Legislature(2013 - 2014)BARNES 124

03/26/2014 08:00 AM House ENERGY


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08:02:59 AM Start
08:03:53 AM Presentation: Alaska Center for Energy and Power
09:01:41 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentation: Alaska Center for Energy & Power TELECONFERENCED
by Gwen Holdmann, Director
- ACEP Program & Projects Overview
- ACEP Working Relationships State & Industry
- Funding Energy Projects
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE SPECIAL COMMITTEE ON ENERGY                                                                              
                         March 26, 2014                                                                                         
                           8:02 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Doug Isaacson, Co-Chair                                                                                          
Representative Neal Foster                                                                                                      
Representative Pete Higgins                                                                                                     
Representative Shelley Hughes                                                                                                   
Representative Benjamin Nageak                                                                                                  
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Charisse Millett, Co-Chair                                                                                       
Representative Andy Josephson                                                                                                   
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION:  ALASKA CENTER FOR ENERGY AND POWER                                                                               
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
GWEN HOLDMANN, Director                                                                                                         
Alaska Center for Energy and Power                                                                                              
University of Alaska Fairbanks                                                                                                  
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Provided a presentation on the Alaska                                                                    
Center for Energy and Power.                                                                                                    
                                                                                                                                
ANTONY SCOTT, Senior Economist and Energy Analyst                                                                               
Alaska Center for Energy and Power - Anchorage Office                                                                           
University of Alaska Fairbanks                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Participated in the presentation on the                                                                  
Alaska Center for Energy and Power.                                                                                             
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
8:02:59 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  DOUG ISAACSON  called  the House  Special Committee  on                                                             
Energy meeting  to order  at 8:02  a.m.   Representatives Hughes,                                                               
Nageak,  and  Isaacson  were  present   at  the  call  to  order.                                                               
Representatives Foster and Higgins arrived  as the meeting was in                                                               
progress.                                                                                                                       
                                                                                                                                
^PRESENTATION:  ALASKA CENTER FOR ENERGY AND POWER                                                                              
       PRESENTATION:  ALASKA CENTER FOR ENERGY AND POWER                                                                    
                                                                                                                              
8:03:53 AM                                                                                                                    
                                                                                                                                
CO-CHAIR ISAACSON announced that only  order of business would be                                                               
a presentation by the Alaska Center for Energy and Power.                                                                       
                                                                                                                                
8:04:56 AM                                                                                                                    
                                                                                                                                
GWEN HOLDMANN, Director,  the Alaska Center for  Energy and Power                                                               
(ACEP),  University  of  Alaska  Fairbanks  (UAF),  informed  the                                                               
committee  she  would present  an  overview  of ACEP's  projects,                                                               
especially  those that  are relevant  to  policymakers, with  the                                                               
assistance  of the  center's energy  analysis group  that studies                                                               
economics  and  policy-related  topics.   The  ACEP  program  was                                                               
fundamentally designed  as an  interdisciplinary program  and she                                                               
said  the  presentation  would include  descriptions  of  ongoing                                                               
working relationships  with state agencies, industry,  and within                                                               
the University  of Alaska (UA); in  fact, ACEP does not  have one                                                               
project without external  partners.  Ms. Holdmann  said she would                                                               
also  address the  importance of  emerging energy  technology and                                                               
energy  research.    She  directed   attention  to  a  PowerPoint                                                               
presentation  entitled,  "ACEP -  Alaska  Center  for Energy  and                                                               
Power  -  Results-Driven  Research  for  Alaska,"  and  gave  the                                                               
following brief history  of ACEP: organized about  five years ago                                                               
as  a gateway  to energy  research at  UAF; based  at UAF  with a                                                               
satellite office  in Anchorage;  20 staff members;  35 affiliated                                                               
faculty members; and  50 students [slide 3].  When  given a task,                                                               
ACEP gathers  a variety  of researchers,  inside and  outside the                                                               
state, for their  expertise on a specific problem.   At this time                                                               
researchers from  Australia and Idaho  are working in the  lab at                                                               
UAF.  Student research is also  funded with the intent to attract                                                               
and keep Alaskans at the university  and in the state.  Given the                                                               
current constraints on state revenue,  Ms. Holdmann stressed that                                                               
ACEP is  a revenue-generating  research program  for UAF  and for                                                               
the  state;  for example,  during  its  short history,  ACEP  has                                                               
received $3.1 million  in state funding through  the UA operating                                                               
budget compared to  $26 million in external  grants and contracts                                                               
for applied energy research of immediate relevance to Alaska.                                                                   
                                                                                                                                
8:10:52 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES asked for the source of the grants.                                                                       
                                                                                                                                
