The integration of wind power from Cook Inlet Region Inc.’s planned $160 million Fire Island project into the Southcentral-Interior electric power grid has emerged as the major issue in negotiations over power purchase agreements between the regional electric utilities and CIRI.
A consultant report commissioned by the utilities has estimated the cost of the integration at 10 cents to 11 cents per kilowatt hour, which is higher than the 9 cents per kilowatt hour wholesale price for which CIRI would sell the power to the utilities.
This would make the combined price of Fire Island wind power at about 19 cents to 20 cents per kilowatt hour.
Chugach Electric Association has been coordinating the negotiations on the power purchase on behalf of itself and three other railbelt utilities, Anchorage’s city-owned Municipal Light and Power, Matanuska Electric Association and Golden Valley Electric Association in Fairbanks.
Chugach spokesman Phil Steyer said he could not comment on the negotiations.
However, Brian Newton, general manager of Golden Valley Electric, expressed the concern of the four utilities in the negotiations in an Oct. 25 letter to the Regulatory Commission of Alaska.
“We believe the issues regarding who should pay for the full cost of the larger generation facilities using renewable resources has not been properly identified and analyzed,” Newton said in the letter.
Newton acknowledged the benefits of renewable energy projects, including lower costs of fuel and benefits to the environment compared to carbon-based fuels. The problem comes when a sizable project is connected to the existing railbelt energy grid, which is modest in size compared to power grids in the Lower 48.
“These projects … have unique considerations which must be addressed in order to retain system reliability for the electric grid. The reliability of the electric grid is everyone’s concern,” Newton wrote. “There are engineering and operating solutions available that can be implemented to alleviate most, if not all, potential problems … but these come at a high price tag.”
Ethan Shultz, a Cook Inlet vice president leading development of Fire Island, said the consultant’s estimate represents a “worst-case” scenario of the integration cost, and that the wind power would be unaffordable if those were the true costs.
R.W. Beck and Associates prepared the report, which was released Oct. 19.
Sources among the utilities, asking not to be identified, conceded that the costs estimated by Beck were for “only one scenario” of how the technical problems of integration could be handled, and that other ways of doing it were possible.
The problem is that wind power from Fire Island would be variable, meaning the project would generate electricity when the wind blows. The utilities, on the other hand, need constant power, which is now supplied by natural gas-fired turbines and the Bradley Lake and Eklutna hydroelectric plants in Southcentral Alaska and Golden Valley’s coal and oil-fired power plants in the Interior.
To absorb variable wind power but also guarantee customers a constant supply of electricity, the utilities must have standby generation capabilities, generators that fire up immediately when the wind dies.
The R.W. Beck study estimated that the cost of maintaining a standby generation unit and the natural gas that would be purchased and kept for its use would cost a combined total of 10 cents to 11 cents for every kilowatt hour purchased from Fire Island.
The study assumed that a large turbine, most likely one of the older units among power plants now being used, would be kept on standby, and that there would be capital costs for building some form of gas storage, such as a compressed natural gas facility.
To be able to instantly supply power, the standby turbine would have to be operating, and would be using natural gas.
Gas storage is needed because gas producers supply the utilities with a constant flow from producing wells, and it would be difficult for them to be able to suddenly increase gas production to supply a standby generation unit that is fired up.
The standby scenario considered in the R.W. Beck report would result in the utilities having to buy 1 billion cubic feet of gas per year for the generator. This reduces the assumed savings of gas for the utilities by purchasing wind power from 1.5 billion cubic feet a year to 500 million cubic feet per year, according to the R.W. Beck report.
Savings of natural gas that would otherwise be used to fuel power generation is a critical goal in the wind power project because gas reserves in Southcentral Alaska gas fields are being depleted.
CIRI believes the costs of integration are being overstated and that while there are problems, other utility groups in the Lower 48 have shown that wind power can be successfully brought into the grid at much lower costs than those being cited.
Puget Sound Energy, a U.S. Northwest utility group, uses wind to supply about 5 percent of its needs, a larger percentage than the power Fire Island would supply to the regional railbelt grid.
Puget Sound’s cost of generating wind is about 9 cents to 10 cent per kilowatt hour, spokesman Roger Thompson said, and there are some additional costs for handling the integration. The utility also benefits financially from selling the renewable energy credits associated with wind generation.
“Overall, wind tends to be more expensive than the other sources of power,” but new gas-fired generation plants are also expensive, Thompson said. “Wind is cost competitive. It’s in the same range as building new gas plants.”
Puget Sound Energy has diversified power supply sources, 40 percent of it from hydroelectric and the remainder a mix of gas and coal-fired and wind projects.
The utility relies on gas-fired turbines to fire up and offset any unexpected loss of wind power, Thompson said.
Jim Jager, CIRI spokesman, said that the experience of Lower 48 utilities that are integrating wind power has been that the combination of having gas-fired turbines and hydropower works best in handling the power load variations.
“Guess what we have here? Gas-fired turbines and hydro,” he said.
Jager said that Alaska’s utilities may not have the best kind of turbines that can respond quickly to load variations, but that having these would be a good investment for the utilities anyway aside from Fire Island. The same goes with the compressed natural gas storage considered in the R.W. Beck study.
“These are things the utilities should be doing anyway to enhance the reliability of the system. It’s not fair for them to load the cost of these totally onto Fire Island wind,” as it suggested in the R.W. Beck study, Jager said. “That’s our biggest complaint with this.”
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