With Cook Inlet natural gas fields declining, you might think local utilities would embrace a plan to use renewable energy like a proposed wind turbine farm on Fire Island to supplement the gas – a project that could deliver power in two years.
But they’re not.
In months of trying, backers of the Fire Island wind farm haven’t been able to sign up any utilities as customers.
Jim Posey, head of city-owned Municipal Light and Power, says ML&P can get a better deal elsewhere, even if it comes down to importing liquefied natural gas to spin its generator turbines.
Chugach Electric Association is seriously negotiating for a wind contract, say officials of Cook Inlet Region Inc., sponsor of the Fire Island project. Chugach officials, saying their negotiations are confidential, declined to talk with the Daily News about the project.
ML&P has also made an offer to CIRI, but the offer is one that CIRI executives say is so low as to be unworkable. Posey said it was meant as “a first stage of negotiation.”
Chugach, a cooperative, is the biggest power utility in the state, serving about 80,000 homes and businesses from Cooper Landing and Moose Pass to Whittier and Tyonek; its Anchorage customers are south of Tudor Road or east of Boniface. Chugach also sells power to other utilities including Homer Electric, Matanuska Electric Association and Golden Valley Electric Association in the Fairbanks area.
ML&P has 30,000 customers in Midtown, Downtown and on the military bases. As a city-owned utility, ML&P answers to the Anchorage Assembly, and a majority on the Assembly is promoting a wind power deal for ML&P to lessen the city’s dependence on natural gas. The idea is popular with consumers too, says CIRI, citing a December opinion poll that says 87 percent of ML&P customers favor wind power.
But the gap between ML&P’s position and CIRI’s leaves prospects for the Fire Island project in question.
COULD IT BE ECONOMICAL?
The biggest obstacle for the Fire Island wind farm is “the will to do the project,” said a federal expert who studied it – Brian Hirsch, senior project leader for the National Renewable Energy Laboratory.
The national laboratory provided technical assistance to the Fire Island project last year. The laboratory concluded, as Hirsch wrote in a letter last November, that the most significant hurdles are “institutional and contractual, not technical.”
Projects elsewhere in the United States have faced similar technical and cost issues, “and they’ve worked out fine,” Hirsch said.
As an example, he said a wind power system on Oahu in Hawaii shares similarities with what’s being considered for the Railbelt.
In both places, integration of wind power, which fluctuates with the weather, is a big concern, said Hirsch.
To make the integration seamless, ML&P wants CIRI to guarantee a certain amount of power in advance regardless of how strong the winds are. If the wind output falls short, ML&P wants CIRI to find an alternative energy source to make up the shortfall.
“That doesn’t work with wind … That single item makes it unworkable,” CIRI senior vice president Ethan Schutt said in a recent interview.
In Hawaii, “integration is significant, maybe harder than Alaska,” said Hirsch. But still, he said, “Hawaii has chosen to move forward with a very large amount of wind.”
The cost of integrating wind into the Railbelt power mix would be substantially less if all the players involved collaborated, Hirsch said. It could be done at a reasonable cost, depending on the future price and availability of gas, he said.
THE WIND PLAN
CIRI proposes to install 33 turbines on the island three miles off Anchorage’s coastline. CIRI may start with just 22 turbines.
The whole project would produce an amount equal to 2 percent of the Railbelt’s total energy requirements, say CIRI documents.
The Phase 1, smaller project would produce a maximum of 35 megawatts of power, enough to take care of the electrical needs of more than 12,000 houses.
Chugach and ML&P are the only major utilities that might buy Fire Island power at the start, and both are needed to make the project happen, says CIRI.
CIRI has also approached Golden Valley Electric Association in Fairbanks as a buyer, but Golden Valley is pursuing its own wind project. Matanuska Electric Association, another potential wind-power customer, already has contracts with Chugach Electric.
The cost for building the 33 turbines is $162.2 million, said CIRI spokesman Jim Jager. That doesn’t count an underwater transmission line to get the power from Fire Island to Anchorage, which would be owned by a utility or utilities, not CIRI. A state grant of $25 million is available to pay for the line.
