Introduction to History of Alaska Energy Policy
Alaska has a history of energy planning and policy development dating from statehood in 1959. That history still holds some relevance today by demonstrating both successful and less successful energy program implementation. This page provides a brief synopsis of past efforts in energy planning and implementation of those plans, including some of the lessons learned.
Overview of Rural Energy
Although electricity first appeared in some rural Alaska villages as a result of military, cannery, mining, or logging operations, its introduction into many villages began only in the late 1950s as the Bureau of Indian Affairs (BIA) installed small generators for lighting its schools1. This electricity was not available to households, and few villages had central power supplies before the mid-1970s. The exceptions were larger rural communities such as Bethel, Nome, Dillingham, and Kotzebue.
Electrification began to spread more rapidly in the 1970s, but an estimated 85 rural communities, most with less than 200 residents, were still without central power supply systems in 1975. Over the next 10 years the state provided local communities a large number of grants for electrification, and by the mid-1980s most remote communities had centralized diesel power facilities.
The demand for diesel and other petroleum products in rural Alaska originated with the introduction of outboard motors in the 1940s and snowmobiles in the 1960s. This demand expanded when the BIA and Alaska State Housing Authority began constructing conventional western housing in rural communities in the 1960s. Demand for petroleum products has continued to expand with the introduction of electric utilities and other infrastructure such as schools and water treatment plants.
Today most rural communities generate electricity with centralized diesel systems. Petroleum fuels provide the bulk of all energy for electricity, space heating and transportation. Costs are high due to the expense of moving fuel to rural Alaska and the small scale of operations. The high costs have motivated residents to use less and mean rural energy consumption is lower than in urban areas.
Rural Energy Policy 1979-1985
In 1979, under Governor Jay Hammond, the state articulated its first energy policy that included the following principles:
- Equitable distribution of Alaska’s energy wealth
- Improved efficiency of production and delivery
- State planned and funded facility construction
- Technical assistance in conservation and management
- Support for development of locally oriented energy technologies
- Public participation and local input in energy planning decisions
Several conditions at the start of the 1980s heavily influenced development of this energy policy. This included the concept that developing cheap power, primarily through investment in hydropower projects such as Susitna and Bradley Lake as well as various projects in Southeast Alaska, would stimulate economic development. It was also assumed that state revenues from the newly producing oil field at Prudhoe Bay could provide the money needed to bankroll these huge investments. The high price of oil and the expectation that it would continue to rise also led to the assumption that there would be no shortage of money (in 2008 dollars the 1981 price of crude oil was close to $60 per barrel).
Of particular importance to rural communities were the following considerations:
- A way to spread the wealth from oil to all residents would be to make electricity available and cheap for all Alaska communities, including those in the bush.
- The high price of crude oil meant that the price of diesel fuel, the source of most of the energy for rural Alaska, was oppressively expensive - particularly in relation to costs in urban areas. Many urban places were somewhat insulated by existing hydro facilities or by availability of natural gas, which was not tied to the price of oil.
- The fear of oil embargoes gave rise to the idea of self sufficiency of energy supply, which meant the use of locally available sources of energy rather than the use of imported diesel.
- The national initiative to develop alternative energy and implement conservation measures meant that a lot of money from the federal government was available to consider alternative means of providing electricity in rural Alaska.
In 1980 the state began spending large amounts of money collecting data on energy resource availability and energy use, conducting studies of hydro potential and investigating the potential for alternative energy sources, particularly for the state’s smaller communities. For example, the 1981 State Long Term Energy Plan (the first of six such plans) described the activities of the newly formed Division of Energy within the Department of Commerce. Prominent was a list of the alternative energy sources (peat, biomass, solar, wind, geothermal, tidal, hydrogen, fuel cells, heat pumps, and waste heat recovery) that the division would be investigating in the hope that some would be appropriate for rural Alaska.
By the time the 1982 plan was written, the Division of Energy, together with the Alaska Power Authority, had spent $12.6 million on geothermal, wind, wood, peat, single-ground-wire transmission, waste heat, weatherization, organic rankine generators, and tidal energy. The state departments of Transportation and Public Facilities and Environmental Conservation also conducted alternative energy studies. Hydroelectric studies fell into their own category.
The progress of those investigations can be traced through the early 1980s by reference to each succeeding State Long Term Energy Plan. These documents reflect the evolution of policy over time, partially through changes in administrative structure, and tend to be forward looking. Consequently, they include only a limited amount of information about the successes, failures, and lessons learned from money spent on existing projects, including investments in alternative energy.
