The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The company behind Baha Mar’s proposed Seawater District Cooling (SDC) plant is seeking to raise $6 million from Bahamian investors, Tribune Business can reveal, having signed a 20-year energy supply agreement with the Cable Beach resort developer.

Documents obtained by Tribune Business disclose that Ocean Thermal Energy Corporation’s (OTEC) Bahamian subsidiary has been in the market for capital since September 1, seeking to raise $6 million by offering local investors ‘Series A secured notes’ paying a 10 per cent interest coupon.

The offering prospectus discloses that OTE BM, the subsidiary that will build, own and operate the renewable energy plant, was seeking the funds “to support development and construction of its 9,800 tonne SDC system for Baha Mar to be located ay Cable Beach in Nassau, the Bahamas”.

And it adds: “OTE plans to provide seawater district cooling to the Baha Mar resort, whereby deep cold seawater is used to circulate through traditional heat transfer units for cooling of four hotels and a casino.

“When compared to a traditional air conditioning system, OTE’s SDC system will save the Baha Mar resort millions of dollars in energy costs over the life of OTE’s 20-year energy services agreement (ESA) with Baha Mar. The ESA was signed on July 25, 2013.”

Tribune Business exclusively revealed several weeks ago that the OTEC project had “come alive again”, and the capital raising provides further confirmation that the $102.3 million initiative is back on the frontburner.

Edward Baer, OTEC’s chief financial officer and treasurer, declined to comment when contacted by Tribune Business.

He referred this newspaper to the company’s Bahamian financial adviser and placement agent, Kenwood Kerr, chief executive of Providence Advisors. While confirming his role, Mr Kerr declined to comment further.

The $6 million OTEC offering is a private placement, and Bahamian public investors should not seek to get involved. “This is venture capital,” one source commented.

Robert Sands, Baha Mar’s senior vice-president of external and government affairs, confirmed to Tribune Business that the $2.6 billion developer had signed the energy supply contract with OTEC.

He added, though, that the deal’s consummation depended on OTEC raising the necessary financing and securing all the needed government approvals.

“We can confirm that agreement was signed, subject to the prerequisite of the necessary government approvals being granted, and also certain financing being put in place,” Mr Sands told Tribune Business.

This newspaper understands that OTEC is working diligently on both fronts, having met with government officials last week to advance the project.

Some $76.8 million in Inter-American Development Bank (IDB) debt financing had been lined up as the lion’s share of the SDC construction capital, with some $10.6 million being raised as equity - $5.6 million from OTEC itself, and the $5 million balance from its construction partner, DCO Energy.

Another $13 million was supposed to be raised from a preference share issue to Bahamian investors.

Baha Mar revealed to Tribune Business in June 2012 that OTEC’s failure to meet a pre-determined timetable for its $102.3 million SDC system meant it had been forced back to looking at “traditional forms” of air conditioning (AC) cooling.

This newspaper was told at the time that Baha Mar executives were concerned that delays in obtaining all the necessary government approvals for the OTEC project could prevent the SDC plant from fitting in with the $2.6 billion project’s construction schedule, throwing this off and delaying the planned December 2014 resort campus opening.

The Government is understood to have been concerned about the environmental impact OTEC’s project might have on Goodman’s Bay, as it would require laying a pipeline to take cold seawater across the seabed and into the Baha Mar resort.

A previous analysis of alternatives to the SDC facility concluded that none were viable.

OTEC said that if it decided not to go ahead with the project, Baha Mar would lose the potential economic benefits resulting from a 90 per cent reduction in its air conditioning-related energy costs.

Without the SDC system, the analysis said Baha Mar would be forced back to its original plan of installing seven electricity-driven centrifugal refrigeration compressors, each weighing 1,300 tones, on its resort campus. A cooling tower would also have to be installed on the roof of its Central Utility Plant (CUP).

Mr Sands said yesterday of the OTEC project’s benefits: “This sort of cooling will reduce demand on electricity, and therefore have significant savings for us on electricity usage.

“It goes without saying that energy is perhaps one of the most singular major costs we have to incur, and any reduction in electricity is a win-win for everyone.”

OTEC previously argued that in the absence of its SDC plant and pipeline, Baha Mar would need to dig six extraction and injection wells to deal with the volume of cooling water required.

And it would be forced to consume an extra 37,489 Megawatt hours (MWh) of electricity, and 2.645 million gallons of oil, annually in generating the required power, something that would eat significantly into its bottom line through the extra cost burden.

The environment, OTEC said, would also suffer from the extra 71.64 million tones of carbon dioxide created annually by Baha Mar’s electricity reliance, plus the use of 25,000 pounds of refrigerants in the chillers.

“Use of the cold seawater system proposed as part of the SDC system would allow for the elimination of the seven electric compressor-driven refrigeration systems and the cooling towers from the CUP,” the OTEC assessment said.

“In addition, the SDC system would also provide cooling to the Sheraton and Wyndham resorts, allowing for the elimination of the existing compressors and cooling towers at these locations as well. OTE BM has estimated that the conventional cooling system would require 42,837 MWh of electricity per year to generate the 12,000 tons of air conditioning that the Baha Mar Resort, and the existing Sheraton and Wyndham resorts, would require.”

Further extolling the virtues of its project, OTEC added: “The use of the SDC system instead of the originally planned centrifugal compressor systems, and their associated cooling towers, would allow Baha Mar to reduce its cooling-related electrical use by almost 90 per cent. “Operation of the SDC system would avoid the purchase and consumption of 59,312 barrels (2.5 million gallons or 9.4 million litres) of oil per year, and the subsequent release of 36,408 tons of CO2 emissions each year.

“Using the SDC system would also allow Baha Mar to significantly reduce its use of the refrigerants (HFC-134a) in the conventional cooling system, reducing the impacts of associated releases of greenhouse gases during routine maintenance activities.”

OTEC had previously pledged that the construction workforce for the SDC plant would employ ‘75 per cent Bahamian labour’, accounting for 80,000 man hours.