While mandates for renewable energy production across the country are often set with an aim to combat climate change, Gov. Mike Dunleavy insists Alaska needs its own ambitious renewable standards to avoid an economic “death spiral” that he says the state is close to entering.
It comes down to the fundamentals of economic development, according to Dunleavy. He stressed in an interview with the Journal that Alaska’s economic centers are not able to compete with other states for business investment, and the people that follow, with its current energy situation, and the problem is likely to only get worse without a dramatic change.
“Here in Alaska we have a situation where we could find ourselves in a slow death spiral: less people, higher costs, more on the backs of ratepayers — less people, higher costs, more on the backs of ratepayers,” Dunleavy said. “Pretty soon you have a situation where the Railbelt begins to look more like rural Alaska as opposed to rural Alaska looking more like the Railbelt, in terms of cheaper electricity.”
The price of energy in Alaska is likely the single biggest impediment to business investment in the state, the governor said, and the effects show up in some of the most basic demographic and economic figures.
With some exceptions, the power utilities of Alaska’s Railbelt from Fairbanks to Homer have largely been forecasting flat demand for years. Enstar Natural Gas Co., the region’s gas utility, is facing a similar situation.
Utility officials say some of the issue is due to increasingly energy efficient appliances, but the underlying issue is people leaving Alaska. The state has lost approximately 8,500 residents, or about 1.1% of its population, since it peaked at nearly 745,000 people in 2016, according to state Labor Department data.
In the Railbelt, which relies on natural gas from Cook Inlet for the vast majority of its power generation, the situation has resulted in steadily increasing gas costs because with no anchor industrial buyers — a role once filled by the now-shuttered LNG and fertilizer plants on the Kenai Peninsula — producers have little incentive to seek out new gas reserves, leading to higher prices for what’s readily available. Alaska had the second-highest average electric rates in the country at 19.8 cents per kilowatt-hour in 2020 behind Hawaii, according to a study by the Nebraska Department of Environment and Energy.
Residential customers of Golden Valley Electric Association in Fairbanks currently pay about 23 cents per kilowatt-hour and rates are in the 20 cents per kilowatt range or higher elsewhere on the Railbelt as well.
“We don’t see anyway out of this unless we make a dramatic change,” Dunleavy said.
In early February, the governor introduced legislation that would ultimately require the Railbelt power utilities to get upward of 30% of their power supplies from renewable sources by 2030 and at least 80% from renewables by 2040. He says the falling prices of conventional renewable power sources make now the time to start the change.
Such renewable portfolio standards have been adopted by 20 other states so far, with some going as far as to set deadlines to reach 100% renewable power. Another nine states have adopted similar clean energy standards mandating power generation from certain carbon-free or low emissions sources.
A study conducted on behalf of state officials by researchers at the U.S. Department of Energy’s National Renewable Energy Laboratory found hitting the governor’s targets could save Railbelt consumers and businesses between $426 million and $506 million per year if other investments are made in transmission infrastructure and other areas.
Dunleavy’s goal is for Alaska to be “as energy independent as possible” when it comes to what is consumed within its borders.
“We want to expedite this (transition) before we lose any more customers and we want to take advantage of what’s available for renewables such as hydro and wind,” he said.
Texas, Dunleavy noted, is adding more renewable power capacity than any other state in the country, according to American Clean Power, an industry trade group, and at the same time is the epicenter of oil investment in the country.
“(Texas) has the opportunity to continue to put more cheap electricity on their grid in hopes that they will continue to grow their economy and their state,” he said.
Dunleavy similarly wants Alaska to benefit from periods of high global energy prices via its oil exports, and maybe someday natural gas exports, while insulating itself internally from those market forces.
Leaders of Hilcorp Alaska, the dominant gas producer in Cook Inlet, have not said anything negative about the bill to Dunleavy or officials in his office, the governor said.
A spokesman for Hilcorp declined to comment for this story.
John Hendrix, owner of Cook Inlet independent Furie, said he thinks the governor wants to go in a direction everyone should be looking at regarding the state’s energy situation, but he wants to know more about how the policies would be enacted.
Almost any discussion of large-scale renewable energy in Alaska eventually leads to talk of the contentious Susitna-Watana dam proposal, which has opposition stemming from a belief it will impact the river’s salmon as well as its $5 billion-plus price tag.
Dunleavy said Susitna-Watana is just one of several opportunities for new hydropower development in the Railbelt that include some innovative prospects such as pumped hydro, along with continuing to add to capacity at the state-owned Bradley Lake hydro project near Homer.
Renewable Energy Alaska Project Executive Director Chris Rose said the ever-improving economics of renewable power generation, particularly in regards to wind and solar, make the need for the transition obvious:
“Alaskans have never gotten a hometown discount on and gas, so it makes sense for the state of Alaska, in the Railbelt where 75% of the generation occurs, to detach itself from this high-price natural gas,” Rose said, adding wind and solar generation has been cheaper than gas-fired power for years already.
Cook Inlet natural gas, which is used to generate about 85% of the power in the region, currently sells in the range of $7-$8 per thousand cubic feet, or mcf, of gas, and until recently has been two or three times more expensive than Henry Hub priced gas in the Lower 48.
Rose said he believes development of numerous small-scale wind, solar and hydro projects can supply the bulk of the power needed to reach the governor’s goals, but also highlighted Cook Inlet’s unique potential for both geothermal and tidal energy as technologies evolve.
And it can all be done without impacting the reliability of the region’s grid, a major concern for utilities, he contends, if the utilities work together.
The leaders of the five Railbelt electric utilities sent a letter to the governor shortly before the bills were introduced in the House and Senate in which they agreed with him that Alaska is at a “critical juncture” in terms of its aging primary power grid, but also emphasized that wholesale changes will require acknowledging the realities of the current system.
Asked how achievable Chugach Electric Association leaders believe the governor’s target of 80% renewables by 2040 is, CEO Lee Thibert said via a written statement that the Railbelt utilities understand the need for more diversified energy supplies and they stand ready to support his renewable energy targets.
“We look forward to working with the governor and the Legislature on this important initiative to ensure the requirements of the RPS are both technically feasible and consider the potential impacts to member rates,” Thibert said.
Utility officials are most concerned about the corresponding need for investments in the Railbelt’s transmission lines to ensure power from numerous, variable sources can be sent throughout the Railbelt when needed and without constraint. Significant upgrades are needed to the Railbelt grid to maximize the economic potential of renewable generation and, at a minimum, maintain the system’s reliability.
The single transmission line running across the Kenai Peninsula already puts some constrains on the utilities’ ability to best use the power from Bradley Lake.
For his part, Dunleavy said he believes it is the state’s responsibility to help put in place the key infrastructure to make his targets achievable.
Studies commissioned by the Alaska Energy Authority in recent years have concluded the full Railbelt “wish list” of transmission projects to total roughly $900 million, though the list of critical projects is shorter, utility officials emphasize.
Lawmakers mostly reserved early judgment on the RPS legislation when Senate Bill 179 was heard for the first time in the Senate Labor and Commerce Committee Feb. 23. Dunleavy said whether or not the Legislature passes an RPS this year, the need for significant changes to the Railbelt’s energy makeup will remain.
“We certainly have to start the discussion and bring the public in the discussion as well,” he said.
Elwood Brehmer can be reached at [email protected]