Brent Petrie OCT !.! L, 8, DF: r1', Cq/ E:', > i l' MIDWAY CREEK HYDROELECTRIC PROJECT Old Harbor, Alaska Findings and Recommendations October 1986 Project Team Katie Eberhart, Project Economist Gwen Obermiller, Research Analyst Don Shira Director, Project Management Director, Program Development Robert D. Heath Executive Director c 1986 Alaska Power Authority
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Brent Petrie
OCT !.! 1:)~~~
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MIDWAY CREEK HYDROELECTRIC PROJECT Old Harbor, Alaska
Findings and Recommendations October 1986
Project Team
Katie Eberhart, Project Economist Gwen Obermiller, Research Analyst
Don Shira Director, Project Management Director, Program Development
Robert D. Heath Executive Director
c 1986 Alaska Power Authority
FINDINGS AND RECOMMENDATIONS
Midway Creek Hydroelectric Project near Old Harbor, Alaska
The Old Harbor is a community with a population of approximately 375 located on the southeast shore of Kodi ak Is 1 and. The community economi c ma i nstay is commercial fishing. Electrical needs are met totally by diesel generation, which is provided by Alaska Village Electric Cooperative (AVEC).
Under the direction of the Power Authority, Dowl Engineers, Tudor Engineering Company, and Dryden & LaRue did studies of a potential hydroelectric project near Old Harbor in 1982 and 1984. The results are reported in:
Volume C, Final Report, Feasibility Study for Old Harbor Hydroelectric Project (August 1982), and
Financial Analysis of Old Harbor Hydroelectric Project (September 1984).
The 1982 report analyzed the technical and economic feasibility of a 340 KW rlJn-of-river hydro project located on Midway Creek four miles from Old Harbor. The 1984 study provided analysis for a number of different financing possibilities for the hydro project and compared those costs to a diesel generation "base case."
Supplementary stream flow data was accumulated by Dowl Engineers for the period June 1985 through January 1986. This data was analyzed for hydrologic potential by the Alaska Department of Natural Resources, Division of Geological and Geophysical Services (DGGS). A monthly summary of the hydrologic data is shown in the following table.
January February March April May June July August September October November December
NOTE - Due to irregularities in flow and scheduled outages of the plant, it was assumed that 90% of the village energy demand would be met by the hydro generation and 10% by supplemental diesel generation.
Assumptions used in the analysis of the hydro project at Old Harbor include the fo 11 owi ng:
Energy Projections
Power Authority staff obtained historic energy use and fuel consumption data from the Alaska Village Electric Cooperative (AVEC), the utility providing power to Old Harbor. These numbers were then compared to projections used in the consultants' reports. Staff found that the latter projections showed energy demand at Old Harbor increasing at the rate of 2.5 percent annually, from 584,850 KWH in 1983 to 1,006,000 KWH in 2005.
Historical data, however, showed an increase in energy used from 504,434 KWH in 1982 to 566,913 KWH in 1983 and 578,876 KWH in 1985. It appeared that the previous projection of a 2.5 percent increase may be optimistic. Thus, for the Power Authority analysis, the rate of increase in energy use was scaled down to 1. 5 percent per year. Revised projections resulted in an estimated 780,000 KWH energy demand in 2005.
The downward revision in the energy projections resulted in delaying the purchase of an additional generator until 1994. Under the 2.5 percent growth rate used in the previous study, a new generator was required in 1988.
Under the hydropower scenario, it was assumed that 90 percent of the village power would be provided by the hydro project with the remaining 10 percent provided by supplementary diesel.
Fuel Cost Fuel cost scenarios were revised to reflect current Power Authority "medium" and "low" fuel price assumptions. The base used was the current 1986 price of fuel. The current (1986) price of fuel in Old Harbor is SI.40 per gallon.
Hydro Project Costs Project capitar-<:osts were adjusted downward from the consultant's 1982 estimate of $3.99 million (1985 dollars) to $3.55 million (1985 dollars) by Power Authority staff. Hydropower variable cost was estimated at $0.015 per KWH.
