DALLAS - A bond financing will help Utah Associated Municipal Power Systems reduce the carbon footprint of its 45 member utilities, general manager Doug Hunter says.
UAMPS is developing a small project in Veyo, Utah, that will transform heat from three natural gas pipeline compressors into marketable energy for seven partner utilities.
"It's not a huge project, but it fits in with what UAMPS is trying to do with efficiency," Hunter said. "This all fits within our carbon reduction program."
UAMPS will finance the Veyo Heat Recovery Project with $20.8 million of tax-exempt green bonds expected to price through Bank of America Merrill Lynch Dec. 9.
Alan Westenskow, vice president for the financial advisor, Zions Bank Public Finance, said the "green bond" designation is beneficial from a marketing perspective because it could catch the attention of investors who might not otherwise participate in the municipal market.
Issuance of green bonds surged in the first half of 2014 to $20 billion, matching the total for the past seven years, according to Bank of America.
"To our knowledge, this is the first green bond where all of the proceeds are going toward a carbon-neutral power generating plant," Westenskow said.
The bonds carry ratings of A-minus from Standard & Poor's and A from Fitch Ratings with stable outlooks.
"The stable outlook reflects our assessment that the credit quality of the members is solidly in the medium-investment-grade category, with a significant percentage at the lower end of the category," Standard & Poor's analyst Jeffrey Panger wrote in his Nov. 25 rating report. "We do not expect to raise or lower the rating within the next two years."
The bonds, maturing through 2041, fit the type of project defined by the Energy Policy Act of 2005: renewable energy, particularly on federal lands in the West. The Veyo project sits on Bureau of Land Management property in the southwest corner of Utah.
The Veyo project is the second recovered energy generation facility on the Kern River pipeline. The other unit in southern Nevada has been in operation for more than four years and provides 7 megawatts of power.
The Veyo plant will draw waste heat from three existing compressors attached to the pipeline. The waste heat will help generate about 7.8 megawatts of energy for the seven participating utilities.
Ormat Nevada Inc., a unit of Ormat Technologies Inc., expects to complete the project in fall 2016.
"The Veyo project will produce electricity without burning additional gas or creating emissions, therefore increasing the use of energy content of the natural gas by about 30%," said Ormat chief executive Isaac Angel. "This is a great example of how states can reduce emissions by using a cost effective heating source that is readily available in the U.S."
With 45 members in eight states, UAMPS designs and operates power projects backed by some or all of the local utilities.
The Veyo project has seven members as partners. They include the Truckee Donner Public Utility District, Calif., and the Utah cities of Lehi, Logan, Washington, and Kaysville.
In 2009, Utah became one of the first states to recognize waste heat recovery as a renewable energy technology, providing incentives to promote its development. Since then, Utah has continued to see a wave of new projects across the renewable spectrum, including geothermal and waste heat.
Hunter said that locking in today's low interest rates will provide stable finance costs for the seven participating members over the 27 years of debt service.
Moreover, the power source is relatively cheap compared to some alternative energy projects.
"The VHRP's expected cost of power provides an economic incentive to participate in the project," noted Fitch analyst Ryan Greene. "At a blended rate of $44 per megawatt hour -- assuming an 85% capacity factor -- the project is competitive with UAMPS' overall power supply portfolio."
