alaska’s energy future: where is it headed?
DESCRIPTION
Alaska’s Energy Future: Where is it headed?. A guided macro/micro tour – with your vote on key assumptions to inform choices on the path forward. Sponsored by: Renewable Energy Alaska Project (REAP) Presented by: Mark A. Foster, P.E., MAFA February 9, 2011. Overview. Speaker Bio - PowerPoint PPT PresentationTRANSCRIPT
Alaska’s Energy Future: Where is it headed?
A guided macro/micro tour – with your vote on key assumptions to inform choices on the path forward
Sponsored by: Renewable Energy Alaska Project (REAP)Presented by: Mark A. Foster, P.E., MAFAFebruary 9, 2011
Page 29 Feb 2011 MAFA
OverviewSpeaker BioHistory of Energy in Alaska & Observations
Macro & Household level
Energy Economics Questions How much does it cost? Who Pays? What costs are
included/excluded?
Review of a few basic energy alternatives in some detail Transportation, Heating, Electric Markets
Key economic assumptions to consider in the evaluation of alternativesAudience Votes on descriptive and prescriptive assumptions about the future – oil & gas prices, GHG emissions regulation/taxes, environmental mitigation considerations, project cost overrun risksResults – How much does it cost? Who pays?
Page 39 Feb 2011 MAFA
Thank You & Disclaimer
I have been extremely fortunate to have enjoyed the support, encouragement and opportunity to collaborate with many talented and passionate Alaskans (and friends of Alaska) on energy issues over the past three decades; special thanks to the AEA, USDA-RUS, NREL, UAA ISER, ACEP, and from the late 1970s/early 1980s, Neil Davis, Arlon Tussing, John Whitehead, Gregg Erickson, and A.J. Horn, Gil Masters, Len Ortolano and Joseph FranziniThe views presented have been independently developed and do not necessarily reflect the views any clients or affiliationsPlease direct comments regarding any errors of commission or omission that remain to me via e-mail at [email protected]
Page 49 Feb 2011 MAFA
Speaker BioBorn and raised in FairbanksB.S. Civil Engineering, Stanford University; Senior Report: Economic Analysis of Susitna HydroelectricCity of Fairbanks Model Energy Code Development, Building Inspector, Plans ExaminerV.P., Ebenal General Construction, Interior Alaska Building ConstructionEngineer, Fairbanks Municipal Utility System, Downtown Fairbanks Coal-fired Chena Power PlantCommissioner, Alaska Public Utilities Commission (1990-1993); Telecom markets, TAPS, Healy Clean CoalPrincipal, MAFA; Regulated industries and technology consultant (1994 to present)
President/COO, Anchorage Telephone Utility Long Distance (1997-2000) VP Product Dev’t/Network Development, Alaska Communications System (1999-2000) Board of Directors, Alaska Power & Telephone (2004-present) Board of Directors, HydroWest International (2004-present) Board of Directors, Chair-Audit & Finance Committee, Anchorage Municipal Light & Power (2009) Selected consulting engagements (2000-2011)
Agrium, IPPs – Railbelt Energy Markets (Natural Gas, CTL Opportunities) U.S. Department of Agriculture/ISER/Denali Commission – Sustainability of Rural Utilities North Slope Borough, Kuukpik – North Slope Utilities, Local Energy Markets, Oil & Gas Opportunities AEA – Rural Energy Plan; Regional energy plan advisory committees; Co-authorship of renewable economics; Long
Term Oil Price Projections, Invited presentation on Railbelt Energy Overview, REGA and RIRP Advisory Committees APA – Regionalization Opportunities: A Review of BC Hydro History Native Corporations (Arctice Slope, BBNA, CIRI, Kuukpik) – Alaska Energy Opportunities ANGDA – Railbelt Gas & Electric Utilities financial capacity; Strategic Overview of Alaska Energy Alternatives NREL – Renewable/EE Opportunities in Alaska IAEE – Invited presentations on Railbelt Energy Economics City of Palmer – District Heat Energy System Opportunity ISER – Peer Review of Energy Reports (CTL, Renewables) UAF Cogen Plant Alternatives
Page 59 Feb 2011 MAFA
History of Energy Use in AlaskaThe Big Picture from 1960-2010
Alaska Total Energy Consumption by Source
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Bill
ion
BT
Us
per
yea
r
Biomass
Hydro
Other Petro
Resid
Motor Gasoline
