HEA betting on natural gas for future generation

Posted: Sunday, February 07, 2010

As Homer Electric Association moves forward in its proposed plan to install a steam turbine at its natural gas-fired plant in Nikiski, and perhaps invest in two gas-fired turbines in Soldotna at some point in the future, the cooperative is making a bet on natural gas.

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Photo By M. Scott Moon
Photo By M. Scott Moon
Plant operator Rick Fiebelkorn works in the building's control room. The Nikiski Generation Plant is located next to the Agrium fertilizer plant.

HEA's announcement comes a month after the Department of Natural Resources released a study saying the Cook Inlet Basin, which supplies the Southcentral gas market, has enough reserves to meet the region's energy needs for the next 10 years.

Despite the study's findings however, Inlet producers have repeatedly suggested in recent years that Southcentral's days of buying cheap gas may be numbered, a fact that HEA officials say they're well aware of.

Energy experts however, say that in the near term, gas may be the utility's, as well as the Railbelt region's, best bet.

The aptly named project, "Independent Light," proposes to install a steam turbine that will capture heat from the already existing 40-megawatt plant at the Agrium facility in Nikiski, and potentially install two 40-megawatt natural gas turbines in an existing facility in Soldotna in the future.

If all three projects were put in place, HEA has said total output could reach 110 megawatts.

HEA officials have offered only preliminary estimates on the cost, but Brad Janorschke, the general manager for HEA, said turbines typically cost $1,400 to $1,800 a kilowatt, but that doesn't necessarily take into account the cost of installation.

He expected HEA to have a firmer number by March.

HEA officials have also pointed out that the project still awaits approval by HEA's board of directors.

Joe Gallagher, spokesperson for HEA, said the plan comes as an effort to meet most of HEA's load demands before the current contract with Anchorage-based wholesale power provider Chugach Electric Association expires at the end of 2013.

Presently, HEA buys all of its power from Chugach through a 22-year old contract.

HEA has bought power from Chugach in a series of contracts dating back to 1963, according to Gallagher.

With much of Southcentral's gas-fired generation capabilities reaching the end of its lifespan, Gallagher said replacement projects will be necessary within the next five years.

He said the co-op looked at a slew of different options and boiled its choices down to continuing to buy power from Chugach, or pursuing independent generation.

Gallagher said either option would require HEA ratepayers to foot the bill for new generation capabilities, whether they were built by CEA or by HEA.

He said economic forecast models showed rates to be approximately equal for both routes.

"If we go out and continue to purchase power from Chugach Electric or went out and built our own, that impact on the rates basically is going to be about the same" Gallagher said.

Alaska's unique power grid leaves companies like HEA with marginal abilities when negotiating with wholesale power providers like Chugach.

Much of the Lower 48's grid is also serviced by small by power producers, but generation capabilities are usually more diverse and competitive.

While the Railbelt is powered almost entirely by the combustion of natural gas, the Lower 48 is powered by a mix. Additionally, the grid is interconnected among the contiguous states, and except for parts of the west, generally not as geographically strung out.

This puts small utilities in the Lower 48 in an optimal position to negotiate with several different large wholesale power producers to get the cheapest rate for their customers.

With essentially a single source of fuel and a limited clientele here, HEA and other Railbelt energy providers are limited in what they can ask for.

The decision HEA had to make, Gallagher said, boiled down to whether it wanted to continue to be a "renter" or an "owner."

HEA has previously compared itself to a Chugach ratepayer living in Anchorage in terms of its ability to influence decisions made about how the power is produced.

Building its own facilities will provide HEA with the ability decide where its power comes from, according to Janorschke.

"If we're independent or at least have smaller units, then we are much more flexible and we have an increased ability to be more accommodating than if we have multiple partners with different expectations," he said.

In its current arrangement, Gallagher said if a private developer were to approach HEA and offer to sell wind power generated on the peninsula, the company would unlikely to be able to oblige.

Independence in the future, according to the two, could allow HEA to invest in renewable projects.

Additionally, Gallagher said, the plan would create approximately 20 jobs and make use of two existing facilities.

HEA betting on natural gas for future generationMark Foster, an independent consultant based in Anchorage with a history of working on energy issues in the Railbelt, said HEA's bet on gas is a reasonable one.

"It looks like rational business planning on its face," he said. "What other things do they have on their list that's better than a small incremental increase of reliability and gas capacity that enables HEA to supply itself and enable them to negotiate for better terms from anyone else who might have some scheme?"

Steve Colt, an associate professor of economics with the Institute of Social and Economic Research at the University of Alaska Anchorage, said that while gas prices may change in the future, fears of running out of natural gas are hollow.

"If prices get high enough we'll be pretty good at finding more, and if it gets really high we could import liquid natural gas through the existing terminal," he said. "It doesn't make sense to talk about running out."

The case for gas is made stronger, Colt said, by the potential for future federal legislation regulating carbon emissions.

"Natural gas is the clear winner when you talk about carbon emissions," he said. "It causes half as much carbon emissions as coal for an equal amount of electricity."

Both Foster and Colt said investment in generation facilities on the peninsula make sense from a reliability standpoint as well.

"If you look at a grid in the Lower 48 and overlay the Alaska map and look at where we've located units for reliability, you'll see we're light on reliability in demand areas," Foster said.

The peninsula is presently tied to the rest of the grid via an aging transmission line that runs through the Kenai Mountains roughly paralleling the highways.

Foster said a new large centralized gas-fired power plant in Anchorage, as proposed by Chugach, might be more efficient than the smaller projects HEA is proposing, however, that power would still have to be transported over a long distance on the aging line, likely negating any efficiency gains.

Janorschke said any improvements to the transmission lines are probably a decade out.

Additionally he pointed out that should a large plant "trip," or go offline, the impacts on the grid could be widespread.

Additionally advantageous to HEA's plan is the peninsula's proximity to fuel sources.

"We are actually strategically located for additional generation," Janorschke said, "which is a primary reason why you see Agrium is built down here, the LNG facility is built down here, that we do have a pretty strong natural gas infrastructure relative to the rest of the Railbelt."

Long term, both state and HEA officials have said the Independent Light proposal won't affect the movement to create a joint entity comprised of the six Railbelt power producers.

Janorschke said moving away from gas power to energy projects like large-scale hydroelectric generation will require state involvement, though.

"The fuel costs are cheap," Janorschke said of hydro, "but the upfront capital costs are enormous, which is why any large hydro project is going to need state participation."

He estimated it would be at least a decade however, before any such project could be completed, and would require participation from all the Railbelt producers.

The scheme is not unlike what has happened in some geographically similar areas of the western U.S.

While much of the Lower 48 is serviced by small utilities, some areas, like Southern Idaho, are serviced by one large company.

The creation of Idaho Power is not a surprising one. The company, which services a wide and geographically dispersed area, produces 60 percent of their power through hydroelectric generation.

The company was formed in the 1920s through the conglomeration of a number of smaller utilities that had previously serviced the area as a way to make it economically viable to build several large-scale hydro projects.

Dante Petri can be reached at dante.petri@peninsulaclarion.com.



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