GVEA Issues Response to Proposed Delta Junction Wind Farm
By Brian Kassof
In early May, Golden Valley Electric Association (GVEA) responded to an unsolicited proposal by Delta Junction Renewable Resources (DJRR), a newly created subsidiary of the Massachusetts-based energy company, Ameresco, to build a 38.6-megawatt project in Delta Junction. If built the project would consist of eight wind turbines, a 4.8-megawatt solar array, and a battery energy storage system. The plant would begin operation in October 2023. In its filing with the Regulatory Commission of Alaska (RCA), which oversees Alaska’s electric utilities, GVEA states that the project does not fit into GVEA’s current needs or capacities. However, because of the way the project was proposed, GVEA is legally required to propose a tariff (essentially a contract) to buy the project’s power.
The tariff proposed by GVEA says that the DJRR wind farm would actually have to pay the utility to accept its power in the first two years of the facility’s operation. After that, GVEA would pay DJRR for its power, but at a low rate. While the idea of an independent power producer being told that it would have to pay a utility to accept its power may seem strange, in this case it is the result of two factors. The first is the way the project was proposed. The second is what GVEA describes as the complexities of integrating a project of this type and size into its existing system. DJRR would also have to pay about 3.6 million dollars to connect the facility to the GVEA grid.
The proposal comes at an interesting time for GVEA, as the utility’s Board of Directors decides whether or not to keep its Healy 1 coal-fired generation plant open past 2024. GVEA’s Board has also come under criticism from some member-owners in recent months for its seeming reluctance to add more renewable power generation to its portfolio. More generally, the role of wind power in Alaska has gained renewed attention in the past few months, as discussions about Alaska’s energy future have intensified.
The proposal and GVEA’s response are the latest in a series of attempts by independent power producers to build a large-scale wind facility in Delta Junction that stretch back over a decade. All of these efforts have involved Fairbanks developer Mike Craft, who currently operates a 2-megawatt wind farm in Delta Junction that provides power to GVEA. Craft is acting as Ameresco’s local representative in the latest effort. The RCA will accept comments on GVEA’s proposed tariff until June 3. It is scheduled to issue an initial ruling on the tariff by June 16.
Compelling a Response
The odd dynamic, of GVEA informing DJRR that it would have to pay the utility to accept its power for the first two years of operation, stems from the way DJRR approached the utility. Amersco and DJRR did not discuss the project with GVEA before submitting their proposal. Instead, they applied for status as a “Qualifying Facility,” a category of generation plants created by the federal 1978 Public Utilities Regulatory Policy Act (PURPA). Under PURPA, utilities are required to purchase power from independent power producers that meet certain criteria—the generation projects must be smaller than 80 megawatts and derive at least 75 percent of their power from renewable resources. Since the DJRR project meets the criteria as a Qualifying Facility, GVEA is required to offer to purchase power from it.
But PURPA also specifies that the purchase of power from a Qualifying Facility cannot result in increased prices for a utility’s customers. In order to prevent this, under PURPA utilities can use a method of calculation known as “cost avoidance” to determine the rate they will pay an independent power producer. Under cost avoidance, the utility calculates how much it would expect, using its current resources, to spend to purchase or generate the power the independent producer is offering over a set period of time (in this case, 20 years). Once the avoided cost is determined, it sets the rate the utility must pay to the Qualifying Facility for its power. According to GVEA’s calculations, the cost of power from DJRR will actually exceed the avoided cost in 2023 and 2024—this is why the tariff proposes that DJRR would have to pay GVEA to accept its power in those years.
GVEA’s projections have the situation changing in 2025, due to the expected closure of its Healy 1 Power Plant, which is currently one of the lowest cost sources of power for GVEA. Because keeping Healy 1 open past 2024 would require GVEA to install an environmental control system (as per a settlement with the Environmental Protection Agency), the cost of its power would increase. Even with the projected closure of Healy 1, GVEA’s proposed tariff still sets a low rate of payment to DJRR—it would rise slowly to 5-6 cents per kWh (kilowatt hour) by the 2030s. As a point of comparison, GVEA is currently paying Mike Craft’s smaller wind farm in Delta Junction, Alaska Environmental Power, about 12 cents per kWh, and Mr. Craft had suggested 12.5 cents per kWh as a fair price for wind power in previous proposals to GVEA.
Balancing and Regulation
Why is there such a large gap between what GVEA is currently paying for power from the smaller, existing wind farm and what they say they could pay for the larger project? According to a GVEA-commissioned report by Daymark Energy Advisors, the foremost issues are system balance and integration costs. Electrical grids operate as “just in time” providers, continually balancing power generation with consumer demand. An excess or shortfall in power in the system can lead to serious issues, including equipment damage. Therefore, utilities receiving power from intermittent sources, such as wind generation, need to balance these off with other sources of power or energy storage—this is known in technical parlance as “regulation.” Energy storage technologies are not yet economical on the scale needed to accommodate a project of this size. According to GVEA, the utility’s relatively small size and lack of integration with other utilities means that it must have a reliable source of power generation within its own system that can be ramped up or down quickly to compensate for fluctuations in wind power.
