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Vol. 19, No. 35 Week of August 31, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Looking to expand

CIRI seeks customers for phase 2 of Fire Island wind farm near Anchorage

Alan Bailey

Petroleum News

Cook Inlet Region Inc. is looking for customers for power from a planned phase-two expansion of the Native regional corporation’s wind farm on Fire Island, offshore Anchorage, Alaska, Suzanne Gibson, CIRI’s senior director, energy development, told the Commonwealth North Energy Action Coalition on Aug. 22.

In November CIRI announced that it was starting construction for phase two of the farm, in time to qualify for a federal tax credit that expired at the end of 2013. That initial construction work has involved building access roads and excavating turbine pads. But, to qualify for the tax credit, CIRI must complete the construction by the end of 2015, Gibson told the Energy Action Coalition. And the construction project has reached a point where customers need to sign up for phase-two power supplies, to close the financing for major expenditure, including the purchase of additional turbines, Gibson explained.

11 more turbines

The phase-two project would add 11 new wind turbines to the 11 turbines already in operation on Fire Island. The additional turbines would be a bit larger than the existing ones, with phase two adding 20.4 megawatts of generating capacity, a little more than doubling the wind farm’s total capacity, Gibson said. On average, the phase two turbines would generate about 53,000 megawatt hours of power per year. The federal tax credit would be worth about $40 per megawatt hour of generated power, Gibson said.

CIRI proposes an initial price of 6.2 cents per kilowatt hour for power from the phase two extension to the farm, a figure that corresponds to $62 per megawatt hour. That price would escalate at 2.5 percent per year for 25 years. As an alternative, CIRI is offering a price of 7.9 cents per kilowatt hour, fixed at that price level for 25 years.

Gibson said that the 6.2 cents price is 25 percent lower than that of the phase one power and compares favorably with the cost of power from other sources. A comparison with other power generation costs based on the escalating price model is appropriate because the cost of gas-fired power, for example, is not fixed, she said.

CIRI is currently discussing with Chugach Electric Association, Matanuska Electric Association and Golden Valley Electric Association the possible purchase of phase-two Fire Island power, while Homer Electric Association and Municipal Light & Power have indicated a lack of interest, Gibson said. Because the wind farm is connected into Chugach Electric’s power transmission system in Anchorage, utilities other than Chugach Electric would have to pay for the transmission of their Fire Island power through the Chugach Electric system, she said.

Scaled back

Several years ago CIRI had envisaged a Fire Island wind farm with 33 turbines. But following protracted negotiations with Alaska Railbelt electricity utilities, and, amid a vigorous debate about potential costs and technical issues arising from the integration of intermittent wind power into the Railbelt power grid, the corporation had to scale back its ambitions to 11 turbines in phase one of its Fire Island project, with just one customer, Chugach Electric, signing up for the power output.

The power integration technical issues and potential costs arise from the fact that the power output from a wind farm is subject to the minute-by-minute vagaries of the wind strength, a factor that causes the output to continuously vary. That variability must be accommodated by counterbalancing the wind farm fluctuations using an alternative power source on the grid, such as a gas-fired power station or a hydro-power facility.

Successful integration

Gibson said that phase one of the Fire Island project, which went on line about two years ago, has demonstrated successful integration with the power grid, delivering 49,531 megawatt hours of the 51,180 megawatt hours of produced power that had been budgeted for 2013. Through to the end of July the wind farm had delivered about 93,000 megawatt hours of electricity, saving Chugach Electric around 875 million cubic feet of natural gas, Gibson said.

As part of its supply contract with Chugach Electric, CIRI had agreed that the power utility need not accept all of the power that the wind farm generates. This “curtailment” of the power output had been estimated at 25 percent of total power output, but had come in at just 10 percent of the output in 2013, Gibson said.

