Polaris Geothermal Inc.
TSX VENTURE : GEO

Polaris Geothermal Inc.

January 20, 2006 16:42 ET

Polaris Geothermal Announces Activation of Power Purchase Agreement, Creation of Carbon Credits and US$7 Million Debenture Financing

TORONTO, ONTARIO--(CCNMatthews - Jan. 20, 2006) - Polaris Geothermal Inc. ("Polaris Geothermal" or the "Company"), (TSX VENTURE:GEO) a developer of geothermal power projects, is pleased to announce the following significant developments:

Activation of Power Purchase Agreement for San Jacinto-Tizate Geothermal Project

Polaris Geothermal is pleased to announce that the power purchase agreement (the "PPA") entered into between its wholly-owned subsidiary, Polaris Energy Nicaragua S.A. ("Polaris Energy") and Union Fenosa ("UF") has been activated. The activation was effective January 19, 2006, upon the signing of an addendum to the PPA, to recognize several changes which occurred with privatization relating to spinning reserve and wheeling charges which are to be passed to the tariff and paid by the final consumer. The addendum has been endorsed by the Nicaraguan electricity regulator, Instituto Nicaraguense de Energia.

Pursuant to the terms of the PPA, Polaris Energy is obligated to sell its first 66MW of power to UF at a price per Kilowatt hour of US$0.0595 for a period of 20 years, which term is extendable by the parties for a further 10 year period. The San Jacinto-Tizate power project therefore represents a real benefit to energy consumers residing in Nicaragua as the country has a severe shortage of electrical power and has been forced to conduct rolling blackouts this year as demand has exceeded supply.

Creation of Carbon Credits for the San Jacinto-Tizate Geothermal Project

Polaris Geothermal has recently been notified of approval of its carbon credits which at 66 MW will amount to approximately 320,000 tonnes/year. The Company expects that these credits will be registered and available for sale within the next two to three months. Current information indicates that these credits may have a value of between Euros 7.00 to 8.00 per tonne.

US$7 Million Debenture Financing

Polaris Geothermal is also pleased to announce that it has retained Dundee Securities Corporation to act as its lead agent in connection with a private placement offering, on a best efforts basis, of a minimum of 50 units and a maximum of up to 70 units (the "Units") at a price of US$100,000 per Unit for gross proceeds of a minimum of US$5 million and a maximum of US$7 million. The maximum offering would be inclusive of a US$2 million bridge loan made by Investments and Technical Management Limited and Ventnor Inc. which will be converted into Units provided that the minimum offering is obtained. The private placement is subject to TSX Venture Exchange approval. The syndicate of agents for the offering includes Fraser Mackenzie Limited.

Each Unit will consist of US$100,000 principal amount of 9% secured, redeemable, subordinated debentures (the "Debentures") and 50,000 common share purchase warrants ("Warrants"). Each Warrant will entitle the holder to purchase one common share at a price of Cdn$1.50 for a period of 5 years following closing. The proceeds of the offering will be used to further the development of the Company's San Jacinto-Tizate geothermal power project located near Leon, Nicaragua, to pay bank indebtedness and for general corporate purposes.

Polaris Geothermal is a renewable energy resource company focused on the development of geothermal projects.

FORWARD-LOOKING STATEMENTS

This press release includes certain forward-looking statements. All statements regarding the ability of Polaris Geothermal to successfully register the carbon credits created at the San Jacinto-Tizate geothermal project, to sell such carbon credits at expected prices and to complete the debenture financing are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.

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

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