Despite setback, Unalaska intends to push on with geothermal project

The original developer of the Makushin geothermal power project in city of Unalaska in Alaska has now been removed from the project following the expiry of the PPA that has been signed with the City. However, there is hope yet for the geothermal project as the City seems to have plans of developing it under a different structure.

The challenge of securing funding

In early March 2024, the Unalaska City Council announced that it will no longer renegotiate the Power Purchase Agreement (PPA) with developer Ounalashka Corp. / Chena Power (OCCP). A 30-year PPA had originally been signed in 2020 for a 30-MW geothermal power project with a proposed operation date of 2024. However, the PPA had to be renegotiated several times due to numerous supply chain issues and the failure of OCCP to meet funding deadlines. The project, estimated to cost around $250 million, had only secured $2.5 million in federal funding in 2022 and a $5 million funding commitment from the Alaska Energy Authority in 2023.

Moreover, OCCP sought an increase for the PPA prices from $0.16 to $0.22 per kWh due to increase projects costs and the increased costs of borrowing since the signing of the original PPA.

After three amendments, the Unalaska City Council chose to allow the PPA to expire on the 10th of December 2023. Council members expressed support for the project, but stated that they no longer had the confidence in OCCP to complete the project in a timely manner.

“I’ve been in full support of this and I want to see this thing go through, but at the same time, we’ve done more than enough,” stated Council Member Alejandro Tungul.

In a statement, Ounalaska Corp. CEO Natalie Cale expressed disappointment in this series of events, saying that many challenges of the project were out of OCCP’s control. “This has always been an expensive project. The fact that most of the costs are upfront, with the real savings and benefits (economical and environmental) in the long-term, seems lost on lenders.”

Unalaska City plans to pursue the project

The City of Unalaska has submitted a letter of intent to apply for a Climate Pollution Reduction Grant (CRPG) from the US Environmental Protection Agency (EPA). The CPRG Program has $5 billion available in grants to States, Local Governments, Tribes and Territories to develop and implement ambitious plans for reducing greenhouse gas emissions. The grant awards up to $500 million and requires no local fund contribution as a grant match.

The City of Unalaska believes that the Makushin geothermal power project is an ideal fit for the CPRG Program and is very competitive compared to other communities who are applying for the grant across the country.

The City has stated the intention of developing the Makushin project in partnership with the Qawalanging Tribe of Unalaksa and the Ounalashaka Corp., a Native corporation. However, the tricky part is that the OCCP joint venture has a 50-year lease on the resource at Makushin.

The OCCP is a partnership between the Ounalashka Corp. and Fairbanks-based Chena Power. The board of directors of Ounalashka Corp. have already discussed the ways to dissolve the partnership with Chena Power, which likely will involve a buy-out agreement.

“They have the right to get rid of me,” said Bernie Karl, CEO of Chena Power, during an interview. “It looks to me like they’ve moved ahead with the city and the tribe. They’ve already moved ahead, so it looks to me like they want to do this without OCCP.”

Positive signs for geothermal in Alaska

The Makushin geothermal project under OCCP may have come to an unfortunate conclusion, but there is still hope for the project itself under the local government. More importantly, there have been several positive developments for the progress of geothermal in the State of Alaska.

There has been sustained political support for geothermal in Alaska, particularly with the efforts of Sen. Lisa Murkowski and Gov. Mike Dunleavy. In early 2023, Gov. Dunleavy proposed a bill that aims to increase access to Alaska’s geothermal resources and cut red tape that hinders large-scale infrastructure projects. The bill did not pass, but the Governor has expressed the intention to propose another bill in the coming legislative session to promote geothermal.

New players have also entered the Alaskan geothermal market. In March 2023, GeoAlaska announced a partnership with Ignis Energy to explore and develop the geothermal resources in Alaska. GeoAlaska has since conducted a geophysical survey in Augustine Island and expanded the prospecting area due to promising results.

Source: The City of Unalaska, Alaska Public Media, KUCB, and Office of Governor Mike Dunleavy