Providing coverage of Alaska and northern Canada's oil and gas industry
June 2017

Vol. 22, No. 23 Week of June 04, 2017

Dealing with a transition to loan financing

AEA making adjustments for a new economic situation as agency continues to help rural communities solve their energy challenges

Alan Bailey

Petroleum News

The Alaska Energy Authority’s team that assists rural communities with their energy projects is helping communities move towards more debt based financing, as money available in the form of energy grants dwindles, Cady Lister, AEA chief economist, told the AEA board on May 18.

The fact that much grant funding is going away is providing an opportunity for communities to focus on what they really need, rather than on projects for which grant funding is available, Lister commented. And there are opportunities for low cost financing for rural energy developments. Michael Lamb, AEA executive director, commented that there is some federal funding available for appropriate projects through zero-interest loans.

AEA operates its Alaska Energy Solutions Center as a point of contact to its team of engineers, economists, project managers, planners and others, for communities pursuing energy improvements.

Alaska Affordable Energy Strategy

Earlier this year, the agency completed its Alaska Affordable Energy Strategy, a project for assessing ways of enabling Alaska communities outside the Railbelt to obtain affordable energy. A key pillar of that strategy is to help communities identify appropriate energy projects - one role of the Alaska Energy Solutions Center is to provide assistance with this project identification, Lister explained. In addition, the AEA team can help communities navigate the complex world of requirements for federal funding, regulatory issues and permitting requirements, she said.

AEA recognizes six critical technology areas for energy in Alaska: energy efficiency; hydro power; biomass energy; heat recovery from power plants; and diesel generation, including the integration of renewable power with diesel generated power.

AEA staff can also work with utilities, to help the utilities ensure that they are optimizing their revenue generation and that they are running their businesses in a sustainable manner.

A green bank?

There has been interest in Alaska in the possibility of establishing something similar to the Connecticut Green Bank, a publicly funded organization in Connecticut that helps channel private capital investment into clean energy projects. Neil McMahon, AEA energy planning manager, told the board that, worldwide, there are several different variants of green bank organizations, ranging from public entities to entities that are entirely private. The organizations typically employ a very structured process for the underwriting of energy projects, he said.

But the rural development scenario in Alaska differs markedly from the situation in Connecticut, a state that is smaller and more urban than Alaska, and that is connected to the national grid. And, Alaska communities have particular needs, with, for example, some practical rather than financial obstacles to energy efficiency in homes and businesses, McMahon said.

Lamb commented that AEA is working towards doing some of the things that a green bank provides while also recognizing Alaska’s unique environment.

Community energy fund?

One of the recommendations from AEA’s Alaska Affordable Energy Strategy was the formation of the Community Energy Fund for Alaska, or CEFA, a concept involving the provision of a one-stop shop for communities seeking some blend of state, federal and private grants and loans for energy projects. By providing a one-stop shop, the state could ease the administrative difficulties involved in obtaining funding, take some of the credit risk, and provide incentives for private funding, McMahon said.

A primary objective of this entity would be the facilitation of the transition from grant to loan funding, McMahon said. Lister commented that, while loans may become the primary source of project funding, grants may help mitigate the rate shocks arising from the need to repay loans from the energy rates. CEFA could help reduce the need for state grants while enabling the more effective use of non-state funds, she said.

In terms of creating CEFA, there are already various components in place, including state funding options for energy projects; numerous stakeholders in potential projects, including federal agencies, non-government organizations, and private financing sources; and AEA’s expertise in data analysis, modeling, project planning and project implementation. However, CEFA would require some regulatory changes; a steady funding source such as a universal service charge for utility customers; and strengthened assistance for the management of utility businesses, McMahon said.

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