A perspective for judging the Susitna hydroelectric project
By ROBERT D. HEATH
Public and private debate on the Susitna hydroelectric project has intensified over the past several months. It's a debate that is necessary and timely.
Although many aspects of the issue are controversial, there are some areas of general agreement. Susitna, like virtually all hydroelectric projects, is characterized by relatively high costs during the early years of operation and by very attractive power costs later on.
Hydroelectric projects produce clean power from a renewable resource and have the longest operating life of any generating alternative. There is also general agreement that over the next 20 years the Railbelt will need significant additions to its electrical generating capacity, primarily to replace existing plants as they wear out but also to accommodate expected growth.
The basic framework for evaluating the project is set out in the following
- How high are the initial costs?
- How long does it take for Susitna's cost to fall below the alternatives?
- How great are the eventual savings and how long do they last?
- Are the eventual savings worth the initial cost?
It's been reported that the cost of electricity from Susitna is presently estimated to be about 30 cents per kilowatt hour, and that this is far out of line with today's average Railbelt "wholesale" costs of about 3.5 cents per kilowatt hour. The 30-cent estimate, however, includes expected inflation over the next 15 years. Expressed in terms of today's dollars the price of Susitna energy in 1999, the initial year of operation, would be about 13.5 cents per kilowatt hour. Assuming continued inflation and gradual demand growth into the next century, the price of Susitna energy would fall below 7 cents per kilowatt hour by 2010, again expressed in today's dollars, and would continue to decline thereafter.
What would be the cost of electricity in southcentral Alaska if we continued to rely on Cook Inlet gas to fuel our generators? The answer depends primarily on the price of gas itself. Using the Alaska Power Authority forecast, the cost of gas-fired electricity, expressed in today's dollars, would be about 5 cents per kilowatt hour in the year 2000 and 7 cents per kilowatt hour in 2010.
This means that the expected cost of energy from Susitna would fall below the gas alternative about 10 years after Susitna's first phase is placed in operation. That "crossover point" would be hastened by a Cook Inlet gas supply limitation or, of course, higher gas prices. It would be delayed by lower gas prices.
The savings from hydro become increasingly significant beyond the crossover point. Assuming that Susitna's life would be at least 100 years, these savings would be realized for at least 90 years. They would begin to be realized sometime around the year 2010, or about 25 years from now.
Can we afford the initial cost? To this point, the financing concept has been for the state to subsidize the cost in the initial years to shield ratepayers from unacceptable increases in their monthly bills. However, the combined effect of declining state revenue and heightened budgetary competition creates greater uncertainly about the state's willingness to appropriate sufficient funds for that purpose. Financing Susitna in a manner acceptable to all constitutes a very significant hurdle for the project.
Is it worth it? The question is made more difficult by the time frames involved. As individuals, not all of us would place much value on an investment that requires significant outlays today when pay off does not begin for 25 years. As a society, however, we might decide to base more of our decisions on a long-range perspective. It is from that perspective that the proposed Susitna project can be very favorably judged.
Robert D. Heath is executive director of the Alaska Power Authority