Low Watana in spotlight

15 April 2011

The Low Watana option is favoured for Alaska’s Railbelt hydro development but the Chakachamna alternative has not been shelved. Report by Patrick Reynolds

From the handful of competing and contrasting potential projects under examination to be Alaska’s next major hydropower development, the 600MW Low Watana scheme has emerged from the long process as the favoured option, on the Susitna River – the dominant basin in the region.

Or, at least Low Watana is to be the main focus of design development, for while it has been given preferential backing, Alaska Energy Authority (AEA) has kept in play the closest competitor as an alternative – the 300MW Chakachamna project – despite that project’s greater construction risks.

Although favoured by AEA for having less environmental impact, and being among the cheaper of the wide range of possible schemes studied over recent years for the Railbelt area, and also estimated to be able to be built faster, on a basic cost analysis Low Watana is more expensive than Chakachamna. However, it is AEA’s concern over the risk of substantial time and cost overruns on Chakachamna’s underground works, and also its bigger environmental footprint, that has dropped the alternative into second place.

Yet, while it is down, Chakachamna – under development by TDX Power – is not out. The licensing process, managed through the US Federal Energy Regulatory Commission (FERC), requires some competing alternatives to be under assessment. On the count of licensing expectations, or anticipated barriers, Chakachamna is on par with Low Watana.

And, AEA says, its election in favour of the Low Watana project is a preliminary decision only. The reports with the analyses of the project options, and the recommendations, were issued in late 2010. Last month, the utility began holding a series of workshops to discuss the works and design studies that have been undertaken, and the findings, and its suggested way forward, with Low Watana.

Energy in the Railbelt

Alaska has a total of 423MW of installed hydro capacity, the largest plant being Bradley Lake.

The dominant hydro resource in the Railbelt area of Alaska is the Susitna river basin. In the mid-1970s came the formation of Alaska Power Authority, and the Railbelt Energy fund was established five years later, primarily to investigated options for exploiting Susitna’s energy potential.

While preparations were underway to form and then start to run the fund, construction of the Four Dam Pool (Swan Lake, Tyee, Terror Lake and Solomon) was undertaken, over 1978-84. Other key hydro plants in the state include Eklutna Lake, Cooper Lake, Snettisham, Green Lake and Lake Dorothy.

Shortly before Four Dam Pool was completed, the authority sought a development licence from FERC for two dams – Devils Canyon and Watana. Then, in 1985, the-then Susitna scheme was restructured in three stages, and then a global economic blow hit hydro, in general, when oil prices fell and cheap natural gas became a favoured energy resource. By the following year the Susitna scheme was shelved. The utility became AEA in 1989.

When hydrocarbon availability becomes a concern, as has happened in recent years, and the natural gas infrastructure is not as new as once it was, it becomes clear again that hydro is unlikely to go away and so is an option, again. Not least as it is effectively on the doorstep in a northern region like Alaska. In 2008, therefore, some funding was provided to take Susitna off the shelf and re-evaluate its prospects for helping to meet the state’s growing energy needs.

The energy mix in Alaska is anticipating a step up for natural gas in the short term – in about a decade – to almost wholly replace diminishing use of fuel oil. But, from about 2025, that surge for natural gas is expected to rapidly recede to only baseline growth values, and it is from that point that a marked increase in contribution, by slightly more than a double, is wanted from hydropower.

In effect, the new hydro generation will have replaced both fuel oil and purchased power, which is also expected to disappear from the energy mix by the late 2020s. The blip for gas is only to be transitory in the changeover while the new hydro asset, or assets, are being developed.

With new hydro helping to offset gas and the other thermal and purchased forms, the future growth in the state’s energy asset base is expected not to be met by further hydropower development, in the medium-term, but by geothermal resources from about 2030.

Hydro options for Railbelt

black-veatch (B&V) undertook an examination of the hydro options in the Railbelt region for AEA, and reported in 2009. The Railbelt area covers six regulated public utilities.

The largest potential hydro projects were noted to be, as expected, in the Susitna catchment and they were assessed as commensurately more expensive than key scheme that could be built in other basins, such as Chakachamna and Glacier Fork.

The B&V study recommended that further analysis should be undertaken on all of the Susitna basin options – as there were so many possible variations and combinations, and so no clear leader – as well as the Chakachamna (then viewed to be 330MW, 55% capacity factor) and Glacier Fork (75MW. 50% capacity factor) projects. The studies would be carried out as part of the greater examination of energy needs and asset development options, for the next five decades, under the 2010 Regional Integrated Resource Plan (RIRP)

Susitna basin alternatives

The Susitna river basin is located between Alaska’s two largest population centres, Anchorage and Fairbanks.

Studies for potential projects in the Susitna catchment began in the 1950s with a 4-dam scheme examined by the US Bureau of Reclamation (USBR). However, little then happened until the 1970s when the US Army Corps of Engineers (USACE) re-examined the potential and came up with a 2-dam scheme.

In a study in the 1980s, HDR identified project in the Susitna basin to include:

• Watana: 1.2GW with a 270m (885ft) high rockfill embankment dam;

• Low Watana: 600MW with a rockfill embankment dam;

• Watana with Devil Canyon – full or staged build: 1.88GW with a mix of dam types;

• Devil Canyon: 680MW with a 197m (646ft) high concrete arch dam.

