October 28, 2010
Alaska

Wind project faces deadline for stimulus cash

By Tim Bradner, Morris News Service - Alaska, homernews.com 27 October 2010

The clock is ticking on the Fire Island wind project. Cook Inlet Region Inc. has to get contracts finalized with regional electric utilities and get the project under construction by December or $44 million in up-front federal stimulus cash that could help lower the project’s financing costs will lapse, CIRI officials say.

That could affect the cost of the wind power because financing could become more expensive.

Negotiations on a power purchase agreement for the wind project are continuing with Chugach Electric Association, Municipal Light and Power, Matanuska Electric Association and Golden Valley Electric Association in Fairbanks.

Neither CIRI or the utilities could give an estimate of when or if agreement could be reached.

One of the major issues Chugach and ML&P are wrestling with are the technical problems of integrating variable wind power with the existing power grid, which gets most of its power from natural gas and, to a lesser extent, hydro.

“Integration is a serious issue for us. The problem is how we integrate the wind, which is a variable resource, into a system that is designed for a constant load,” Chugach spokesman Phil Steyer said.

Chugach has an engineering study under way on the integration question, Steyer said.

Suzanne Gibson, CIRI’s senior director for energy development, believes the integration issue should be manageable because Fire Island would supply only about 3 percent of the total Railbelt power load.

“Utilities are used to dealing with this kind of variability. They have generation units going on and off line all the time,” she said.

An advantage for Southcentral Alaska is that natural gas-fired generation units can be powered up or down efficiently, unlike coal-fired plants, she said.

“We feel we’ve made the utilities a very attractive offer in terms of price, of 9.9 cents a kilowatt hour,” said Ethan Schutt, CIRI’s senior vice president for land and energy development.

The price compares favorably with what utilities expect to be paying for natural gas, which is getting more expensive as old gas fields in the Southcentral region are depleted.

The capital cost for the total Fire Island project is estimated at about $180 million, including the cost of transmission lines to shore and the cost of integrating the power.

About $70 million in public financing is available: $45 million through the stimulus program and a $25 million state capital appropriation. This leaves about $110 million to be financed privately by CIRI. Reducing the private portion of the cost is important because that directly affects the cost of power to the consumer, CIRI spokesman Jim Jager said.

The stimulus payment is in lieu of federal renewable energy tax credits for the same amount, and that would also help the project financing. The difference is that the money comes as a lump sum early in construction instead of in payments made later and spread over a number of years, as would happen with tax credits, Jager said.

“Making use of the tax credit also requires the taxpayer to have enough taxable income in that year, which is always an uncertainty,” he said. “It could affect our financing for the start of construction next spring. That could get a lot more expensive, and that would affect the project cost and the cost of the power.”

A $25 million state capital appropriation also is available to help finance power transmission lines from the island to shore, but this money is not available to the project until the power sales agreements are signed.

CIRI intends to own the project itself. The corporation will have spent about $6 million by the end of the year, mostly in engineering and permitting costs, but including limited site clearing and other work done on the island. CIRI owns most of the island.

“We have a lot of clearing and site preparation that has been done, and we’re also installing the foundations for the first two turbines,” Jager said.

The plan for Fire Island involves construction of 33 wind turbines with each capable of generating 1.6 megawatts. The combined capacity of the project would be about 50 megawatts, but the actual output is expected to be 144,000 megawatts per year, or enough to power 17,000 average-sized homes, Jager said.

The savings in natural gas that would not be burned as fuel by the utilities would be about 1.5 billion cubic feet a year.

That’s enough to fill a gap looming in Southcentral Alaska gas supplies that would otherwise have to be filled by imported liquefied natural gas, Jager said. Fire Island could help buy time until a natural gas pipeline is built to bring North Slope gas south, or gas becomes available from another source in the region, such as from new gas discoveries or an underground coal gasification project CIRI itself is working on.