MS. HOLDMANN answered that  approximately one-quarter are through                                                               
the  Alaska  Energy  Authority  (AEA),  Department  of  Commerce,                                                               
Community  & Economic  Development,  and the  remainder are  from                                                               
industry.                                                                                                                       
                                                                                                                                
CO-CHAIR  ISAACSON surmised  ACEP's ratio  [of public  to private                                                               
funding] is not quite 9:1.                                                                                                      
                                                                                                                                
MS. HOLDMANN added that some  of the state grants are competitive                                                               
awards through AEA's Renewable Energy Fund program.                                                                             
                                                                                                                                
8:12:24 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  ISAACSON concluded  that  a portion  of  the funds  are                                                               
leveraged against industry funds.                                                                                               
                                                                                                                                
8:12:58 AM                                                                                                                    
                                                                                                                                
MS. HOLDMANN continued  to explain that of its  total funds, ACEP                                                               
leverages  funds on  a ratio  of 9:1  and seeks  to increase  the                                                               
amount  of partnerships  within the  state.   In the  past energy                                                               
research has  been federally funded;  however, in order  to focus                                                               
the research  on Alaska, ACEP  prefers to attract  private sector                                                               
partners from  Alaskans and Alaska  businesses.  She  pointed out                                                               
that 40 percent of the  funding received goes to small businesses                                                               
in Alaska that  work as subcontractors for  ACEP in manufacturing                                                               
and field  work.  Further,  approximately 20 percent is  used for                                                               
base operating costs at  UAF [slide 4].  The role  of ACEP and UA                                                               
is  to  develop information  to  help  homeowners, industry,  and                                                               
governments  make   decisions  through  technology   testing  and                                                               
optimization,  energy   analysis,  and   data  management.     In                                                               
addition,  ACEP  prepares  students  to  work  in  energy-related                                                               
disciplines  and  commercializes  energy innovation  to  generate                                                               
wealth for the state and economic growth [slide 5].                                                                             
                                                                                                                                
8:17:36 AM                                                                                                                    
                                                                                                                                
ANTONY SCOTT,  Senior Economist and Energy  Analyst, ACEP, listed                                                               
samples  of ongoing  projects undertaken  by the  energy analysis                                                               
group:  diesel fuel price  benchmarking to understand the variety                                                               
of fuel prices around the  state and facilitate solutions to high                                                               
prices,  such  as  alternative energy  sources  or  conservation;                                                               
assessment   of   the   economics  of   a   Southeast   Alaska-BC                                                               
Transmission  Intertie; private  investment models  for renewable                                                               
energy infrastructure  in Alaska,  which may provide  the lowest-                                                               
cost  power  due  to  federal tax  credits  and  deductions;  and                                                               
liquefied  natural gas  (LNG) economic  assessment and  screening                                                               
for coastal Alaska communities [slide  6].  To delve further into                                                               
the last topic, he explained that  ACEP's ongoing work for AEA is                                                               
high level screening of the economics  of very small scale LNG to                                                               
displace  diesel-fueled  powerhouses  in coastal  communities  in                                                               
Alaska.    The   Westpac  Company  seeks  to   transport  LNG  in                                                               
international  standard  organization intermodal  (ISO)  shipping                                                               
containers  from British  Columbia  to  Alaska, or  alternatively                                                               
from Cook  Inlet to other  areas of  the state.   This commercial                                                               
opportunity  has  emerged as  oil  prices  rise and  natural  gas                                                               
prices do not, thus making  the transportation and storage of LNG                                                               
in  ISO  containers  economic  in  some cases  [slide  7].    The                                                               
comparison sought by AEA was  between ISO container transport and                                                               
storage of LNG, which is the  most expensive method, and the bulk                                                               
transport of diesel fuel.                                                                                                       
                                                                                                                                
8:23:45 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NAGEAK cautioned  that the use of  LNG in villages                                                               
requires  building infrastructure,  and  asked about  the use  of                                                               
propane as a source for fuel.                                                                                                   
                                                                                                                                
MR. SCOTT acknowledged that propane  has potential, but the price                                                               
of  propane is  not  as  low as  that  of  natural gas;  further,                                                               
propane also requires infrastructure.   He clarified that the AEA                                                               
study  focused  on  displacing   diesel  for  the  generation  of                                                               
electricity - not for home heating  - because using LNG for power                                                               
generation  requires the  least amount  of capital  investment at                                                               
the village level and if  that were successful, then subsequently                                                               
AEA would look  at opportunities for home heating.   The study is                                                               
further  limited to  the  use of  LNG as  proposed  by a  private                                                               
investor.                                                                                                                       
                                                                                                                                
CO-CHAIR  ISAACSON asked  whether Bush  communities can  approach                                                               
economies of  scale of ten  thousand 1,000 British  thermal units                                                               
per day (MMBtu/d).                                                                                                              
                                                                                                                                