If CIRI builds all 33 turbines, it could also get about $44 million in federal stimulus money to offset the investment. The grant money may not be available after this year. It was part of the 2009 recovery act, Hirsch said.
GAS FIELDS PRODUCING LESS
Everyone agrees on this: Southcentral Alaskans are consuming Cook Inlet natural gas – the main fuel for the electricity in homes and businesses as well as for heat and hot water – at a pace that spells trouble.
Demand is due to exceed supply within three years, says a Petrotechnical Resources of Alaska study done for the main three Anchorage utilities last year, the electricity suppliers Chugach and ML&P, and Enstar Natural Gas Co.
The report says even if producers find and develop more gas, consumers can expect to pay more for it because development costs are two to three times higher than for wells drilled from 2001 to 2009. But no one knows where natural gas prices are headed, and that’s at the center of the dispute.
In the short run, ML&P is probably right that the cheapest option is natural gas, said Hirsch. “At some point, it’s hard to imagine that ML&P will continue to get such cheap gas.”
Nationally, natural gas prices spiked between 2006 and 2008 after Hurricane Katrina shut down drilling rigs, said John Sims of Enstar. But now the discovery of huge volumes of shale gas in the Lower 48 has caused markets to be flooded and the national price to drop to about $4 per thousand cubic feet, he said.
Of course, we’re different in Alaska.
In Southcentral Alaska, Enstar pays producers a “weighted average” of $7 for its gas.
Phil Steyer of Chugach Electric says its “blended price” from all its gas suppliers in the Cook Inlet basin last quarter was $4.70, including transportation.
ML&P has a lower cost than Enstar or Chugach. ML&P owns a third of the Beluga gas field, the largest producing gas field in Cook Inlet, and gets most of its gas for about $4, said Posey. Gas prices from that field will stay at $3 to $4 for a long time to come, said Posey.
CIRI’s proposed price for wind falls between ML&P’s most expensive supplies and its cheapest, said Jager. “When you average all of their costs of power, it’s going to be very close,” he said.
Wind power costs aren’t directly comparable to the cost of gas because the gas prices don’t include the cost of generators, operations and maintenance, he said.
The wind power costs includes all those things. It would cost about 8.7 cents per kilowatt hour, CIRI says.
If gas hits $8 per thousand cubic feet, the cost of the gas-generated energy will be about equal to wind power, said Jager.
“The value of wind is it’s flat-priced,” he said, though prices would rise some for inflation. The contracts CIRI is proposing would be for 25 years.
The Beluga field, like other Cook Inlet gas fields, is declining. ML&P and the other utilities will need to find new sources of energy by 2014 or 2015, Posey said.
But, he said, if there’s not enough Cook Inlet gas, ML&P will probably import liquefied natural gas. ML&P and other utilities are looking into that, including the possibility of building a plant to convert the liquids to gas, he said.
Other alternatives, like the much studied Susitna River dam or a pipeline from North Slope gas fields, would be years away.
PRESSURE FOR WIND
Meantime, ML&P is getting pressure from the Assembly to negotiate a power agreement with CIRI, and there’s been a flap on ML&P’s own board about the wind project.
The Assembly passed a resolution in February declaring that a power-purchase agreement with the Fire Island project is in the public interest.
This week, the Assembly passed a law that would allow it to set up a committee to study the terms of a proposed agreement between ML&P and an energy provider.
“We’ve got to diversify our resource stream,” said Assembly member Dick Traini, one of those pushing a city deal with CIRI. “This is just like putting money aside for an emergency.”
In mid-April, three of the nine members on ML&P’s board quit, in part because they’re critical of the way ML&P is handling the Fire Island proposal.
ML&P’s analysis “kind of rules out any renewables unless they’re paid for by the state,” Charles Wohlforth, one of the resigning board members, said at the time.
Posey said if the state kicked in more of the upfront costs of building a wind farm, that might make it more viable. “That’s what’s needed to meet my costs,” he said.
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