A company seeking to air-condition Downtown buildings with seawater has raised $10.75 million in private financing for the project.

Honolulu Seawater Air Conditioning LLC expects to start construction on the $152.5 million system in January 2009. Remaining financing for the project, which could be completed 14 months after groundbreaking, is expected to come from $100 million in state tax-exempt revenue bonds and conventional borrowing.

The use of cold seawater pumped from below the ocean surface promises to cut cooling costs while reducing crude oil consumption and energy demands on Hawaiian Electric Co. Unlike crude oil, which provides 90 percent of the state's energy needs, seawater is an abundant, reusable resource for Hawai'i.

The technology also could save an estimated 400 million gallons of potable water lost annually through evaporation in traditional air-conditioning systems.

It took Honolulu Seawater about 18 months to raise the necessary $10.75 million, half of which came from Hawai'i investors. The company's investors can seek technology investment tax credits created under Act 215, which was passed in 2004.

Money raised from undisclosed private investors will be used to complete detailed engineering plans and an environmental impact statement, said William Mahlum, president and chief executive for Honolulu Seawater Air Conditioning.

"If you were to look at hurdles, this is the big one," he said. "This is a real breakthrough for us."

The proposed system would draw seawater from a 63-inch-diameter pipe tunneled under the reef off the Kaka'ako peninsula, then along the ocean floor to a point about 2,200 feet offshore. At that point, water 1,600 feet deep is about 45 degrees Fahrenheit.

The cold seawater would then be run through a heat-exchanger to chill fresh water that would be piped into individual building air-conditioning systems via a four-mile pipeline. Warmed seawater resulting from the process would be pumped back into the ocean.

Businesses could shave their power bills by about 16 percent, assuming crude oil prices of $80 a barrel. Those savings could climb to nearly 22 percent with $100-a-barrel oil prices.

Honolulu Seawater, which is an affiliate of St. Paul, Minn.-based Market Street Energy Co., already has received letters of intent from potential customers representing about half the planned system's total capacity. The company's next step is to solicit Downtown building owners to sign contracts and to file the company's draft environmental impact statement, Mahlum said.

The company also is in the process of seeing a myriad of permits to lay pipes under Downtown streets and in the ocean.

"The permits are going to be a problem, but we feel very much that that's under control," he said.

So far, use of seawater to cool buildings is limited to relatively small-scale projects, including one at the Natural Energy Laboratory Hawaii Authority in Kailua on the Big Island. The John A. Burns School of Medicine in Kaka'ako uses saltwater from a deep well.

Reach Sean Hao at shao@honoluluadvertiser.com.