The amount by which a facility can increase or decrease its power output in a relatively short period is known as its regulation capacity. According to GVEA, not all of its generation facilities can provide regulation capacity on a short-term basis—this is particularly true of the Healy 1 and Healy 2 coal plants, which take longer to ramp their output up or down, limiting their ability to provide regulation. GVEA identifies its North Pole Expansion generation plant (fueled by naptha, a by-product of oil refining) as its best source of system regulation, followed by power it receives from the Bradley Lake Hydroelectric plant. But according to GVEA, the regulation capacity of these facilities is already being used to regulate production from its own 24-megawatt Eva Creek wind farm, and is therefore not available to regulate the DJRR project.
In order to regulate the DJRR project, GVEA argues that it would have to keep one or two of its secondary power generation plants (such as North Pole 1 and 2, or the Zehnder plant in Fairbanks) in continual operation. These plants, which run on diesel fuel, are more expensive to operate and are not used on a day-to-day basis. The higher cost of keeping these plants in operation to provide regulation for DJRR, according to GVEA, must be factored into the cost avoidance calculation (this is known as an “integration cost.”) The result is the lower rate in GVEA’s proposed tariff.
DJRR’s proposal also includes a Battery Energy Storage System (BESS), but GVEA argues that the information included in the proposal does not make it clear that this system could be relied upon to help with regulation beyond very limited periods of time. As a result, they did not include it in their calculations.
Daymark’s study also included a second scenario, in which GVEA was able to lower the amount of regulation needed to offset variability in DJRR’s production from 100 percent of its output to 50 percent. This fulfills an RCA requirement that GVEA must provide an alternative scenario in its calculations. Under that scenario, GVEA foresees paying DJRR a rate much closer to what Alaska Environmental Power is currently receiving from the utility. The exact conditions required for such a scenario are not spelled out in the report.
When asked for clarification, GVEA responded that the alternative scenario represents a hypothetical future in which changes in contractual arrangements and the deployment of its other generation facilities would allow it to pay more for DJRR’s power. GVEA did identify one specific change that would be required to reduce regulation requirements—DJRR giving it the ability to curtail output from the wind farm, thus controlling how much power was entering its system. This authority is not included in the rules for Qualifying Facilities, and would need to be negotiated directly between DJRR and GVEA. Under such circumstances, DJRR would receive more per kWh from GVEA, but would have no guarantees about the amount of available power the utility would buy.
Wind Energy and Alaska’s Electricity Sector
This proposal marks the latest attempt by Mike Craft to expand on his small wind farm in Delta Junction. Craft, together with Alaskan and outside partners, has made multiple proposals to build a large wind generation facility since his smaller 2-megawatt plant began operation in 2008. After GVEA rebuffed his initial proposal for expansion, and chose, instead, to build its own wind generation facility in Healy (the Eva Creek wind farm), Craft forced the RCA to update its rules for how Alaskan utilities interacted with Qualifying Facilities, a process that was completed in March 2016. DJRR is the fourth proposal using these rules that Craft has been involved in since 2017, although the first involving Amersco.
The proposal comes at a time when GVEA is facing important decisions about the future of its generation portfolio. The Board has said it will decide at its June meeting whether or not to keep the 28-megawatt Healy 1 coal-fired plant open past 2024. In order to help meet the utility’s carbon reduction goals, GVEA’s Board issued an informal call for proposals for mid-sized (15- to 30-megawatt) renewable energy projects in January 2021. The Board drew criticism from some member-owners when it decided not to move ahead with any of the eight proposals for renewable generation it received.
The future of wind power in Alaska has gained renewed attention in the past few months. In conjunction with Governor Dunleavy’s proposed Renewable Portfolio Standards, the National Research Energy Laboratory (NREL) produced a report on how the Railbelt could reach 80 percent renewable electric power by 2040. Four of the five scenarios included put a major emphasis on wind power, which would be expected to provide between 45 and 49 percent of electric generation (wind power currently produces about two percent of Railbelt electricity). Although the Renewable Portfolio Standards bills did not make it out of committee during the 2022 legislative session, they will likely be taken up again next year.
The Railbelt Reliability Council (RRC), which is currently awaiting certification by the RCA, may also play an important role in the future of wind power in Alaska. The RRC will implement uniform transmission tariffs, which will make it easier for independent power producers like DJRR to sell power throughout the Railbelt. The RRC will also be responsible for creating an integrated resource plan for power generation. The plan, which will cover the next twenty years, will play an important role in deciding what types of power generation facilities come on line in the next decades.
It remains to be seen how DJRR will react to GVEA’s proposed tariff. It potentially could challenge GVEA’s assumptions or calculations of cost avoidance, regulation needs, integration costs, or some other element of the tariff. DJRR’s local representative did not reply to a request for comment. The RCA is scheduled to issue its initial ruling on the tariff by June 16; if DJRR contests the tariff or the RCA opens an investigation, a final ruling would be delayed. This is not the first time that GVEA has responded to a proposed Delta Junction wind generation project with a tariff that required the producer to pay it to accept their power. GVEA’s proposed tariff for a 2017 proposal by Craft also had the producer paying the utility to accept its power.
AETP published a follow-up to this story in June 2022.