B&V’s analysis, produced in 2009, had five project options in Susitna basin, which were variations on what had gone before – except for Watana, which remained the same and the most expensive to develop. A higher capacity for Devil Canyon was examined but for only 120MW extra it would be a brake on other, future developments elsewhere in the basin as it is one of the farthest downstream.

The least cost options were the low dams for the Watana scheme that would, depending on dam sizes and potential to heighten, could have a plant with a nameplate capacity somewhere in 380MW-600MW.

Further studies, as recommended, were performed in 2010 with AEA supported by HDR Alaska, R&M Consultants/Hatch Acres and Seattle-Northwest Securities Corporation. In its contribution, HDR updated its analysis done in the 1980s into the Susitna options.

Taking forward the studies, the work done in 2010 looked to help AEA identify ‘the project that has the best chance of being built’. The latest report was completed in November 2010, and and the Low Watana option was provisionally recommended. But, whichever option was going to be selected from the basin, it would always end up being referred to as the ‘Susitna Project’.

A priority for the state is to obtain half of its power from renewable resources by 2025. And, so, with the abundant hydrology, there would be comparably lower, long-term operational risk factors for the Susitna Project which would help the asset to be both cost-effective and reliable, ensuring a significant ongoing contribution to the state’s strategic goal of increased energy security.

“We believe the Susitna Project does all this,” said AEA acting executive director, Mike Harper, last year on revealing the Low Watana recommendation.

Low Watana, Chakachamna

Low Watana is among the cheaper options (US$4.5B, 2008 currencies) for development in the Susitna basin.

At 600MW – not small in itself – Low Watana ranks at the bottom end in terms of the installed capacity of the potential projects that could be constructed to tap the abundant resources of the major Alaskan catchment. But it is still much more power than either Chakachamna or Glacier Fork.

The project would call for construction of a 213m high (700ft) dam and while rockfill embankment structures have been examined the studies have expanded to included RCC options. The overall development time of 11 years has been estimated, which is three-to-four years less than envisaged for Chakachamna.

Chakachamna would call for significant underground works, including a tunnel and powerhouse. Going underground is conceived as bringing more risk to the project finance profile, in general, and could possibly widen the gap between its overall development time and that of the Susitna Project.

It is also seen as having more environmental impact from its need for inter-basin water transfers to secure sufficient hydrological resources. Hence, fisheries protection challenges also arise, which it is noted would interfere with the level of electricity generation.

Overall, Susitna is expected to deliver two-to-three times more energy that Chakachamna, and at lower unit cost, and although the budget is higher the scheme is a simpler to construct. It would also have fewer licensing and permitting problems, AEA said.

Whatever the financing sources eventually arranged, the sensitivities of both private and state partners will be attuned as ever to relative cost and time risks, but possibly more so in today’s difficult economic climate (See box panel: Risk, funding & the state).

Hydro, in itself may have an attraction in terms of relative energy but choices have to be made. While Low Watana is named as the favoured option, it will take further studies, consultation and creativity – engineering and entrepreneurial – to establish, in the end, which of the two options will go forward for Alaska.

Risk, funding & the state

In its report to AEA on risk in hydro development with reference to the funding model used for the utility's own Bradley Lake scheme, in the late 1980s, consultant SNW notes that nearly all international projects that are comparable to Low Watana (Susitna) and Chakachamna are being developed with some government assistance or guaranty, and may also include equity participation.
As examples, the following projects are cited: Three Gorges,, in China; the Toba Montrose and Waneta Expansion projects, in Canada; the Pak Chom and Ban Koum projects, in the Thailand/Lao PDR border region; and, San Antionio, in Brazil.
The report notes further, though, that Alaskan development would not have access to large population and market via links to transmission grids, and this limitation is a detrimental factor in feasibility assessment, in absolute, though not relative, terms. In consequence, the isolation of the customer base from larger markets, plus the complexity of the hydro project options - Susitna or Chakachamna - leads to the conclusion that a model for exclusive revenue-based repayment of financing would not suffice.
"In our view," says SNW, "these projects will require state funding, which could be direct via capital investment and/or indirect through some form of credit support or backstop, in order to obtain securities market access."
The consultant adds that there is strategic merit in supporting the stability of the future regional economy through development of long-term sources of base-load power, such as from these potential hydropower schemes.
To explore funding options, a local spotlight is thrown on the financing for the Bradley Lake hydro project which was innovative when built, in the late 1980s. It was the first time a state agency had financed a power project on a long-term basis.
Bradely Lake has an installed capacity of 126MW, was commissioned in 1991 and to 2009 the plant has generated average annual outputs of approximately 386GWh. The facility, at the southern end of the Kenai Peninsula, has a 38.1m (125ft) high concrete faced rockfill embankment dam, a 5.6km (3.5 mile) long and a steel-lined penstock, and is viewed as a successful model for planning, financing, design and construction of hydro in Alaska.
Studies for the project began in the 1950s but despite federal authorisation to proceed in the 1962 there were no funds. The state took a fresh approach in the 1980s, and Bradley Lake was developed for US$357M in a higher interest rate era.
Construction was financed by short-term variable rate demand bonds, and long-term financing was sourced equally between revenue bonds and state appropriations. Additionally, power sale agreement required payments to extend beyond the bond repayment period to ensure the state was also repaid its funding contribution.

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