Lubricants
LPG
Kerosene
Jet Fuel
DFO
Av Gas
Asphalt Road Oil
Natural Gas
Coal
Source: EIA Historic Energy Consumption, Alaska (1960-2006) Table 7
T, R, C, I
Page 69 Feb 2011 MAFA
History: Transportation SectorAlaska Transportation Energy Consumption by Source
0
50,000
100,000
150,000
200,000
250,000
300,000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Bill
ion
BT
Us
Fuel Ethanol
Resid
Motor Gasoline
Lubricants
LPG
Jet Fuel
DFO
Av Gas
Natural Gas
Coal
Source: EIA Historic Energy Consumption, Alaska (1960-2006) Table 11
Page 79 Feb 2011 MAFA
History: Residential SectorAlaska Residential Energy Consumption by Source
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Bill
ion
BT
Us
Electric System Losses
Retail Electricity
Wood
LPG
Kerosene
DFO
Natural Gas
Coal
Source: EIA Historic Energy Consumption, Alaska (1960-2006) Table 8
Page 89 Feb 2011 MAFA
History: Commercial SectorAlaska Commercial Energy Consumption by Source
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Bill
ion
BT
Us
Electricity System Losses
Retail Electricity Sales
Geothermal
Resid
Motor Gasoline
LPG
DFO
Natural Gas
Coal
Source: EIA Historic Energy Consumption, Alaska (1960-2006) Table 9
Page 99 Feb 2011 MAFA
History: Industrial SectorAlaska Industrial Energy Consumption by Source
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Bill
ion
BT
Us
Electricity System Loses
Retail Electricity Sales
Biomass
Hydro
Other
Resid
Motor Gasoline
Lubricants
LPG
Kerosene
DFO
Asphalt Road Oil
Natural Gas
Coal
Source: EIA Historic Energy Consumption, Alaska (1960-2006) Table 10
Page 109 Feb 2011 MAFA
Historical synthesis
What do you take away from historic energy consumption patterns?
SE Alaska Mining & Fishing SW Alaska Fishing Interior mining Kennicott Mine Department of Defense; Federal Investments (APA) Cook Inlet Oil & Gas; North Slope Oil Development of jet fuel market Red Dog Mine
How does that inform your view of the future?
Page 11
Southcentral Household Energy Perspectives
9 Feb 2011 MAFA
*Direct includes electricity, gasoline, airplanes, and home heating.
Direct does not include purchases of housing, food, clothing, consumables, gov’t, business, industry and church facilities and support.
Page 129 Feb 2011 MAFA
Energy Economics Intro
How much does it cost?Who pays?
Page 139 Feb 2011 MAFA
Energy Economics: Key Assumptions – Looking Forward
Oil pricesNatural gas pricesCost of project developmentEnvironmental considerationsEconomic discount rate; what is the opportunity cost of public or private funding
Page 149 Feb 2011 MAFA
Energy Economics:Oil Price Reference Forecast
Illustrative prices:$110/bbl at refinery=$2.62/gal at refinery (~$19/mmbtu)=$3.00/gal refined product rack (~$22/mmbtu)=$3.20-$7.50/gal to local storage/utility (~$23-54/mmbtu)=$4.00–$9.00/gal delivered to bldgs (~$29-65/mmbtu)
Page 159 Feb 2011 MAFA
Energy Economics: Quick review of oil and its competitors
Energy Source Transportation Heating Electricity
Oil Statewide: Gasoline
Diesel, Jet Fuel
Rural Alaska, SE Rural Alaska, SERailbelt
Wood/Biomass Remember: Stanley Steamer
SE, SC, Interior Fuel gathering &
delivery
SE Timber Operations
Coal Under consideration: Coal to Liquids
Fairbanks schools Fairbanks, Healy
Natural Gas Under consideration: Gas to LiquidsCNG vehicles
SouthcentralNorth Slope
SouthcentralNorth Slope
Hydro Under consideration: Electric trainsElectric cars,
trucks
Southeast, KodiakNote historic
penetration of electric heat
SE, Southcentral
Abe Lincoln for the first to guess the big elephant that is not in this picture but should be…
Page 169 Feb 2011 MAFA
Energy Economics: Natural Gas Price Reference Forecasts
Page 179 Feb 2011 MAFA
Energy Economics: Cost of Project Development, Operations, and Capital Rehab/Replacement in AK
Capital Operating
Cook Inlet Oil & Gas and Utility Sector
Platforms, On-Shore, Beluga, Soldotna
#1/Nikiski
Price per hour; Output per hour
North Slope Oil & Gas Trans-Alaska Pipeline System
Cost of Construction
Price per hour; Output per hour
Interior Refinery Scale and location considerations
Energy cost; labor costs
Hydroelectric – APA, Private, AEA
ScaleEstimate vs. Actual
Price per hour; output per hour; scope creep
Coal fired power plantsCTL/GTL Plants
