City of Unalaska Inks Power Purchase Agreement for Geothermal Power

Sep 8, 2020

 

OCCP estimates the Makushin Geothermal Project will begin operations in the final quarter of 2023.
Credit Givey Kochanowski / U.S. Department of Energy

A decades-long effort to bring geothermal power to Unalaska is finally moving forward. On Thursday, the city signed a 30-year power purchase agreement (PPA) with Ounalashka Corp./Chena Power, LLC for 30 megawatts of geothermal-produced electrical energy from nearby Makushin Volcano. Officials from the U.S. Department of Energy said that if it's successful, Unalaska would be the first community in the nation completely powered by geothermal energy. 

 

Unalaska has been trying for nearly four decades to find an affordable way to build a geothermal power plant for the city at Makushin. But the plans of private developers have fallen through, largely due to high start-up costs. The last attempt was abandoned in 2015.

 

"It's been a long-time priority of the City Council to really explore alternative energy sources for electricity," said City Manager Erin Reinders, who signed the agreement on Thursday. "And this project in particular has been on various radars since the 1980s, at least. So it's pretty exciting to have the project be as far as it is, and I'm looking forward to seeing what the future holds."

 

In 2019, Ounalashka Corp. — the island's Native village corporation — and Fairbanks-based Chena Power formed Ounalashka Corp./Chena Power, LLC (OCCP), a partnership to develop the geothermal resource located about 13 miles from Unalaska's current power grid. 

 

"What makes this [time] different is that we've put together a team of Alaskans with a common vision and proven local, national and international business and technical leadership," said Chris Salts, CEO of Ounalashka Corp. "We know this can be transformational for our community and our future role in the world and we're all pulling in the same direction to see it realized."

 

Negotiations have been underway since early January between the city and OCCP to develop the PPA, which is required to obtain financing for the Makushin Geothermal Project. According to the agreement, the City of Unalaska will purchase electrical energy for $16,300,000 per year from OCCP. Each successive year during the term, the fixed payment will increase by one percent plus an amount equal to the local tax paid by OCCP during the previous year.

 

But it's still unclear how geothermal would stack up to Unalaska's diesel powerhouse, which has been the island's only electricity provider since World War II. A few of the primary concerns among community members and city leadership have been surrounding the financial risk of the project to ratepayers and that seafood processing plants (self-producers of energy) are unable to make a long-term commitment and haven't come on board. 

 

"Ultimately, this is a public utility that's paid for by the ratepayers," Reinders said. "So, there's a potential that the rates would increase moving forward, so we can pay our bill. But ultimately, those would be discussions that would be held at the [City] Council level."

 

According to Mike Hubbard, a city consultant from the Financial Engineering Company, sales to the processors are key to the economics of Makushin. In a report to council on July 17, he said that the effect Makushin is projected to have on city retail rates as compared to continued use of diesel generation are dependent on a number of assumptions regarding future events, most notably the cost of fuel.

 

"If actual fuel prices are greater than the breakeven price, the project would provide benefits to the ratepayers," he said in the report. "Conversely, if actual prices are less than the breakeven price, the project would result in additional costs to the ratepayers."

 

Givey Kochanowski, Alaska senior advisor for the U.S. Department of Energy Office of Indian Energy, helps tribes and Native corporations advance energy interests and promotes energy sovereignty for tribes. He said while fossil fuel rates fluctuate, the beauty of renewable power is that you're hedging against future rate increases. 

 

"If you look at your average cost of energy here, in general, the trend line is that it's going to rise in the future," Kochanowski said. "The beauty about renewables is once you've installed the hardware, you have a fixed cost for the fuel, whatever it is — whether it's the wind, the sun with solar, or geothermal."

 

Bernie Karl, co-founder of OCCP, and self-proclaimed "imagineer" of the Makushin Geothermal Project, started the first geothermal power plant in Alaska at Chena Hot Springs in 1998, and will be moving to Unalaska to head up the project at Makushin. He said he's not "in the least bit worried" about the processors not wanting to buy power.

 

"It's just so simple, build it now and they will come," he said. "I don't blame the processors for not wanting to sign a 30-year agreement."

 

In the long run, Karl said, purchasing geothermal power from the city will be more reasonable for processors than maintaining and running diesel generators, and the more power OCCP sells, the cheaper it gets for the city, and the cheaper it gets for them. 

 

"I think they're going to be wanting more power maybe than we can produce," he said. "I think they're going to want to grow. I think they're going to want to expand. I think they're going to see other opportunities, and we will work closely with them to help them with the new opportunities that they see." 

