"The fact that we have arrived at an energy plateau means that two centuries of energy growth are at an end, but the century of decline has not yet begun. We are in a place betwixt and between, neither this nor that. This is a unique period that brings unique opportunities and challenges;" ........ Richard Heinberg,
This Information Memorandum is not intended to provide the sole or principal basis for any investment decision or other risk evaluation and may not be considered as a recommendation by the Company or any other person in connection with an investment in the Company. Potential investors in the Company should make a decision to invest in the Company on the basis of independent investigations they consider necessary or desirable. Some of the information contained in this Information Memorandum has been obtained from third parties and has not been independently verified. Accordingly no representation, warranty or undertaking, express or implied, is made and no responsibility is accepted by the Company or any other person involved in the preparation of thitomks Information Memorandum. Nothing containing in this Information Memorandum constitutes a promise or representation as to the future. No assurance or representation is made by any person that any forecast or projection will be achieved. The Company nor any person involved in the preparation of this Information Memorandum accepts any liability for any loss or damage suffered or incurred by any person however caused (including negligence) relating in any way to this Information Memorandum, including, without limitation, the information contained in it, any errors or omissions however caused or any person placing any reliance on this Information Memorandum, its accuracy, completeness, currency or reliability. The Company and any person involved in the preparation of this Information Memorandum does not accept any responsibility to inform recipients of this Information Memorandum of any matter arising or coming to their notice which may affect any matter referred to in this Information Memorandum. Any liability of the Company to any person arising out of this Information Memorandum is, to the maximum extent permitted by law, expressly disclaimed and excluded. This document may only be distributed under the terms and conditions on pages five and six and may not be distributed if signed and executed copies of those documents are not delivered to Southern Cross upon receipt of this document by the intended recipient, so notified on page five.
Certain terms used in this Information Memorandum are defined in the glossary (Page 25)
CONTENTS Section Page 1 IMPORTANT NOTICE 2 2 CHAIRMAN’S LETTER 4 3 EXECUTIVE SUMMARY 5 4 OFFEREE ACKNOWLEDGEMENT OF RECEIPT 7 5 NON-DISCLOSURE NON-COMPETE AGREEMENT 8 6 CORPORATE DIRECTORY 6 7 INVESTMENT OFFER 9 8 DETAILS OF THE OFFER 11 9 BUSINESS PLAN SUMMARY 11 10 DETAILS OF THE PROJECT 12 11 BOARD AND MANAGEMENT 15 12 FINANCIAL INFORMATION 17 13 RISK FACTORS 20 14 ADDITIONAL INFORMATION 22 15 MATERIAL CONTRACTS 23 16 GLOSSARY 25 17 APPLICATION FOR SHARES 30 18 ADDENDUM 33 19 OFFEREE ACKNOWLEDGEMENT OF RECEIPT 48 20 NON-DISCLOSURE NON-COMPETE AGREEMENT 49 21 LIST OF SUPPORTING DOCUMENTATION 50 22 FINANCIAL ASSUMPTIONS 52 23 NATIONAL ELECTRICITY MARKET STATISTICAL PRICING 54 24 THE BUSINESS CASE 54 25 AJ BUSH TURBINE INSTALLATION COSTS 56 26 OPERATING AND ADMINISTRATION EXPENSES 57
Tables and Drawings Section Page
Table 1 Shares on issue and to be issued 10 Table 2 Units of Measure 27 Table 3 Carbon Coefficients, Heat Values, Units and Conversion Factors 28 Table 4 - Hydrogen Equivalency Energy Values 29 Table 5 Typical Operating Hours for DE Applications 38 Table 6. Comparison of Fuel Cell Technologies 39 Table 7 Commercially Available Technologies 40 Table 8 Theoretical Thermal (not electrical) efficiencies 45
Figure 1 - Global Oil Extraction and Reserves Chart 33 Figure 2 Predicted Oil Price 2005 ($23-$40) per Barrel and actual close July 5th, 2005 ($62) 33 Figure 3 Peak Energy Losses Schematic 35 Figure 4 The multi-stack version of the GTM1 (A larger version is available on page 60) 41 Figure 5 – Prototype TAR unitl 43 Figure 6 - Peltier Junction 44 Figure 7 - Peltier Operational Concept Detail 44 Figure 8 ASX Chart for ENE - last six months 46 Figure 9 Capstone Turbine installed utilized Methane (Biogas) in the US 47 Figure 10 - AJ Bush Project - Anaerobic Pond 58 Figure 11 Generic Representation of Power Generation at each Biogas Generating Site 58 Figure 12 AJ Bush Topographical of Anaerobic based Biogas Generation Project 59 Figure 13 GTM 1 - User Replaceable Modules 61
2 CHAIRMAN’S LETTER Popular consensus in the press these days is that electrical transmission and generating infrastructure is lagging behind rapidly growing demand, which is adversely, affecting the electrical transmission ability to provide reliable, brown outs and power outages, free services. Our methodology of safe guarding supply is by installing small efficient, low emission distributed generation plants. This thinking is in sync with the World Alliance for Decentralized Energy (WADE) who have economic models1 forecasting for both centralized and decentralized power generation for the next fifty years. Distributed Generation (DG) also known as Decentralized Energy (DE) is one of the fastest growing sectors in the energy industry at the moment. Currently about 7% of world wide generation is DG with some countries such as Germany having as much as a 13% of their electricity generated through DG. Even the Stock Market has recognized the importance of DG with the Decentalized Energy Stock Index, (DESI), that was formed in the United States on July 28th this year charting the top thirty decentralized energy companies. The major reasons for DE’s rapidly increasing popularity are the lower entry costs, lower emissions and the term, “Peak Oil”, which effect, we are becoming all too familiar with at the bowser. By most estimates, we are using our fossil reserves at an ever-growing compound rate. Within thirty years, it is doubtful that petrol will still be fueling our gas guzzling preferred transport option. We have surpassed Peak Oil Production. The development of a low cost energy solution as an alternative to carbon based fossil fuel is rapidly becoming an urgent imperative. Most University and Non Government research organizations have for some time been touting that the most likely fuel source is Hydrogen. However, due to the problems associated with compressing hydrogen and the high cost of transporting, storing and dispensing it, either in liquid, compressed gas or uncompressed form (it would take fifteen minutes to fill your gas tank with uncompressed hydrogen for a range of only fifty to one hundred kilometers), there are a many varied and as yet laboratory only prototype solutions. (In liquid format it must be kept chilled to 1 degree K (minus 256 degrees Fahrenheit). Consensus is that the hydrogen will need to be generated on site at each hydrogen filling station. Some consider that the answer lies in Fuel Cells powered by Methane converted to Hydrogen. Others, more financially conservatively inclined towards favoring traditional oil company infrastructure, are backing the Liquid Propane (BHD-5)2 and Natural Gas conversion to Hydrogen option. However both are still fossil based fuels whose reserves will also become more expensive to maintain and extract. Southern Cross have developed another option which we are confident is a viable alternative that we will be prototyping, manufacturing and installing as Peak Shaving, Remote Community Base Load and Industrial Back-up Power Generation systems. Pursuant to this Information Memorandum the Company is inviting subscriptions for seven hundred and fifty thousand (750,000) shares at an issue price of one dollar ($(AUD)1.00) per share to raise up to seven hundred and fifty thousand dollars ($(AUD)750,000). The company intends to offer a further 5,000,000 shares at one dollar before making an initial public offer of 50,000,000 shares at an anticipated offer price of one dollar and twenty cents ($1.20), per share to raise up to sixty-million dollars ($60,000,000) and seek quotation of the Company’s securities on the Australian Stock Exchange ("ASX").
Yours sincerely,
Nick Harris Chairman (Acting)
1 The WADE Distributed Energy Economic Model – Section G – Economics and the Hydrogen Economy 2 BHD-5 is the American Gas Standard utilized for Capstone Micro-turbines
An old saying goes “If it doesn’t fit on the corner of a napkin – it’s too complicated”, so here is the napkin version of the following 60 pages of highly complicated documentation.
The EPA requirement for the meat Food Processing Industry for cleaner wastewater emissions has provided Southern Cross Energy with an opportunity to provide an anaerobic solution through supplying the technology and the capex, resulting in virtually free Biogas. SCE obtains free fuel and three power generation related revenue streams, whilst solving the food processing industry’s EPA quagmire. The payback period for the capex investment is usually under two years. Additionally, whilst the Company is proceeding down a safe revenue generation path, earning green energy rates and green credits, it also has plans to apply innovative technology and technical improvements to the technology to increase the ROI by decreasing the capex payback period.
There are two hundred and seventy five identified potential recipients of our “cost-free” solution and if successful on implementing at all of the these, SCE would be Australia’s fifth-largest generator of Green Energy. The estimated time to achieve this result would be less than ten years without major funding.
So the napkin would say Distributed Energy Infrastructure Play No transmission losses Free Fuel Some Government assisted financing available Large customer base No competition Revenue from Electricity Sales, NGACS and RECs Conservative IRR = 48%
Summary
Southern Cross Energy is a new type of power company utilizing advanced technology, low cost fuel and proximity to customers via Distributed Generation to maximize the profit of the business.
Southern Cross Energy has identified a significantly under-utilized low cost fuel resource for renewable energy generation. Methane is a fuel created by the anaerobic breakdown of organic matter and is the foundation of fossil fuels. It has been fueling small power stations for many years and is used as fuel for transit buses in Christchurch NZ and in the latest Volvo Sedans.
In Australia, several hundred Food and Beverage production companies use large volumes of water to carry high organic load waste residues which are conventionally treated by means of anaerobic digestion. This process produces large quantities of Biogas (with 65% methane content) which has an acceptable BTU heat value for use as a natural gas replacement for electricity production.
It is intended to utilize long life, low maintenance micro-turbines with capacities from 30KW to 200KW to generate green energy from identified food production sites, (initially) in Queensland and New South Wales.
Connection to the Eastern Seaboard Power Grid will enable Southern Cross Energy to reap the financial benefits from the Australian and New South Wales Governments’ Carbon Credit systems in addition to earning revenue from power generation.
As a Green Energy supplier, Southern Cross will have the right to issue and trade Renewable Energy Certificates (RECs). Methane is identified as a major contributor to global warming. It has a value of 21 times that of carbon dioxide as a greenhouse gas. This fact creates another significant revenue stream.
New South Wales Greenhouse Gas Abatement Certificates (NGACs) are issued at the rate of one NGAC per tonne of CO2 equivalent that is prevented from entering the atmosphere. Southern Cross will qualify for 21 NGACs per tonne of methane utilised as fuel in its micro-turbines for methane disposed of in NSW or for electricity that is fed to the NSW portion of the NEMCCO national GRID..
Southern Cross Energy has fast tracked its entry into this lucrative emerging market via the acquisition of Quantum Power Pty Ltd.
Quantum Power has, over the past six years, progressively developed a unique multidisciplinary technology encompassing high powered ultrasonics and electro-coagulation to both increase the methane yield as well as delivering optimum quality discharge water. The Company is presently installing an Advanced Pilot Plant and Commercial Prototype biogas recovery system at AJ Bush Rendering Plant in South East Queensland at a cost of $1,915,000. The project is jointly funded by A J Bush and Sons and the National Food Industry Strategy and is forty-two percent (42%) completed.
Through its acquisition of Quantum Power and associated company, Innovative Waste technologies, Southern Cross has been able to enter the Power Generation market with access to guaranteed extremely low cost, long term fuel supplies and a rapidly accelerating cash flow.
Concurrent with roll out of its Distributed Generators which offer a permanent and economical alternative to Grid electricity, Southern Cross will be implementing a program of efficiency gains to its gas turbines by way of additional solid state and thermo-acoustic technologies. Replacement “plug and go” modules requiring no technical skills will be a feature guaranteeing low cost reliability and serviceability in remote areas.
4 CORPORATE DIRECTORY
REGISTERED OFFICE Suite 507 Eastpoint Tower, 180 Ocean Street Edgecliff, NSW 2027 Phone: 02 9358-1258 Facsimile: 02 9358-4760 BANKERS Westpac Banking Corporation Ground Floor, Edgecliff Centre 203-233 New South Head Road Edgecliff NSW 2027 ACCOUNTANTS Pitcher Partners Level 3 60 Castlereagh Street Sydney NSW 2000 Phone (02) 9221-2099 Facsimile (02) 9223-1762 ATTORNEYS Licardy, Harris & Company Lawyers & Corporate Advisers Suite 507, Eastpoint Tower 180 Ocean Street Edgecliff NSW 2027
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Southern Cross Energy Pty Ltd (ABN 63 115 910 659)
5 OFFEREE ACKNOWLEDGEMENT OF RECEIPT OF DOCUMENT The offering set forth in the Information Memorandum of the Company, dated November, 2005 (the “Memorandum”), has not been registered or filed with the Australian Securities Investment Commission, and is offered in reliance upon the exemption from such registration for non-public and other limited offerings provided by the Corporations Act and other applicable states’ statutes and the applicable rules promulgated there- under. I UNDERSTAND THAT THE MEMORANDUM IS FOR MY USE OR THAT OF MY ADVISORS OR DESIGNATED PURCHASER REPRESENTATIVES ONLY. In connection with the delivery to me of the memorandum, I hereby acknowledge receipt thereof and represent that: (a) I will use the Memorandum only for my own purposes and I will not reproduce, duplicate or distribute the Memorandum except to my designated advisors and Purchaser Representatives, if any; and (b) If I decide to purchase the securities described in the Memorandum, I will also complete and execute a Subscription Agreement. (c), either alone or with my Offeree/Purchaser Representative(s), I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of the prospective investment. (d) I understand the long term nature of the investment in securities described in the Memorandum and can afford the entire loss of such investment. (e) I further understand that the Memorandum contains information that is confidential in nature and that I have executed, and will require of and warrant that my advisors and/or Purchaser Representative(s), if any, will also execute and forward to Southern Cross Pty Ltd the following “Non Disclosure / Non Compete Agreement” before reviewing or discussing the memorandum. EXECUTION OF THIS DOCUMENT DOES NOT INDICATE THE INTENT TO PURCHASE ANY OF THE
SECURITIES DESCRIBED IN THE MEMORANDUM. 5.1.1 All fields are required
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6 NON-DISCLOSURE NON-COMPETE AGREEMENT THIS AGREEMENT BETWEEN, Southern Cross Energy Pty Ltd, a NSW Company, hereinafter known as the Company, and the prospective investor reviewing this Confidential Information Memorandum as numbered 0031 and whose name is stated on page “7” of the document titled “OFFEREE ACKNOWLEDGEMENT OF RECEIPT OF CONFIDENTIAL INFORMATION MEMORANDUM” hereinafter known as “Investor” and all of said prospective investor’s Advisor(s), Counsel, and Purchaser’s Representatives if any be they individuals or another entity, hereinafter known as “Investor’s Aides” states: WHEREAS, in order to provide the Investor with full disclosure the company must provide the Investor with certain information that is now and will remain of a confidential nature and the confidentiality of said information is critical to the continuing operation, concepts and methods of the Company AND: WHEREAS, the Investor and the Investor’s Aides in order to understand the operation of the Company are desirous of reviewing all available information regarding the Company AND: WHEREAS, the Investor realizes that the Company could be done irreparable harm should such information be released to the public by anyone for any reason AND: WHEREAS, the “Investor” takes full responsibility and culpability for the action of the Investor’s Aides THEN: IN CONSIDERATION for the Company making full disclosure to the Investor and the Investor’s Aides all agree to the following conditions. 1. Any parties deemed necessary by the Investor and/or the Investor’s Aides will agree to and
execute this non-disclosure agreement before reviewing the Confidential Information Memorandum of the Company’s.