8:26:54 AM                                                                                                                    
                                                                                                                                
MR. SCOTT advised  that the electric load  in coastal communities                                                               
in  Alaska is  small; in  fact,  aggregating all  of the  coastal                                                               
communities from  Bethel to Southeast  does not amount  to 10,000                                                               
MMBtu/d, which is the threshold  of economical generation [slides                                                               
8 and 9].  However, industrial  loads such as fish processing and                                                               
mining hold  the potential for  approaching sufficient  demand to                                                               
support a project using ISO  containers for transport and storage                                                               
[slides 8  and 9].   The study  found that particularly  for ice-                                                               
free  communities,  if  diesel  costs   are  high  and  there  is                                                               
sufficient load,  LNG can displace  diesel for  power production,                                                               
no matter  the size of the  community.  He directed  attention to                                                               
slide 10,  which illustrated the  break-even costs and  the risks                                                               
associated with transitioning to a new fuel.  In response to Co-                                                                
Chair Isaacson,  he explained  that each black  line on  slide 10                                                               
represents  a  community and  the  range  in  which the  cost  of                                                               
natural gas  is economic compared  to the  cost of diesel  fuel -                                                               
shown on the Y axis -  during the period between fiscal year 2010                                                               
(FY 10) and  FY 12.  The red  line - the X axis  - indicated that                                                               
during  this  period  of  time,   natural  gas  could  have  been                                                               
purchased  for  less than  diesel,  thus  there is  a  reasonable                                                               
expectation that LNG would be  successful in ice-free communities                                                               
if there is  an industrial load.  For  ice-bound communities, LNG                                                               
must  be   stored  for   the  winter,   which  adds   to  capital                                                               
expenditures  (CAPEX),  and  he  concluded  that  the  additional                                                               
storage  costs  undermine  the  economics of  LNG  use  in  those                                                               
communities [slide 11].                                                                                                         
                                                                                                                                
8:34:24 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  ISAACSON surmised  that  the use  of  ISO tanks  should                                                               
absolve storage tank issues, and questioned their purpose.                                                                      
                                                                                                                                
MR. SCOTT agreed that the ISO  containers store the LNG for 60-90                                                               
days, but that  is insufficient to supply  an ice-bound community                                                               
through the winter, with the  exception of Dillingham and Naknek,                                                               
which  have sufficient  electrical  loads [slide  11].   Ice-free                                                               
communities  need  fewer  containers.    The  study  showed  that                                                               
economies  of  scope  and  scale matter;  for  example,  for  the                                                               
proposal to work,  larger industrial loads are  necessary and LNG                                                               
is a  potential option  for ice-free communities.   Also,  a bulk                                                               
delivery  project  relying on  the  electrical  demand from  fish                                                               
processing  is  possible  in  Unalaska/Dutch   Harbor,  as  is  a                                                               
Southeast-based  ISO project,  with the  demand of  an industrial                                                               
load.   Mr.  Scott concluded  that the  state would  not have  to                                                               
participate in these  projects given that there  is interest from                                                               
private entities [slide 12].                                                                                                    
                                                                                                                                
8:40:49 AM                                                                                                                    
                                                                                                                                
MS. HOLDMANN  informed the committee that  ACEP conducts directed                                                               
research for rural energy issues  and community solutions, and on                                                               
a larger  scale, topics  related to  industry.   The ACEP  lab in                                                               
Fairbanks tests  many products  and testing is  also done  in the                                                               
field [slide 15].   She directed attention to slide  19 and noted                                                               
there is  significant interest in  Alaska in the  installation of                                                               
ground and seawater  source heat pumps; in fact,  ACEP's work was                                                               
credited with  facilitating their  installations in Juneau.   The                                                               
center  has  compiled  economic  data,  and  completed  technical                                                               
evaluations  on   heat  pump  operating  systems   statewide,  in                                                               
collaboration  with  the  Denali   Commission  and  others.    In                                                               
response to  a request from  the legislature, ACEP  studied small                                                               
modular nuclear reactors and issued  a report in 2011, concluding                                                               
that the reactors are potentially  a viable technology for Alaska                                                               
but  will  not  be  commercially   available  in  the  near-term.                                                               
However,  ACEP  will continue  to  monitor  developments in  this                                                               
industry [slide 20].  Slide  21 illustrated the locations of ACEP                                                               
projects all over the state.   The study of geothermal energy for                                                               
Nome was  highlighted as an example  of ACEP's close work  with a                                                               
community, and  its goal  to develop  each region's  local energy                                                               
options  from coal  to geothermal.    The situation  in Nome  was                                                               
researched  from  a  multi-disciplinary standpoint  including  an                                                               
economic assessment,  a resource  evaluation, the  integration of                                                               
sources of energy,  and finding a role for  private financing and                                                               
industry  in small  and  remote energy  projects.   Ms.  Holdmann                                                               
opined  that   Nome  has  followed  a   proactive  approach  with                                                               
independent  power producers,  and is  close to  signing a  power                                                               
purchase  agreement to  develop a  geothermal power  plant [slide                                                               
22].     She  said  attracting   private  industry  to   work  in                                                               
partnership   with   the   state    is   important   to   achieve                                                               
sustainability throughout the state.                                                                                            
                                                                                                                                
