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Rural conundrum: CWN report looks at Alaska energy strategy
The rise in global oil prices in recent years may have been a boon for Alaska’s state revenues, but for Alaska’s rural communities the parallel rise in fuel prices has created an economic crisis. Faced with massive bills for heating and cooking, many rural residents have faced stark choices between the competing necessities of heat, clothing and food, while some have been forced to become city dwellers, leaving their ancestral homes.
A newly published report by Commonwealth North, an Alaska public policy forum, assesses the nature of the rural energy crisis, identifies the main barriers to solving the rural energy conundrum and proposes some strategies for addressing the problem.
The report comes from the second phase of a two-part study into Alaska energy issues, with the first phase of the study addressing the energy issues that the Alaska Railbelt faces, Meera Kohler, president and CEO of the Alaska Village Electric Cooperative, told a meeting of Commonwealth North on Feb. 22.
“This is the next step,” Kohler said, adding that finding solutions to Alaska rural energy problems is “a very complex pathway to navigate.”
Diesel dependence At the core of the problems lies the dependence of 80 percent of rural Alaska on diesel fuel as a primary source of energy, a fuel that has escalated in cost in recent years. That contrasts with Anchorage, where natural gas occupies a near equivalent position in the fuel mix.
But, on an energy-equivalent basis, rural diesel costs around 10 times as much as natural gas at current prices, Kohler said.
In 2000 a low income rural household spent about 16 percent of its income on meeting its energy needs, but by 2008 that figure had climbed to an estimated 47 percent of family income, Kohler said. That contrasts with Anchorage where, even in 2008, a low income family might spend about 9 percent of its income on energy, with a high income family in Anchorage perhaps facing an energy bill amounting to 2 percent of income.
And these disparities occur despite the fact that the high cost of rural energy drives rural Alaskans to use less than half of the energy consumed by a typical Anchorage resident, Kohler said.
The state Power Cost Equalization program, or PCE, uses state funding to try to equalize the cost of electricity between rural communities and major Alaska cities. But, with PCE not covering the commercial use of electricity and not covering domestic use above specified limits, PCE only applies to about 30 percent of rural electricity consumption, Kohler said.
“We need to find a way to get away from PCE once and for all, because we’re going to make energy affordable for all of Alaska,” Kohler said. “It’s a noble goal and getting there is going to be a huge challenge.”
Multiple challenges Challenges to affordable rural energy include the lack of infrastructure for energy distribution, the difficulty of deploying appropriate energy technologies and barriers to energy market access at affordable prices.
And the study has developed a roadmap to negotiating the permitting maze for energy projects, with permitting by federal, state and local government agencies being a significant hurdle for timely energy infrastructure development. The Alaska Village Electric Cooperative is trying to develop a small, 500-kilowatt hydro project on Kodiak Island — that project is likely to take almost 10 years to complete, including all of the licensing and permitting steps involved, Kohler said.
From the perspective of infrastructure, with much of rural Alaska not having an interconnected road system, fuel distribution is carried out by sea and river transportation during the summer. Each rural community, typically an isolated entity, tends to have its own independent energy infrastructure, each with unique capital, operations and maintenance requirements. The resulting duplication of infrastructure is very costly.
“One of the barriers that we felt was paramount was that of connecting rural Alaska,” Kohler said. “Strategically placed roads and transmission lines can play a huge role in decreasing the cost of delivering energy to rural Alaska.”
The efficient use of renewable energy requires transmission lines between villages, Kohler said. And dependence on diesel fuel must be reduced, she said.
Interconnection By interconnecting the power supplies for several villages, the Alaska Village Electric Cooperative has reduced the number of power plants required for the 54 villages that it serves, Kohler said. The co-op plans to reduce further the number of power plants and ideally would like to eliminate the power plants entirely by connecting to an Alaska transmission grid.
And, for a statewide power grid, the most cost-effective solution might be the construction of a major power plant on the North Slope, transporting energy from the Slope by wire rather than through pipelines, Kohler said.
A Denali Commission sponsored study identified several key transmission line routes that should be pursued for connecting rural Alaska, Kohler said. And, with energy being critical to resource development, several Alaska mine projects are being severely hampered by lack of access to energy. For example, the planned Donlin Creek gold mine in the Kuskokwim Delta region will require 200 to 300 megawatts of power, a power load roughly equivalent to that of Anchorage, she said.
Statewide leadership But overcoming barriers such as the energy interconnection of rural communities requires statewide leadership.
“We need a state energy plan,” Kohler said. The state needs a more definitive energy policy, with priorities and funding mechanisms, rather than just setting broad energy goals, she said. Multiyear spending on energy by Alaskans amounts to billions of dollars.
“This is not chump change. This is real money that is coming out of every one of our pockets,” Kohler said. “That’s a resource that we need to put on the table and look to see how it can be capitalized to be able to reduce the stranglehold that energy has on all of us.”
The Alaska Energy Authority could emerge as a leader in finding solutions for Alaska, she said. A central organization could also act as an aggregator of financing for energy projects. But regional leadership also needs to work cooperatively in addressing the issues, working under an overall vision that serves all Alaskans, she said.
Vision for future The vision emerging from the Commonwealth North study is of Alaska developing expertise in hydrocarbon and renewable energy technologies; becoming energy self-sufficient; and people throughout the state having access to affordable energy through an efficient, smart, energy delivery system, Kohler said.
Asked about the potential source of funding for rural energy projects, Ethan Schutt, senior vice president for land and energy development for Cook Inlet Region Inc. and a member of the Commonwealth North study team, said that the state, business leaders, community leaders and others would need to work together to aggregate a variety of sources of funding because no single source of funding would be sufficient to address the problem.
“It’s not sufficient to put it on the backs of the rural communities,” Schutt said. “It’s not sufficient for the state to act as the sole granting agency. In the reality of the federal budget going forward it’s not realistic to assume that the federal government will subsidize it. And one of the voids that was identified by this process in rural Alaska is the lack of private investment.”
Private investors are not familiar with the issues of rural Alaska and the rural communities are generally too small to attract the investors who might otherwise use market-based solutions to take care of the differential in energy costs across the state, Schutt said. With the pure market-based solution being the movement of rural residents to Anchorage, it is critical that the state takes a leadership role in energy infrastructure development, he said.
“If you leave it purely to the market without state leadership you will have all of the rural Alaska people here (in Anchorage) in a couple of generations and that will solve your (economic) problem,” Schutt said. “But is that an acceptable solution? My view is that it is not.”
—Alan Bailey
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