ScaleLabor price & productivity
Labor price & productivity; scope creep,
life extension creep
Next Gen Renewables ScaleEstimate vs. ActualCapital replacement
cycles
Price per hour; output per hour; scope creep
Special thanks to Don Mellish for providing information that informs this chart
Page 189 Feb 2011 MAFA
Energy Economics: Will downsizing a hydro development on a river basin make it more affordable? How do you measure affordability? Total $ or ¢/kWh
Project Capacity
(MW)
Total Project Development Cost (millions of 2009$)
Long Run Levelized Cost of Electricity
[based on equivalent uniform annual cost
methodology]c/kWh
Susitna River Hydro Development ProjectWatana + Devils Canyon
1880 11,700 14¢/kWh
Devils Canyon 680 5,000 13¢/kWh
Watana 1200 8,400 22¢/kWh
Low Watana 600 6,900 20¢/kWh
Lower Watana 500 ? ?Sources: Susitna Hydroelectric Project, Project Evaluation, Interim Memorandum, Table 1 Summary and Appendix B: Detailed Cost Estimates (March 2009); These cost estimates include transmission system interconnection and substation upgrades (Ester, Willow, Knik Arm, University and Devil Canyon) and $45M for a new Energy Management System to help integrate the resources with the balance of the interconnected system.
Page 199 Feb 2011 MAFA
Energy Economics: How well do we estimate the cost of hydro
Preliminary Alaska Hydro Project Recon: Actual/Estimated Cost Ratio vs. Capacity (kW)
0
0.5
1
1.5
2
2.5
100 1000 10000 100000 1000000
Installed Capacity (kW) [log scale]
Act
ual
/ E
stim
ated
Co
st R
atio
(R
eal $
)
Source: MAFA Analysis of AEA Hydro Database, 2009
Large project cost risk zone
Continuing challenge of whether & howTo adjust *project cost* estimates
To account for large project cost underestimation risks
including:Low end estimates
Project development cost overruns
Page 209 Feb 2011 MAFA
Environmental Considerations
Project Development Site selection, local land use considerations Time to develop Local environment/habitat mitigation
considerations Mitigation requirements
Hydro water sharing, air/water cooling for combustion driven electrical generation
Emissions Air pollution: sox, nox, particulates, GHG,
mercury (Hg), etc.
Page 219 Feb 2011 MAFA
Project DevelopmentEIA AEO - Alaska Hydro Resource Assessment
13%
62%
25%
Available for DevelopmentNot Available - ParksNot Available - Fish
Source: MAFA Analysis (2009) of EIA AEO Technical Documentation-Alaska Hydro Resources (2003)Available for Development [Measured in MW of electrical capacity]
Around 1 in 8 promising hydro sites *might* be available for development due to conflicts with parks and fishing resources
Page 229 Feb 2011 MAFA
Project Development Challenges
EIA AEO Technical Appendices, Hydro Resources, AlaskaIHRED Total Alaska Resource Identified = 3414 MW (2003)
296
355
1,792
533
438
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
1
MW
90% Dev't Probability
75% Dev't Probability
50% Dev't Probability
25% Dev't Probability
10% Dev't Probability
Includes Chakachamna
Includes Susitna
Chakachamna should be reclassified to 50% dev’t probability (to correct error in IHRED
framework) leaving roughly 3.2% in 90% probability
EIA AEO Hydro Resources report (IHRED, 2003) estimates 26% in mitigation costs need to be added to basic Watana dam construction costs to account for fish and wildlife habitat and water monitoring requirements to achieve permit. That amounts to roughly $1B on a $4B construction cost estimate.
Page 239 Feb 2011 MAFA
Project Development Challenges:Mitigation allowance and licensing budget
EIA AEO U.S. Hydro Resources Report (IHRED, 2003) estimates 26% needs to be added to basic Watana dam construction costs to account for fish and wildlife habitat mitigation and water monitoring requirements to achieve permit at 1000MW scale. At $8.4 billion for the 1200 MW scale, this amounts to roughly $2 billion. Internal estimates at 1200MW scale contain $200 million mitigation allowance.
Licensing effort estimated at 6.5% of construction cost at 1000MW scale – amounting to roughly $450 million on $6.9 billion low Watana 600MW construction cost estimate; or $325 million on low low Watana 500MW construction cost estimate of roughly $5 billion.