A space heating credit was calculated using the same assumptions the consultant used in the 1982 study.
Diesel Project Costs The variable cost est"imate used was the same as that in the 1984 study, SO.085 per KWH. It should be noted that this is the AVEC systemwide average, not necessarily the actual cost in Old Harbor.
Fixed costs for the diesel plant were calculated by leaving constant the value of approximately $23,500 shown in the 1984 study for the existing generator
6442/649/2
and adding a value for debt service when (and if) a new generator is purchased. It was assumed that replacement generators could be obtained for an average of $300 per KW.
Debt service was calculated at interest rates of 8 and 10 percent for both t~e hydro project and a new di ese 1 generator; loan terms of 20 and 30 years, respectively, were assumed for the diesel and hydro plants.
Conclusions Several scenarios were compared by calculating the present value of their total costs. This method is used to facilitate comparing different projects that have costs spread unevenly over the 1 i fe of the project. A "common denominator" labeled the "present value of costs" is calculated for each project.
Four possible scenarios were evaluated for Old Harbor. Underlying assumptions included either "medium" or "low" fuel price escalation and interest rates of either 8 or 10 percent. The present value of costs and ratio of the diesel base case to the hydropower alternative are shown in the following table. All scenarios have ratios of 1.0 or less. This indicates that the diesel alternative is the more cost effective course under the assumptions used in this analysis. However, if fuel prices escalate more than expected and/or the hydropower project can be built for less money, then the scales might be tipped in favor of the hydropower alternative.
Tab 1 e 2 SUMMARY OF MIDWAY CREEK HYDRO PROJECT PRESENT VALUE COSTS
FUEL INTEREST PRESENT COST/COST PRICE VALUE RATIO
I Base case Medium 8% $3.0 mi 11 ion 1.0 I Hydropower " " 3.0 "
II Base case " 10% 3.0 " .81 I I Hydropower " " 3.7 "
III Base case Low " 2.7 " .66 III Hydropower Low " 4.1 "
IV Base case " 801 2.7 " .79 ,0
IV Hydropower " " 3.4 II
Although hydropower provides a more stable cost of power in the long term and diesel generation provides more problems in the guise of unstable diesel prices, and high costs for dependable operations and maintenance -- the high front-end capital investment of a hydro project is difficult to justify at this time.
1 n t : 0.08 Hydro ProJect ISee Tible C-3) hrl: 30
'tI.51/yr I Hydro Hydro Yi 1 hqf Hydro- Hydro Debt OLI! , Tot.1 Dlesl'l Dle~l'l Dil'sel Dipsel Total Space Heatinq CredIt Potent Iii Tohl Avrr • Entrgy Source Caplhl Sen ICe .01~Ik.h Hydro Fixed varlclble Fupl Fuel OIl'Sel Fuel C/ i I Savinqs I of Syste. I mitt
I nt: \1. I Hydro PrOject (SrI' T.ble (-3) Terl: 3(1
1.1.~1/yr) HydrC! Hydro Vllli9' Hydro- Hydro Dpbt O~PI ~ Total DIesel Dle~el DIesel Diesel Total Spice Heallog CredIt Potentul Mil Anr. Enerqy S"urCf C.p I ti I 5pr~l(e .OI~i~lIh liydro Filed Varldble Fuel fUfl Diesel f UI' I 0 II SiV Int)" I of 5yste. 'IV-11M
i +\.51/yr) Hydro Hydro VIII.ge Hydro- Hydro Debt OLII a Total Dle~el o Jese I Dles,1 Diesel Tot~1 Sp~[e He~tln9 Credit Polentiil lot.l Aver. Enff 9Y Sour {f Capital Ser v I [e .OI51k.h Hydro F llPd Vir I.ole Fuel Fuel Diesel Fuel oil Sivings I of 5yst,. $/KIIH
YPil Du.nd Enerqy Cuts 901uu (o~t (~st Co~t Unit Cost Cost k.h (\I equiv m Avoid,d Cost Cost (~hl ( . 08:i/k.hPr ice (28.3 k.h Igi I 0.5