Alaska Journal of Commerce
A Fairbanks legislator is pushing state officials to market the benefits of converting home heating systems away from fuel oil to Interior residents.
Rep. David Guttenberg said representatives from the Alaska Industrial Development and Export Authority and its sister group the Alaska Energy Authority involved in the Interior Energy Project have expressed concerns over the prospect of a market for North Slope gas in the Fairbanks area at recent meetings.
The Interior Energy Project is the state’s plan to truck liquefied North Slope natural gas to Fairbanks and North Pole as a way to relieve high energy costs and poor winter air quality caused by the region’s dependence on home heating oil.
“It’s the same old dialogue about there’s no gas because there’s no market — no market because there’s no gas,” Guttenberg said in an interview with the Journal.
Fairbanks Natural Gas, which already supplies more than 1,100 customers in the core of Fairbanks with natural gas, and the Interior Gas Utility, or IGU, estimate they will combine to make gas available to about 13,600 new residential customers by 2024. With a much larger distribution build out plan, IGU will be able to supply less than 2,000 residences when first gas is available in late 2016, according to presentations by the utility.
The utilities and the state agencies have said that voluntary residential conversion from fuel oil to natural gas home heating is critical for the project to create demand and a market for gas to hit AIDEA’s stated goal of a final “burner tip” price of $15 per thousand cubic, or mcf, of gas.
Conversion is expected to be slow in the first years of the project and increase as gas becomes available to more homes. Depending on the type of boiler system a home has, conversion could cost anywhere from $2,300 to more than $10,000, according to a January 2014 study conducted by the environmental consulting firm Cardno Entrix for the Interior Energy Project.
“I proposed that (AIDEA) simply start a pilot program to create enthusiasm for the market,” Guttenberg said.
While his plan would leave the details to the experts, Guttenberg said, for example, the IEP team could choose 100 Fairbanks homes to retrofit and subsidize the changeover. It would be a way to assure people the state is not “spending hundreds of millions towards more studies, more projects that are never going to happen,” he said.
Doing so would also create an anticipation and enthusiasm amongst Interior residents for a cheaper energy supply when gas finally starts rolling down the Dalton Highway, Guttenberg said.
“Get gas to them, make it a very visible project and get people motivated (and asking) ‘Why don’t I have gas?’” he said.
AIDEA and AEA have responded that they are discussing ways to encourage conversion, according to Guttenberg.
The Cardno Entrix study projects 10 percent of residential customers will convert in the first year of each build out phase. In year two, another 40 percent will make the change to natural gas and by the fifth year gas is available 90 percent of eligible homes will be hooked up to the gas distribution system, the study claims.
Another key to the project is what kind of large commercial or industrial demand there is for gas. Golden Valley Electric Association President and CEO Cory Borgeson has said the utility would purchase up to 2.5 billion cubic feet of gas annually as soon as it is available for power generation. That commitment has shrunk since Golden Valley’s Healy clean coal power plant has become a reality.
The likelihood of finding other large customers to make the project viable is unknown, but AIDEA’s team says it is something they are continually working on.
While a plan like the Interior Energy Project has been discussed for years, it came together at the end of the 2013 session when the Legislature passed $332.5 million in bonds, loans and grants to get North Slope gas to the region in Senate Bill 23.
If Guttenberg’s suggestion of a marketing plan with the easiest gas available, likely trucked Cook Inlet gas, takes shape, another funding source would probably be needed as SB 23 specifies all the funds from the legislation must be used to get North Slope gas south.
A Democrat, Guttenberg said Gov. Sean Parnell could make subsidized conversions a reality if he wanted.
Spending up front to market a product is something done successfully in the private sector every day, he said.
“Act like a normal entity. Act like someone who is trying to create a market for your product,” he said. “Get the enthusiasm going; that’s basically it.”
The fact that Interior’s energy crisis hasn’t yet been solved should be blamed on Alaska’s recent leadership, he said, and is one of the “failings” of the Parnell administration.
“When oil hits $100 and above and you’re in that neighborhood and you’re getting billions of dollars of extra revenue as far as I’m concerned you have an obligation to build an economy,” Guttenberg said.
“You hear from the (Fairbanks) Chamber of Commerce and everybody the one thing holding down development is the cost of energy.”
Read more: http://www.alaskajournal.com/Alaska-Journal-of-Commerce/July-Issue-3-2014/Fairbanks-legislator-suggests-Interior-gas-pilot-project/