 

U.S. Rep. Tulsi Gabbard of Hawaii visited Unalaska in late August in her capacity as a major in the U.S. Army Reserve. She came as part of a Department of Defense Innovative Readiness Training (IRT) mission to assess the island's future infrastructure needs: everything from what to do with the city's brimming landfill and the airport's short runway to shortcomings in health care and slower than average internet speeds.

 

Gabbard also introduced the Off Fossil Fuels for a Better Future Act, or OFF Act, in Congress in 2017 to promote a "just transition" away from fossil fuels to 100 percent clean energy by 2035. She said she's excited about the opportunity for geothermal as a clean, renewable source of energy that will make Unalaska 100 percent sustainable and independent. 

 

"I come from an island state in Hawaii. So I understand uniquely the food security and energy security challenges that exist when you live on an island, where you have maybe five to seven days of food supply at any given time, and where you're reliant on external sources for energy," said Gabbard. "The opportunity allows you to increase your food security through being able to power greenhouses and allows you to grow food here year-round. And it's also directly tied into the security component of this island chain being centrally located in the Arctic region that is now becoming more and more active."

 

Kochanowski similarly recognizes the strategic location of the island and believes the first step towards national security is energy security. 

 

One of President Donald Trump's objectives is to be "energy dominant," said Kochanowski — a doctrine Trump has championed since the early days of his presidency to reduce reliance on foreign locations for energy sources and instead develop the country's natural gas, coal, and petroleum sources. 

 

Although Trump's plan attempts to roll back environmental regulations, Kochanowski said the objective of developing domestic energy security is a necessary one. He said it's especially important in the Aleutians, which are gaining strategic importance, as Russia and China work to expand their influence in the Arctic, and commercial and leisure/tourism ship traffic increases across the Bering Strait.

 

"At some point, as we just saw in the news with the Russians being in American waters these last couple days, there's going to be a need for a stronger security posture up here," Kochanowski said.

 

The U.S. Department of Defense (DoD) is the nation's largest energy user and has a goal of producing or procuring 25 percent of its electricity from renewable sources by 2025. According to Kochanowski, Unalaska is making a good effort to engage with the military and key federal agencies that have a say in the community's security and future, as well as national security due to the island's location. But, he said, military installations and security points in Alaska require safe, secure and reliable energy.

 

"When it comes to power, geothermal will bring us the opportunity that none of this other stuff can do for us right now, and that's bring a diversification of our economy," said Vice Mayor Dennis Robinson during a City Council meeting in late August where councilors approved a resolution in a 5-1 vote to allow Reinders to sign the PPA. "If we hope to have the military come here in some capacity, green power is going to be required." 

 

State legislators, city officials, and tribal and community leaders have been discussing a greater military presence in the Aleutian Islands. And for the first time in more than 30 years, the U.S. Navy and Marine Corps have held large-scale exercises in the Aleutians designed to test their capabilities in a cold-climate environment. 

 

As the only deepwater, ice-free port from Unimak Pass to Adak that is open year-round, officials have claimed the Port of Dutch Harbor is prime to support operations in the Arctic. But it's still unclear if or when the military will spend more time in Aleutian waters, or what it'll look like in Unalaska, where the only full-time military presence is a seven-person U.S. Coast Guard unit focused on fishing boat safety. 

 

Kochanowski said there's a lot happening in Unalaska, between the IRT being on island and the trilateral agreement that was signed between the city, tribe, and Native corporation, and now the PPA. He said although those things may seem independent, they point in a common direction. 

 

"If the Navy were to come here full-time, one of the things that the military looks for — one of the requirements — is to have 25 percent renewable power for their installations. And you're already on the path with this geothermal project," he said.

 

According to Kochanowski, the PPA benefits all parties involved, and cheaper power brings development. 

 

If you look historically, Kochanowski said, major industries come to places that have lower cost of energy: the Tennessee Valley Authority, established in 1933 as one of President Roosevelt's Depression-era New Deal programs; the ALCOA facility outside of Knoxville; Boeing's relocation during WWII; the Manhattan Project — they were built in areas with cheap power. 

 

"This community has a great economy with fishing, and an extremely low unemployment rate, but it's a single focus economy, and I think other economic sectors could potentially come with lower cost energy," Kochanowski said. 

 

OCCP is now working on securing building permits for the Makushin Geothermal Project, and on financing the project through a loan through the Department of Energy and through private firms and investment capital, according to Karl. 

 

He estimates that the project will begin operations in the final quarter of 2023.