A storm blows up over wind power cost
CIRI and power utilities disagree over cost of integrating Fire Island wind power into the Railbelt power grid; pricing also an issue
Just as Cook Inlet Region Inc. is running short of time to obtain utility power purchase agreements for it planned 52.8-megawatt Fire Island wind farm, offshore Anchorage, the Native regional corporation has run into a disagreement with the Alaska Railbelt utilities over the likely cost and technical risks of integrating power from Fire Island into the Railbelt electricity grid.
CIRI has said that its Fire Island wind farm could produce enough power to supply about 17,000 homes and thus reduce local natural gas demand by 3 to 4 percent.
But in a letter dated Oct. 25 to the Regulatory Commission of Alaska, Brian Newton, CEO of Golden Valley Electric Association, expressed the joint concerns of the six utilities that operate the Railbelt grid, saying that while the utilities support the principle of using renewable energy sources, the full cost of obtaining power from Fire Island has not been fully analyzed.
“The issue of great concern involves identifying and allocating the cost of integrating power generated from renewable resources into the Alaska Railbelt grid in a manner that the reliability of the Railbelt electric grid can be maintained,” Newton wrote.
Fluctuating powerThe core issue that the utilities are raising is the fluctuating power output from wind turbines, as the wind driving the turbine blades changes in strength — the utilities operating the grid would have to accommodate the power fluctuations, by for example varying the power output from gas-fired power stations.
And that would cost money.
“To be clear, we are not in favor of obtaining electric power at any price or incurring significant system-related investment costs and forcing that cost on to our individual customers,” Newton wrote.
An analysis of potential Fire Island wind energy integration costs, commissioned by Southcentral utility Chugach Electric Association, has concluded that the integration cost would amount to around $100 to $110 per megawatt hour of wind-generated power, a cost that CIRI vehemently disputes, Ethan Schutt, CIRI’s senior vice president of land and energy development, told the Anchorage Mayor’s Energy Task Force on Nov. 3.
Schutt said that CIRI had already investigated the integration cost and, recognizing the high cost of doing business in Alaska, had suggested a worst-case scenario in which that cost would amount to three times the highest cost of similar wind-power integration in the Pacific Northwest.
But that estimated cost is still only about a quarter of the estimate from the Chugach study, with the integration cost estimated in the study being 20 percent higher than the cost of the wind power itself, Schutt said.
“That’s ridiculous. We’re not ridiculous people,” Schutt said, commenting that CIRI would walk away from the project if it thought that the integration costs were that high.
Cost assumptionsSchutt said that it appeared that the Chugach study assumed that the wind farm would, for example, cover the entire cost of stored gas backup capabilities at Chugach power plants, whereas backup facilities would have wider application than just accommodating power fluctuations from Fire Island. Costs need to be spread across all who benefit from the facilities, Schutt said.
And CIRI does not agree with the assumptions that the Chugach study appears to have made about the way in which the varying output from the wind farm would be accommodated, said Dana Zentz, vice president of Summit Power Group and a CIRI consultant.
Schutt also rejected Newton’s implication that integration of the Fire Island wind farm into the Southcentral electricity grid would jeopardize the reliability of the grid. Power from the wind farm would represent little more than 3 percent of the total power supply into the grid, a supply level far short of the 20 percent level at which uncertainties over grid stability might arise, Schutt said.
Asked for Chugach’s response to CIRI’s position on the cost of integrating Fire Island power, Phil Steyer, Chugach’s director of government relations and corporate communications, told Petroleum News Nov. 9 that Chugach is still engaged in confidential negotiations with CIRI; that integration of the Fire Island power station into the Southcentral grid is a serious concern; and that work is under way to determine the methods and costs of integration.
Price of powerAnother key issue in negotiations between CIRI and the Alaska Railbelt utilities is the likely price of Fire Island-generated power, a price that CIRI has estimated at around 9.5 cents per kilowatt hour, excluding the integration costs. The fact that the projected wind power price is higher than the current Southcentral Alaska cost of electricity is proving a stumbling block in negotiations, Zentz said. But these pricing concerns ignore the fact that people expect the price of the natural gas used for much Southcentral power generation to increase sharply over the next few years, as Cook Inlet gas supplies continue to run down, he said.
Zentz also said that a possible U.S. Department of Energy loan guarantee could reduce the price of Fire Island power to between 8 and 8.5 cents per kilowatt hour.
In contract negotiations, Chugach and CIRI are still 20 percent apart on price; Anchorage utility, Municipal Light & Power, has not responded to offers from CIRI; discussions are still in progress with Matanuska Electric Association; discussions are also in progress with Fairbanks-based Golden Valley Electric Association; and Homer Electric has refused to consider buying any Fire Island power, Zentz said.
Critical timingBut, while negotiations continue, time is of the essence in signing power purchase agreements — CIRI needs to secure bonding for the project by April 2011 to bring the wind farm on line in 2012. Without purchase agreements the bonding will not happen.
Completion of the project in 2012 is essential in securing a federal renewable energy grant of $43.9 million, to cover part of the $162 million Fire Island project cost — CIRI started construction of the wind farm in 2010 as one of the other perquisites for that grant.
Without the federal grant, the cost of power from Fire Island could be 10 to 20 percent higher, depending on what other federal incentives would be available, Zentz told the Anchorage Chamber of Commerce on Nov. 8.
Reduced costCIRI says that it is particularly upset about criticisms over the cost of Fire Island power because the corporation has been able to reduce the original cost estimate of nearly $200 million for the project to $162 million, by optimizing the way in which the project is being carried out and by taking advantage of cost reductions in the wake of the recent economic recession. The cost savings will be passed onto customers, rather than be used to improve CIRI’s financial return from the wind farm, Zentz told the Energy Task Force.
In the wake of the CIRI presentation, the Energy Task Force formed a committee of three to investigate the Fire Island wind farm situation, to enable the task force to make recommendations to Anchorage Mayor Dan Sullivan on any actions that it might be appropriate for the mayor to take.
“This is a project … that has a state of immediacy. It’s got to move and things have to be done now,” said Energy Task Force Chairman Dan Coffey.