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$11.2 billion from Susitna-Watana study signals power cost savings
A study conducted by Northern Economics and commissioned by the Alaska Energy Authority has indicated that a planned major hydropower plant at Watana on the Susitna River could result in total savings of $11.2 billion in Alaska Railbelt electricity costs over a period of 50 years, Wayne Dyok, manager of AEA’s Susitna-Watana project, told the AEA board on Aug. 6. That cost saving, expressed in 2014 dollars, represents the difference between the estimated cost of electricity from the Susitna-Watana facility and the mid-level forecast cost of power generated using natural gas from a planned pipeline exporting gas from the North Slope, in association with a future Alaska liquefied natural gas project, Dyok said.
And, although there is considerable uncertainty in the future price of gas from the AKLNG project, the electricity cost savings would be substantial, even at the lower end of the estimated gas price range. The cost savings would be lower but still very large if power were to be generated from unlimited Cook Inlet gas supplies Dyok said. Moreover, annual cost savings would continue beyond the 50 year time span envisioned in the study, he said.
The estimated cost savings for Susitna-Watana electricity, when compared with the construction cost of the Susitna-Watana project, results in a cost-benefit ratio of 2.39, Dyok said. The hydropower system would bring additional benefits in terms of its ability to provide new generation capacity estimated to be needed around 2030. And the system would be more reliable than other power sources while also helping reduce the emission of greenhouse gases, Dyok said.
2011 authorization In 2011 the state Legislature authorized AEA to proceed with the huge Susitna-Watana project, to assure long-term, stably priced electricity for the Alaska Railbelt and to help achieve a state policy objective of obtaining at least 50 percent of Alaska’s power from renewable energy sources. As originally envisaged, the state would fund work leading to the application for a Federal Energy Regulatory Commission license for the project and for some of the permits that the project would need. The question of how the construction of the hydropower system would be funded remains an open question - some combination of state loans, federal loans and private bonding could presumably be involved.
The project team has been conducting environmental and other studies, in preparation for applying for the FERC license. The new Northern Economics study, required for submission to FERC, addresses the potential socio-economic impacts of the project.
Dyok said that the hydropower system, as designed, should be capable of producing about 2,800 gigawatt hours of electricity per year, making it somewhat comparable in scale to the Hoover Dam in the Lower 48 and enabling the system to meet about half of the Alaska Railbelt’s electricity needs.
Funding shortfall In 2014 the Parnell administration authorized some continuing project funding for ongoing FERC-related studies, albeit at a lower funding level than what the project had requested. In December 2014, faced with a substantial budget shortfall as a result of low oil prices, the Walker administration placed a freeze on further project funding. In July, in a memo sent to AEA, the administration lifted that freeze by authorizing the use of the remaining $6.6 million of the original $192 million in state funds appropriated for the project.
Sara Fisher-Goad, executive director of AEA, told the AEA board that about $105 million are required to complete the FERC license application and that the current shortage in project funding is causing the timeline for project activities to be stretched out. This spreading out of project tasks is causing a drop in the economies of scale for the project’s logistics support, she commented.
At this point 14 of the 58 studies approved by FERC have been completed, Dyok said. Fisher-Goad said that project will use its remaining funding to file reports on studies conducted in 2014 and to advance the project to a FERC review in 2016 of the results of work conducted to date.
Dyok said that the funding shortfall is likely to delay the FERC application by two years, until around 2021. However, with $100 million in immediate funding it would be possible to file the application in 2019, with FERC then taking two years to process the license, he said. That two-year delay, in the absence of the $100 million immediately needed, could cost the project $300 million, he said. The $300 million figure represents the estimated inflation in the construction cost for the hydropower system, as a result of the delay in the construction schedule.
The current estimated cost of the project, based on the project’s original timeframe, is $5.6 billion.
Electricity prices Assuming that construction funding comes from state and federal loans, the cost of paying off the loans would be highest at system startup, at which point the cost of the hydropower is estimated at 13 cents per kilowatt hour, a somewhat higher cost than that of gas-fired power, according to data from the Northern Economics study. However, as the costs associated with the loans progressively decline, dropping to zero after 50 years, the average real price of the power over the 50-year time span would be between 6 and 7 cents, a cost much lower than the gas-fueled alternatives, Dyok said.
The Northern Economics study has also indicated that construction of the hydropower system would result in an annual average of 1,300 jobs during the eight-year construction project. And construction would result in a local spend of around $3.5 billion, Dyok said. Dyok later told Petroleum News that the multiplier effect on the Alaska economy of that direct spend from the project could result in a total economic impact of $5.9 billion, according to the Northern Economics study.
- ALAN BAILEY
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