Keeping the lights on won't come cheap
| Dec 10, 2009A new study says the state's Railbelt electric utilities need to invest at least $10 billion over the next 50 years in order to keep the lights on.
The 400-page analysis, prepared by engineering consulting company Black & Veatch, cautions that the region's six utilities will have to share new transmission and generation projects. Without cooperation, the individual utilities aren't expected to come close to securing the borrowing capacity to meet the hefty price tags.
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The Railbelt utilities -- Golden Valley Electric Association in Fairbanks, Southcentral's Matanuska Electric Association, Anchorage Municipal Light and Power and Chugach Electric Association, and Kenai Peninsula utilities Homer Electric Association and the City of Seward -- need to increase energy efficiency, and will have to brace for major spending to build generation and transmission infrastructure to carry the state's population base through the next 50 years.
"Regardless of what path we follow ... we're looking at significant, substantial, staggering investments," Joe Balash, an energy assistant to Gov. Sean Parnell, said earlier this week. "These choices, unfortunately, need to be made relatively soon. This is a big risk factor our utilities and all of us face. We're going to have to move on at some point, and do something to keep the lights on."
For years, Southcentral utilities -- five of the six -- have enjoyed a stable supply of cheap natural gas from Cook Inlet, and in turn, have kept rates relatively low. Fairbanks utility Golden Valley Electric Association was even able to purchase some power from its southern neighbor, offsetting a portion of the more expensive power generated from diesel in the Interior.
The gas supplies are dwindling and the area lacks storage capacity, creating one of the major problems the Black & Veatch report suggests avoiding -- reliance on a sole fuel source.
"Regardless of the future source of additional natural gas supplies (whether new gas supplies from the Cook Inlet, gas from the North Slope, or imported LNG supplies), one reality cannot be escaped: future gas supply prices will be higher," the report says.
Commissioned by the Legislature in 2008 with a $2.5 million appropriation, the study evaluates the Railbelt's energy needs, projected growth and fuel challenges through the next 50 years, from 2011 to 2060. Black & Veatch representatives detailed their draft report at a day-long workshop on Thursday in Anchorage.
The bottom line? Major investment is needed in transmission and new generation, and the utilities should focus on diversifying the fuels used to make electricity in order to protect customers from the possible shortages expected in a few years as Cook Inlet gas supplies taper off. The state could also significantly cut electric consumption with incentives for efficiency.
A technical evaluation of four scenarios led Black & Veatch to a plan that would dramatically increase the amount of power generated from renewable resources, to nearly 50 percent. Gov. Sarah Palin unrolled that goal in January. The plan calls for significant upgrades of transmission lines in the next decade, followed by pursuit of some pretty big projects -- development of geothermal resources at Mount Spurr, and construction of a large hydroelectric dam.
That probably won't be the long-studied Susitna River project, though. Even after downsizing the scope of the multi-billion dollar project, consultants found a different dam at Chakachamna more likely to fall within a reasonable price tag and better meet the Railbelt's future electric needs. The consultants recommend the state pursue permitting for both, until it's clear whether either will trump environmental and geotechnical challenges.
Existing generation facilities are aging, and fast; 67 percent of the Railbelt's generation infrastructure will reach the end of its life cycle within 15 years. While some may keep churning out power, it won't be as efficient and could break down at any time -- and there's no backup.
With a limited transmission capacity, no safety net for its aging infrastructure, and a peak load of 870 megawatts, the Railbelt has unique circumstances, Black & Veatch reported. The entire region's demand is low compared to other places in the Lower 48 -- at least 100 U.S. power plants can generate 900 megawatts apiece.
The low demand, expensive costs of developing new projects, and projected increases in fuel supply costs will drive rates up for the Railbelt customers regardless of which route the utilities take. Currently, ML&P's customers pay the lowest monthly electric bills (average $72.92 for residential), with GVEA customers forking over the most, an average of $143.13 for residential.
"One of the real challenges, I think, is going to be timing," Regulatory Commission of Alaska Chairman Robert Pickett said earlier this week. "Many of these utilities have capital needs now, and they have specific plans in place now ... Time is of the essence. Utilities have to make decisions."
The consultants said the state should work with utilities to decide whether to form a single corporation, and should pursue large hydroelectric facilities, promote energy efficiency programs to reduce consumption, and decide what role government will play in helping fund the transmission and generation buildup required within the next 10 years.
Palin introduced legislation last session calling for the six power utilities to come together as the Greater Railbelt Electric Transmission Corporation, which could access the state's substantial bonding power to fund new generation and transmission projects. That bill is pending before the House and Senate energy committees.
