Displacing Diesel May Prove Cost-Prohibitive in Rural Alaska

The steady upward march of oil prices over time is putting increasing pressure on remote communities in Alaska that rely on diesel-fueled generators for much of their power supply, but displacing diesel with other electricity sources, such as renewables, is often an even higher-cost option.

Alaska’s rural communities pay some of the highest prices for energy in the United States, despite their relative proximity to substantial resources in fields such as Point Thomson and Prudhoe Bay. Electricity costs for diesel generation average from $0.35 to more than $1.00 per kilowatt hour, according to speakers at the USAEE/IAEE North American Conference in Anchorage this week.

One major factor contributing to high costs is a lack of state-wide energy supply infrastructure systems, such as an electrical grid or gas pipeline network. But building those systems would entail huge costs, due in part to the state’s size.

“If Alaska was its own country, it would be the 19th biggest country in the world,” said Brian Hirsch, Senior Project Leader of the Alaska Initiative at the National Renewable Energy Laboratory. And despite its relatively small population, its energy needs are, at times, substantial. “Heat is not optional,” he added.

Interconnecting villages has the potential for significant savings on energy costs, according to Steve Gilbert, Senior Project Manager for the Alaska Village Electric Cooperative. AVEC comprises 55 villages, 94% diesel-fueled, ranging in population size from 86 to 1,124.

“Any time we have an opportunity to connect villages we look really hard at that…you save about $150,000-$160,000 in operating costs,” Gilbert  said. But “on average, it costs about half a million dollars a mile to build a power line between one village and another.”

And given the huge distances involved, those miles would add up. “It’s sort of like having small power plants in northern Texas, Wyoming, and North Dakota all at the same time,” Gilbert said.

Displacing Diesel

Rising oil prices have given these communities strong incentives to look at all available options – such as renewables – for displacing diesel in their energy mix.“In the last decade, AVEC’s cost of fuel has gone up more than 300%,” Gilbert said. “The cost of diesel, no surprise to anyone, only goes one way over time – unfortunately it’s not down.”

But the challenges of building and operating renewable energy installations in these remote areas may make diesel generation look cheap by comparison, at least in terms of up-front costs.

“When you’re looking at a wind turbine in rural Alaska, you’re paying on average about $10,700 per kilowatt,” said Mark Mueller-Stoffels, Lead Researcher for Wind-Diesel Applications Center and Hybrid Applications Testbed at the Alaska Center for Energy and Power. “For comparison, in the Lower 48, you’d probably not do a project that cost you more than $3,000/kW these days.”

Mueller-Stoffels noted that a recent solar photovoltaic system was installed in rural Alaska for about $11,000/kW. “What we’re figuring at ACEP that at around $5,000/kW you might actually be able to make some money. We don’t know how realistic that is,” he said.

As with interconnecting villages, distance and lack of infrastructure are huge and costly impediments. Gilbert noted that many of the villages in AVEC have neither roads nor transmission lines. Many have runways, “but that runway isn’t necessarily designed for 747s, so delivery of large components, heavy loads, fuel and the like, that would be limited to much smaller aircraft”.

“Even just shipping wind turbines or solar panels to these locations doubles the cost, typically,” Hirsch said.

AVEC is making some headway in its efforts to displace diesel. It gets 6% of its energy from wind, and has collected two years of data on two potential hydropower projects, and recently applied for a Federal Energy Regulatory Commission licence for one of them.

But for the time being, diesel may continue to make more economic sense in rural Alaska than alternative options.

“If you can produce renewable energy at a lower cost than the fuel that you’re displacing, you’re definitely in business,” said Mueller-Stoffels. “That is actually a really tough proposition.”