Curtailment happens when, for example, constraints in the power transmission system limit the ability of a power utility to accommodate the fluctuations in the wind power. A major cause of curtailment in 2013 was a project to upgrade the transmission intertie to the Bradley Lake hydropower facility on the Kenai Peninsula, Gibson explained.

Ready for phase two

So, with the phase one project in the rear mirror and with no reported negative impacts from the wind farm operations, CIRI says that it is ready to move to phase two.

“From our perspective, CIRI is excited,” Gibson said. “We’ve constructed the project on time, on budget and the first 20 months of operation have been a real success.”

And with much of the wind farm infrastructure already in place, including a transmission line with adequate capacity to carry the increased power output from Fire Island to the mainland, phase two construction should be very straightforward, involving much lower costs than phase one, she said.

To secure the federal tax credit, CIRI wants to achieve the start of commercial operations in October 2015. That would require the delivery of the new turbines in July for commissioning in early September, with major construction starting in May or June, in preparation for the arrival of the turbines. Achieving the necessary power purchase agreements with utilities in time to secure financing for the project is the critical element in the process. Success will also depend on expedited approval of these agreements by the Regulatory Commission of Alaska, although, with commission approval of phase one previously having been completed, approval of phase two should be straightforward, Gibson commented.

Gibson characterized the hurdles facing Fire Island phase two as economic, operational and overcoming the status quo.

Competitive power

From an economic perspective, CIRI’s pricing for the phase two power is competitive with the cost of the power from other sources that the wind power would displace, Gibson said. A key figure here is the cost that a utility could avoid by using wind power to displace power generation from elsewhere - the wind power would be viable if the avoided cost is higher than the wind power cost.

Gibson presented data gleaned from Regulatory Commission of Alaska filings suggesting that the average avoided cost for Golden Valley would be $115, while for Matanuska Electric Association it would be $61; for Chugach Electric it would be $45; for Homer Electric it would be $64; and for Municipal Light & Power it would be $49. Looked at from the perspective of the least favorable, and presumably most expensive, power generation facility that each utility could use, the corresponding avoided cost figures would be $329 for Golden Valley, $73 for Matanuska Electric, $77 for Chugach Electric, $102 for Homer Electric, and $65 for Municipal Light & Power. The differences in these costs between different utilities reflect the fact that different utilities have different sources of electrical power, with different cost profiles.

Gibson also commented that the use of more wind power in Alaska would help the state meet the Environmental Protection Agency’s proposed new rules setting carbon dioxide emission limits. Were the state not able to meet the EPA limits, utilities would have to purchase carbon credits, thus increasing the avoided cost associated with wind power, she said. Increased use of wind power would also help the state move toward its target of generating at least 50 percent of Alaska power from renewable sources, she added.

Integration into grid

Gibson did not offer any figures for the costs associated with integrating wind power into the Railbelt grid. She instead presented the integration issue as an operational hurdle, arguing that the Railbelt utilities have generating capacity that significantly exceeds peak electrical loads and that can, therefore, absorb the fluctuating wind power. Moreover, the existing generation capacity comes from facilities such as gas-fired or hydropower plants that can vary their outputs to accommodate those fluctuations, she said.

Gibson particularly singled out the new gas-fueled power station that Matanuska Electric Association is building at Eklutna, north of Anchorage. That power station will use reciprocating engines that are especially suitable for accommodating short-term fluctuations in power needs. Could Golden Valley Electric, for example, contract with Matanuska Electric for the handling of wind power fluctuations, she questioned.

Other factors providing flexibility in accommodating wind power include Hilcorp Alaska’s generous allowances, accommodating imbalances in gas flows through its gas pipelines, and the availability of stored gas in the Cook Inlet Natural Gas Storage Alaska facility on the Kenai Peninsula, Gibson suggested.

Overall, Gibson characterized Fire Island phase two as a small but important privately funded project that can provide environmental benefits while saving money in the future.

“The project is shovel ready,” Gibson said. “We have an achievable schedule. We have three utilities that could or should be interested in buying this power.”



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