MCKINLEY RESEARCH GROUP 17
Rural Economies of Scale and Risk
In rural Alaska, communities face limited access to private capital due to the small scale of
renewable projects and perceived risk of private lending. Standalone systems in small
communities often mean projects cannot achieve economies of scale, making projects
financially infeasible and contributing to a perceived risk in private lending. The ability to
leverage public funding has been important to overcome barriers to project financing. Public
funding is also important in overcoming the inherent financial risk of commissioning feasibility
studies.
Pooling resources, as in the case of the Chaninik Wind Group, to increase project scale can help
counteract these inherent financial challenges. AEA’s Regional Energy Planning initiative
provides a template for further comprehensive energy planning which could identify these
opportunities to combine projects. Continued planning efforts should be supported.
Beneficial electrification initiatives combined with renewable energy projects present an
opportunity to increase project scale, which can improve project financial feasibility.
Electrification opportunities, ranging from heating rural homes to industrial equipment in
Kodiak, provide a record of success in Alaska.
The perceived risk of PCE rate reductions can be a significant barrier to community support for
renewable projects. Key to overcoming this barrier is continued consideration of how best to
use the PCE program to support energy equity in rural Alaska while incentivizing cost-effective,
financially sustainable energy projects. The formation of an Independent Power Producer (IPP)
to operate renewable energy projects and sell electricity to the community’s utility could provide
a model for further renewable energy deployment while preserving PCE subsidies.
Transmission System Upgrades
In urban Alaska, transmission bottlenecks along the Railbelt Transmission System are a barrier
to increased renewable energy generation. Current capacity along the transmission system
restricts the amount of energy transferred from the site of renewable energy projects to different
areas of the Railbelt system, and the current level of variable renewable energy generation is
close to reaching the available renewable resource penetration of the system. These capacity
constraints restrict the market for new generation from existing infrastructure, such as the
Bradley Lake Hydroelectric plant on the Kenai Peninsula, and new project development.
Implementing the projects outlined in AEA’s Railbelt Transmission Plan to achieve the Railbelt
Transmission System Planning Standard would unlock further renewable electricity generation
potential along the Railbelt.
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In addition to expanding the potential market for increased
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Alaska Energy Authority, Electric Power Systems Inc. Alaska Energy Authority Railbelt Transmission Plan. March 2017.