2. No party to this agreement will make known for any reason to any individual or entity the details contained in this Confidential Information Memorandum.
3. No party to this agreement will for any reason cause or aid in any way any individual or entity to enter into competition with the operations of the Company in any way whatsoever.
4. No party to this agreement will use any knowledge gathered from the review of this memorandum for any profit outside this possible investment.
5. No copies of this “Confidential Information Memorandum” will be made and/or distributed by the “Investor” or any party to this agreement for any reason.
6. Should the “Investor” decide not to become involved with the Company this Confidential Information Memorandum will be returned to the Company immediately upon request.
7. Should the parties to this agreement become investors in the Company or not all conditions of this agreement will remain in force in perpetuity as allowed by law.
8. Execution of this agreement in no way obligates or indicates the intent to purchase any of the securities described in this Memorandum by any of the parties hereto.
Agreed to this _____ Day of _______ 2005 _________________ ________________________ Witness Potential Investor Agreed to this _____ Day of _______ 2005 _________________ ________________________ Witness Investor Advisor This page requires Signing and physical removal from the Information Memorandum
The following is intended to be a summary only and must be read in conjunction with the detailed information appearing elsewhere Information Memorandum. Investors must be aware that the shares offered under this Information Memorandum are considered speculative. Your attention is drawn to the risk factors set out on page 20, section 13 and entitled, risk factors.
7.1 Description of the Offer
Southern Cross Energy Pty Ltd is offering for subscription a total of up to seven hundred and fifty thousand shares at an issue price of one dollar each payable in full on application up to $750,000. All the shares offered under this Information Memorandum will rank ‘pari pasu’ (equally) with the shares currently on issue as at the date of this Information Memorandum.
7.2 Purpose of the Offer
The purpose of this offer is to raise working capital to enable Southern Cross Energy P/L to enter the power generation industry in the Australian National Electricity Market (NEM’s) area. The company has acquired Quantum Power Pty Ltd, a Queensland based company that has been developing biogass generation and extraction technologies for the food processing industry. The acquired business is the basis of the company’s business plan with the development of additional technologies to enhance the efficiencies of power generation. Quantum Power has already commenced construction (42% completed) of the first of ten Biogas extraction and power generation facilities. The expected completion o the commenced project date is April 2006 with electricity being generated by May/June, 2006. The company is developing an advanced concept for multiple off the shelf co-generation technologies to be merged, to increase the efficiency of the utilized Biogas fuels. Additionally, the Company has identified the potential of creating an Australian Micro-Turbine power generation system for Distributed Energy and Rural Power Systems. The GTM1 Comprising a Gas Microturbine, a Kalina Heat Exchanging unit, a 1Kva Fuel Cell with a 1 Kva Thermo-Electric Solid State Seebeck effect Unit, a high temperature Turbine and a 480V Capacitor Bank, The GTM1 will be designed for small industrial or residential usage. However the design is scaleable and can be for any capacity from a base load of 5Kva through to 2000 Kva (2 MW) in a compact (large) Pallet or skid deliverable form. The operation and design of the GTM1 has several patents pending due to be filed which include: Snap in replacement turbine generators for field replacement by inexperienced personal. (Like a fuse in a fuse box). Diagnostic software that identifies and reports operational parameters and utilizing stochastic techniques identifies potential problems in the service cycle ahead of critical failures occurring. A successful prototype is expected to be operational by August, 2006 and will allow the enhancement of the Company’s fuel efficiency plans.3 In addition to the company’s aims of merging technologies, it will also, directly and immediately enter the electricity generation phase through the utilization of gas turbine generators to generate electricity in peak load situations in the NEM’s area. Prospective installation sites are currently being explored with several NEM’s utilities. Following the successful completion of this offer, the company will have enough working capital to carry out the trial.
7.3 Financial Projections The company’s objective is to produce power and a positive cash flow position as soon as possible and the funds raised pursuant to the offer in this Information Memorandum will be used for this purpose.
7.4 Capital Structure Future Capital Raising
The capital structure of the company following completion of the offer is summarized below (assuming the offer is fully subscribed): Shares Number Shares currently on issue 200,011 Shares Allocated but not issued 1,604,000 Shares to be offered (Round one) 750,000 Each Share carries 1.5 options exerciseable within 24months at $1.25 Total Shares on issue at completion of round one 2,554,011
Table 1 Shares on issue and to be issued
These funds will be used primarily to fund the provision of Capstone Turbines and associated works to the AJ Bush Project in Bromelton Queensland. A portion of the funds will be used for administration and the commencement of additional projects in a limited fashion in Queensland and NSW (identified as projects 2-9 on the Business Case Spreadsheet on Page 55. The Company is proposing to raise a further $ five million dollars ($5,000,000) following the completion of the offer by an issue of a further five million (5,000,000) shares at an issue price of one dollar ($1.00) per share to raise up to five million dollars ($5,000,000). A portion of the funds will be used to fund a portion of the initial public offering costs (15%). The capital structure of the company following completion of the second round funding offer is summarized below (assuming the second offer is fully subscribed): Shares Number Shares on issue on commencement of Round two 2,554,011 Shares to be offered (Round two) 5,000,000 Each Share carries 1.5 options exerciseable within 24months at $1.50 Total Shares on issue at completion of round two 7,554,011
The Company proposes to issue a prospectus in relation to an initial public offer of 50,000,000 shares at an issue price of $1.20 per share to raise a minimum of $60,000,000. This is indicative only of the terms of the offer, (including the issue price of the shares) and is dependent on a number of factors, particularly market conditions at the time the offer is made. Accordingly, no assurance is given as to the terms of the public offer. The Company will also seek quotation of its securities on the ASX or it may, on the advise of its list manager, seek listing on an overseas exchange, following the completion of the initial public offer. In the alternative to undertake an initial public offer, the Company may seek a back door listing if it is presented with a suitable opportunity on favorable terms and it is considered to be in the interests of shareholders to do so. There is a separate Document detailing the Options on issue available on the attached CD Rom as Options.
7.5 Enquiries Questions relating to this Information Memorandum should be directed to Mr. Nick Harris on +61-2-9327-6744 .
This section is not intended to provide full information for those intending to apply for the shares offered pursuant to this Information Memorandum. This Information Memorandum should be read and considered in its entirety.
8.2 The Offer
The Company is inviting subscriptions of a total of up to 750,000 shares at an issue price of $1.00 dollar each payable in full on application, to raise up to $750,000.
8.3 Minimum Subscription
There is a minimum participation subscription of one hundred thousand shares. Further there are restrictions on minimum supplementary share parcel levels being not less than fifty thousand shares.
8.4 Applying for Shares
Applications for shares may only be made by completing the Application Form attached to and which forms part of this Information Memorandum. Please read the instructions on the Application Form before completing it.
Applications can only be made for a minimum of 100,000 shares (being application monies of $100,000). Applicants may apply for further shares (supplementary) in multiples of 50,000 shares. The issue price must be paid in full on application. Completed Application Forms together with the application monies must be lodged (in person or by post) with the Company by no later than 5.00pm EST on 31st December 2005, or such date as determined by the Directors (Closing Date). Pending the issue and allotment of shares or payment of refunds pursuant to this Information Memorandum, all application monies will be held by the Company in trust for the applicants in a separate bank account as required by the Corporations Law. The Company, however, will be entitled to retain all interest that accrues on the bank account and each applicant waives the right to claim any interest.
Shares issued pursuant to the offer will rank “pari pasu” in all respects with all other issued shares.
8.5 Allotment Shares will be allotted as soon as practicable after receipt of applications monies by the
Company. The Directors reserve the right to allot shares in full for any application or to allot any lesser number or to decline any application.
Where the number of shares allotted is less than the number applied for, the surplus application
monies will be returned by cheque within 14 days of the Closing Date. Where no allotment is made, the amount tendered on application will be returned in full by cheque within 14 days of the Closing Date. Interest will not be paid on monies refunded.
8.6 Offer Conditions The offer made pursuant to this Information Memorandum does not require the issue of a
prospectus pursuant to the Corporations Law. 9 BUSINESS PLAN SUMMARY`
Southern Cross Energy has identified a rapid growth industry opportunity in Australia4. Electricity in Australia is a rapidly growing commodity that occasionally fails to provide trouble free stable utilization capability due to peak demands, power plant failure, transmission failures and weather conditions. The type of power disturbances, frequency of occurrence, and reported financial impacts on Australian industry defines the market opportunity for premium power. There is an existing suite of power conditioning and utility premium power options that address this market. In Europe and the United States, the most common premium power option utilized is Distributed Generation (DG) (most commonly referred to as Distributed Energy or DE) located usually at the source of maximum consumption, i.e. the consumer. The principal advantages with Distributed Energy (DE) include the arbitrage opportunity of the 13% (industry standard) transmission loss that is not passed onto the consumer; rapid deployment (days as opposed to years); low or nearly zero noxious emissions. These low emissions are achieved through the use of alternative fuels (biogas, methane and other low emission gases), which incidentally also result in cheaper running costs. In Australia, the formation of the National Electricity Market (NEM) allows power generation companies to issue and trade in Green Energy Credits; a market that has a legislated demand customer base of 90 million dollars monthly5 and which is exponentially growing to fulfill Australia’s Green Emission targets. Utilizing a recent innovation (1998) Micro-Gas-Turbines, Southern Cross Energy will be providing Distributed Energy direct to a number of Industrial clients initially in Queensland. Product Summary Southern Cross will provide turnkey installation of modular cogeneration modules in convenient sizes for a variety of power generation applications. These units can be installed individually (from 30 kW) or combined to form larger systems. Low emission models are available for installations with stringent air quality standards. Each cogeneration module includes a natural gas/(biogas) fueled turbine, induction generator, microprocessor control panel, protective switchgear, and heat recovery equipment. Each module is enclosed in a sound attenuated cover and can be installed indoors or outdoors.
10 DETAILS OF THE PROJECT 10.1 Acquisitions
The Company is in the process of acquiring all outstanding shares in Quantum Power Pty Ltd (Quantum Powers Business Plan and Marketing Strategy is available in the accompanying documentation.) Quantum Power has been since 1999 developing a series of advanced technologies to address environmental concerns in the food processing industry, specifically, waste water treatment, odour removal and utilization of the biogas byproduct of the treatment process. Southern Cross will be installing its first gas turbines (Capstone C30’s) at a biogas site in Bromelton Queensland in March, 2006. The Company is also acquiring Innovative Waste Technologies (IWT) as the service installation contractor for the supply and construction of the technologies for the AJ Bush Project.
10.2 The Product.
The Capstone miniature gas turbines are available in 30Kw and 60 Kw generating capacities (sufficient electricity for 20-60 houses) which can be fueled by diesel, natural gas, LPG, methane, or biogas. One of the benefits of these micro-turbines is the co-generation capability often referred to as CHP (Combined Heat Power). To maximize the potential power generation and therefore income yield potentials, Southern Cross will be adding additional technology to the gas turbines to utilize the waste exhaust heat to generate additional green energy.
Additional information on the design and technologies can be found in the supplementary material commencing on page 33 of this document.
4 Please see 18.2 The Opportunity on page 35 5 Please see 10.3 The Legislative Imperative on Page 13
This document is an invitation to participate in a new energy company that believes that it can deliver a number of taxable bite sized palatable chunks of the new hydrogen economy in a manner that exceeds normal power generating efficiencies thereby offering stakeholders an increased R.O.I. In précis, Southern Cross Energy Pty Ltd will introduce a distributed generation system comprised of varying technologies (currently available off the shelf) with a methodology of increasing the amount of electricity for the same volume of fuel and thereby earning a higher revenue of kilowatts per hour available for sale and Energy Certificates capable of being traded on the NEMS.
Equation 1 - Formula for Calculating Efficiency of an Electrical Generation System
Equation 2 Combustion efficiency in a gas turbine (HTML Link) 10.3 The Legislative Imperative
The Federal Government's Mandatory Renewable Energy Target Act commonly referred to as MRET program commenced in April 2001. It requires an extra 9,500GWh of electricity to be generated by renewable sources by 2010. When this target was first suggested, the 9,500GWh equaled 2% of the forecasted electricity demand in 2010. As it turns out the GDP has grown faster than expected and hence the figures used this forecast were a little light. Today, a true 2% target is forecasted to be approximately 12,800 GWh. The objects of the MRET legislation are affected through the establishment of a scheme6 under which electricity generators can create renewable energy certificates based on the amount of electricity they generate using eligible renewable energy sources. Electricity retailers and other wholesale purchasers of electricity (called liable entities) are effectively required to purchase and surrender a specified number of these certificates depending on the amount of electricity they acquire during a year. If a liable entity does not surrender the required number of certificates, a renewable energy shortfall charge is payable. The amount of renewable energy shortfall charge payable by a liable entity is equal to its renewable energy certificate shortfall multiplied by a rate of charge of $40 per megawatt hour. This charge does not escalate and is not tax deductible. In broad terms, the renewable energy certificate shortfall for a year is equal to the total amount of electricity acquired by a liable entity multiplied by the renewable power percentage for the relevant year less the number of renewable energy certificates surrendered by the liable entity. The renewable power percentage for each year is specified in a regulation to the MRET legislation to be made on or before 31 March in that year. Section 39 of the MRET legislation specifies that before the Governor General makes the regulation, the Minister must take into consideration, amongst other things, the required GWh of renewable source electricity for the year. The required GWh of renewable source electricity started at an additional 300 GWh in 2001, increasing to an additional 9,500 GWh per year for 2010 and beyond, with interim targets for the intervening years. The MRET legislation applies for the year commencing 1 January 2001 and to all subsequent years. However, no certificates can be created, and no liability arises, in respect of electricity generated on or after 1 January 2021. Section 162 of the MRET legislation required the minister to cause an independent review of the MRET legislation to be undertaken as soon as practicable after the second anniversary of the commencement of the Act. The Minister commissioned a review panel chaired by The Hon. Grant Tambling.
6 http://www.nemmco.com.au/
ElectricityProduced(kWh)+½ UtilizedRecapturedHeat(kWh) System Efficiency = ------------------------------------------------------ x 100%
The future of the MRET legislation was placed in some doubt by the report to the Council of Australian Governments, Towards a Truly National and Efficient Energy Market (known as the Parer Report7) which recommended the introduction of a broad-based-national-emissions trading system and the abolition of all greenhouse gas schemes in Australia, including the MRET legislation. However, the MRET review recommends the continuation of the MRET legislation. In March 2003, a panel was formed to review the Commonwealth's Mandatory Renewable Energy Target (MRET) legislation and provide a report into their findings by the end of September 2003. It was to determine, among other things, if the scheme should be abolished in favour for a common carbon-trading scheme as suggested by the Parer/COAG report, or if the target should be increased to a true 2%, 5% or 10% (in line with UK and Germany). The report recommended that the scheme should continue with the current target of 9,500GWh to 2010 and then introduce steady increases to reach a 20,000 GWh target by 2020. As one could imagine this lack of support for renewable energy and the reduction of greenhouse gases has angered many community and green groups. Even many state governments are wondering why it can't be increased to a true 2% or 4% when the report indicates it would have little effect to the GDP and wholesale electricity prices. However the report suggests given that we are only 6 years away [Report Date September 2003) from the target date, it is not enough time to raise the 9,500GWh 2010 target and to generate enough investment to meet it. Yet, the report suggests a 20,000 GWh target for 2020 which is still only 2% of the 1997 baseline. This reasoning begs the question that if time was really an issue why isn’t the 2020 target higher than 2% of the 1997 baseline? If the Federal Government were serious about a 2% target, why not at the very least have a true 2%. While Australia produces more greenhouse gas per capita that any other country, Australia’s low price of electricity makes most renewable energy more expensive than coal and gas generated electricity. In countries like Germany where a 10% target is supported, electricity prices are double that of Australia’s hence more renewable energy can be installed without grossly upsetting the economy with higher electricity prices. While the Parer Report led to much investment uncertainty and the stalling of investment with in the renewable energy sector, this last report should not be seen as negative despite the rock bottom target. The 2% target still exists like it has since 2001. The report forecasted that $215 million would be spent on new renewable energy in 2004, increasing to $454 in 2005 in the lead up to $2.025 billion in 2006. If this proves to be correct, it should make renewable energy a growth industry of the next eighteen months. The approximate costs to produce power in Australia are listed in the table below. This price includes the cost of fuel, fixed and capital costs to build the plant. Excluded from the figures is transmission/grid, connection costs. These figures are approximate and should only be used for comparison between energy sources.
