Polaris Geothermal Inc.
TSX VENTURE : GEO

Polaris Geothermal Inc.

October 13, 2005 12:24 ET

Polaris Geothermal Adopts Aggressive Strategy to Accelerate Power Production

TORONTO, ONTARIO--(CCNMatthews - Oct. 13, 2005) - Polaris Geothermal Inc. ("Polaris" (TSX VENTURE:GEO), announced today that it is adopting a more aggressive development strategy for its San Jacinto Tizate (SJT) geothermal project in Nicaragua. The strategy will result in a faster, more cost effective approach for fully developing the resource's potential. Polaris has selected this strategy based on conclusions and recommendations contained in a revised Feasibility Study prepared by Sinclair Knight Merz, (SKM), world leading independent geoscientific consultants. The Feasibility Study Amendment was commissioned following an evaluation of the SJT resource by SKM, which increased the resource's potential productive capacity from 75 MW (90% probability) to 200 MW (90% probability), previously announced on June 1, 2005.

The modified strategy will utilize a series of 10.7 MW Modular Condensing Turbine (MCT) units manufactured by either GE or Westinghouse. This will accelerate the development and will result in long term stabilization of tariffs in Nicaragua.

Under the original development plan, Phase I involved the development of 20 MW using a combination of two backpressure units and a binary cycle plant. Using the MCT's, Polaris production will increase to 31.4 MW at the end of Phase I. Further expansion to approximately 80 MW will be undertaken in parallel to complete Phase II.

This second phase is required to satisfy the Company's 66 MW twenty year take or pay Power Purchase Agreement with the local subsidiary of the large Spanish distributor, Union Fenosa. Any power production in excess of the 66 MW can be sold in the open market. The Company's long term objectives will be to increase production to reach the full potential of the field which is presently forecast to be 200 MW or greater.

SKM's preliminary capital cost estimate for the complete Phase I development using the MCT's is approximately US$78 million. The Phase I estimate includes US$24 million expenditure for the 10 MW Stage 1 of Phase I, which was completed in June of 2005. Estimated Phase II capital costs are approximately US$105 million. Included in Phase II is an extensive drilling program, which will utilize three drilling rigs to further develop the SJT resource. SKM have concluded that the construction and development plan for the completion of Phase I will require 20 months and for Phase II will require 25 months. At this stage the project will generate sufficient energy to supply approximately the equivalent of 112 thousand homes. At 66 MW the annual savings to Nicaragua in importation of bunker oil will be approximately of US$40 million per year.

SKM's financial model for the project shows a net present value of future cash flow (12% discount rate) of approximately US$85 million, a 23% increase over previous estimates of NPV. The model projects an internal rate of return of 30.6%.

In order to complete Phase I, Polaris Geothermal is applying for approval of an export credit facility from Brazil's Export Bank, Banco Nacional de Desenvolvimento Economico e Social S.A. (BNDES). Polaris selected BNDES after reviewing equipment and material pricing available from Brazil, Canada and the USA and investigating potential terms and conditions for credit facilities from each of these countries. The BNDES approval process is expected to take approximately three months. During the approval process, Polaris will utilize a combination of equity and loan funds provided by its banking syndicate led by Standard Bank in order to continue its current development activities.

About BDNES

The Brazilian Development Bank - BNDES is a federal public company that is associated with the Ministry of Development, Industry and Foreign Trade. It also seeks to strengthen the capital structure of private companies and the development of capital markets, the trade of machines and equipment and the financing of exports. Since its establishment, in June 20, 1952, the BNDES has financed many large industrial and infrastructure endeavours.

Polaris is a renewable energy resource company currently focused on the development of geothermal projects. Polaris is developing the San Jacinto Tizate geothermal resource in Nicaragua, which has been determined by third party analysis to contain 200 MW of power generating capacity. Combined with its other concessions in Nicaragua, Polaris holds the rights to over 325 MW of development potential. Polaris Geothermal Inc. has 36,476,888 Class A common shares issued and outstanding.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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