Homer Alaska - Business

Story last updated at 4:19 PM on Wednesday, June 22, 2011

Chugach OKs Fire Island wind

By Tim Bradner
Morris News Service - Alaska

Chugach Electric Association's board has given approval for the electric co-op to purchase wind power from Cook Inlet Region Inc.'s proposed Fire Island wind project, a commitment that will allow the Anchorage-based Alaska Native corporation to proceed with construction.

For the near-term, electricity generated with wind power will be more expensive than Chugach can generate it with natural gas under its current gas supply contracts, but the price of gas in Southcentral Alaska is rising as reserves in existing producing fields are being depleted.

Assuming final approvals of a power sales agreement by both the Chugach and CIRI boards and subsequent approval by the Regulatory Commission of Alaska by mid-September, construction crews will resume work on Fire Island in late September or early October, CIRI spokesman Jim Jager said.

The schedule will be tight but CIRI will be able to build most of the facilities needed in 2012 and start providing electricity to Chugach in January 2013, he said. CIRI was able to build the foundations for seven wind towers last summer, which gives it a jump-start in resuming work on the project this year.

Resuming work in September or October will allow CIRI to still qualify for a federal renewable energy grant that will reduce the amount of financing that will be needed, also reducing borrowing costs.

As the first customer, Chugach will benefit from that reduced cost, Jager said. Those benefits will not flow through in the same way to future customers because subsequent expansions will have to be paid for by those purchasers.

Chugach will purchase up to 48,500 megawatts of power per year from CIRI, about 4 percent of the utility's annual 2010 power requirement. This is enough to offset about 300 million cubic feet per year of natural gas that Chugach would have burned to produce the electricity. Chugach now uses about 9 billion cubic feet of gas per year.

With the contract in hand CIRI will be able to build facilities and install 11 General Electric 1.6xle wind turbines on the island, which it mostly owns. Jager said a revised capital cost for the project is not yet available, although it will be less than what was estimated for the original project, which was larger.

Maximum capacity of the 11 turbines will be 17.6 megawatts but the winds at Fire Island are expected to generate this much power only 31 percent of the time, resulting in an average output of about 5.5 megawatts from the wind project.

Fire Island will be connected to the mainline with a submarine cable and overhead transmission lines. The state Legislature appropriated $25 million to pay for the connection in 2008.

A subsidiary, Fire Island Wind LLC, has been formed to develop and operate the project. The original plan was to have three times as many turbines to achieve economies of scale with the infrastructure investments that are also needed, but this won't be possible unless other electric utilities sign on to buy power.

That seems unlikely, for the near term. Anchorage's city-owned Municipal Light and Power turned down an offer earlier this year from CIRI, preferring to stick with natural gas-fired power generation with gas it owns in the Beluga gas field west of Anchorage. Golden Valley Electric Association of Fairbanks meanwhile has decided to build its own wind power project at Eva Creek, near Healy. Construction on that is also expected to begin later this summer.

The proposed contract calls for Chugach to pay $107.85 per megawatt hour with CIRI paying back to Chugach a $10.85 per megawatt "system integration charge," to offset the cooperative's cost of integrating the variable wind power into its grid. The integration charge has emerged as a difficult issue in the negotiations between CIRI and the electric utilities. Because wind power is variable there must be standby capacity available to fire up when the winds die. Who would pay for this has been a central issue.

The net cost to Chugach after the system integration fee is paid will be $97 per megawatt hour. Term of the contract will be 25 years, with no escalation. The $97 per megawatt hour charge works out to 9.7 cents per kilowatt hour of electricity. Chugach now generates power for about 6.5 cents per kilowatt hour with a cost of gas itself at the equivalent of about 5.5 cents per kilowatt hour, Chugach spokesman Phil Steyer said.

The cooperative has gas supply contracts with ConocoPhillips and Marathon Oil Co. that will meet all of its needs through 2013 and some of its needs through 2014 and 2015, Steyer said. Other utilities are paying higher prices for gas in contracts negotiated more recently, however.

In a written statement, Chugach said the contract would allow it to gain valuable experience in integrating wind power into its system.

"The knowledge Chugach gains from understanding and dispatching this resource increases our opportunities to provide a stable, responsible energy future for consumers," the statement said.

Jager, at CIRI, said, "We give Chugach a lot of credit for moving to diversify its energy mix and improve the stability of its power supply pricing."