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Vol. 23, No.7 Week of February 18, 2018
Providing coverage of Alaska and northern Canada's oil and gas industry

Wind farm challenge

RCA rules Delta Junction project uneconomic; Fire Island to be resolved

Alan Bailey

Petroleum News

On Feb. 6 the Regulatory Commission of Alaska issued an order declaring that a proposed wind farm development at Delta Junction is uneconomic and requiring Fairbanks-based Golden Valley Electric Association to withdraw its proposed tariff for the farm. In a different development, Cook Inlet Region Inc. is proposing to expand its wind farm on Fire Island, offshore Anchorage. Anchorage-based Chugach Electric Association has filed a tariff for that proposal but, for technical reasons associated with the tariff case, the commission has ordered Chugach Electric to withdraw its tariff.

Both proposed developments appear to be located at sites that enjoy plentiful supplies of wind.

Contentious issue

The contentious issue of adding wind power to the Alaska Railbelt power transmission grid revolves around the cost of integrating the wind power into the system, the economic impact of displacing other power sources, and the environmental and cost stability benefits of adding wind power to the system.

Wind power presents a challenge to an electricity utility, because the generated power fluctuates with the vagaries of the varying wind strength. That fluctuating power must be counterbalanced by equal and opposite fluctuations in some other power source, such as a gas or oil-fired power station. This regulation of the wind power costs money. And the larger the amount of wind power in relation to a utility’s total power generation capacity, the greater the impact of the wind power regulation on the economics of the overall power system. On the other hand, the cost of wind power is typically stable over long periods of time because the power generation does not require the purchase of fuel.

PURPA regulations

Under RCA regulations, driven by the federal Public Utilities Regulatory Policies Act, or PURPA, electricity utilities are required to purchase power under reasonable terms from qualifying, independent renewable power producers. Determining what constitutes reasonable terms involves projecting both the cost of integrating the wind power into the electrical system and the benefits that the relevant electric utility would gain from the use of the wind power. Benefits can come, for example, from the displacement of some of the utility’s other power sources.

In the case of Delta Junction, Alaska Environmental Power LLC, owner of Delta Wind Farm, wants to expand its existing small 2-megawatt wind system by building a larger farm with a capacity of 13.5 megawatts. Saying that it is a qualifying facility under the terms of the state’s PURPA regulations, the company requested a tariff from GVEA. GVEA duly responded with a tariff, which has since been modified as a consequence of commission comments.

CIRI Wind, the owner of the planned Fire Island wind farm expansion, has gone through a similar process, formally requesting a tariff from Anchorage-based Chugach Electric Association which filed a tariff in response to CIRI Wind’s request.

Under the terms of the commissions’ PURPA regulations, a utility must take into account the savings in the cost of energy acquisition and power generation capacity resulting from the obtaining of power from the qualifying facility. But the consumer electricity rates that result from the use of the facility’s power must be “just and reasonable and in the public interest,” while not discriminating against or adversely impacting the consumers.

Delta Wind Farm tariff

According to the commission’s Feb. 6 order, GVEA’s tariff for the Delta Junction wind farm indicated that the utility would charge the wind farm $3.2 million for establishing the connection between the farm and GVEA’s system. There would then be a $500 annual fee for maintaining that connection. For 2018 the cost of integrating the wind power would be 92 cents per kilowatt hour, while the avoided cost of using the wind power would be 28 cents. The resulting purchase price for the wind power would be negative if electricity rates are not to increase, thus suggesting that the wind farm would have to pay GVEA to take its power. GVEA projected that negative price to increase over a 20-year period.

Among other issues relating to the tariff, GVEA has argued that, because it is already fully using its lowest cost power generation facility at North Pole to regulate the output from the utility’s existing wind farm at Eva Creek, the utility would have to use its higher cost generation facilities to regulate the Delta Junction power. Delta Wind Farm, on the other hand, has objected to and questioned the method that GVEA used to project its future costs associated with the use of the wind power.

In its Feb.6 order the commission said that it is satisfied with the method that GVEA has used to model the system economics.

“Further process (for the docket) will only add to the costs already borne by DWF and GVEA’s ratepayers in furtherance of a project that appears not be workable under current or expected conditions,” the commission wrote.

A dispute over study costs

Meanwhile the future of CIRI Wind’s Fire Island proposal has yet to be resolved. A complication has arisen, in that Chugach Electric requested that CIRI Wind foot the bill for Chugach Electric’s investigation into the practicalities and cost of connecting the expanded wind farm to the utility’s system. The utility has argued that CIRI characterized its application as an integration request rather than as a request for a tariff as a qualifying facility. And, in conjunction with that integration request, CIRI Wind must reimburse Chugach Electric for the cost of the integration study, Chugach Electric claimed.