7 The Parer Report (Towards a truly National and Efficient Energy Market) Executive Summary Pages 1-46 Government Reports Volume 2 Section J
To provide incentives to produce renewable power and reach Australia's mandatory renewable energy target (MRET) the Renewable Energy (Electricity) Act 2000 introduces Renewable Energy Certificates (REC’s) which trade at approximately $35 to $40 (http://www.rec-registry.com/). This, on top of the wholesale price of electricity makes many forms of renewable energy economically sustainable, thus allowing them to compete in the National Electricity Market. The current Mandatary Renewable Energy Target is to have 9,500 GWh of renewable energy installed Australia-wide by 2010.
10.4 Target Market
Identified customers include Initial target markets within Australia include, but are not limited to: Industrial companies within a kilometer of an Electrical Sub-station. Hotels, Hospitals, Schools within a kilometer of an electrical sub-station Rural and ECO communities Organisations requiring lower electricity costs Food Processing Plants, Rendering & Abattoirs Southern Cross has identified a number of potential clients and is negotiating Power Purchase Contracts with those clients.
10.5 Economic Feasibility
The Company is not dependent on the immediate successful prototyping of its technology to commence revenue generation. The business plan has been developed to ensure revenues are generated in the first quarter from the sales and co-location on customer premises of Capstone C30 and C60 Micro-turbines. The Company will then fine tune the economics of the business model by adding Hybrid Solid State Fuel Cells and Peltiers to the Capstone Turbines.
10.6 Valuation
Normally a valuation of a Company is based on the discounted cash flow analysis based on the projected earnings prepared in relation to an economic feasibility study (A specific Biogas model Cash-flow is available on Page 54, with the numbers derived from the CSIRO and various university studies and based on a biogas fuel source derived from vegetative matter.) Gas Micro-Turbines have not been operational commercially in Australia and therefore our projection data has been based on assumptions of results obtained from a limited historical collation of sales and utilization data in the state of Florida and California in the USA. Further, generating, consumption and cost data was collected from NEMMCO (The Australian Electricity Management Marketing Company) for the years 2001-2005. (This data is not on the accompanying CD Rom as it is 585 megabytes in size, however it is available from the NEMMCO site). A random aggregated selection of this data was used to baseline the electricity generation revenue model. This analysis is then utilized as the base assumptions for the revenue potential spreadsheet model prepared for this document. Any valuation prepared would therefore be based on historical generation data and would need to make accurate assessments of the Company’s future engineering success on integrating and improving the Carnot efficiencies of the technologies. Therefore, whilst no pro-forma valuation for the technology exists, there is a interactive spreadsheet tool on the accompanying disc that allows users to run a number of R&D what-if scenarios.
11 BOARD AND MANAGEMENT
The Board is actively seeking a Chief Financial Officer who has the proven skills to assist in the guidance of Southern Cross Energy Pty Ltd towards a solid and profitable future.
Relevant interests of the directors in the shares, options or other instruments of the company at the date of this report are:
Mr. Harris is acting in the capacity of trustee Director whilst the Company is in its formation period. At the conclusion of due diligence in relation to Quantum Power, Mr. Lionel Freedman, Mr. Bernhard Teh Howell and Mr. Philip Watkins will join the Board of Southern Cross Energy.
11.2 Operation
The Company will continue to execute the Quantum Power Business Plan to build small (up to 3 MW) distributed power plants in association with industry from the food processing sector. This will ensure a long term biogas fuel supply insulating the company from the effects of fossil fuel price rises and possible shortages. A detailed series of spreadsheets based on a project plan for the first two years of operation is available in the accompanying supporting documentation.
11.3 DIRECTORS’ OFFICERS’ AND CONSULTANTS REMUNERATION
Details of remuneration provided to executive directors are as follows: Directors and
Executives Salary Consulting Superannuation Total
To be appointed Lionel Freedman
150,000 15,000 165,000
To be appointed Phil Watkins
120,000 12,000 132,000
Pending completion of engagement contracts, however the spreadsheets include operational costs including discussed expectations of salaries and benefits.
Power Purchase Agreements; Peak Shaving Agreements, Mergers and Acquisitions
132,000 132,000
Austel Inc Thomas Koltai
Strategy, Financial Modeling, Documentation, Technical Research
240,000 240,000
FreshTech Pty Ltd (Various Contractors)
Public Relations, Strategic Communications advice, Community Relations, Public affairs advice.
150,000 150,000
Mr. Koltai is negotiating a consulting contract with the Company and is being granted a series of options recognizing his role at instigating the formation of Southern Cross Energy Pty Ltd. Certain Contractors, Consultants and Employees have elected to take part of their re-numeration in stock thereby helping to preserve the liquid assets of the company for infrastructure.
Director Ordinary Shares Employee Options Ordinary Options
The financial information is in the addenda of this document. In précis, the returns are based on a conservative one turbine placement per month for year one, doubling in year two. In reality, the company’s revenues will be based on a number of factors:
• The availability of economical fuel which will be generated through Quantum Power whom will be continuing with its business plan of EPA mandated, environmental rehabilitation of food processing effluents and wastewater; with the byproducts being biogas and environmentally healthy water. Quantum Power will be carrying out a number of already identified projects each of which has a definitive potential Kw rating in the financial figures.
The R&D developments that include:
o Increasing the volume of gas generated at each site o Increasing the efficiencies of the gas turbines o Increasing the efficiencies of the amount of electricity generated through utilizing CHP o The development of an Australian made Micro-turbine with very high efficiencies o The development of a snap in module replacement system for RAPS.8
Power Generation Revenue is based on the NEMS electricity value of the day. For example in NSW on the 28th of July, 9326.56 Gigawatts was required and traded at an average price of 24.436 cents per Kw.
In Queensland at the same time, 5,715 Gigawatts were required for an average NEMS price of 17.997 cents per Kilowatt. Additional to the retail sales, every Kilowatt Generated can be traded as Green Credits to companies that currently generate high level CO2 emissions.
For an overview of the National Electricity market please read the first two paragraphs on page 13 and the background to financial assumptions on page 46.
12.1 Royalty Details and Taxation Consequences
“Royalty” payments are not dividends. They may have an adverse tax consequence relative to the individual investor. This should be discussed with the individual investor’s tax advisor before the investment is made.
This “Royalty” is being paid on only the first 10,000 Gw generated. The specific amount of the royalty is not known. It is a calculation derived from the successful negotiation of the power purchase agreements. The following tables are indicative of the methodology only and should not be relied upon by any persons.
12.3 Ongoing Royalty
These royalty figures are a calculated projection. The ongoing royalty is divided amongst all shareholders (proportionate to their shareholding) and is subject to the advice of the Company’s financial advisors, brokers and legal advice.
12.4 OPTION PLAN
The Company is developing an employee and consultant Option plan that will incentivise stakeholders by providing realistic and achievable targets.
Source: CSIRO
The results of the Prototype Wastewater Cleaning showed an excellent environmental result
SOUTHERN CROSS ENERGY Pty Ltd Pro Forma Balance sheet Based on Management Accounts at 23 November 2005
Note 1 Trade Creditors at 23 Nov 2005 will be satisfied by the issue of fully paid Ordinary shares Note1(a) Citistone Pty Limited have been allocated150,000 shares that are only partly paid Note 2 The cost of developing the Intellectual Property has been expensed Air bearings on the Turbines ensure high rotational speeds, higher compression ratios and lower maintenance cycles.
CURRENT ASSETS
As at 23rd November
2005 1st Tranche
2005 2nd Tranche
February 2006
Plant and Equipment 3,421 6,716 6,716 Cash 5,000 750,000 5,750,000 Debtors 129,186 129,186 TOTAL CURRENT ASSETS 8,421 885,902 5,885,902 NON-CURRENT ASSETS Shares - Unlisted Companies 1,191,705 1,191,705 Intangibles 250,000 250,000 TOTAL Non-Current ASSETS 0 1,441,705 1,441,705
TOTALS ASSETS 8,421 2,327,607 7,327,607 CURRENT LIABILITIES Trade Creditors (Note 1) (Note 1(a)) 242,624 217,624 217,624 Debenture 16,000 16,000 TOTAL CURRENT LIABILITIES 242,624 233,624 233,624
TOTAL LIABILITES 242,624 233,624 233,624 NET ASSETS (234,203) 2,093,983 7,093,983
Equity Contributed Equity 200,011 2,554,011 7,554,011 Development of Intellectual Property (Note 2) (434,214) (460,028) (460,028)
The business activities of the Southern Cross Energy Pty Ltd Group are subject to risks which may impact on its future performance. There can be no guarantees that Southern Cross Energy Pty Ltd will achieve its stated objectives or that any forward looking statements will eventuate. An investment in Southern Cross Energy Pty Ltd should be considered speculative. Set out below is a non-exhaustive list of some of the risk factors which should be considered before subscribing for shares under this Information Memorandum. Some of these risk factors can be mitigated by the use if safeguards and appropriate systems and actions, but many are outside the control of Southern Cross Energy Pty Ltd and cannot be mitigated.
13.2 Possible Volatility of Share Price
The shares offered pursuant to this Information Memorandum are unlisted securities. However, the Company proposes to undertake an initial public offer and seek quotation of its securities on ASX (or in the alternative seek back door listing if presented with a suitable opportunity). In the event that the shares are quoted on the ASX, the trading price of the shares is likely to be volatile and could be subject to wide fluctuations to factors such as actual or anticipated variations in Southern Cross Energy’s operating results, changes in financial estimates by securities analysts, conditions or trend in the renewable energy and green power energy sectors, changes in the market valuations of other power generation companies, announcements by Southern Cross Energy Pty Ltd or its competitors or significant acquisitions, strategic partnerships, joint ventures or capital commitments, addition or departures of key personnel, sales of shares or other securities of Southern Cross Energy Pty Ltd in the open market and other events or factors, many of which are beyond Southern Cross Energy’s control. Further the stock market, in general, has experienced significant price and volume fluctuations that have not been related to the operating performance of these companies. Broad market and industry factors may materially and adversely affect the market price of the shares, regardless of Southern Cross Energy’s operating performance. Market fluctuations as well as general political and economic conditions such as recession or interest rate or currency rate fluctuations, may also adversely affect the market for the shares.
13.3 Reliance on Key Personnel
Southern Cross Energy’s prospects depend in part on the ability of its key personnel and contractors to operate effectively. To manage its growth, Southern Cross Energy Pty Ltd may need to attract and retain additional highly qualified management, technical, sales and marketing personnel and continue to implement and improve operational, financial and management information systems.
13.4 Operating Risks
The operations of Southern Cross Energy Pty Ltd may be affected by various factors, including: • Failure to obtain and maintain favourable PPA agreements with Power Purchasers; • Failure to achieve predicted generation performance; • Operational and technical difficulties encountered in methane reserves; • Difficulties in commissioning and operating plant and equipment; • Mechanical or electrical failures or cable breaks; • Adverse weather conditions during construction activities; • Industrial and environmental accidents; • Political stability and current competition levels; • Acts of terrorism, unusual sunspot and extreme weather; • Industrial disputes; and; • Unexpected shortages or increases in the costs of consumables, fuel, spare parts,
Interconnect fees, transaction and settlement costs and equipment.
The operations and proposed activities of Southern Cross Energy Pty Ltd are subject to state and federal laws in two sovereign nations and multiple states concerning the power generation regulatory environment. These may be subject to change from time to time,
13.6 Financial Projections
The financial projections contained in this Information Memorandum are based on several assumptions and predictions, the accuracy of the financial projections will depend on the accuracy of these assumptions and predictions. The actual performance of the Company may differ significantly from these projections.
13.7 Future Capital Requirements The Company will require substantial additional funds for the development of the Project. Although the Company is predicting positive healthy cash flows, there can be no assurance that
any equity or project financing will be available to the Company on favorable terms or at all. 13.8 Listing on ASX The Company intends to apply for quotation of its securities on ASX upon completion of the
proposed initial public offer. In the alternative, the Company may seek to back door listing whereby shareholders are issued listed securities in consideration for their shares. In the event that the Company’s securities are not quoted on ASX or the back door listing is not successful, the value and liquidity of the shares or any securities issued to shareholders in relation to a back door listing will be affected.
13.9 Contractual Arrangements Southern Cross Energy’s interest in Tessen Group International referred to in this Information
Memorandum arises out of arrangements entered into with Tessen Group International (US) Inc. identified under Para 15.1 on page 23.
Southern Cross Energy’s rights and interests in TGI (US) could be adversely affected by any
breaches of agreements entered into by the parties to those agreements, any third party interest which may exist or the arrangements being found to be unenforceable or invalid.
In particular, some of the arrangements entered into by Southern Cross Energy Pty Ltd, in
relation to the acquisition of shares in TGI (US) Inc are subject to formal agreements being entered into or the satisfaction or waiver of certain conditions precedent.
AJ Bush Project
The Generator Shed is Erected The Electro-Coagulation Equipment arrives
14 ADDITIONAL INFORMATION 14.1 Rights attaching to Shares
The rights attaching to the shares arise from a combination of Southern Cross Energy’s Constitution, statute and general law. The following is a summary of the more significant rights attaching to shares. This summary is not exhaustive and does not contribute a definitive statement of the rights and liabilities of shareholders. To obtain such a statement, persons should seek independent legal advice. Full details of the rights attaching to shares are set out in Southern Cross Energy’s Constitution, a copy which is available for inspection at Southern Cross Energy’s registered office during normal business hours. The following is a summary of the major provisions. The shares to be issued pursuant to this Information Memorandum will rank pari pasu in all respects with the Company’s existing shares. The rights, privileges, liabilities and restrictions attaching to shares are set out in Constitution of the Company. The rights, privileges, liabilities and restrictions attaching to the shares include (but are not limited to) following:
(i) Share Capital The share capital in the Company consists of ordinary shares. All existing issued shares
and shares to be issued pursuant to this Information Memorandum are of the same class and rank equally in all respects.
(ii) Voting Rights Subject to any rights for the time being attached to any class or classes of shares and
provided no amount due and payable in respect of a call is unpaid, at present there are no partly paid shares or unpaid calls, and at a general meeting of the Company every holder of shares present in person or by proxy, attorney or representative has on a show of hands one vote, and on a poll one vote, per share.
