbid Ormat on tract 16 with a bid of $5,007.

Because the title work on the tracts has already been done, leases could be issued by the end of this month, said Kevin Banks, director of Alaska's Division of Oil and Gas.

This is the third geothermal lease sale that the state has held on tracts on the southern flanks of Mount Spurr, the closest volcano to Anchorage. The last sale occurred in 1986.

The lease sale area is about 40 miles from Beluga, the nearest point on the Southcentral electricity grid; thus the sale area is a possible site for a geothermal power plant.

Although no one has yet proved the existence of a viable geothermal source at Mount Spurr, a geophysical survey in the 1980s provided tantalizing indications of a possible layer of warm or hot brine 2,000 feet below the plateau at the entrance to the pass on the south side of the mountain. Some soil geochemistry anomalies also pointed to the existence of geothermal water in the area.

The vigorous bidding in this latest Mount Spurr sale came as a relief to the oil and gas division -- the agency had worried that lease terms such as the royalty rates mandated under state law and regulations might deter bidders.

"I am happy that we got that little bit of tug-of-war and that competition, and many of the tracts received more than a single bid," Banks said.

The royalty rate for leases on the tracts is 10 percent of gross revenue. The primary terms of the leases will be 10 years to give time to evaluate and develop the leases, Banks said.

A 'PERFECT STORM'

Amy MacKenzie, attorney for Ormat, said the company started approaching the Alaska Department of Natural Resources a couple of years ago to see if a Mount Spurr lease sale could be held. The attraction was rising energy prices and dwindling gas supplies in the Cook Inlet area.

"It's the perfect storm of opportunities," MacKenzie said.

Ormat is owned by Ormat Technologies Inc., which has developed geothermal power plants internationally for about 25 years, said Paul Thomsen, director of policy and business development for Ormat Technologies.

"We operate about 400 megawatts in the United States, primarily in Nevada, California and Hawaii," Thomsen said.

Because the company is growing at about 100 megawatts annually in the United States, it is constantly on the lookout for new geothermal resources, Thomsen said.

LOOKING AT ALASKA

"We have been looking at Mount Spurr and Mount Makushin in Alaska probably for the last 15 years and when this lease sale gave us the opportunity to bid ... we jumped all over it," Thomsen said. Mount Makushin is the volcano next to Unalaska in the Aleutian Islands.

"We've done a lot of cursory work looking at the markets and so forth, and energy prices, and we think that Alaska is ripe for developing a base load geothermal resource."

The advantage of geothermal energy is the potential for long-term energy price stability once the geothermal facility is established, Thomsen said. And the size of the lease sale bids reflected Ormat Technologies' view of the "potential resource size and application," he said.

Ormat Technologies will deploy some of its geologists to do field mapping and seismic work in the leases to prove up information available about the geothermal prospects, Thomsen said. The next step would involve drilling using small-diameter holes to define where the resource might be. Depending on the results of that drilling, the drilling of a production well would then enable the viability of the resource to be tested.

The time frame for any development would depend on what the company finds and how a Mount Spurr development would mesh in with the company's other projects, Thomsen said.

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