Providing coverage of Alaska and northern Canada's oil and gas industry
January 2018

Vol. 23, No. 3 Week of January 21, 2018

AEA proposes rural program changes

Funding for community power supply projects moving from grants to loans while scope to include more diverse and smaller initiatives

Alan Bailey

Petroleum News

Alaska Energy Authority staff is proposing some changes to the manner in which it conducts AEA’s Rural Power System Upgrade program, Neil McMahon, AEA energy planning project manager, told the AEA board on Jan. 11. A significant change will be a move from the funding of projects through grants to the increased use of loan financing. In addition, the scope of projects considered within the program will broaden to include, not just the construction of new power houses and power distribution networks, but also smaller projects, including the refurbishment of existing infrastructure and the implementation of cost-effective renewable energy systems, McMahon explained.

The program provides rural communities in Alaska with populations between 20 and 2,000 with financial and technical assistance in upgrading electricity supply systems, systems vital to safe and healthy living conditions in the communities. Since 2000 the program has funded more than 80 projects, with a total cost of more than $120 million. Most of the funding has come from the Denali Commission, with the rest of the funding coming from the state, McMahon said. Most of the work has involved the replacement of aging powerhouses and the upgrading of distribution systems.

Process changes

The proposed rejigging of the program reflects a desire for more transparency and objectivity in the selection process for projects, and a desire to benefit as many communities as possible in an era when state and federal financial resources have diminished. Project funding also needs to be arranged in a manner that is realistic for community economics: In some cases, were a community to pay the full cost of an upgrade program, the resulting impact on electricity rates would be impractical, thus undermining the mission of the AEA program, McMahon said.

At the same time communities see a high priority need to reduce the consumption of diesel fuel for power generation, he said.

Past projects involving the construction of new powerhouses and distribution systems have typically cost somewhere in the range of $2 million to $4 million, mainly paid through government grants. In future the broadening of the scope of projects considered will involve improvements to existing infrastructure, ensuring that new infrastructure is not installed in situations where the existing infrastructure can be rehabilitated, and making sure that projects are cost effective. A broader selection of project types could include renewable energy systems. The result will likely be more projects with costs down to around $150,000, rather than the $2 million lower end of the current program, McMahon said.

Higher local contributions

AEA is proposing significantly higher local contributions to the funding, with the local funding matches potentially coming in a variety of forms. Whatever funding mechanism is used, the impact on community electricity rates must be lower than some manageable threshold. Possible funding mechanisms include payments in lieu of taxes, loans paid back via the state’s Power Cost Equalization program, or paying off a loan through the savings from the lowered cost of electricity supplies, McMahon suggested. The PCE program lowers the cost of electricity in communities with high electricity rates.

Needs assessment

Selecting projects for support under AEA’s rural power upgrade program involves assessing community needs and deficiencies. AEA prioritizes potential upgrades on the basis of fixing safety problems; reducing natural or other risks to the infrastructure; ensuring reliable operation of the power supplies; and improving the affordability of power for consumers.

Needs assessment involves figuring out which of the needs AEA can effectively address. The assessment can involve sending an engineer to a village, to figure out what needs to be done, and how any power supply issues might be addressed. It is also important to determine how the community can contribute to solving any identified problems.

And needs must be prioritized both within individual communities and across communities, so that AEA can prepare a list of target projects for the state as a whole.

The final step in the planning process then involves determining options for funding each selected project, McMahon said.

During the Jan. 11 board meeting there was also discussion about the importance of ensuring that the power infrastructure is appropriately maintained, and about the importance of keeping data about the condition and age of the infrastructure, as a means of gaining insights into future upgrade requirements.

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