(iii) Dividend Rights Subject to the rights of holders of shares issued with any special preferential or qualified
rights, at present there are no shares issued with any special preferential or qualified rights, the profits of the Company which the Directors of the Company may from time to time determine to distribute by way of dividend will be declared and paid according to the proportion which the amount paid according to the proportion which the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited), on the shares in respect of which the dividend is paid. Any amount paid up on a share during the period in respect of which a dividend is declared only entitles the holder of that share to an apportioned amount of that dividend as from the date of payment.
(iv) Rights on Winding-up
Subject to the rights of holders of shares with special rights on a winding-up of the Company the surplus assets must first be applied in paying off the capital on any shares which are issued with a preference as to capital and any unpaid dividend to which the holders of those shares may be entitled according to their respective rights between each other. If in the winding-up the assets available for distribution among the members are more than sufficient to repay the whole of the capital paid up on those shares, after distribution of entitlements to shareholders with preferred rights, the Company’s assets are to be
distributed in proportion to the capital, at the commencement of the winding-up paid up, on those shares held by them respectively.
(v) Transfer of Shares Subject to the Company’s Constitution and the Corporations Law, the Company’s shares
are freely transferable. (vi) Creation and Issue of Further Shares The allotment and issue of any new shares is at the discretion of the Board. Subject to
any restrictions on the Corporations Law, the Board may issue those new shares on such terms and conditions, and with rights and privileges, as the Board from time to time may determine.
(vii) Variation of Rights At present the Company has only ordinary shares on issue. If shares of another class are
issued, the rights, privileges and restrictions attaching to the shares may be altered with the sanction of a special resolution passed at a separate general meeting of the Shareholders of the Company, or with the written consent of at least three quarters of the Shareholders of the Company.
(viii) General Meetings Each holder of shares is entitled to receive notice of, and to attend and vote at, general
meetings of the Company and to receive all notices, accounts and other documents required to be furnished to shareholders under the Company’s Constitution or the Corporations Law.
(ix) Buy Back The Company may buy shares in itself in accordance with the Corporations Law on the
terms and at the times determined by the Board. (x) Calls on Shares Where shares are issued as partly paid whether as to capital or premium, at present there
are none, the Directors may make calls upon the holders of those shares to pay the whole of or a portion of the balance of the issue price. If a shareholder fails to pay a call or installment of a call, then subject to the Corporations Law the shares in respect of the call maybe forfeited in accordance with the Company’s Constitution.
15 MATERIAL CONTRACTS 15.1 Acquisition Agreement – Tessen Group International Inc.
On the 17TH of July, 2005, Southern Cross Energy P/L entered into an in principle equity swap agreement with Tessen Group International (Energy) Inc. where Southern Cross Energy Pty Ltd subject to the conclusion of satisfactory due diligence, including an audit of TGIEI, has agreed to acquire 250,000 shares of TGII for 659,000 dollars stock in Southern Cross Energy Pty Ltd . (Execution of agreement pending a due diligence review).
15.2 Acquisition Agreement – Quantum Power Pty Ltd
On the 30th of September, 2005, the Quantum Board accepted the offer from Southern Cross Energy. A copy of the letter of the MOU and letter acceptance can be found in the accompanying materials.
Due diligence is continuing with documents being reviewed and has been extended to the 16th of December, 2005.
15.3 Licensing Agreement – Nybro
Agreement being negotiated. Licensing, Joint R&D Manufacturing and Distribution.
15.4 Operations Contractor Southern Cross Energy Pty Ltd has engaged Austel Inc. A US Corporation to provide consulting services to Southern Cross Energy Pty Ltd in relation to the implementation of the Beta Roll Out of the Southern Cross business plan. The remuneration payable by Southern Cross Energy Pty Ltd to Austel Inc. in consideration for the services is determined on a cost plus basis.
15.5 Change of Status and ASX Listing
The Company proposes to change its status to a public company and undertake an initial public offer of its securities. Upon completion of the initial public offer, the Company will apply or may seek a back door listing if presented with a suitable opportunity on favorable terms and it is considered to be in the interests of shareholders to do so.
15.6 Escrow Restrictions
In the event that the Company’s securities are quoted on ASX, it is likely that the ASX will impose escrow restrictions on some of the shares issued pursuant to the offer made in this Information Memorandum.
15.7 Taxation
The acquisition and disposal of shares in Southern Cross Energy Pty Ltd will have tax consequences which will differ depending on the personal financial affairs of each shareholder. Investors who have any questions about the taxation consequences and considerations of share ownership should consult a suitably qualified adviser. To the extent permitted by law, Southern Cross Energy Pty Ltd, its officers and each of their respective advisors accept no liability or responsibility with respect to the consequences of subscribing for shares under this Information Memorandum.
15.8 Unknown Potential Taxation Ramifications.
The Company’s advisors have considered the potential of fielding queries from the Australian Taxation Department in relation to its Royalty Shareholder Payments and whilst there may be some concerns as to the methodology of instituting direct payments to the shareholders, the company has received advice about legitimate Contract of Investments incorporating Royalty Payments as a prerequisite condition of Investment. Design layout for co-generation cooling/heating used in air-conditioning buildings (CHP)
Capstone CHP Micro-turbine installed at Hornsby (NSW) Library
Where the following terms are used in this Information Memorandum they have the following meanings; Application Form means the form on which to apply for Shares attached to this Information Memorandum. Board means the board of Directors as constructed from time to time.
BOT Build Own Transfer, the company’s preferred business model is B.O.O.
BOO Build Own Operate.
Capital Raising means the raising of capital on the terms set out in this Information Memorandum. Constitution means the constitution of the Company. Directors means the directors of the Company at the date of this Information Memorandum. Investor means a person, company or other applicant for the Shares. Issue means the issue of Shares pursuant to the terms of this Information Memorandum. SOUTHERN CROSS ENERGY or Company means Southern Cross Energy Pty Ltd – A.C.N. 115 910 659 Offer means the offer of 5,000,000 Shares pursuant to the terms of this Information Memorandum. Official Quotation means official quotation by ASX in accordance with the Listing Rules. Information Memorandum means this Information Memorandum that the Company has issued for the purpose of this offer.
Share means an ordinary fully paid share in the capital of the Company. Electrical Generation Terms Base Load means Continuous load at or near rated capacity normally with an annual capacity factor in excess of 60%. Best Practice Thermal Efficiency means best commercially proven thermal efficiency for each class of fossil fuel power generation, adjusted to a common basis for comparison, and corrected for significant technical influencing factors. Capacity means the power output measured in MW or kW, for generating, pumping, or storing electric power. Capacity Factor Ratio means the energy production of a generating plant during a period compared to the total energy production if the plant had operated continuously at full output during the period: (%)) (100 ) (Hours Period x MW Capacity Plant Installed Total
x MWh Generation Total CHP Combined Heat & Power – (also referred to as Co-generation) where the waste heat is utilized for either heating or cooling a building or as an extra form of power generation capacity utilizing Ammonia or other low temperature fluids (e.g.: Kalina Cycle)
Demand means the instantaneous requirement for electric power normally expressed in kW or MW. Dispatch means the order in which generating units are brought online to meet system load. Fuel Chargeable to Power (FCP Total fuel input less fuel otherwise required to generate equivalent useful heat output without cogeneration. Gross Actual Generation (GAG) Actual number of electrical megawatt hours generated by the unit during the period being considered. Gross Available Capacity (GAC) means greatest capacity at which a unit can operate with a reduction imposed by a de-rating. Gross Maximum Capacity (GMC) means Maximum capacity a unit can sustain over a specified period of time when not restricted by seasonal or other de-ratings. Gross Output Factor (GOF) [GAG/(SH x GMC)] x 100 (%) Higher Heating Value (HHV) means Higher Heating Value (HHV) of the fuel including the latent heat of vaporization of moisture in the combustion process. Lower Heating Value (HHV) means Lower Heating Value (LHV) of the fuel excluding the latent heat of vaporization of moisture in the combustion process. Net Actual Generation (MWh) means NAG means actual number of electrical megawatt hours generated by the unit during the period being considered less any generation (MWh) utilized for that unit’s station service or auxiliaries (referred to as parasitic load). Net Capacity Factor (NCF) means [NAG/(PH x NMC)] x 100 (%) Net Dependable Capacity (NDC) means GDC less the unit capacity utilized for that unit’s station service or auxiliaries. Net Maximum Capacity (NMC) means GMC less the unit capacity utilized for that units’ station service or auxiliaries. Net Output Factor (NOF) means [NAG/(SH x NMC)] x 100 (%) TAC means Thermo-acoustic cycle engine-generator and heat pump that converts a thermal gradient into electrical energy. TAR means Thermo-Acoustic Resonance Device.
PPA Power Purchase Agreements made with the relevant power authority for the purchase of excess power generated at a rate per kilowatt hour.
NGAC New South Wales Greenhouse Gas Abatement Certificates are issued under the New South Wales Greenhouse Gas Abatement Scheme and earned for the avoidance of methane emissions. These certificates are required by resellers of electricity that has not been produced using approved Greenhouse Gas Emission reduction systems. 1 NGAC is equivalent to 1 tonne of C02 –e. I tonne of methane is equivalent to 21 tonnes of C02 –e. Therefore for every tonne of methane used in electricity production 21 NGACs are earned. The production site for the electricity must be linked to the National Grid, running though QLD, NSW, VIC, Tas & SA. Once a plant is 40% complete, the methane collected can be flared and certificates can be earned.
NREC National Renewable Energy Certificate are earned when electricity is generated using an approved renewable energy source., in SCE’s case this is methane for the micro-turbines. The calculation is based upon the size of the generating capacity and is available after 80% of the project has been completed, as the generators are capable of producing electricity at that stage.
Power Is the size of the completed generating capacity of the plant.
Confidence Factor Is the level of confidence that the project will be completed to the proposed specifications.
Category Is the predetermined size of the project, based upon megawatts of power to be produced after completion..
Margin Is the construction profit margin on each project. The AJ Bush project has been the first Biogas project to be constructed and as such the costs have been greater due to the inability to achieve economies of scale through competitive buying and project management..
Development Funds required are the funds calculated to be required to complete the projects to the level calculated to comply with the perceived confidence factor entered into the spreadsheet.
Net Revenue on BOT Sales Is the construction profit of the project.
Gross Income Is the income earned from the projects during their commissioning period without non direct costs and overheads applicable to the administration and operation.
Table 2 Units of Measure
Unit Description A annum (year) = 8760 h Bar bar (pressure) = 100 kPa Btu 1 British thermal unit = 1.0555 kJ GJ gigajoule = 109 joules = 278 kWh GWh gigawatt hours = 106 kWh = 3.6 TJ H hour = 60 min J joule (energy) Kcal 1 kilocalorie = 4.187 kJ Kg kilogram (mass) KJ kilojoule = 103 joules Km kilometre KPa kilopascals (pressure) KW kilowatts = 103 W KWe kilowatts = 103 W (electrical) KWh kilowatt hours = 3.6 MJ = 3,600 kJ KWt kilowatts = 103 W (thermal) L litre (volume) M Metre MCF Thousand Cubic Feet (GAS) Min minute = 60 s MJ megajoule = 106 joules MW megawatts = 106 W = 103 kW Mwe megawatts = 106 W (electrical) MWh megawatt hours = 103 kWh = 3.6 GJ ºC degrees Celsius PJ petajoule = 1015 joules S second (time) T tonne = 103 kg TJ terajoule = 1012 joules W
watt (electric power: 1 Watt = 1 joule per second)
Cubic Meter Cubic Foot Litre Gallon Kilogram Pound Equivalent Energy Source H2 Gas H2 Gas Liquid H2 Liquid H2 H2 H2 Data sources from :
The Hydrogen World View by Roger Billings - American Academy of Science 1991 Diesel Fuels Technical Review (FTR-2) by Chevron Products Company a division of Chevron USA Inc 1998 Motor Gasolines Technical Review (FTR-1) by Chevron Products Company a division of Chevron USA Inc 1996
HOW TO COMPLETE THE APPLICATION FORM Applications must be made on the Application Form attached to this Information Memorandum. Please complete all relevant parts of the Application Form using BLOCK LETTERS. A) Enter the NUMBER OF SHARES you wish to apply for. The application must be for a
minimum of 100,000 Shares and then thereafter in multiples of 50,000 Shares. B) Enter the TOTAL AMOUNT of application money payable. To calculate the amount,
multiply the number of Shares applied for by $1.00. C) Enter the FULL NAMES(S) of all legal entities that are to be recorded as the registered
holder(s). Use correct forms of name for registration (see below). Applications using the wrong form of name may be rejected.
D) Enter the POSTAL ADDRESS for all communications from the Company. Only one address can be recorded.
E) Enter a CONTACT NAME and TELEPHONE NUMBER(S) of a person the Company can speak to regarding any queries they may have on the Applicaton.
F) Enter the TAX FILE NUMBER(S) (if applicable) of the Applicant(s). Collection of Tax File Numbers is authorized by taxation laws. Quotation of Tax File Number(s) is not compulsory and will not affect the Application.
G) Enter the details of cheque(s) accompanying the Application Form in payment of applications monies.
DECLARATION AND STATEMENTS Before completing the Application Form the Applicant(s) should read the Information Memorandum dated 21st November, 2005. The Applicant(s) agree(s), upon and subject to the Information Memorandum, to take any number of Shares equal to or less than the number of Shares indicated on the Application Form that may be allotted to the Applicants pursuant of the Information Memorandum and declare(s) that all details of statements made are complete and accurate. No notice of acceptance of the Application will be provided by the Company prior to the allotment of Shares. Applicants agree to be bound upon acceptance by the Company of the Application. If your Application Form is not completed correctly, it may still be treated as valid. The Company’s decision as to whether to treat your Application as valid, and how to construe, amend or complete it, shall be final. The Application Form must be signed by the applicant or each of the joint applicants or, if the applicant is a corporation, executed in accordance with the Corporations Law. PAYMENT Applications for Shares must be accompanied by the application money of 1 dollar per Share. Cheques should be made payable to Southern Cross Energy Pty Ltd and crossed “Not Negotiable” (if applicable). LODGING OF APPLCATIONS Completed Application Forms and accompanying application monies must be either:
Applications must be received by no later than 5.00pm PST on the Closing Date, currently 31st December 2005 (unless varied by the Company).
Posted to: Southern Cross Energy Pty Ltd . P.O. Box 167, Edgecliff, NSW 2027
Delivered to : Southern Cross Energy Pty Ltd . Suite 507 Eastpoint Tower, 180 Ocean Street Edgecliff, NSW 2027
CORRECT FORM OF REGISTRABLE TITLE Note that only legal entities are allowed to hold Shares. Applications must be in the name(s) of a natural person(s), companies of other legal entities acceptable to the Company. At least one full given name and the surname is required for each natural for each person. The name of the beneficiary or any other non-registrable name may be included by way of account destinations if completed exactly as described in the example of the correct forms of registrable names below:
TYPE OF INVESTOR CORRECT FORM OF REGISTRABLE TITLE
INCORRECT FORM OF REGISTRABLE TITLE
Individual Thomas Peter Smith TP Smith Use given names, not abbreviations
Company ZXY Limited Liability Corporation ZXY LLC Use Company title, not abbreviations ZXY Co
Trusts Michelle Smith Michelle Smith Family Trust Use trustee(s) personal name(s), Do not use the name of the trust
<Michelle Smith FamilyA/C>
Deceased Estates James Jones Estate of late James Smith Use executor(s) personal name(s) <Est James Jones A/C>
Partnerships James Smith and Peter Smith James Smith and Son Use partners' personal names, do not use the name of the partnership
<James Smith and Son A/C>
Clubs/Incorporated Bodies/Business Names
Michael Smith BBB Cricket Association
Use office bearer(s) personal name(s), Do not use the names of the clubs etc.
