By Tim Bradner
Alaska Journal of Commerce

Unless the state chips in with extra funds, a significant cut in Denali Commission funding this year may mean a long-term program to repair aged rural bulk fuel tanks and upgrade old diesel-fueled power plants will be delayed, perhaps indefinitely.

Federal funds available for the Denali Commission's energy programs total about $23 million for federal fiscal year 2008, a significant decline from previous years, according to Kathleen Prentki, the Denali Commission's manager of energy programs.

The money is sufficient to fund about five power plant and eight bulk fuel upgrades this year, Prentki said, about half the number funded in each of the last two years.

If the projects continue to be under-funded, rising costs could mean some upgrades are prolonged indefinitely. Costs are rising about 12 percent a year for rural power plant and bulk fuel tank projects, Prentki said.

Meanwhile, there is a lot of emphasis on renewable energy, like wind and hydro, to offset use of fossil fuels. But according to Brent Petrie, Alaska Village Electric Cooperative's manager for community development, the best way to reduce use of diesel is to improve the efficiency of diesel power generators in small communities.

Older power plants in many small communities generate roughly 8 kilowatts of power per gallon of fuel. New power plants typically generate twice that, Petrie said. A power plant upgrade essentially allows a community to cut its fuel usage in half.

Prentki said thus far about 30 power plants have been upgraded, mainly with funding from the Denali Commission. About 27 power plant upgrade projects are in various stages of completion. The list of projects is always a bit of a moving target, but Prentki estimates that roughly 47 power plants have yet to receive upgrades.

The projects are managed by the Alaska Energy Authority, a state agency, or by AVEC in the 56 communities where it operates power plants.

Regarding tank farm upgrades, 58 rural tank farms have been upgraded to meet federal environmental rules. Thirteen tank farms are in various stages completion and 34 have yet to be addressed.

Petrie told the Denali Commission it would take about $400 million to complete all of the remaining power plant and tank farm upgrades in rural communities.

In communities where AVEC operates, the cooperative is responsible for maintenance and upkeep. In villages where the AEA manages the construction, the local city government or tribal entity, and sometimes even private owners, own and operate the local power plants.

To be eligible for the upgrade grants, these communities must have their finances in order to be eligible for grants to do the work. Essentially, they must not be behind in obligations to the Internal Revenue Service or other such obligations, Chris Mello, AEA's manager for community energy projects, told the Denali Commission.

The communities must also have a business plan to demonstrate the capability to support the facilities as well as an agreement with a backup operator, Mello said. The AEA monitors the business plan.

If communities don't receive tank farm upgrades, they risk being cut off from fuel supplies if the U.S. Coast Guard moves to enforce its rules on tank standards.

The agency has held off on enforcement of its tank farm rules as long as an upgrading program was underway. But if the program is halted by lack of funding, the agency may have little choice but to enforce the law. If that happens, commercial barge operators will be unable to legally unload fuel at a tank farm that is not in compliance.

Rural utility operators worry not only about reduced funding, but that the new emphasis on renewable energy would mean funding is diverted to those projects, Petrie said.

The Denali Commission, for example, funds renewable energy projects out of the same fund that finances the tank and power plant upgrades. The commission put out a request for proposals for renewable energy recently and received proposals that totaled over $1 billion.

Renewable energy projects are site-specific and make sense in some communities but diesel would still be needed as a backup or even as the main fuel for power, Petrie said. At best, wind power displaces only 30 percent to 40 percent of diesel in communities with good wind generators, he said.

Hydro plants generate less power in winter when water is low, and must often be supplemented with diesel. All communities benefit from more efficient diesel generation and safe storage of fuel, Petrie said.

Other renewable energy forms, such as biomass or hydrogen-powered fuel cells, are long-term goals that would require substantial development work.