HEA aims for sky

Association powers up Agrium’s coal project

Posted: Wednesday, September 27, 2006

Homer Electric Association announced Thursday it will take a lead role in developing the power generation portion of Agrium’s Kenai Blue Sky coal gasification project.

Agrium USA is moving forward with the second phase of a study gauging the feasibility of using coal to generate power for its Kenai Nitrogen Operations facility in Nikiski, and also gasify some of that coal to produce the feedstock it needs for the manufacture of ammonia and urea. Currently, feedstock is obtained through contracts with natural gas producers.

Agrium’s project would entail building a gasifier and power generation plant next to the existing Nikiski complex.

In a press release, HEA General Manager Brad Janorschke said the utility was studying all options for reducing the utility’s dependence on natural gas as the source of power generation. Building a power generation plant in Nikiski could further that aim.

Agrium’s project, as currently envisioned, would entail construction of a 200-megawatt power plant to supply 120-130 megawatts of power to the Agrium facility. The excess, about 70 megawatts, would be available at a competitive price to the Railbelt energy grid.

“Seventy megawatts is a lot,” said HEA spokesperson Joe Gallagher. “The entire HEA system probably uses about 80 megawatts.”

Why build a power plant with so much excess power?

“It’s probably an economy-of-scale situation where building power generation capacity beyond exactly what is needed makes more sense,” Gallagher said.

Adding 70 megawatts to the Railbelt grid might supply at least a portion of the electrical energy thought necessary to power Northern Dynasty Mine’s Pebble Mine project, if that is ever built. Gallagher said, however, that Pebble was not HEA’s consideration at this point. Something else drove HEA to look at “taking the lead” in Agrium’s power generation project.

Homer Electric currently purchases most of its power from Chugach Electric Association under a contract due to expire Dec. 31, 2013. That approaching date has HEA researching a variety of power-generation sources that might leave it less dependent on natural gas — including producing more of its own power.

Gallagher said it was far too early to know what the relationship would be between HEA and Agrium if HEA helps build the power plant. Would the utility own the plant and lease it to Agrium? Share in ownership? Have no ownership whatsoever? Those would be discussions for the future.

“At this point there is just an arrangement to look at it (the power plant project),” he said. “Ownership and things of that nature are way down the line.”

Agrium spokesperson Lisa Parker said ownership was “One of the areas that still has to be resolved.”

Meanwhile, Agrium is relying on HEA for its expertise in power production and on the utility’s ability to distribute electrical energy, Parker said.

Coal supply is another part of the equation. While there has been much interest expressed recently in the possibility of mining coal from the Beluga Coal Field across Cook Inlet, Agrium is working with Usibelli Coal Mine Inc., which operates a mine at Healy, as the probable source of feedstock coal for its Blue Sky project, Parker said.

The recently completed first phase of the feasibility study produced favorable enough results to proceed with the 18-month Phase 2 study. If that also produces favorable results, Parker said, Agrium would initiate Phase 3, a 12- to 15-month period during which detailed design and engineering would be done and equipment requiring long lead times procured. If built, the new power and gasification plants are not expected to be operational before 2011.

Meanwhile, Agrium’s manufacturing plants are operating on year-to-year natural gas contracts. Parker said it was hard to predict how fluctuating gas prices might affect future annual supply contracts. She did say that, should gas supplies be secured, it might be possible to continue production at some level while the gasification and power plants were built next door.

At HEA, meanwhile, the search for alternative energy sources continues, Janorschke said.

“In addition to the potential power from Kenai Blue Sky, Homer Electric Association continues to work with the state to restart the Healy Clean Coal Project and we are partners with other utilities in the development of the Fire Island Wind Project,” he said in the press release. “The projects, along with the continued hydroelectric generation at Bradley Lake, offer a balanced source of generation that should help control electric rates charged to our members.”

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