<BBN Cricket Association A/C>
Superannuation Funds Lisa Smith Pty Ltd Lisa Smith Pty Ltd Use of name of trustee of fund, do not use the name of the Superannuation Fund
17.1 APPLICATION FORM Please Nominate Round 1 . $750,000 or Round 2 . $5,000,000 Before completing this Application Form, you should read the Information Memorandum and the instructions overleaf. PLEASE READ CAREFULLY ALL INSTRUCTIONS ON THE PREVIOUS TWO PAGES OF THIS FORM. 0031 I/We apply for . Shares in SOUTHERN CROSS ENERGY Pty Ltd at $1.00 per Share or lesser number of Shares which may be allocated to me/us by the Directors. I/We lodge full application monies of $ Full name (PLEASE PRINT) . Joint Applicant #2 or <designated account> . Joint Applicant #3 or <designated account> . Postal Address (PLEASE PRINT) Street Number Street . . Suburb/Town . Contact Name . . . . Email Address . Tax File Number or Exemption (Not Applicable for US Residents) CHECK/CHEQUE DETAILS Drawer Bank BSB Amount of Check
Declaration and Statements: By lodging this Application Form: I/We declare that all details and statements made by me/us are complete and accurate; I/We agree to be bound by the terms and conditions set out in the Information Memorandum and by the Constitution of the Company; I/We acknowledge that I/We have read the Important Notice contained at the beginning of this Information Memorandum and agree to be bound by the terms and conditions set out therein; I/We acknowledge that the Company will send me/us a paper copy of the Information Memorandum free of charge if I/We request so during the currency of the Information Memorandum; I/We authorize the Company to complete and execute any documentation necessary to affect the issue of Shares to me/us; and I/We acknowledge that returning the Application Form with the application monies will constitute my /our offer to subscribe for Shares in the Company and that no notice of acceptance will be provided. If a natural person(s) or other entity: If a corporation: SIGNED by EXECUTED by ) ________________________ ____________________________ ) Director Applicant 1 ________________________ ) ____________________________ Name of Company in accordance )________________________ Applicant 2 (if applicable) with Corporation Laws ) Director/Secretary
This Application Form is duplicated on Page 64 for ease of removal
18 ADDENDUM 18.1 Overview of the Imperaitive The term "Peak oil" -- the notion that global production of oil will soon reach its maximum, and will subsequently decline (even while demand continues to rise) -- is getting quite a bit of journalistic attention lately. Its not surprising; peak oil is a useful metaphor for the broader problem of not paying attention to longer-term problems, as well as an implicit driver for impetus for a move away from fossil fuel reliance.
Figure 1 - Global Oil Extraction and Reserves Chart
However, this is not the first time that the “End of the industrialized world – as we know it” has been forecast. Nearly 30 years ago “Limits to Growth”, one of the most influential books of the 20th century, was published (Meadows et al., 1972). It purported to demonstrate, by means of a computer model, the imminent economic collapse of industrial civilization due to the exhaustion of critical resources. It was followed shortly by the 1973 "oil crisis", which immediately lent credibility to such scenarios. However, when queues at petrol stations went away and oil prices dropped in the 80s, many people concluded the crisis was "phony"--and by implication, resource shortages were too. It wasn't, and they aren't. US oil production had peaked in 1970—not coincidentally, just before the "gas crises"--and suddenly the USA were at the mercy of the vagaries of foreign supplies. This has had a major effect on US Foreign Policy and fortunately for Australia, we are a net exporter of oil. Unfortunately, cheap foreign oil is limited. Economists and consequently the Governments they work for have vastly underestimated the effects that Peak Oil exploration and production will have on our socio-economic oil dependent lifestyles. A report, http://criepi.denken.or.jp/en/e_publication/a2004/04kiban03.pdf in March 2000 stated that oil prices would rise from $30 per barrel in 2000 to $40 per barrel by 2025. Although the prospect of "imminent resource shortages" now has a tone of immediate imperative, its simply been postponed by cheap foreign sources. But its extremely disturbing that so many of the technical community also seem unaware of the degree to which the brave new high-tech future still relies on coal, oil, and minerals, all ultimately--and messily--dug out from the Earth.
Figure 2 Predicted Oil Price 2005 ($23-$40) per Barrel and actual close July 5th, 2005 ($62)
The different colors show the different fluid densities, and these can simply be translated into four zones. Over time the field has been injected with water (the blue zone) and this has pushed up the oil (the green zone) into the wells. The red is the overlying gas cap. When the reservoir was untapped it was likely that all red and green. After all these years of pumping you can see how little of the green—the oil—remains.
A Hydrogen filled reconnaissance balloon is launched from the coal barge George Washington Parke Curtis, during the American Civil War. Credits - 2001 National Air and Space Museum, Smithsonian Institution (SI Neg. No. 76-17385)
In addition, the global communications revolution is causing a worldwide revolution of rising expectations, which puts further pressure on the resource base. If nothing else, exporters now have other markets for those resources than the industrialized countries such as the US. Eventually domestic political concerns in Australia may make exporting resources politically impossible, as has already happened in many of the industrialized countries. The United States no longer exports oil, for example, although it was once the world's biggest oil exporter and is still the world's second-biggest producer. Finally, resource issues are being exacerbated by environmental concerns. As is well-known, present technology is polluting, and a major part of that pollution stems from the production and consumption of resources. The extraction, transportation, and consumption of petroleum have familiar environmental hazards ranging from oil slicks to photochemical smog. Coal is abundant and cheap, but byproducts of its combustion include acid rain and fly ash, and its mining is both dangerous and environmentally disruptive. There is a groundswell to clean up the environment and find alternative fuel sources for both transport and power production. The groundswell has expanded to governments who are now offering sizeable grants to facilitate research and development of alternative power sources. (A partial list of currently available government – Australian and International - grants can be found in Volume xxx Section xxx in the supplementary Documents). Analysts argue that the energy markets are now at the same financial point as the Internet was in 1994. The most likely looking candidate is hydrogen. Hydrogen gas is being explored for use in combustion engines and fuel-cell electric vehicles. It is the third most abundant element on the earth's surface, where it is found primarily in water and organic compounds. It is generally produced from hydro-carbons or water; and when hydrogen is burned as a fuel, or is converted to electricity, it joins with oxygen to again form water. Hydrogen is most commonly produced from sources such as natural gas, coal, gasoline, methanol, or biogas through the application of heat; from bacteria or algae through photosynthesis; or by using electricity or sunlight to split water into hydrogen and oxygen. As stated above, hydrogen can be extracted or “re-formed” from many organic bases and done so extremely cheaply. (It should be pointed out that those organic compounds for the most part are the red and green areas of the chart in Figure 2 on Page 33.)
However, the easiest, most economical and least talked about methodology is the insertion
of two ferric iron anodes into a glass of water with 1.3 Volts of DC current. Why the least talked about ? Why don’t we as citizens of a
free Western Nation just generate our own hydrogen for free and run our cars on it? Why don’t we use “free” Hydrogen to power our electricity generating plants? The Company has applied for a QSIEF grant to allow it to develop a high temperature drier on the AJ Bush site to further enhance the Hydrogen content in the Biogas fuel source. By increasing the temperature and atmospheric pressure of the water content in the Biogas, Hydrogen and Oxygen (rocket fuel – first used in the Saturn NASA missions) can be separated and used as a fuel additive to boost our fuel and combustion efficiencies.
18.2 The Opportunity Picture the power plant of the future. Do you see a hulking, smokestack-laden structure on the horizon converting large amounts of fuel into gigawatts of power to be sent over high-voltage transmission lines to thousands or millions of customers on an interconnected grid? If so, you may be overlooking a significant portion of the electric power industry of tomorrow. Many of the power plants of the future promise to be much smaller, much more local, and much more widely dispersed. That, at least, is the promise of distributed generation (DG), a set of technologies that incorporate several different power generation techniques that share one common trait; the generation and distribution of electric power on a mini-grid serving a limited number of customers. Even more likely, future distributed generators will distribute power to a grid of one; a fuel cell powering one house, for instance, or a micro-turbine powering a single office building.
Why Distributed Generation? Central plant economics are hard to beat, but distributed generation (DG) is poised to enter the national scene. Within a few years, homes and businesses could become energy producers as well as consumers. We have already seen the beginnings of this decentralization trend. Solar Panels, Wind Turbines and micro-hydro installations abound in the Australian rural environment. The main reason – transmission loss and infrastructure cost. High Voltage Transmission lines lose 10 KwH per kilometer ergo a 200 kilometer transmission power line would lose 2 Megawatts of electricity.
Figure 3 Peak Energy Losses Schematic Source: DTE Energy Technologies The typical electric customer is located some distance from the power plants. Electric power leaving the generation station is stepped-up to a high voltage (230kV to 765kV) to keep losses to a minimum. Except for the very largest customers, the voltage must
be reduced to a lower level as the power delivery system nears the customer. In order to create the infrastructure to deliver electricity, capital cost is incurred to build the wires and maintenance costs must be incurred to keep them operating. Moreover, the longer the
distances and the lower the voltages over which the electricity travels, the greater the line losses. By the time electricity reaches the typical small residential or commercial consumer, the utility will have invested $400-$500 per kW in capital and several cents per kWh in maintenance costs to keep the physical assets in operation. Although average energy losses in delivery of electricity are five to seven percent, peak losses to the individual residence or small business may be as much as 13-16 % of electricity that left the generator. All of these costs and line losses are reflected in the price the customer pays. That is, the full cost of the line and the total cost of the energy as generated will be covered by the charges customers pay for energy as used. This translates to two to three cents per kilowatt hour on the consumers’ bill. Distributed energy as well as being capable of delivering energy where it is consumed without the 13-16% impost, can generate for its owners a number of revenue sources: Power Sales to consumers (either main load/Peak or back-up); Tradable Energy Certificates; Carbon Credits – in the future (NGACs now); Power sales to the Grid (during Peak power periods); Higher revenues for Clean Sine Wave Power for computer applications But how much is this actually worth? What are the efficiencies, the costs, the profits? The opportunity in Australia is that with the exception of some manufacturers of internal combustion engine (ICE) generators and some photo-voltaic companies, there is no company involved in the manufacture of specific small to medium domestic and industrial electricity generation equipment. The opportunity “hole” is in the 1 Kva to 250 Kva range. A list of Australian power generators can be found in the accompanying documents, however, the smallest of these is 2 MW and is restricted to biogas localities.9 The principle opportunity is to provide power where it is needed in the grid. That is, alongside existing grid sub-stations in suburbs and towns with peak shortage problems. Additional opportunities exist in providing industrial (3 Phase) power to;
• industries that wish to lower their power costs • rural communities • back-up power for Hotels, Hospitals, Schools
18.3 Distributed Energy (DE) The deployment of distributed energy (DE) solutions for homes, businesses and institutions worldwide is resulting in economic and performance benefits for energy users, and economic, environmental, and performance benefits for their communities. DE is not a new concept, but advances in existing technologies and the development of new technologies have rapidly increased the viability of DE compared to traditional energy solutions. Over the course of several decades we've seen computer costs drop continually due to technology improvements. It is expected that advances in DE technology will similarly increase the number and types of DE applications in the next decade and beyond with resulting decreases in price. What Is DE? DE solutions generate power at or near end user sites, versus conventional electricity produced at large central generating plants and requiring transmission over long distances to customer sites through the utility transmission and distribution (T&D) system. While some DE technologies such as fuel cells, photovoltaic solar cells, Stirling engines, and micro-turbines are only now being commercialized, others such as reciprocating engines, combustion turbines, and windmills have been used for decades to generate electricity. 9 Power Plants Australia and the World – List of Australian Electricity Generators – Section B
DE was the principal method for producing electricity worldwide in the early 1900's, before the development of large scale power generation and the availability of T&D. As public policy promoted the widespread installation of electric grids and economies of scale drove down the price of electricity generation, the original distributed energy facilities became non-competitive. Large central power stations became the backbone of utility grids worldwide starting in the 1940's, with plants producing just a few tens of megawatts (MW). A megawatt is typically considered to be sufficient electricity to supply 1,000 homes. By the 1970's, immense facilities of several thousand MW each were common. This trend has been reversed since the 1980's as new generation installations generally consist of smaller advanced systems with dramatically improved efficiencies. Complementing these new smaller central generating plants is advanced DE generation. Why Is DE Important? In developed countries DE will not typically replace central power stations, but the benefits of DE ensure the acceleration of its use. The traditional electric grid was not designed for today's electronic applications found in homes, offices, industrial and institutional facilities worldwide. The limitations of remote central station power generation, transmission (often across state and country lines), and distribution cannot meet today's requirement for high levels of reliability. Even costly enhancements of transmission and distribution might not achieve the reliabilities possible with DE technologies and uninterruptible power supplies. Thinly populated rural areas, large areas being newly developed; and remote mining or production facilities that cannot be economically served by traditional means are often best served by DE solutions. In developing countries, DE may enable access to electricity where none currently exists. DE solutions have the potential to provide substantial benefits in ways that cannot be met by other systems. DE can bring higher quality power to a broader range of end-users, including certain areas of the community that would otherwise be difficult or impossible to serve. DE can save money for homeowners, small and large businesses, institutions, and utilities. Advantages of DE Even though DE represents only a small percentage of overall electricity production today, technology improvements and lower prices are resulting in its increased adoption. This increased use is driven by benefits accruing to both end users and utilities, such as: Lower electricity costs; Improved overall system reliability; Enhanced environmental quality; Cost-effective peak load accommodation strategies; Improved power quality and reliability for specific end-user needs, particularly in the digital economy DE uniquely can deliver these benefits while simultaneously advancing a number of public goods, such as lessening the environmental impact of energy production and use, permitting flexible strategies to meet anticipated significant increases in demand, promoting equity for consumers, and ensuring that the energy supply market has access to advanced DE technologies. Commercially Available Technologies Combustion turbines, reciprocating engines, micro-turbines, fuel cells, low cost wind generators, photovoltaic solar systems, and other DE products are being adopted at an accelerated pace. This acceleration is driven by technology improvements that in turn render these systems economically viable for an increasing number of locations, applications and user types. DE is an increasingly important complement to electric grids on a worldwide basis and will steadily become a larger percentage of all electricity produced. DE resources are installed in myriad applications, including emergency backup, peaking, intermediate and base load service. DE applications are generally served by DE technologies as follows: Backup units - Provide emergency power when the primary power source for a facility has failed. Typically, this is served by diesel-fired reciprocating engines. Peaking applications - Provide a local alternative to augment the primary power source during periods of high demand or cost for electricity from the grid. Typically, this is served by combustion turbines or reciprocating engines.
Intermediate and base load units - Provide the primary power source or a part-time alternative power source. Due to their relatively high operating hours per year (and thus higher importance of cost), most base load units utilize waste heat recovery to increase the system efficiency. Combustion turbines, micro-turbines, reciprocating engines and fuel cells provide the ability to capture waste heat from the combustion or chemical process to support steam, hot water, air conditioning, and process loads. These applications greatly increase the net DE system efficiency, improving the economics of the project. Cogeneration - Provides the ability to generate useful electric and thermal energy and is a highly efficient system. Other common names for cogeneration include: tri-generation (electric, heating, cooling), combined heat and power (electric and thermal), or combined-cycle (electric production from combustion turbines and steam turbine).