These estimates may be low. Licensing percentage for smaller scale project likely to be higher as smaller scale has higher capital cost per unit of water impounded raising conflicts between limited water for habitat mitigation vs. water for electricity, especially as hydroelectric interests attempt to capture more water for winter peak electrical demand in order to deliver on promise of “cheap” electricity when most needed.
Page 249 Feb 2011 MAFA
GHG Emissions Regulation/Cost
Page 259 Feb 2011 MAFA
Economic Discount Rate
What is the value of a $1 today compared to a $1 a year from now, 10, 20, 30, 40, 50 years from now? What opportunities do we give up?Range of estimates:
Diversified Permanent Fund = 5% real Federal OMB = 7% real AEA B&V IRP = 7% nominal; ~4.5% real Others…
Zero or negative; long run social discount rate 3%
How we *finance* the development and construction is a separate and distinct analysis
Page 269 Feb 2011 MAFA
Illustrative Energy Economics: Long Run Levelized Cost
Long-run Levelized Cost of Energy comparison Equivalent Uniform Annual Cost (EUAC) methodology
Attempts to create a metric that you can compare to today’s unit cost of c/kWh or $/mcf
Components Capital Operating Fuel Regulation
Page 279 Feb 2011 MAFA
Summary of Illustrative Scenarios
Gas PriceAK premium
over HHAK Price
CO2 Emissions$/tonne
Annual Home Heating Bill
Cost
Capital Project Cost
Overrun Risk Adder
Real Discount Rate
Susitna Lite vs. Natural
Gas
$3.50$9.10
$24/tonne+$220/yr
0% 5% 1.91X
$4.50$10.10
$84/tonne+$760/yr
0% 4% 1.18X
$3.50$9.10
$24/tonne+$220/yr
20% 5% 2.28X
$3.50$9.10
$24/tonne+$220/yr
20% 7% 2.98X
$3.50$9.10
$24/tonne+$220/yr
40% 7% 3.46X
Page 289 Feb 2011 MAFA
Illustrative Scenario 1 [$3.50HH, $24CO2, 0% CapExRisk, 5% real]
Railbelt LRCOE: Illustrative Scenario 1 [$3.50, $24, 0%, 5%]
$0.00
$50.00
$100.00
$150.00
$200.00
$250.00
Chu
itna
Coa
l(1
00M
W)
Hea
ly "
Cle
anC
oal"
(50
MW
)
Nat
Gas
(18
0MW
)
Nat
Gas
(25
0MW
)
Cha
ka (
330M
W)
Cha
ka (
300M
Wv)
Sus
itna
(188
0MW
)
Sus
itna
(600
MW
)
Mt.
Spu
rr (
50M
W)
CI T
idal
(10
0MW
)
Bel
uga
CT
L(2
50M
W)
2009
$ /
MW
h Environmental ($/MWh)
Fuel ($/MWh)
O&M ($/MWh)
Capital ($/MWh)
Page 299 Feb 2011 MAFA
Illustrative Scenario 2 (~AEA B&V IRP) [$4.50HH, $84CO2, 0% CapExRisk, 4% real]
Railbelt LRCOE: Illustrative Scenario 2 [$4.50, $84, 0%, 4%]
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
$180.00
$200.00
Chu
itna
Coa
l(1
00M
W)
Hea
ly "
Cle
anC
oal"
(50
MW
)
Nat
Gas
(18
0MW
)
Nat
Gas
(25
0MW
)
Cha
ka (
330M
W)
Cha
ka (
300M
Wv)
Sus
itna
(188
0MW
)
Sus
itna
(600
MW
)
Mt.
Spu
rr (
50M
W)
CI T
idal
(10
0MW
)
Bel
uga
CT
L(2
50M
W)
2009
$ /
MW
h Environmental ($/MWh)
Fuel ($/MWh)
O&M ($/MWh)
Capital ($/MWh)
Page 309 Feb 2011 MAFA
Illustrative Economics: What factors drive the results
Capital cost estimates for large capital/low fuel cost technologies (hydro, coal, tidal, wind, biomass, geothermal, CTL, GTL) can make the project very competitive or very expensive compared to natural gas – and the capital costs estimates appear to be very sensitive to who is sponsoring the estimateThe price of natural gas and its potential volatility is a key factor in evaluation of alternatives in Southcentral, including end-use efficiency, especially related to heating of residential, commercial, government, institutional and industrial buildings.Coal prospects are sensitive to assumptions about CO2 costs and natural gas prices