Chugach Electric asked the commission to adjudicate the reimbursement dispute and meanwhile filed a tariff in accordance with PURPA requirements. That tariff documented estimated avoided costs and integration costs over a 15-year period, were the utility to accept power from the expanded wind farm. The utility commented that it sees no benefit from the integration of the wind power and warned that accepting the wind power may compromise the utility’s ability to use its more efficient power generation units. There are also issues relating to the potential impact of the wind power on a power pooling arrangement agreed between Chugach Electric, Municipal Light & Power and Matanuska Electric Association, Chugach Electric said.

CIRI Wind has responded to Chugach Electric’s tariff, saying that the tariff is illegal because it uses an inadmissible method for pricing the purchasing of wind power. Moreover, Chugach Electric has made unwarranted assertions about the uncertainties associated with rate projections, the CIRI Wind response claims. The response also raises several other issues, including questions over the validity of Chugach Electric’s estimates of the wind farm interconnection costs.

RCA closes docket

On Feb. 8 the commission issued an order opting not to rule in the dispute over who pays for the wind farm interconnection study and saying that adjudicating this type of dispute is not within its jurisdiction. Moreover, on Nov. 28 CIRI Wind had withdrawn its interconnection request, although still maintaining its request for a Chugach Electric tariff, the order said. And, because of that withdrawal of the original request, the commission said that there does not appear to be a current interconnection request: The commission said that as a consequence it is closing the tariff docket and ordering Chugach Electric to withdraw its proposed Fire Island tariff.

It is not clear what will happen next.

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REAP responds to wind power disputes

In a Feb. 9 open letter to the Regulatory Commission of Alaska, Chris Rose, executive director of the Renewable Energy Alaska Project, presented REAP’s perspectives on disputes over the use of wind power in the Alaska Railbelt electrical system.

Rose commented that REAP sees the full integration of the Railbelt generation and transmission grid, as had been recommended by the commission in 2015, as a key to the successful integration of power from independent suppliers of renewable energy, including wind farms. Currently various components of the electrical system are owned and operated by six independent utilities and the state of Alaska.

Regional load balancing

A single Railbelt-wide load balancing area would encourage the inclusion of small-scale power producers, as intended by the federal Public Utilities Regulatory Policies Act, or PURPA, the federal statute designed to encourage use of small-scale renewable energy systems, Rose said. Under the current balkanized arrangements, utilities claim that that they are forced to run expensive and inefficient power generation units, to regulate varying wind power, he said.

Since the commission’s 2015 policy statement, the utilities have made moves towards the pooling of their most efficient power generation units, with three of the utilities, Chugach Electric Association, Municipal Light & Power and Matanuska Electric Association, moving ahead with the formation of a pooling arrangement for their generation and transmission assets; the utilities have been discussing the formation of a transmission company to operate the transmission grid; and Alaska Railbelt Cooperative Transmission and Electric Co., or ARCTEC, is in the process of investigating the formation of what it refers to as a Railbelt Reliability Council for the transmission system.

Looking for clarity

But REAP is still unclear what actions the commission intends to take to implement its 2015 recommendations, Rose wrote. The commission has not requested legal authority over the siting of power generation; has not imposed a deadline for the utilities to form a transmission company; has not developed its own proposals for a transmission company; and has signaled that it sees its priorities over the next two years to be the establishment of grid reliability standards, he said.

Whereas the focus of ARCTEC’s RRC proposal also appears to be reliability standards, the region-wide economic dispatch of the most efficient power across the grid would resolve arguments over wind power being excessively expensive, Rose wrote.

Meanwhile, the utilities continue to argue that variable power sources such as wind power will be difficult to integrate, despite the implementation by the utilities of new power generation that should be more capable of integrating wind, Rose said. Chugach Electric, which buys power from Cook Inlet Region Inc.’s Fire Island wind farm, has been curtailing about 10 percent of the wind farm output, despite having to pay for the power it does not use. Neither Chugach Electric nor the commission has developed any incentives to decrease this curtailment, Rose wrote.

Tariff inconsistencies

Reflecting on recent proposed wind farm tariffs — Golden Valley Electric Association’s tariff for a proposed wind farm at Delta Junction, and Chugach Electric Association’s tariff for an expansion to the Fire Island wind farm — Rose commented that there are differences between the tariffs that raise issues regarding the use of consistent tariff methodologies and hence encouraging power production by small producers that qualify under PURPA regulations. For example, the tariffs span different lengths of time, take different approaches to the recovery of wind farm interconnection costs, and have not involved any analysis by the commission of interconnection benefits, Rose wrote.

While the commission made excellent recommendations in 2015 for grid reform and there has been incremental movement towards some of that reform, none of the reform has yet been completed. The continuing absence of a single load balancing region across the grid makes it easier for utilities to argue that wind power is too expensive; the penetration of non-hydro renewable power into the grid is extremely low; delays in grid reform will hurt the region’s economy; and the risks of climate change continue to rise, Rose argued.

Rose suggested that the commission should take steps to accelerate the implementation of its recommendations.