Table 5 Typical Operating Hours for DE Applications
The suitability of a particular DE technology for a given application is driven by how frequently the DE system will be operated, and how long the DE system will run each time it is used. These two factors are typically called the Duty Cycle of the system. The duty cycle drives consideration of parameters such as emissions requirements, system life-cycle cost, reliability, and system start up time. Typical application duty cycles are described in Table 1. Manufacturers have been delivering DE technology on a commercial basis for many years. Reciprocating engines, combustion turbines and steam turbines have seen widespread acceptance with millions of operating hours and have proven themselves in hundreds of thousands of installations worldwide. 1. Reciprocating Engines - Most of us are familiar with reciprocating engines such as those found in cars, light planes, or trains. Annual North American production tops 35 million units for cars, trucks, heavy equipment, and a wide variety of power generation, from small backup to utility-size units. For power generation, internal combustion (IC) engines benefit from having the lowest first cost, by being easy to start, and by being reliable when properly maintained. IC engines are well suited for standby, peaking, and intermediate power applications, as well as for combined heat and power in commercial, institutional, and light industrial applications of less than 10MW. Two main IC engine types are used for power generation - the four-cycle, spark-ignition engine, and the compression-ignition reciprocating engine. 2. Steam Power - Steam created from direct fired boilers or heat recovery steam generators is used to drive steam turbines which convert steam energy into shaft power. They are one of the oldest and most versatile prime-mover technologies used to drive a generator or mechanical machinery. Steam turbines account for nearly three quarters of total electric generation. Eighty percent of fossil-electric generation and all nuclear power plants use steam turbines. Stirling engines are based on the Stirling cycle which is a cycle where external heat sources drives the internal expansion of fluids or gases thereby moving a piston which is translated into rotating motion to drive a shaft of a generator. Unlike, internal combustion engines, the gasses used inside a Stirling engine never leave the engine and there are no exhaust valves that vent high-pressure gasses, as in a gasoline or diesel engine, and there are no explosions taking place. Because of this, Stirling engines are very quiet. An internal piston physically moves the working fluid from hot to cold zones of the engine and back. The external heat source for Stirling engines is created by an attached burner system which created heat adjacent to a head or heat transfer coils (large engines) which transfer heat to a working fluid. 3. Combustion Turbines - Combustion turbines (CTs), or gas turbines, intake large quantities of air, compress it and then mix with fuel in a combustor to generate hot gases. These hot gases are converted into useful work by a power turbine, which drives an attached generator to produce electricity. CTS are a proven industrial and utility technology ranging in size from 30 kilowatts (kW) to hundreds of megawatts (MW). CT emissions can be controlled to very low levels using dry combustion techniques, water or steam
injection, or exhaust treatment. CTS also require less maintenance than reciprocating engines, are generally smaller and more modular, and have a lower first cost. Drawbacks include low efficiency at low power due to compressor losses, as well as extremely high combustion temperatures and high blade speeds. 4. Fuel Cells - Phosphoric acid electrolyte fuel cells (PAFC) are commercially available today. In general fuel cells produce electric current and heat from chemical reactions rather than from combustion. Fuel cells are highly efficient (40-70 %) because generating electricity directly through chemical reactions is not constrained by the fundamental law that governs heat engines, the so-called Carnot Law, which specifies the maximum theoretical efficiency that a heat engine can reach. In spite of their higher costs (more than $3,000/kW), fuel cells are attractive in niche applications because they emit negligible pollution, have very high electric efficiency, have few moving parts, require low maintenance, and are quiet. Phosphoric acid electrolyte fuel cells (PAFCs) are the only commercial fuel cell sold in significant quantity to date. PAFCs have the lowest cost amongst fuel cells, are well developed (40 % efficient), and have an expected lifetime of about 40,000 hours. The cost will drop substantially with increasing manufacturing volume and materials breakthroughs. They are produced in 200kW modules and have been used to build power plants as large as 11MW. Of the more than 200 PAFC installations in the U.S., all but two are operated in CHP mode. The heat is used for space heating or hot water.
Table 6. Comparison of Fuel Cell Technologies
5. Gas Micro-Turbines - Micro-turbines are a third generation evolution from many civil and military aviation and maritime applications. Based on the gas turbine engine developed in 1938 in England, a micro-turbine utilizes very high internal combustion pressures to rotate a power output shaft. Rotation and torque of a power output shaft is transferred, in the case of a micro-turbine generator, to an alternating current electrical generator.
Fuel Cell Type
Electrolyte Operating Temperature
Applications Advantages Disadvantages
Polymer Electrolyte membrane (PEM)
Solid organic polymer polyperfluorosulfonic acid
60–100°C 140–212°F
• electric power generation • portable power • vehicles
• Low temperature requires expensive catalysts • High sensitivity to fuel impurities
Alkaline (AFC)
Aqueous solution of potassium hydroxide soaked in a matrix
90–100°C 194–212°F
• military • space
• Cathode reaction faster in alkaline electrolyte so high performance
• Expensive removal of CO2 from fuel and air streams required
Phosphoric Acid (PAFC)
Liquid phosphoric acid soaked in a matrix
175–200°C 347–392°F
• electric power generation • vehicles
• Up to 85% efficiency in cogeneration of electricity and heat • Can use impure H2 as fuel
• Requires platinum catalyst • Low current and power • Large size/weight
Molten Carbonate (MCFC)
Liquid solution of lithium, sodium, and/or potassium carbonates, soaked in a matrix
600–1000°C 1112–1832°F
• electric power generation
• High efficiency • Fuel flexibility • Can use a variety of catalysts
• High temperature enhances corrosion and breakdown of cell components
Solid Oxide (SOFC)
Solid zirconium oxide to which a small amount of yttria is added
600–1000°C 1112–1832°F
• electric power generation
• High efficiency • Fuel flexibility • Can use a variety of catalysts • Solid electrolyte reduces corrosion & management problems • Low temperature • Quick start-up
• High temperature enhances breakdown of cell components
The above provides an overview of commercially available technologies with an insight into their respective strengths and limitations with regard to how DE would benefit a particular facility or home. Power generation technologies are typically categorized by cost, performance (efficiency, heat rate), physical description, application, emissions and operating issues. Combining Generation Methodologies The following bullet items explain the above table. A few terms the reader should be aware of are:
• Efficiency- This is the percent of fuel converted to useful electrical and thermal work. For combustion systems, the recovery of exhaust heat when combined with its electrical output can result in system efficiencies of over 70%. Lower Heating Value (LHV) is defined in the glossary and in detail in the combustion turbine section.
• Part Load Performance- This is a concept that relates to how efficient a technology is at 50 % of its rated electrical output compared to its maximum rated output.
• Size (MW)- This term refers to the rated electrical output of the technology in megawatts (MW). MW is equivalent to 1,000 KW or the electrical usage of 1,000 homes.
• Footprint- This indicates the power density or area required for the generation unit. If footprint is multiplied by the size (rated output) of technology you select, you will determine approximately how much floor space the installation will require for the generation unit.
• Installed Cost- This number reflects the range of installed cost (capital) for a specific technology in US dollars (USD). The cost of DE technologies can typically be narrowed down to within 10%, but installation costs can vary substantially from location to location. For example, a 10 kW natural gas engine would be: ($600 USD/kW x 10kW)= $6,000 USD. (USD are used as an international reference standard in electrical power generation.)
• O&M cost- This number reflects the estimated cost per installed kW per hour NOT including the cost of fuel. For example the same 10 kW engine would be: ($0.01 USD/kWh x 10kW )= $0.10 /h or ten cents US per hour to operate and maintain. The Economics section has an example including all costs.
• Capacity- This term refers to the percentage of the hours per year that the technology can be expected to be available.
• NOx- Nitrous Oxide (NOx) is typically the most limiting air pollutant from combustion processes such as electricity or steam generation.
Diesel Engine
Nat. Gas Engine
Steam Turbine
Combustion Turbine
Phos. Acid Fuel Cells
Photo-voltaic Small Wind Turbine
Electric efficiency (LHV)
28-50% 23-45% 15-40% 20-40% 30-40% 5-15% c 20-46% d
Part load performance or efficiency
Good OK OK Poor Very good Very good N/A
Size (MW) 0.05-5 0.05-5 0.06-1,000
3-200 0.2-2 0.0001-7 .004-0.05
Footprint (sqft/kW) 0.22-0.70
0.15-0.31 <0.1 0.02-0.61 0.6-4 50-100e 1000-1200
Installed cost ($USD/kW)f
500-1000
600-1200 >800 650-900 >3000 >5000 1200-1300
O&M cost ($USD/kWh)
0.005-0.0010
0.007-0.015
0.004 0.003-0.008 0.005-0.010
Neg. .002-.005
Capacity 90-95% 92-97% Near 100%
90-98% >95% 30% 30%
Fuels Diesel and residual oil
Natural gas, biogas, propane
All Natural gas, biogas, propane, oil
H2, natural gas, propane
None N/A
Noise High High High Moderate Low None Low NOx (lb/MWhr) 3-33 2.2-28 1.8i 0.3-4 <0.02 None None Uses for heat recovery
Combining Generation Methodologies It is becoming commonplace to increase the efficiencies by combining two or more generation methodologies. Co-Generation is now becoming a “buzz-word” in the Green Energy Carbon Credits world. After all, if all you are doing is re-using the waste heat from an existing generation plant – it must be green energy. Even Tri-Generation is now occurring.10 We agree, to an extent, and in fact, we have combined five technologies to Quin-Generate. Figure 4 The multi-stack version of the GTM1 (conceptual) (A larger version is available on page 60)
18.4 Prototyping Proposed Base Hybrid Multi-Technology Initially Capstone Microturbines will be utilized for power generation. The Capstone Microturbines have been in commercial operation since 1998 with over two thousand seven hundred units installed globally. In Australia, the CSIRO in Newcastle have been conducting fuel tests with a Capstone C60 Micro-turbine for eight months and in Melbourne, a Capstone C30 has been tested in a joint venture between the CSIRO and CJ Smale in a Wood Gasification project utilising Accacia.. The Company intends to make an Australian micro-turbine optimized for Australian conditions. The Company will need to develop its engineering capabilities, however once the proto-typing is completed, it is expected that operational numbers will be manufactured in Australia. However, lack of government support for the establishment of an Australian manufacturing facility may mean that the large scale manufacturing may need to be outsourced to overseas organizations.
10 Research Papers and Reports – Section UV - ZTEK
Key 1 – Kalina Cycle Generator 2 – Super heated/cooled Peltier/TAR 3 – Sofc and PEM Fuel Cells 4 – Gas Turbine Generator 5 – Thermo-Acoustic Generator System
Southern Cross has already sourced two sources of Miniature Jet Turbine manufacturing companies in Australia11 and is currently in discussions for a prototyping agreement with Nybro Holdings Pty Ltd a specialized small scale engineering design and technical prototyping company located in Maroochydore, Queensland: The NYBRO Twelve stage compressor The Hydro-J2 is a centrifugal compressor with an axial flow turbine. It produces 8kg of static take-off thrust at 135,000rpm over 10 seconds and has a maximum rpm of 125,000rpm. The turbine weighs 1.1kg, has a diameter of 105mm, and a length of 220mm. Typically a turbine contains only a few moving parts, making it simple, in theory, to maintain. Micro-turbines have efficiencies that range from 21% to 31%. Higher system efficiencies are possible by utilizing the waste heat generated from the exhaust gases. The utilizing of this waste heat is referred to as Combined Heat & Power (CHP) and earns additional NGACS for emission free power generation. Using CHP we will gradually increase our fuel source and combustion point efficiencies by the addition of thermodynamically positioned static solid state Thermo-electric and Thermo-acoustic generation devices. In English, we will be putting thingamabobs (TAC12’s, TEC13’s and TAR14’s) in what we think is the best place and then seeing what result we get. If it doesn’t work as well we think it should, we will move them. (The scientific version is; Utilizing Computational Fluid Dynamics Software, we shall be positioning the Solid State devices to maximize heat conductivity and power generation whilst minimizing heat loss.) Obviously, the actual results will depend on raising the necessary capital to implement a successful engineering implementation of the invention. However, we should point out that our financial results do not depend on us getting the design of the placement correct. This business plan is based on the need to generate sufficient electricity through standard generation methodologies that do not depend on costly and lengthy R&D to recover our costs and post a profit.
11 Suppliers, Components – Section C and Section M 12 TAC – Thermo Acoustic Cycle Engine 13 TEC – Thermo-Electric-Cooling 14 TAR – Thermo-Acoustic-Reasonator
The TAC is a thermo-acoustic engine-generator and heat pump that converts a thermal gradient into electrical energy. Typically
encased in a thermoplastic or metal package, it can range in size from a microchip sized (TAR), upward. The significant embodiment is in the designing of solid-state heat exchangers to make them resonate thermally at a desired frequency,
thereby improving the specific power of the engine. Whereas most thermo-acoustic engines operate solely on the energy
dynamics of the working fluid, the invention uses the superior energy density and thermal conductivity of solids. Solids store greater amounts of thermal
energy per unit volume than a working fluid, and can be tailored to transfer energy at a periodic rate, thereby increasing the overall power density of the thermo-acoustic engine. Traveling waves disturb the laminar boundary conditions in the working fluid, causing a periodic rate change in the transfer of energy between the solid-state heat exchangers and the contiguous working fluid. The heat exchangers and working fluid cavity are tailored so that the thermal gradient oscillates in step with the acoustic traveling wave. The periodic energy exchange amplifies the traveling wave. The resulting pressure excursion reinforces the traveling wave, propelling it through an exponential horn-like wave-guide integrated into the hot-side heat exchanger. The periodic pressure excursion causes an armature to reciprocate within a
magnetic field, thereby converting heat energy into alternating electrical current. These devices convert 63% of the Carnot energy in a heat source or waste heat from an engine exhaust into alternating current electricity. The AC current is rectified to DC and regulated on board the chip before being output to an AC inverter or DC load. Sixty-three percent is the maximum efficiency possible in an alternating thermodynamic system. Additional losses in the inductors and other parasitic components drop the overall efficiency somewhat below 60% of Carnot.
That is still almost twice the thermal efficiency of a gas-turbine generator, and 12%-18% more efficient than current combined-cycle generator systems used by the electric utilities. The TAR-MEMS is extremely simple to fabricate, and the manufactured cost per Watt of generating capacity is half that of any competing technology, old or new.
H E A T (8 5 0 C ) H E A T (4 0 0 C ) H E A T (8 0 C )
C o ld (-3 5 C )C o ld (-7 0 C ) C o ld (-6 C )
H E A T (4 0 0 C ) H E A T (8 0 C )H E A T (8 5 0 C )
T u rb in e & G e n e ra to r H o u s in g
P e ltie rD e ta il
C o ld (-3 5 C )C o ld (-7 0 C ) C o ld (-6 C )
18.5 Superheated/super-cooled Peltier devices Currently, there are two popular commercial techniques to convert thermal heat into electrical output, Sterling engines and Peltier junctions. Our first stage heat recovery design will consist of the Peltier junction – a combination of the Seebeck and Peltier effects. Discovered by Estonian physicist Thomas Seebeck in 1821, the Seebeck effect occurs when joining two different metals at different temperatures to produce a voltage that is capable of driving a current. This voltage is proportional to the temperature difference and referred to as the Seebeck coefficient. Years later in 1834, French physicist Jean Peltier discovered the Peltier effect by applying electrical current to an n-type semiconductor and a p-type semiconductor connected to each other. By controlling the direction of the current flow in the Peltier effect, an intended area is either cooled or heated as desired. Normally, Peltier devices are exposed to a heat source on one side while the other side will be subject to room temperature (Aided by a heat sink to lower the Temperature). When the heat source is applied, the “hot” heat sink will heat up, thus exciting the electrons within the metal sink. These excited electrons will travel through the Peltier junction to the “cool” side. This action produces a voltage at the external electrical connection. Within each Peltier junction, there are over 200 n-type and p-type semiconductors connected in series allowing the unit to produce useable amounts of electricity from the heat from the micro-turbine exhausts.