8:47:43 AM                                                                                                                    
                                                                                                                                
CO-CHAIR ISAACSON  asked Ms. Holdmann  to provide models  for how                                                               
to leverage money  to attract private investment with  the use of                                                               
tax credits.                                                                                                                    
                                                                                                                                
MS. HOLDMANN said  one model is the renewable  energy fund, which                                                               
approves grants to the most  economic [project] first.  These are                                                               
the projects  most likely  to be  developed if  private financing                                                               
was secured.   Also, bundling  projects together makes  them more                                                               
attractive  for private  financing.   She  advised  that ACEP  is                                                               
directed towards projects with grant  funding available, which is                                                               
constraining,  and  seeks  to explore  ways  to  attract  private                                                               
funding  into  energy  projects  whenever  possible.    Slide  23                                                               
described  two  examples  of  private   power  projects  and  she                                                               
observed  that  private  projects  are managed  by  "a  different                                                               
mentality."  She closed with  ACEP's vision for the state: Alaska                                                               
leading  the  way  in innovative  production,  distribution,  and                                                               
management of energy [slide 25].   This vision entails addressing                                                               
Alaska's  challenges  and  moving   into  a  leadership  position                                                               
worldwide by maximizing the production  of oil and gas resources,                                                               
developing local  resources wherever practical,  using innovative                                                               
financing   mechanisms,   facilitating    diesel-off   in   rural                                                               
communities,  and  exporting  the experience  gained  by  solving                                                               
Alaska's energy  challenges [slide 26].   Iceland was highlighted                                                               
as  an  example  as  an  entity that  exports  its  knowledge  on                                                               
geothermal  energy, thereby  creating  a financial  boon for  the                                                               
country, and  Alaska can do  the same  on wind energy  [slides 27                                                               
and 28].  Recently ACEP  hosted an international wind integration                                                               
conference  in Fairbanks,  and in  the summer  of 2014,  visitors                                                               
from  Chile and  Nigeria are  coming to  UAF to  learn about  the                                                               
energy sector.   She urged for continued funding  of the Emerging                                                               
Energy Technology  Grant Fund and university-based  research used                                                               
to support industry [slide 30].                                                                                                 
                                                                                                                                
8:56:05 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FOSTER asked whether  the project in Nome includes                                                               
the transmission line.                                                                                                          
                                                                                                                                
MS. HOLDMANN said  yes.  Potelco Inc. has  proposed investing $40                                                               
million  for  a  transmission  line  and  a  two  megawatt  power                                                               
generation facility.                                                                                                            
                                                                                                                                
REPRESENTATIVE FOSTER lauded ACEP's work in Nome.                                                                               
                                                                                                                                
REPRESENTATIVE  HUGHES  asked  whether   ACEP  tests  the  energy                                                               
efficiency of homes.                                                                                                            
                                                                                                                                
MS. HOLDMANN  said ACEP  partners with  the Cold  Climate Housing                                                               
Research Center  (CCHRC) on residential testing  and also studies                                                               
large-scale energy efficiency at the generation level.                                                                          
                                                                                                                                
REPRESENTATIVE HUGHES asked what  percentage of CCHRC's attention                                                               
is focused  on small communities -  where the need is  greatest -                                                               
and  what  percentage  is  focused on  Southcentral  -  where  75                                                               
percent of the population resides.                                                                                              
                                                                                                                                
MS. HOLDMANN  stated CCHRC's  focus is  statewide.   For example,                                                               
the report on ground and  seawater heat pumps covered the Wasilla                                                               
and Palmer areas because of the activity there.                                                                                 
                                                                                                                                
REPRESENTATIVE HIGGINS  pointed out there are  companies that are                                                               
currently marketing small nuclear power plants.                                                                                 
                                                                                                                                
9:00:08 AM                                                                                                                    
                                                                                                                                
MS. HOLDMANN  agreed there is  a company  that is marketing  a 45                                                               
megawatt power plant but it  cannot be installed as an individual                                                               
unit as  designed.  Furthermore, only  one has been built  and it                                                               
uses  natural  gas as  fuel.    She  advised  the units  are  not                                                               
available to purchase at this time.                                                                                             
                                                                                                                                
9:01:41 AM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Energy meeting was adjourned at 9:01 a.m.