Pickett cautioned that although lawmakers will clearly weigh in on the proposal to unite the utilities and on state funding, politics will come into play. Other regions will want their fair share of whatever the Legislature is doling out in exchange for their votes supporting the Railbelt plan.
"There's probably going to have to be some incentives for all those respective areas for their delegations to get on board," he said.
No region is without its energy woes. While Southeast's biggest city, Juneau, is enjoying low-cost electricity generated from hydroelectric projects, other communities are still on costly diesel. The vast roadless areas of Alaska are also reliant on diesel for power generation and home heat, and are far from the intertie linking the Railbelt's communities.
Contact Rena Delbridge at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Here is a stupid question: Why don't they build one or more natural gas powered electric power plants on the North Slope to provide electricity to much of the State? High voltage electricity can get transmitted long distances (like from near the Washington- Canada border to San Diego). Why don't they just use surplus or stranded Natural gas to generate electricity from the North Slope?
If anyone could clarify why this wouldn't be economically feasible (compared to other alternatives that would cost 10 billion or more), I'd appreciate it.
Would it really cost more than 10 billion bucks to construct electric power plants on the North Slope, develop a natural gas infrastructure to supply these power plants with clean fuel, and build electric power transmission lines to provide electric power to the areas of the State addressed in the study?
I'm having a hard time believing that.
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Indeed, it is not a stretch to say that including a large segment of Railbelt electric generation demand as a core market for North Slope gas is potentially a market breaker for Southcentral. Without including electric generation as a market, a gasline to Southcentral and the related projects that otherwise may result from that, may become uneconomic. If the Big Line is not built (a not unlikely outcome given the effect of shale gas on Lower 48 demand), that might mean that Alaska once again is left without any means for monetizing North Slope gas. Under those circumstances, the consequence to Alaska of the Railbelt utilities failing to use Alaska's gas could be hugely significant.
The IRP does not consider this broader aspect of its recommendations, at all. Instead, it largely dismisses the potential for using North Slope gas to meet the Railbelt's electricity needs based on a series of "ifs," http://bit.ly/519SPd at 14-4 ("... if gas from the North Slope becomes available in the Railbelt region through either the Bullet Line or Spur Line, prices will likely be tied to market prices since potential natural gas flows to the Railbelt region will likely be just one of the competing demands for the available gas. Additionally, the pipeline transmission rates that will be paid to move gas to the Railbelt region will be significantly higher than the relatively low transportation rates that are imbedded in the delivered cost of gas from Cook Inlet suppliers under existing contracts.")
It is somewhat understandable why the study fails to consider the broader impact on Alaska of its recommendations. The study was done by consultants from the L48, where the focus of such things normally is solely on what produces the lowest cost electricity and the bias tilts toward large scale capital projects, which (once built) present little risk of cost fluctuation over their life.
Alaska is different, however. Both now and for a long time into the future, Alaska's economy depends on monetization of its oil & gas reserves. (As James Carville might say if he looked at the Alaska economy, "it's the oil & gas, stupid"). Even if a large segment of the reserves are being market through a Big Line, Southcentral heating and value added industrial demand still will depend on obtaining an economic source of gas supply. As a result, in Alaska, such studies need to consider the effect on the economy as a whole when evaluating alternatives which would reduce the use of one of the basic sources of Alaska's wealth.
This is not to say that all of the IRP study should be discounted. The analysis of the benefits of combining the regional utilities in a single entity, and the analysis of the current condition of and need for upgrades to the existing Railbelt transmission capacity are helpful.
The portions dealing with future generation capacity and the focus on Chakachamna and Susitna are disappointing, however. Is it really in Alaska's interest to focus on Chakachamna if the consequence is that the Bullet Line, for example, which otherwise may be the only way of monetizing North Slope gas and offers the potential for creating a value-added industrial base in Southcentral, becomes uneconomic because of the loss of the electric generation market? Of course not. The IRP recommends that the Railbelt utilities divert from the use of Alaska's natural gas, however, without any consideration of the potential consequences.
This deficiency should be fixed. If not addressed by AEA, the Legislature and Administration should become involved. Continuing the IRP requires additional state funding and, so, the Administration and Legislature should condition additional funding, before further pursuing either Chakachamna or Susitna, on evaluating the economic effect on the state as a whole of diverting a significant share of Railbelt generation to non-gas sources. Before Alaska commits to spending significant funds on a big hydro project, we really should determine further whether it is in Alaska's overall best interests.