What Did The State Learn About Rural Energy?
After gaining experience with renewable resource exploration and development in the early 1980s, several conclusions were reached. These included:
- Geothermal resources are site specific and expensive to develop
- Wood is an excellent substitute for fuel oil
- Alaska has vast resources of peat, but technical expertise and infrastructure for its economical use are not in place
- Wind resources need more study
- Seasonal fluctuations restrict the viability of solar power
- Tidal power has limited applicability
- Diesel generators will remain the dominant option due to their appropriate scale, reliability, and minimal maintenance requirements. Improvements in diesel-operating efficiency offer one promising strategy for addressing the problem of high energy costs in the bush.
- Small hydro and wind projects may be attractive on a site-specific basis. (Thirty-four wind turbines were identified as in operation in 1982)
- Extensive, long-distance intertie systems are probably not economic.
- Fuel cells may prove promising, but they were expensive and not commercial. They have some potential advantages including efficient fuel use, modular design, (theoretically) simple operation, excellent load-following capability, and minimal environmental impact.
The 1983 report, written by Arthur D. Little, found that “generally it is either technically difficult or uneconomic to alter the dependence of Bush communities on oil. Many alternatives, while attractive on the drawing board, experience operation and maintenance problems which quickly negate any cost savings. Reliability and simple technology are therefore essential.”
The energy plans for 1984, 1985, and 1986 have less to say about alternative energy for rural Alaska for several reasons. Early enthusiasm for alternative energy sources to generate electricity was dampened because these alternatives did not hold up under investigation either because they were technically or economically infeasible or they did not work in operation. Additionally, and more importantly, the price of oil, and consequently the relative price of electricity generated by diesel in the bush compared to alternatives, was falling. This also resulted in the federal government losing interest in funding alternative energy as the national oil crisis dissolved.
According to the 1986 plan, little progress in energy diversification in the bush had been made since 1979. The only projects that had been implemented were a number of wind generators. In reference to those installations, the 1986 plan concluded that wind power could be both technically and economically feasible and yet still fail because of improper management, logistical problems (distance from suppliers and qualified technicians), or lack of an operations and maintenance network.
1985 Review of Energy Policy
By 1985, concern within the Alaska Legislature on the direction of the state rural energy program led to a review and analysis by the legislature’s research agency (House Research Report 85-C). The review concluded, among other things, that:
- State loans and grants to rural utilities for diesel generation systems flourished in the late 1970s and early 1980s.
- Numerous alternative energy demonstration projects were begun in the late 1970s in hopes that they would eventually provide replacements for rural diesel generation.
- The state established a power rate subsidy program in 1980 as an interim measure, until a long-term alternative energy solution could be found for high rural power costs (a.k.a. the PCE Program which is still in place today).
- Disenchantment with the general lack of success of alternative energy projects and the perception of disorganization led to the demise of the Division of Energy and Power Development in 1983.
- As results from alternative energy projects and village reconnaissance studies were made public, many people began to realize there were no realistic alternatives to diesel power generation in many rural communities.
The report quoted one state analyst’s perspective on the reasons for the failure of alternative energy initiatives. The analyst’s observation was that bureaucracy is not good at choosing winners and losers. The marketplace is better for determining which alternatives are most appropriate. Specific factors the analyst mentioned were:
- state agencies did not develop strong management capabilities;
- they lacked methods for assessing the technical and financial feasibility of projects;
- coordination among state agencies was often lacking;
- features of an alternative technology were often poorly matched with a useful rural application;
- unrealistic expectations existed about what an agency or technology could accomplish;
- and too much responsibility was delegated to contractors while the state often assumed the risk in the performance of the project.
When considering the current (2008) RE Fund, the system of competitively and rigorously vetted proposals will hopefully mitigate some of the concerns expressed regarding the failed programs initiated during the late 1970s and early 1980s.
Differing opinions on the role of the state in developing renewable energy projects was also expressed in the 1985 Review. In particular, Neil Davis of the University of Alaska Fairbanks felt that the state had given up too soon on research into alternative technologies, particularly considering the amount of money it was spending to develop other energy resources.
The 1985 Review estimated that from 1975 to 1985 the state had spent $1.7 billion on energy programs. This included $720 million on urban hydro; $93 million for grants and loans for rural electricity generation and distribution; $27 million in the search for alternative sources of energy (hydro, geothermal, coal, and gas); and $24 million in research and pilot projects related to wind, wood, solar, single-wireground return, biomass, and waste heat recovery.
