Alaska natural gas crunch is increasing demand for a traditional fuel — coal

Southcentral Alaska’s natural gas crunch is boosting demand for coal-fired power hundreds of miles inland, a sign that a looming supply crisis will have far-reaching consequences across Alaska.

In a late-August filing with the state’s utility regulator, the electrical cooperative for Fairbanks said it had signed a six-year contract with Usibelli Coal Mine to supply Healy 2, a troubled coal-fired power plant.

Until February, Fairbanks’ cooperative, Golden Valley Electric Association, had planned to shut down Healy 2 because of its high maintenance and operating costs.

“The greater concern now is that the natural gas shortage in the Cook Inlet will worsen, resulting in a potentially critical situation for the Alaska Railbelt utilities starting in 2027,” GVEA said in the filing.

Since 2022, the largest natural gas supplier in Southcentral Alaska has warned about an impending supply crunch for the region.

Natural gas is the principal source of home heating and electricity in Anchorage and the surrounding area, and Cook Inlet has ample supplies of underground gas, but gas sellers have failed to drill enough new wells to keep up with demand.

Experts expect that by the end of the decade, there won’t be enough natural gas to meet demand.

The effects of that crisis stretch from Homer to Fairbanks and Delta Junction, encompassing more than two-thirds of Alaska’s residents.

“It’s not just a Southcentral issue. It certainly impacts us here up in Fairbanks as well,” said Ashley Bradish, GVEA’s director of external affairs.

Fairbanks generates most of its power via diesel and coal-fired generators and has some of the highest prices for home electricity on the Railbelt.

Starting in 2023, it began buying limited amounts of cheaper gas-fired power from Southcentral via the 170-mile Alaska Intertie, which threads through the Alaska Range. It also bought what the utility refers to as “economy energy” from Southcentral utilities.

“In 2023, generation from those two sources made up 10% of GVEA’s supply mix. The loss of economy energy purchases in 2024 dropped this number to 6%. Starting January 2025, purchases up the Intertie from natural will be at 0%,” the utility said in its regulatory filing.

During a cold snap this past winter when natural gas supplies ran low, the intertie actually ran in reverse, with GVEA sending a small amount of power south, Bradish said.

The Alaska Energy Authority operates the intertie, and Curtis Thayer, its executive director, couldn’t recall a prior instance of that happening. Nor could Bradish at GVEA.

“I don’t know the last time it was done. It was a unique circumstance,” Thayer said.

By turning to coal, GVEA is bucking a long-term trend. Coal emissions have been linked to climate change, and utilities across Europe and the United States have been phasing out coal-fired power.

Alaska has one operating coal mine, Usibelli near Healy, and GVEA has two power plants near the mine.

Healy 1, which has been operating since 1967, uses about 133,000 tons of coal per year, said Lorali Simon, Usibelli’s vice president for external affairs. Healy 2, which has been operating commercially since 2018, consumes about 209,000 tons.

Alaska’s coal production peaked in 2010 at more than 2 million tons per year, but coal exports declined in the 2010s, and the state’s lone coal export terminal closed in 2016. It’s now being dismantled.

In all that time, and continuing today, the state’s domestic coal use stayed steady at about 1 million tons per year, according to figures published by the federal Energy Information Administration.

Healy 2′s closure, sought by environmental groups, would have meant a significant decline. The new contract likely means stable consumption levels through the end of the decade.

GVEA, like Alaska’s other utilities, is encouraging the development of renewable power — things like wind and solar. But also like Alaska’s other utilities, it still needs what’s known as “base load” power, something that can be turned on when the wind stops blowing or a cloud blocks the sun.

“It is essential that GVEA have in place a fuel source that is affordable, readily available, and can be relied on for the years ahead. With GVEA’s loads being fairly stable for the foreseeable future, the importance of meeting the existing load requirements and having a reliable source of energy are paramount, thus justifying the need for the 2024 Agreement,” the cooperative said in its August filing.

In parts of the Lower 48, the electrical grid is dense enough that it can easily share variable power sources like wind and solar. If the wind stops blowing in one area, a windy spot nearby can simply take up the slack.

Alaska’s Railbelt electrical grid currently struggles under those scenarios, but that’s beginning to change. AEA, under Thayer, recently received a $200 million grant to upgrade parts of the grid in Southcentral Alaska.

A second phase of the project will upgrade the intertie to Fairbanks.

AEA’s Bradley Lake hydropower plant currently offers some of the cheapest electrical power in the Railbelt, and AEA is planning an expansion.

Thayer said the Bradley Lake power wouldn’t completely solve the natural gas problem, but it would help by allowing utilities to use gas for home heating instead of electricity.

“At the end of the day we use the natural gas for not only electrifying our homes, but also home heating. I don’t care where my electric power comes from, wind, solar, hydro, natural gas — whatever — but I definitely want that thermostat to work,” he said.

Bradley Lake could be a fix for Southcentral, but it isn’t clear whether it will help Fairbanks. According to GVEA’s latest power cost reports, the cost to generate and ship dam power to GVEA is greater than the cost to generate and ship coal power, even from Healy 2.

If that holds true in the coming years, coal may be a key part of Alaska’s energy picture for many more years to come.

Originally published by the Alaska Beacon, an independent, nonpartisan news organization that covers Alaska state government.