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Vol. 16, No. 35 Week of August 28, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Alaska-Washington Connection 2011: Alaska grapples with rural energy puzzle

Resource-rich state joins federal government, private sector in seeking ways to reduce costs, ease burden on small communities

Rose Ragsdale

For Alaska-Washington Connection

Alaska has enormous quantities of untapped or under-utilized energy resources, including some of the highest concentrations of fossil and renewable energy resources on earth. In addition to vast oil and natural gas resources, primarily located on the North Slope and in Cook Inlet, the state has proven coal reserves that rank as the fourth-largest fossil energy resource in the world. Nature also bestowed significant undeveloped geothermal resources in the volcanic art of the Aleutian Islands, abundant untapped hydropower, wind, and biomass resources, and the majority of the tidal and wave power potential in the United States.

Yet rural communities throughout Alaska are chronically burdened with economy-stifling high energy costs. When oil prices spiked to $144 per barrel in July 2008 before plummeting to under $50 per barrel by December 2008, many Alaska villages where winter fuel must be purchased before fall freeze-up suffered a severe shock and extraordinary economic hardship. For those communities, there was no potential relief until the following spring.

While no year since has been as bad, Rex Wilhelm, president and CEO of Alaska Commercial Co., said his company, which owns and operates grocery and general merchandise stores in at 27 rural Alaska communities, keeps a close watch on oil prices.

“We’re very conscious of the price of oil and the dependence on it in our markets,” Wilhelm said. “We purchase fuel from the local vendor like everyone else.”

Alaska Commercial Co. also pays fuel surcharge on the goods shipped to its stores when oil prices are high. “We’ve had some relief in recent weeks, but with oil at $90 per barrel, it’s still very high on the freight rates,” Wilhelm said. High energy prices affect everything in rural Alaska, he added.

Investments in energy savings

In recent years, the Alaska Energy Authority, the Denali Commission and the Alaska Center for Energy and Power have spearheaded a mammoth investment of millions of dollars into everything from upgrades of bulk fuel storage tanks to renewable and emerging energy research projects. Alaska Gov. Sean Parnell signed into law a $2.8 billion capital budget in June that includes $1 billion for energy projects.

Along with the efforts of a wide variety of private sector stakeholders and even schoolchildren, these initiatives are paying off as rural communities report energy cost savings, ranging up to 30 percent.

This is good news because the State of Alaska has a goal of deriving half its power from renewable energy sources by 2025.

But it is the “low-hanging fruit” of energy efficiency programs such as weatherization and heating system upgrades that is making the biggest strides in cutting rural heating and fuel bills, said Denali Daniels, senior program manager of the Denali Commission’s energy program. Parnell earmarked a total of $101.5 million for weatherization and home energy rebates in the FY12 capital budget.

“It’s a question of how do we get the biggest bang for our buck,” she said.

Thus the Commission focuses mainly on project planning and design rather than construction.

“We’d rather spend $50,000 for a planning grant on a project that doesn’t move forward than spend $5 million on construction of a plant that shouldn’t have ever been built,” Daniels said.

Currently, the Energy Authority’s Alternative Energy and Energy Efficiency program manages and funds more than 125 projects and initiatives totaling $188 million in state and federal funding. The projects seek to lower the cost of power and heat to Alaska communities, while maintaining system safety and reliability.

Private initiatives pay off

NANA Regional Corporation, the Alaska Native regional corporation for Northwest Alaska, is working to solve Alaska’s rural energy puzzle through partnerships with regional, state and federal entities on a variety of renewable energy projects, including hydropower, wind, biomass and alternative fuels development.

“We are actively engaged with our regional partners as well, like the Northwest

Arctic Borough, Kotzebue Electric Authority and Alaska Village Electric Cooperative on wind development in the communities of Deering, Buckland, Noorvik, Kivalina, Kotzebue and the communities of the Upper Kobuk,” said NANA spokeswoman Shelly Wozniak.

Beginning in August, NANA, in conjunction with RurAL CAP, is implementing the highly regarded Energy Wise Program. The program engages rural Alaska communities in behavior change practices resulting in energy efficiency and energy conservation.