The Review concluded that since the state’s energy policy was largely driven by the desire to share the wealth from oil, much of the money had not been spent wisely.
Specific criticisms of state energy policy as it was implemented included:
- Most of the focus had been on electricity, which is only a small part of the total energy requirement of rural Alaska.
- Benefits were distributed inequitably, with the better organized communities getting the lion’s share of the benefits in a ‘survival of the fittest’ approach.
- The rural energy problem is not one of high cost, but rather of low cash income to pay for energy.
1990s Energy Policy
In 1986 the state slipped into a recession because of declining oil prices and the state started reducing its budget. Energy policy initiatives were reduced, and most state effort went into the maintenance of existing projects and programs. By the early 1990s the large hydro projects for urban and maritime Alaska and Railbelt interties had been completed, and the Power Cost Equalization program for rural utilities had been established. The Healy Clean Coal Plant was built in 1998, but with the exception of a brief test period, it has not been commercially operated.
Attention in urban Alaska, particularly in the Railbelt, was centered on the introduction of competition in electricity sales, construction of interties, and finding alternatives to Cook Inlet natural gas as it began to decline. State electricity policy for rural Alaska during this period is reflected in the programs of the Alaska Energy Authority, Office of Rural Energy (previously the Division of Energy of the former Department of Community and Regional Affairs).
After the large effort that went into wind demonstration projects in rural Alaska in the early 1980s not one of them remained in service by the early 1990s. This was due primarily to immature technology coupled with a lack of continued maintenance as federal tax incentives expired. However, a new generation of improved wind turbine technology began to be tested in Kotzebue, a relatively large rural hub village, and Wales, a very small community. Both communities were using new technology that was more reliable than what was used in the 1980s, and more suited to withstand arctic conditions. Kotzebue Electric Association now has twelve 65 kW AOCs, one 100 kW Northwind 100, and one 65 kW re-manufactured Vestas. These units currently supply about 7% of Kotzebue’s electrical requirements annually. Today, Kodiak has the most installed windpower in the state with three 1.5 MW GE SLE turbines, for a total of a 4.5 MW generating capacity. Kodiak Electric Association completed the project in 2009.
2000 to Present
State energy policy early in this decade is reflected in the 2003 Statewide Energy Issues Overview, a product of the Alaska Energy Policy Task Force. The Task Force was established under House Concurrent Resolution No. 21 (HCR 21). The sunset date for the Task Force was April 15, 2004. The Task Force examined how electricity is generated, transmitted, and distributed in Alaska in order to meet the State’s existing and future electrical needs in a safe, reliable, and efficient manner. It was tasked to develop a long-term Energy Plan for Alaska that would enhance the State’s economic future.
For the Railbelt, the primary projects identified were a retrofit to the Healy Clean Coal facility, the Emma Creek (coal) Energy Project near Healy, expansion of the Golden Valley Electric Association (GVEA) North Pole power plant, construction of the Sutton-Glennallen intertie, reconstruction of the Anchorage-Kenai intertie, upgrades of military power facilities, and coalbed methane development.
For the Copper Valley, Kodiak, and Southeast Alaska, the focus was on a piped natural gas or propane distribution system to Southeast Alaska, and on interties, including construction of the Swan Lake–Tyee Lake intertie, the Juneau-Greens Creek-Hoonah intertie, and the Kake-Petersburg intertie.
As was true of past state energy policy, the Task Force’s work product was primarily focused on electricity and on grants and loans for the construction of new generation and transmission infrastructure.
Concurrent to the Statewide Energy Issues Overview was the development of the 2004 Rural Energy Plan. The Plan recommended a combination of utility management best practices, investments in commercially available, cost-effective production and enduse technologies, and the fine tuning of the power cost equalization incentive structure. It estimated those changes could increase rural energy efficiency by as much as 20% over the next 15 years, compared to current practices. The Rural Energy Plan also suggested investing approximately $65 million for energy efficiency over five years, an investment the Plan estimated could produce benefits on the order of $78 million over fifteen years.
The Plan also provides guidance to Alaska Energy Authority (AEA) and the Alaska Village Electric Cooperative (AVEC) for upgrading the following programs: Rural Power System Upgrades, Bulk Fuel Upgrades, Power Cost Equalization (PCE), Alternative Energy and Energy Efficiency, and training. Currently rural Alaska utilities, schools, and residential households account for about $170 million in annual energy expenditures (utility payments for fuel and non-fuel costs; school payments for heating fuel and electricity; residential household payments for heating fuel and electricity; PCE payments to utilities).