-V
+V
Junctions
C o ld Surface
H ot Surface
E xternal E lectrica lC onnections
H eat D iss ipation
Figure 6 - Peltier Junction
To function, the Peltier junction requires a minimum heat differential between the two surfaces (Figure 6), thus heat management and usage is an essential component of the SCE Energy project. Controlling the temperature of elements in the design would increase efficiency and allow users to manage the output produced. Heat transfer occurs in any of three ways - convection, conduction and radiation. This project makes use of the first two mechanisms. One of the primary concepts used in this project is that of using waste heat - heat produced in the gas turbine that is normally lost to the environment, and using it to produce a stable voltage. There is a required heat differential, so it is necessary to ensure that while one side is heated, the other side is at a much cooler temperature. This constraint requires heat around the 'cold' side of the junctions be dissipated as quickly as possible using powered (electric fans) or non-powered means. Researches from a number of universities have identified the most favorable component as aluminum to use in a heat-dissipating role.
The Current-Voltage Curve shown in the graph on the right illustrates the modules properties when the hot surface of the module is at 230°C (450°F) and the cold surface of the module is at 30°C (90°F).
18.6 Fuel Cells Ballard Power Systems is leading the world in PEM Fuel Cells. Today, a 1kW AirGen Fuel Cell Generator which is a small portable unit which can generate electricity for up to 8 hours from its three internal hydrogen cartridges. After this the unit can switch to an external higher capacity Hydrogen Cylinder. These units are more aimed at back up UPS power supplies for computer rooms, telecommunications etc. but can have a range of other uses. Running on pure hydrogen means they generate no emissions making them ideal for indoor use. In the Solid Oxide Fuel Cell (SOFC) arena, a world renowned Melbourne based company, Ceramic Fuel Cells Limited (ASX:CFU) is considered to be leading the world market. CFCL is working to commercialize a 1kW SOFC early in 2006 that also functions as a Domestic Hot Water service that can service a family of 4. Larger units up to 5kW will also be available to suit businesses (within two to three years). The Residential Micro CHP produces electricity from natural gas (Methane), LPG, Propane without combustion, noise or moving parts providing for a greater electrical efficiency of up to 50%, while reducing CO2 emissions by 60%. By harnessing the 850 degree heat generated by the fuel cell, the owner can gain hot water and an overall system efficiency of 85%. This makes the SOFC much more efficient than the large scale Combined Cycle Gas Turbine (CCGT) that your power station may use, and without loosing another 10% power from losses in the grid. The Australian Technology Park in Sydney is one site in Australia who uses a large fuel cell to generate 200kW of electricity from natural gas for use within the park, while at the same time reducing greenhouse gas emissions. The combination of these technologies in conjunction with micro-gas-turbines will result in increased efficiencies and an increased yield for Southern Cross stakeholders.
18.7 Background to the Financial Assumptions As of January 2000, Australia had an electrical generation capacity of 43 million kilowatts (or (43) gigawatts). Approximately 84% of this capacity was thermal (mostly coal) and 14% of it was from renewable energy (mostly hydro). In 2000, Australia generated 202.7 billion kilowatt hours (BkWh) of electricity and consumed 188.5 BkWh. ABARE expects electricity usage to grow by 2.8% per year over the course of this decade. Renewable Energy Australia is relatively well endowed with renewable energy resources, including solar, biomass and wind power. Renewable energy is often a viable alternative to diesel-generated electricity in remote areas of Australia, such as parts of Tasmania, Western Australia and the Northern Territory, that do not have access to the main electricity grids. The Renewable Remote Power Generation Program, which began in July 2000, provides financial support for the conversion of diesel-based generators to generators dependent upon renewable energy resources and technologies. The Photovoltaic Rebate Program was designed specifically to support installation of grid-connected or stand-alone photovoltaic systems. Participants can receive rebates up to $8,250 for a 1,500-watt photovoltaic system. In early 2000, researchers, industry experts and government officials met in Canberra to discuss the potential for biomass as a future energy source. Utilization of biomass as an energy resource could be very important for a country, where, according to the Minister of Agriculture, Fisheries, & Forestry, Warren Truss, agriculture contributes up to 22% of total greenhouse gas emissions. Utilization of biomass not only could provide a use for many agricultural wastes, but also could encourage tree plantings which would help provide relief for areas experiencing erosion. Wind energy also is a feasible renewable energy alternative. The Australian Wind Energy Association has pledged to increase the country's wind power generating capacity from 72 MW in 2001, to 5,000 MW by 2010. In July 2001, Pacific Hydro Ltd opened Australia's largest wind farm in Codrington, Victoria. The $US 16.7-million project has a generating capacity of 18 MW. Renewable energy currently provides about 5% of Australia's electricity generation, with further increases depending partially on pending legislation that would require electricity suppliers to source an additional 2% of their electricity from renewable energy by 2010. While availability of electricity is essential for any quality standard of life, currently 82% of electricity is generated by burning finite, non-renewable and polluting fuels (fossil 77.1% and nuclear 4.9%). Renewable energy (from solar, wind, hydro, geothermal, tidal and biomass) is extremely abundant, inexhaustible, and less polluting. Technologies for converting this energy to electricity are now becoming cost competitive with fossil fuel generation. 18.8 ASX Listed Green Energy Power Generation Companies
Of these Companies, the company that most closely resembles the potential of Southern Cross Energy is Energy Developments (ENE).
Coalgas, Geothermal Geodynamics (ASX:GDY) Hot Rock –
Geothermal Enviromission (ASX:EVM) Solar Chimney Havilah Resources (ASX:HAV) Geothermal Green Rock Energy Limited (ASX:GRK) Geothermal Eden Energy, a subsidiary of Tasman Resources
18.9 Biomass, Coal Methane & Landfill Gas as Fuel In Australia, there are large areas of the country which are sparsely populated and cannot be economically serviced by the main electricity grids. Southern Cross’ Distributed Energy strategy will utilise natural gas or bagasse (biogas) and/or distillate to economically meet the needs of mining operations and towns in remote areas. In addition, the proposed cogeneration and combined cycle power generation technologies offer increased efficiencies that will decrement the cost of retail power cost to these remote consumer areas. Landfill gas and biomass renewable energy plants are proven with some being in existence in Australia since the early ‘90s. Landfill gas is generated by the anaerobic decomposition of organic refuse deposited in landfills. It consists mostly of methane and carbon dioxide together with quantities of water vapour and minor quantities of organic compounds. The substantial methane content of landfill gas enables it to be utilized as a fuel for power generation.
While electricity from these plants is cheaper to produce than solar, wind, and even coal, they are very limited in size. The commercial utilization of landfill gas as a fuel requires the gas to be extracted from landfill sites with a reasonably consistent flow and quality. In the majority of cases, the gas flow needs to be pressurized by added pumping systems to be able to feed the turbines at the required fuel inlet pressure. Most Landfill Gas Power Plants are low output typically 1-3 MW each.
Energy Developments (ASX:ENE), one of Australia’s Landfill, Coal gas and Biogas Energy Company’s have developed one of Australia’s largest landfill gas plants at Lucas Heights in NSW which generates 12.7MW. Landfill gas and biomass do however have the advantage of suppling base loads (24 hours operation except for maintenance). The mining of coal liberates methane gas trapped in the coal seams. This methane is a major safety hazard in underground coal mines. It must be extracted by mine ventilation and, in high gas content mines, by direct drainage of the coal seams. The extracted methane can be utilized as a fuel for power generation. Landfill gas and abandoned coal mines are not the only good source for methane. The decomposition of sludge using anaerobic digestion in Waste Water Treatment can also provide a good source. South Australia Water has turbines installed at three of its waste water treatment sites. However all this energy is used to power the plant's pumps, air blowers and other equipment. Much of the energy is used to maintain optimum conditions for anaerobic digestion which requires the sludge to be maintained at 36 degrees. At this time there is no electricity pumped back into the grid.
Figure 9 Capstone Turbine installed utilized Methane (Biogas) in the US
Other sources of methane include super-heating mineral and biological elements (for example, coal, wood chips) and utilizing the methane given off without converting the actual coal or woodchip to carbon ash. 18.10 Fuel Contracts for Biogas
Southern Cross is in discussions with a number of prospective suppliers of Biogas from Plantation crops.
Most Biogas Tree plantations are converted to gas and charcoal.
The company may elect to joint venture with a number of biomass co-operatives to extract the gases in an efficient non-destructive manner resulting in a higher level of usable carbon credits.
This page is a copy of Page 5 Southern Cross Energy Pty Ltd
((ABN 63 115 910 659)
19 OFFEREE ACKNOWLEDGEMENT OF RECEIPT OF CONFIDENTIAL INFORMATION MEMORANDUM The offering set forth in the Information Memorandum of the Company, dated November, 2005 (the “Memorandum”), has not been registered or filed with the Australian Securities Investment Commission, and is offered in reliance upon the exemption from such registration for non-public and other limited offerings provided by the Corporations Act, and other applicable states’ statutes and the applicable rules promulgated there under. I UNDERSTAND THAT THE MEMORANDUM IS FOR MY USE OR THAT OF MY ADVISORS OR DESIGNATED PURCHASER REPRESENTATIVES ONLY. In connection with the delivery to me of the memorandum, I hereby acknowledge receipt thereof and represent that: (a) I will use the Memorandum only for my own purposes and I will not reproduce, duplicate or distribute the Memorandum except to my designated advisors and Purchaser Representatives, if any; and (b) If I decide to purchase the securities described in the Memorandum, I will also complete and execute a Subscription Agreement. (c), either alone or with my Offeree/Purchaser Representative(s), I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of the prospective investment. (d) I understand the long term nature of the investment in securities described in the Memorandum and can afford the entire loss of such investment. (e) I further understand that the Memorandum contains information that is confidential in nature and that I have executed, and will require of and warrant that my advisors and/or Purchaser Representative(s), if any, will also execute and forward to Southern Cross Pty Ltd the following “Non Disclosure / Non Compete Agreement” before reviewing or discussing the memorandum. EXECUTION OF THIS DOCUMENT DOES NOT INDICATE THE INTENT TO PURCHASE ANY OF THE
SECURITIES DESCRIBED IN THE MEMORANDUM. 19.1.1 All fields are required _________________________ ___________________ Signature (Name) Please Print _____________________________ Dated: _________________, 2005
(street address) _____________________________ Home Phone (___) ______-________ (City) (state) (postcode) Off Phone (___) ______-________
This page is a copy of Page 6 20 NON-DISCLOSURE NON-COMPETE AGREEMENT THIS AGREEMENT BETWEEN, Southern Cross Energy Pty Ltd, a NSW Company, hereinafter known as the company, and the prospective investor reviewing this Confidential Information Memorandum as numbered 0031 and whose name is stated on page “7” of the document titled “OFFEREE ACKNOWLEDGEMENT OF RECEIPT OF CONFIDENTIAL INFORMATION MEMORANDUM” hereinafter known as “Investor” and all of said prospective investor’s Advisor(s), Counsel, and Purchaser’s Representatives if any be they individuals or another entity, hereinafter known as “Investor’s Aides” states: WHEREAS, in order to provide The “Investor” with full disclosure the company must provide the “Investor” with certain information that is now and will remain of a confidential nature and the confidentiality of said information is critical to the continuing operation, concepts and methods of the company AND: WHEREAS, the “Investor” and the “Investor’s Aides” in order to understand the operation of the company are desirous of reviewing all available information regarding the company AND: WHEREAS, the “Investor” realizes that the company could be done irreparable harm should such information be released to the public by anyone for any reason AND: WHEREAS, the “Investor” takes full responsibility and culpability for the action of the “Investor’s Aides” THEN: IN CONSIDERATION for the Company making full disclosure to the “Investor” and the “Investor’s Aides” all agree to the following conditions. 1. Any parties deemed necessary by the “Investor” and/or the “Investor’s Aides” will agree to and
execute this non-disclosure agreement before reviewing the “Confidential Information Memorandum” of the Company .
2. No party to this agreement will make known for any reason to any individual or entity the details contained in this “Confidential Information Memorandum”.
3. No party to this agreement will for any reason cause or aid in any way any individual or entity to enter into competition with the operations of the Company in any way whatsoever.
4. No party to this agreement will use any knowledge gathered from the review of this memorandum for any profit outside this possible investment.
5. No copies of this “Confidential Information Memorandum” will be made and/or distributed by the “Investor” or any party to this agreement for any reason.
6. Should the “Investor” decide not to become involved with the company this “Confidential Information Memorandum” will be returned to the company immediately upon request.
7. Should the parties to this agreement become investors in the Company or not all conditions of this agreement will remain in force in perpetuity as allowed by law.
8. Execution of this agreement in no way obligates or indicates the intent to purchase any of the securities described in this Memorandum by any of the parties hereto.
