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A route to affordable energy in Alaska AEA team proposes a framework for improving the energy infrastructure outside the Railbelt to reduce cost, increase efficiency ALAN BAILEY Petroleum News
The Alaska Energy Authority has published the results of the Alaska Affordable Energy Strategy project, a project to assess ways of enabling Alaska communities outside the Railbelt to obtain affordable energy. Rather than recommending a set of specific energy solutions, the agency is proposing a framework for identifying and financing energy initiatives which would lead to energy cost reductions, AEA officials told the Senate Resources Committee on Jan. 25.
The AEA Affordable Energy Strategy results from a provision within Senate Bill 138, the bill passed in 2014 authorizing the state of Alaska’s involvement in the Alaska liquefied natural gas export project. The provision requires 20 percent of the revenues derived from state royalty gas, after payments to the Permanent Fund, to be channeled into initiatives for energy cost reduction in areas of the state that do not end up having access to North Slope natural gas. The bill also provided funding for the Alaska Energy Authority to develop a strategy for making energy affordable in Alaska, and to report on the results of its efforts by Jan. 1, 2017.
AEA’s resulting affordable energy study only considered communities outside the Railbelt, since it is assumed that communities within the Railbelt would have some access to North Slope gas, should a North Slope gas line be built.
Cost effective solutions The project team viewed the concept of achieving affordable energy to be equivalent to finding cost-effective energy solutions - the overall objective should be to implement the lowest cost solutions that are appropriate to the unique circumstances of a specific place at a specific time, Katie Conway, AEA government relations manager, told the Resources Committee. And, while AEA has determined that it would be difficult to dramatically reduce costs, there are plenty of opportunities for improving cost effectiveness. In addition, the project has found that energy savings through improved energy efficiency provide, in general, the most cost-effective opportunities for more affordable energy, Conway said. But, there is no one-size-fits-all solution for affordability across the study region, she commented.
Given current constraints on state spending, AEA’s affordable energy strategy considers multiple sources of funding, rather than exclusively relying on public funding. In fact, the AEA team found that the tradition of state funding for projects has, in some cases, led to project development decisions based on funding availability rather than what is necessarily best for the community, AEA Chief Economist Cady Lister commented.
The affordable energy strategy can prove useful independently of the North Slope gas line, Conway said. And some of the findings could be applied within the Railbelt, she said.
Lister told the Resources Committee that the AEA recommendations are based on four pillars: the identification of cost-effective projects; obtaining financing for these projects; creating systems of accountability and sustainability for the projects; and the establishment of project funding programs. By establishing this framework, the state could help communities identify and implement projects that would lower their energy costs.
Identifying projects The identification of cost-effective projects, the first of the four pillars, would involve the improved collection of energy-related data from a variety of sources, to enable the assessment of appropriate energy solutions. In fact, the Alaska Affordable Energy Strategy project has already assembled data into what it calls the Alaska Affordable Energy Model, a model that enables the comparison of different energy infrastructure options, to help communities and policy makers identify cost-effective projects. One idea is to continue updating this model, to help with energy infrastructure guidance, Lister said.
Another possibility would be the establishment of building energy codes that would apply to new construction or major renovations. Such codes could not only reduce costs for the users of the buildings, they could also improve health, reduce environmental degradation and reduce the cost of the power cost equalization program, or PCE, Lister said. PCE provides electricity rebates for Alaska rural residents, Lister said.
Financing projects For the financing of projects, the second pillar of the strategy, the AEA team has suggested some ways in which various financing tools could connect investors and bankers to bankable community projects, thereby better leveraging non-state money.
As another option, the current fuel loan program, a low-cost loan program for the purchase of petroleum-based products, could perhaps be extended to include non-petroleum fuels. The AEA project also found that, in general, communities and utilities are in a position to take on more debt for cost-effective projects - one recommendation is the establishment of a Community Energy Fund for Alaska, to act as a one-stop shop for funding, to connect communities with funding sources as well as to act as a funding source itself. Under this fund, rewards could perhaps be offered for achieving required standards of project performance.
Other financing options, especially for the more urban Southeast Alaska communities, could be on-electricity-bill financing, or financing through Property Assessed Clean Energy, or PACE, a procedure for low cost loans being considered currently by the Alaska Legislature. The AEA team also recommends the stabilization of state funding for residential weatherization, and some changes to the rules for the state’s home energy rebate program, should that program be funded in the future, Lister said.
Accountability and sustainability Recommendations around accountability and sustainability, the third recommendation pillar, revolve in particular around a system of requirements and incentives that maximize the operational life of energy infrastructures and provide for appropriate financial and management standards. Improved efficiency in business operations could save millions of dollars per year for both electricity consumers and the state while also playing into the ease of access to financing, Lister commented. In PCE communities, business operation costs represent almost half the total cost of electricity, she said.
The AEA team recommends mandated energy audits for large non-residential buildings that receive PCE, with audit findings leading to retrofits that result in net cost savings. A cost-effective regulatory system would ensure PCE-eligible utilities meet required standards. And Regulatory Commission of Alaska siting authority over generation and transmission facilities would reduce uncertainty over the regulatory approval of these facilities. Another possibility would be to set a fuel consumption reduction target for utilities, until those utilities have realized cost-effective solutions, Lister said.
Funding programs The primary potential state funding program for the implementation of affordable energy solutions outside the Railbelt remains the 20 percent of natural gas revenues, as spelled out in Senate Bill 138, if a North Slope gas line goes into operation. However, the AEA also recommends the implementation of a universal service charge in each region of the state, to help fund cost effective energy projects in that region. The current PCE program should be continued, although, provided that the endowment basis for the PCE payments is not compromised, there may also be opportunities to use small amounts of funding from PCE for energy projects that in turn benefit PCE. The AEA team also suggests restarting funding for the Alaska Heating Assistance Program.
The team also recommends establishing a new state entity to consolidate and manage consumer energy programs, coordinating all aspects of the Alaska Affordable Energy Strategy recommendations and increasing the efficiency with which state energy programs could be delivered to communities.
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