In FY 2010, Energy Wise was responsible for reducing electrical and home-heating costs for residents in 32 Alaska villages, and for training 160 rural Alaskans who were employed for 6-8 weeks. The program also conducted energy fairs in 32 communities; provided energy use assessments, education and low-cost, efficiency upgrades for 2,000 homes; and educated 7,500 rural Alaskans on energy efficiency and energy conservation strategies.

NANA is the first private organization to fund a regional rollout of the Energy Wise Program, committing $860,000 for six communities in the NANA region in 2011. With the price of fuel climbing, NANA said the Energy Wise Program will help the Northwest Alaska region conserve energy and save money as its communities get ready for winter.

To offset its higher energy costs, Alaska Commercial Co. is investing millions of dollars in lighting and refrigeration equipment upgrades during the next five years, including spending one-third of its capital budget on new refrigeration cases.

In addition, the company is rerouting the heat by-product from equipment such as compressors into its stores to reduce its consumption of heating oil. It also recently entered a joint venture with the City of McGrath in which the heat by-product of the community’s power plant is piped into the AC Store next door.

Alaska Commercial also worked hard at improving the flow of goods to its stores, which factors into its energy costs. This included opening the large warehouse at the Port of Tacoma in 2010 as a major distribution center which allows it to buy certain items in bulk and leverage less-costly waterborne transportation to ship larger quantities of shelf-stable items when rates are low and pass the savings on to customers.

A number of transportation companies that serve the Alaska market, including Bowhead Transport Co. and NorthStar Gas, also have invested in new equipment to improve fleet efficiency and offset the high cost of fuel. NorthStar Gas, for example, recently purchased a new barge, the “Cuaneq.”

Renewable energy that works

“The challenge for Alaska will be developing renewable energy systems that can be successfully integrated with existing diesel systems, because public perceptions aside, fossil fuels such as natural gas and propane supplies from the North Slope, will remain an important part of the energy equation for the foreseeable future,” Daniels said.

Among the possibilities, hydroelectric power is exceedingly attractive. It is the least expensive form of power in Alaska by 15 percent and the least expensive form of heat by a factor of 3.5 to 1, according to the Alaska Energy Authority.

Researchers say Southeast has adequate hydroelectric potential to serve all of its needs for decades to come if an intertie system existed to transport power to the region’s high-use areas. Without a regional electrical grid, isolated load centers likely will continue to rely on high-cost diesel generation to meet immediate needs.

Alaska’s FY12 capital budget provided $28.5 million for a project at Blue Lake near Sitka and $8 million for one at Whitman Lake near Ketchikan.

Other regions of Alaska also have potential for hydroelectric generation.

A new major hydro project – a dam project on the upper Susitna River won $65.7 million in state funds in this year’s capital budget, while a project on Chikuminik Lake in the Yukon-Kuskokwim Region of western Alaska also secured $10 million in state funding.

Among other renewable energy sources, wind is proving to be a viable opportunity for many small Alaska communities.

Building wind systems is costly, but once in place, the cost of wind is stable, while diesel fuel prices are volatile, according to University of Alaska Anchorage. In a preliminary analysis of wind-diesel systems in Alaska, produced by the Institute for Social and Economic Research, they note that there are already more than a dozen wind-diesel systems generating electricity in remote areas of western Alaska, and only three wind systems, in Kotzebue, Wales, and Saint Paul Island, have been operating for more than a few years. Some 10 projects were under construction in the spring of 2010, while another 23 projects were in feasibility studies or negotiating contracts to begin work.

Alaska Village Electric Cooperative, for example, has about 30 100-kilowatt wind turbines currently in operation and six more 65-kilowatt units scheduled to be operational by fall, serving a total13 villages in western Alaska. The cost of recently built wind systems average about 14 cents per kilowatt-hour, or the energy-equivalent of diesel priced at about $1.90 a gallon, according to ISER. Diesel prices reported by many rural utilities in 2009 ranged from $4 to $5 a gallon.

The U.S. Department of Energy is introducing wind energy to the nation’s small communities through its “Wind for Schools Program,” an effort that Lynden Transport, Alaska Marine Lines, Alaska Hovercraft and Lynden Air Cargo is supporting in Alaska with an offer to provide in-kind assistance to transport wind turbines and towers to 14 communities in Alaska. For example, Alaska Marine Lines recently transported the components of a wind turbine to Sitka’s Mt. Edgecumbe School.