Agreed to this _____ Day of _______ 2005 _________________ ________________________ Witness Potential Investor Agreed to this _____ Day of _______ 2005 _________________ ________________________ Witness Investor Advisor
21 List of Supporting Documentation on CD 21.1.1 Australian National Electricity Market Vol 1 Overview of the Australian Electricity Industry Section A List of Generators and Scheduled Loads in the National Electricity Market Section B NEMMCO Registered Participation List Section C Guide for Customers wishing to Participate in the NEM Section D Report on the Review and Benefits of Full Retail Competition in the Queensland Electricity Industry Section E Towards a Truly National and Efficient Energy Market (Parer Report) MRET Menu Section F UNSW Electricity Industry Restructuring – Beyond the Parer Report Section G Treatment of Loss Factors in the Energy Market (NEMMCO) Section HI Statement of Opportunities Executive Briefing Section JK Statement of Opportunities Update 31st Jan 2005 Section L 21.1.2 Economics of the Hydrogen Economy Vol 2 Oil, Who is Really over a Barrel? Page 2 Section A Oil Depletion Page 11 Section A Impact of Oil Output Fall at Aging Fields Page 34 Section A What is the Hydrogen Economy - US Dept of Energy Page 1 Section B The Hydrogen Future – US Dept of Energy Page 2 Section B The Future of the Hydrogen Economy: Bright or Bleak Section C Alternative Pathways to a Carbon Emission Free Energy System Section D Remote Area Power Systems Section E Optimizing Future Heat and Power Generation – WADE Section F The WADE Distributed Energy Economic Model Section G World Survey of Decentralized Energy (WADE) Section HI A Measure of Success (NSW Environmental Grant Schemes) Section JK Fuel Cell Financing/Equity Investment Section L Advanced Energy Systems – Annual Report 2003 Section M WHI Securities Investment Research Ceramic Fuel Cells Limited Section N ENERGY Pulse - Some Very Recent Changes in the Fundamental Economics of the Electric Power Business Section O 21.1.3 Government Reports Vol 3 A Study for the Energy Strategies for the Clean Energy Future Group Section A Public Interest Energy Research (PIER) California Energy Commission Section B Interim Opinion Addressing Eligibility of Renewable Fuels (Capstone) Section C Progress in Biomass Gasification Section D Draft Funding Announcement PEM Fuel Cells – (70 Million Grant – United States) Section F US Senate Bill 6103 – Increasing Gasoline Fuel Tax to Fund Transportation Section G Low Emissions Technology Demonstration Fund (500 million Grant - Australia) Section H 21.1.4 Suppliers, Components Vol 4 Use, Application and Testing of the HZ-14 Thermoelectric Module Section A Hydrogen Boosting Section B GT-2000 Gas Turbine Construction Layout Section C Capstone Micro-Turbines Section D Solectria – Electrical Inverters and Capacitors Section E H2 Industrial – Fuel Cell Modules Section F G8-2 Jet Turbine Section G Isaac Ice Maker Section HI Peltier Devices Section JK Ballard – Fuel Cell Co-Generation System Section L Nybro – Miniature Gas Turbine Section M
21.1.5 Research Papers and Reports Vol 5 Generating Electricity for Families in Northern Sweden (On a Wood Stove) Section A Development of a Hermetically Sealed Stirling Engine Battery Charger Section B A Combustion Based MEMS Thermoelectric Power Generator Section C Landfill Low Emission Micro Turbine Generator Section D Kalina Technology (X-Orka) Section E Testing of Milliwatt Power Source Components Section F Environmentally Preferred Advanced Generation (EPAG) Test Reports Section G Solar hydrogen Project at Neunburg vorm Wald, Germany Section HI Hydroxy or “Browns Gas” Section JK Bipolar Electrodes Patent for electrolysis of water Section L Fuel Cells made of Ceramic Oxide (SOFC) Section M Fuel Cell Basics Section N Fuel Cell Research – USC Section O Technical Factors Affecting the Commercialization of Fuel Cells Section PQ Purification of Catalytically produced multi-walled nano-tubes Section R Zeolites and their Many Uses in Cleaning up the Environment Section S CHP for Buildings Guidebook – University of Maryland Section T Reshaping energy Production with the Pure Power of Hydrogen (ZTEK) Section UV Technical Issues and Dynamic Modeling of Gas Turbine and Fuel Cell Hybrid Systems Section W Effects of the Liquid Inlet Temperature in Tec in Liquid Cooled TEC’s Section XYZ
Volumes 1-5 are available at the Registered office for viewing A Business Case for On-Site Generation Press Clippings and News Articles Queensland Sustainable Industry (QSIEF) Grant Application Capstone Equipment Technical Specifications Queensland Sustainable Industry (QSIEF) Grant Application
The supporting Documentation is available on the enclosed CD-ROM
The business case spreadsheet was constructed to allow stakeholders to determine the possible income scenarios using a wide range of possible alternatives that the company or its associates may determine.
BOT Build Own Transfer, the company’s preferred business model is to build and operate all the sites, but it is accepted that most clients will wish to ultimately own their own Power Plants. The terms of construction will include a commissioning period, minimum of 1 year, in which SCE will fine tune the operation and receive the income from Electricity Generation, NGACs and NRECs earned during the commissioning period. The length of the commissioning period can be adjusted by the reader.
PPA Power Purchase Agreements made with the relevant power authority for the purchase of excess power generated at a rate per kilowatt hour.
NGAC New South Wales Greenhouse Gas Abatement Certificates are issued under the New South Wales Greenhouse Gas Abatement Scheme and earned for the avoidance of methane emissions. These certificates are required by resellers of electricity that has not been produced using approved Greenhouse Gas Emission reduction systems. 1 NGAC is equivalent to 1 tonne of C02 –e. I tonne of methane is equivalent to 21 tonnes of C02 –e. Therefore for every tonne of methane used in electricity production 21 NGACs are earned. The production site for the electricity must be linked to the National Grid, running though QLD, NSW, VIC, Tas & SA. Once a plant is 40% complete, the methane collected can be flared and certificates can be earned.
NREC National Renewable Energy Certificates are earned when electricity is generated using an approved renewable energy source., in SCE’s case this is methane for the micro-turbines. The calculation is based upon the size of the generating capacity and is available after 80% of the project has been completed, as the generators are capable of producing electricity at that stage.
Power Is the size of the completed generating capacity of the plant.
Confidence Factor Is the level of confidence that the project will be completed to the proposed specifications.
Category Is the predetermined size of the project, based upon megawatts of power to be produced after completion..
Margin Is the construction profit margin on each project. The AJ Bush project has been the first Biogas project to be constructed and as such the costs have been greater due to the inability to achieve economies of scale through competitive buying and project management..
Development Funds required are the funds calculated to be required to complete the projects to the level calculated to comply with the perceived confidence factor entered into the spreadsheet.
Net Revenue on BOT Sales Is the construction profit of the project.
Gross Income Is the income earned from the projects during their commissioning period without non direct costs and overheads applicable to the administration and operation.
Assumptions Basis Expressed in AU Dollars Capex and Electricity Generation C30 C60 Capstone Turbine Standard 60350 94350Methane Kit for Capstone 56100 68000H2S Filter for Capstone C30 7650 15300Grid Connection 2800 2800Methane (Drilling, Piping) 30000 30000Transmission Loss Royalty 2% 2%Engineering and Instal 6500 6500Natural Gas Price per MCF $ 1.10 $ 1.10 kilowatts /hr 30 60heat rate LVH (btu per kw) 13,700 12,200Fuel Flow BTU/hr (HHV) 411,000 804,000Fuel Flow mcf per hour 0.411 0.804Fuel Flow at 100% output - mcf per day 9.86 19.3Total Exhaust Energy in btu 310,000 541,000Design Life Hours 50,000 50,000Pricing Unit Cost 60350 94350Cost Per Unit Life per kwh 0.0294 0.0284
Overhaul Cost at End of Life (est) $8,500 $25,500
Bedsit 2Bed-Unit 3Bed-Hse Assuming Per Household Per Month $ 16.48 $ 21.60 $ 72.00 Assuming Kw per Household Peak Utilisation 0.85 1.3 5Average Utilization 8% 8% 8%Average Grid Price $ 0.35 $ 0.30 0.25Number of Houses serviced by one C30 65 43 12 Total Power Sold $ 1,073.61 $ 920.24 $ 829.44 Number of Kilowatts Sold 3,067 3,067 3,318 Total Power Available 21,600 21,600 21,600 Surplus Power to Grid (Kilowatt Hours) 18,533 18,533 18,282
Please Read Notes 13 & 14 about Power and % 19% 5986 Megawatts Per MnthTotal Power 0.6 Megawatts 438 Megawatts Per Month 5986
Total Current Project Development Cost value 21,320,333 First 10 Projects FirstFive ProjectsDevelopment Funds required on current probability Percentages 4,050,863 33,723,792 Money required on current probability Percentages for first five Projects only 1,487,061 11,006,263 Net Revenue on BOT Sales- Note 12 12,403,458 3,780,329.40 Net Revenue on NRECS issued 115,632 115632Net Revenue on Electricity Generated 365,904 365904Net Revenue on NGACS issued (Note - NGACS can be issued for all States that connect to NSW via the Grid) 128,708 128708.4381Total Gross Income for First ten Projects 2,472,603 Total Gross Income for First Five Projects 1,193,322 Internal Rate of Return before deductions for First Ten Projects 61%Internal Rate of Return before deductions for First Five Projects 48%Future DevelopmentsBarter/Steggels Griffith, NSW Not Yet Scheduled 750 50% 2,393,750 Bears Lagoon Bears Lagoon, Vic Not Yet Scheduled 220 25% 702,167 Bindaree Beef Bindaree, NSW Not Yet Scheduled 250 10% 797,917 CMG Lakes Creek Rockhampton, Qld Not Yet Scheduled 1000 65% 3,191,667 Rockdale Beef Yanco, NSW Not Yet Scheduled 1000 40% 3,191,667
19%Total Power 3.22 MegawattsTotal Current Project Development Cost value This section not included above 10,277,167 Money required on current probability Percentages 1,952,662
Mossman Central Mossman, Qld. Not Yet SizedSmithfield Smithfield, USA Not Yet Sized American Federal Energy Investment Subsidy = 50% of Capex No NGAC AvailSwickers Abattoir Kingaroy, Qld Not Yet SizedThe Tasman Group Various,Vic. Not Yet SizedTaranaki Abattoirs King Island, NZ. Not Yet Sized No NGAC AvailTegel Foods Auckland, NZ Not Yet Sized No NGAC AvailValley Beef Gatton, QLD Not Yet Sized This section not included aboveCargill Beef Wagga, NSW. Not Yet SizedCSR Sugar Mackay, Qld Not Yet SizedNotes:
1 Year
7 cents/kWh
$11.50
$22.00
10%
10%
10%
10%
10%
10%
10%
10%
10%
Payback Period
$(10,000,000)
$-
$10,000,000
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep
-06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-0
7
Sep
-07
Nov
-07
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep
-08
Nov
-08
10%
10%
RevenuesPLEASE NOTE: Revenues are for the first ten projects only
This spreadsheet does not extrapolate unknown Projections
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep
-06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-0
7
Sep
-07
Nov
-07
Jan-
08
Mar
-08
May
-08
Jul-0
8
Sep
-08
Nov
-08
Capital ExpenditurePLEASE NOTE: Capex is shown for only the first ten projects
Of course the numbers would be on-going.This spreadsheet is to demonstrate only the first ten projects which is why the numbers drop off after the first two years.
17 APPLICATION FOR SHARES HOW TO COMPLETE THE APPLICATION FORM Applications must be made on the Application Form attached to this Information Memorandum. Please complete all relevant parts of the Application Form using BLOCK LETTERS. H) Enter the NUMBER OF SHARES you wish to apply for. The application must be for a minimum of 100,000
Shares and then thereafter in multiples of 50,000 Shares. I) Enter the TOTAL AMOUNT of application money payable. To calculate the amount, multiply the number of
Shares applied for by $1.00. J) Enter the FULL NAMES(S) of all legal entities that are to be recorded as the registered holder(s). Use correct
forms of name for registration (see below). Applications using the wrong form of name may be rejected. K) Enter the POSTAL ADDRESS for all communications from the Company. Only one address can be recorded. L) Enter a CONTACT NAME and TELEPHONE NUMBER(S) of a person the Company can speak to regarding any
queries they may have on the Applicaton. M) Enter the TAX FILE NUMBER(S) (if applicable) of the Applicant(s). Collection of Tax File Numbers is authorized
by taxation laws. Quotation of Tax File Number(s) is not compulsory and will not affect the Application. N) Enter the details of cheque(s) accompanying the Application Form in payment of applications monies. DECLARATION AND STATEMENTS Before completing the Application Form the Applicant(s) should read the Information Memorandum dated 21st November, 2005. The Applicant(s) agree(s), upon and subject to the Information Memorandum, to take any number of Shares equal to or less than the number of Shares indicated on the Application Form that may be allotted to the Applicants pursuant of the Information Memorandum and declare(s) that all details of statements made are complete and accurate. No notice of acceptance of the Application will be provided by the Company prior to the allotment of Shares. Applicants agree to be bound upon acceptance by the Company of the Application. If your Application Form is not completed correctly, it may still be treated as valid. The Company’s decision as to whether to treat your Application as valid, and how to construe, amend or complete it, shall be final. The Application Form must be signed by the applicant or each of the joint applicants or, if the applicant is a corporation, executed in accordance with the Corporations Law. PAYMENT Applications for Shares must be accompanied by the application money of 1 dollar per Share. Cheques should be made payable to Southern Cross Energy Pty Ltd and crossed “Not Negotiable” (if applicable). LODGING OF APPLCATIONS Completed Application Forms and accompanying application monies must be either: Applications must be received by no later than 5.00pm PST on the Closing Date, currently 31st December 2005 (unless varied by the Company). CORRECT FORM OF REGISTRABLE TITLE Note that only legal entities are allowed to hold Shares. Applications must be in the name(s) of a natural person(s), companies of other legal entities acceptable to the Company. At least one full given name and the surname is required for each natural for each person. The name of the beneficiary or any other non-registrable name may be included by way of account destinations if completed exactly as described in the example of the correct forms of registrable names below:
Posted to: Southern Cross Energy Pty Ltd . P.O. Box 167, Edgecliff, NSW 2027
Delivered to : Southern Cross Energy Pty Ltd . Suite 507 Eastpoint Tower, 180 Ocean Street Edgecliff, NSW 2027
TYPE OF INVESTOR CORRECT FORM OF REGISTRABLE TITLE
INCORRECT FORM OF REGISTRABLE TITLE
Individual Thomas Peter Smith Use given names, not abbreviations TP Smith Company ZXY Limited Liability Corporation Use Company title, not abbreviations ZXY LLC or ZXY Co Trusts Michelle Smith Michelle Smith Family Trust Use trustee(s) personal name(s), Do not use the name of the trust
<Michelle Smith FamilyA/C>
Deceased Estates James Jones Estate of late James Smith Use executor(s) personal name(s) <Est James Jones A/C> Partnerships James Smith and Peter Smith
<James Smith and Son A/C> Use partners' personal names, do not use the name of the partnership
James Smith and Son
Clubs/Incorporated Bodies/Business Names
Michael Smith <BBN Cricket Association A/C> <BBN Cricket Association A/C>
Use office bearer(s) personal name(s), Do not use the names of the clubs etc.
BBB Cricket Association
Superannuation Funds Lisa Smith Pty Ltd <Super Fund A/C>
Use of name of trustee of fund, do not use the name of the Superannuation Fund
17.1 APPLICATION FORM Please Nominate Round 1 . $750,000 or Round 2 . $5,000,000 Before completing this Application Form, you should read the Information Memorandum and the instructions overleaf. PLEASE READ CAREFULLY ALL INSTRUCTIONS ON THE PREVIOUS TWO PAGES OF THIS FORM. I/We apply for . Shares in SOUTHERN CROSS ENERGY Pty Ltd at $1.00 per Share or lesser number of Shares which may be allocated to me/us by the Directors. I/We lodge full application monies of $ Full name (PLEASE PRINT) . Joint Applicant #2 or <designated account> . Joint Applicant #3 or <designated account> . Postal Address (PLEASE PRINT) Street Number Street . . Suburb/Town . Contact Name . . . . Email Address . Tax File Number or Exemption (Not Applicable for US Residents) CHECK/CHEQUE DETAILS Drawer Bank BSB Amount of Check
Declaration and Statements: By lodging this Application Form: I/We declare that all details and statements made by me/us are complete and accurate; I/We agree to be bound by the terms and conditions set out in the Information Memorandum and by the Constitution of the Company; I/We acknowledge that I/We have read the Important Notice contained at the beginning of this Information Memorandum and agree to be bound by the terms and conditions set out therein; I/We acknowledge that the Company will send me/us a paper copy of the Information Memorandum free of charge if I/We request so during the currency of the Information Memorandum; I/We authorize the Company to complete and execute any documentation necessary to affect the issue of Shares to me/us; and I/We acknowledge that returning the Application Form with the application monies will constitute my /our offer to subscribe for Shares in the Company and that no notice of acceptance will be provided. If a natural person(s) or other entity: If a corporation: SIGNED by EXECUTED by ) ________________________ ____________________________ ) Director Applicant 1 ________________________ ) ____________________________ Name of Company in accordance )________________________ Applicant 2 (if applicable) with Corporation Laws ) Director/Secretary This page is a duplicate of Page 32
