With sharp jump in renewable power by 2040, Alaska Railbelt could save $1.3B in costs, Energy Department says

A sharp expansion in wind and solar power could save electric ratepayers along the Alaska Railbelt more than $1 billion by 2040, by replacing costs associated with natural gas and other fossil fuels that provide most of the region’s energy, the Department of Energy reported in a new cost analysis.

The high cost of energy along the Railbelt grid, from the Kenai Peninsula to Fairbanks, was one reason for the study, said Paul Denholm, one of the study’s authors, in a presentation to the Regulatory Commission of Alaska on Wednesday.

Denholm said the average price of electricity in the region was 23 cents per kilowatt hour in 2022, compared to the U.S. average of about 14 cents per kilowatt hour. The costs are expected to rise as utilities begin to import liquefied natural gas in the future, said Denholm, with the National Renewable Energy Laboratory in Golden, Colorado.

Robert Pickett, a commissioner with the Regulatory Commission of Alaska, praised the report. But he also expressed concerns, including about its tax-policy assumptions, and that it relies on an approach to costs that “grossly oversimplifies the project development process.”

Pickett suggested that renewable projects may not come online as quickly as expected in the next few years.

The 111-page analysis comes as utilities in the region face a looming shortage of Cook Inlet natural gas that has them racing to find new sources of energy.

The aging oil and gas basin has for decades provided the natural gas to power and heat Southcentral Alaska, but forecasts of future gas production are waning.

Hilcorp, the dominant oil and gas producer in Cook Inlet, warned utilities in 2022 that it did not have the gas available to renew gas supply contracts. Hilcorp’s contracts with the state’s two largest electric utilities, Chugach and Matanuska electric associations, end in 2028. Hilcorp’s contract with natural gas company Enstar ends in 2033.

Railbelt utilities are looking at importing liquefied natural gas to close the gap, an option that is expected to sharply boost rates. Power companies are also studying prospects for new wind and solar energy, including a large wind project across Cook Inlet from Anchorage with backers who say it can come online within four years.

The Energy Department analysis examined the costs and benefits of increased renewable energy in the Railbelt grid, using a renewable portfolio standard requiring Railbelt utilities to produce 80% of their power from renewables by 2040.

The standard is proposed in Senate Bill 101, introduced last year by Anchorage Democratic state Sen. Löki Tobin. The bill and companion legislation in the House have been stalled in committees. Gov. Mike Dunleavy also proposed a similar bill in the last legislative session in 2022, also with penalties for noncompliance.

Chugach Electric Association, serving the Anchorage area, passed a resolution in January supporting a renewable portfolio standard, citing in part the standard’s ability to preserve gas. The resolution cautioned that noncompliance should be subject to waivers, and any penalties should be recoverable in rates but dedicated to renewable energy efforts.

Denholm said that the analysis found that Railbelt electric utilities would see significant savings if they boosted their share of power from clean energy sources to 76% between now and 2040. Adding additional increments of power by 2040, to 80% for example, would not be financially optimal, he said.

The study said that’s in part because of factors such as that the best wind-generating sites will already be in use.

The Railbelt region currently receives about 15% of its power from renewable sources, primarily from hydropower, according to a summary of Senate Bill 101.

Taking that renewable share to 76% would result in $1.3 billion in savings by 2040, Denholm said. The savings would be passed on to ratepayers, he said.

This year was picked as a baseline starting year, but the modeling used in the analysis assumed new renewable power begins to ramp up significantly around 2027 or 2028, he said.

The modeling assumes capital costs and other expenses related to building wind and solar projects would be about $2.9 billion over the time period. That would offset costs associated with current power generation, from gas and other sources, of $4.2 billion.

During periods of low renewable power, existing hydropower and fossil-fueled generators would still be available to meet demand, the analysis found. Adding large amounts of renewables to the grid will require modifications and upgrades, the review also found.

The analysis assumes most of the new renewable power would come from wind energy, Denholm said. Solar power would play a smaller role.

The analysis used wind data to identify potential project locations, but didn’t have data for all possible sites, he said.

“We just want to be careful because we don’t know that those are the best sites, there may be better sites,” he said in a phone interview on Wednesday.

Much of the new wind power could come from the Fairbanks and Kenai Peninsula region, the review found.

The model may have underestimated or overestimated some costs, and it includes “considerable uncertainties,” he said.

Timelines for how quickly renewable projects could come online face extra uncertainty in Alaska compared to the Lower 48, where renewable projects can come online fairly quickly, he said.

The report also factors in several assumptions, including that the projects would benefit from an Investment Tax Credit of 40% available in the Inflation Reduction Act of 2022.

Chris Rose, head of the Renewable Energy Alaska Project, said he hopes the study informs lawmakers on the costs and benefits of different scenarios.

“It demonstrates that the least-cost path forward to address the natural gas crisis we have in Cook Inlet is to build local renewable energy resources, like wind and solar, and generate power locally and not rely on a different country to bring in our energy supplies,” Rose said.