Emerging energy technologies

Researchers at the Alaska Center for Energy and Power in Fairbanks estimated in 2010 that Alaska’s vast geography also holds about 40 percent of the country’s potential river energy, and thus, perfect settings for small-scale hydrokinetic technology – turbines designed to harness kinetic energy from oceans, bays and rivers. Micro-hydropower systems usually generate up to 100 kilowatts of electricity and are mostly used by homeowners and small business owners. Run-of-the- river hydroelectricity is ideal for streams or rivers with a minimum dry weather flow. Such systems also could help trim rural Alaska’s dependence on heating oil and diesel fuel.

NANA is engaged in micro-hydro and run-of-river hydropower pre-engineering development efforts that have potential in Shungnak, Kobuk and Ambler.

Federal regulators are reviewing plans for a submerged, in-river power turbine near Nenana in a pilot project that energy researchers and the developer think could help rural Alaska communities. Two other small in-river turbines are being tested near the Interior communities of Ruby and Eagle.

Among other emerging energy technologies currently being studied in rural Alaska include energy storage batteries and solar hot water systems by Kotzebue Electric Association; a wood pellet-fired boiler by Sealaska Corp at its headquarters in Juneau, Organic Rankine cycle waste heat recovery by the Tanana Chiefs Conference; high penetration hybrid power system by the University of Alaska Fairbanks; psychrophiles (cold-weather-loving microbes) for generating heating gas by the Cordova Electric Cooperative; seawater heat pump system by the Alaska SeaLife Center; wind-diesel hybrid power system (controls and communication) in Wales, Alaska by Kotzebue Electric Association, and Nenana hydrokinetic project by Ocean Renewable Power Co/UAF.

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Hydro project could relieve high energy costs in Yukon-Kuskokwim

In the populous but remote Yukon-Kuskokwim Region where diesel prices have spiked to some of the highest levels in Alaska in recent years, momentum is building for development and construction of a major hydropower project that generating capacity of 13-25 megawatts of electricity with an average annual energy of 88.6 gigawatts per hour.

“Building a hydroelectric project at Chikuminik Lake in the Kilbuck Mountains near the Kisaralik River has been studied off and on for 40 years,” said Christine Klein, chief operating officer of Calista Corporation, the Alaska Native regional corporation for the western Alaska region.

But when the price of diesel leaped to $6-$10 per gallon in recent years – levels not anticipated until 2025 – efforts to develop alternative energy sources accelerated.

“Because of the high cost of energy, finding an alternative energy source is critical to survey,” she said in a recent interview. “There are a lot of alternative energy options, but no other would provide enough electricity for Bethel and the 13 villages around it,” Klein said.

Calista, in partnership with the Yukon-Kuskokwim Health Corp., Alaska Regional Housing Authority and Alaska Village Council Presidents, completed a two-year study of the project in January. The study identified four feasible sites but targeted Chikuminik Lake because it could offer the best year-round capacity for electricity generation with peaks in spring and fall when the most power would be needed. The hydro project could displace 20 million gallons of diesel annually in Bethel and 13 area villages, meeting current load requirements of 13 MW and higher demand load projects of 17.8 MW by 2026.

The project would cost $507 million, including a transmission line. It involves construction of a dam and penstock system using Allen River outfall at the lake.

In addition to the renewed sense of urgency, the project won support from local communities and engineers, in part, because Chikuminik Lake located 118 miles east of Bethel and the Kisaralik and Allen rivers have no salmon populations.

In the past, “almost all of the engineering reports recommended hydropower, but the studies seemed to be hung up over fish,” Klein said. “That might be the win-win” for this project.

Nuvista Light & Power Cooperative Inc. secured approval from the Alaska Legislature for $17.63 million in funding for preliminary engineering, licensing and permitting the proposed project’s second phase, but Alaska Gov. Sean Parnell pared the funding to $10 million in June.

Under a best-case scenario, Klein said it will take another 12 years to bring the proposed hydro project on line. “We would be producing electricity in 2023, and that’s an aggressive timetable,” she added.

—Rose Ragsdale