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Oil Prices Hit Territory Hard, But Energy Officials Looking to Alternatives

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Jan. 11, 2008 — The V.I. Water and Power Authority and the V.I. Energy Office agree nothing can be done to provide Virgin Islanders with immediate, major relief from the effects of oil prices that recently broke all records, topping $100 a barrel.
That's the bad news. High oil prices hurt residents from every direction. Gas at the pump is very expensive. Everything shipped in to territorial stores costs more. Airline tickets go up. And electricity bills have gone up dramatically, as the fuel-price surcharge, the levelized energy-adjustment clause, jumped 33 percent last November to 25.5 cents per kilowatt hour.
But there is good news. Oil prices have dropped substantially over the last week, and are now back down to (a still very high) $93 a barrel. There are ongoing plans that will begin to provide a small measure of relief before the year is out.
The Source sat down this week with WAPA's new executive director, Hugo Hodge Jr., and then with V.I. Energy Office Director Bevan Smith, to talk about what plans the government and the power company have to address these issues. Both said they will meet next week with Gov. John deJongh Jr. in advance of his upcoming State of the Territory address to go over these very issues, too. Both said the long-term answer involves moving away from using fuel oil to generate electricity, but there is no instant fix.
"We know everyone is feeling the pinch," Hodge said. "This is hitting all aspects of the community, including everyone's cars. But it's easier to park the car than turn off the electricity."
When fuel prices shoot up as they have recently, not only does it negate the benefits to WAPA's finances from the recent LEAC increase, but it weakens the benefits of WAPA's oil-price-hedging program, Hodge said. (See "WAPA Votes to Protect Against Skyrocketing Oil Prices .") That hedging program insulates WAPA and ratepayers from sudden spikes in fuel prices, but keeps WAPA from benefiting if the price of fuel drops substantially. If oil prices go up and stay up, the hedging contract is adjusted and it protects less and less.
"Finding a new source of power generation, that is the long-term solution," Hodge said. "In the short term there is a lot of low-hanging fruit that can help, as well. We can improve plant efficiency, reduce line loss and improve service while looking at the longer-term solutions."
Increasing Efficiency
A waste heat-recovery boiler currently under construction on St. Croix is one of those ways of increasing plant efficiency, Hodge said.
The heat-recovery boiler takes exhaust heat to run a second boiler, which then helps power the existing generator, generating 50 percent more electricity with the same fuel. After the super-hot steam is used to generate electricity, it has lost much of its heat and pressure, but it is still very hot. It is then used to boil seawater in tanks kept under vacuum for WAPA’s seawater-desalination plant.
If oil prices remain above $60 a barrel, the increase in efficiency would save WAPA $12 to $15 million a year on St. Croix. That amounts to a savings of $240 to $300 per year for every household electrical-service account in the territory. If financing were found for a second boiler on St. Thomas, those savings figures would double. With oil prices above $90 a barrel, those savings are much higher. However, much of those savings will not be realized right away. At first a good portion of that savings would have to go toward paying for the steam-recovery generator.
"The waste heat-recovery boiler is still on schedule to go live in September," Hodge said
There are other innovations within the existing plant that could help too, he said.
"We are looking to see if natural gas is possible," Hodge said. "I believe some of our existing units can be converted to natural gas. But we would have to do a cost-benefit analysis to determine if it would actually save money, and the cost of natural gas is volatile, as well. On the mainland you can hook up more readily to an existing supply-system tool. But we really have to diversify, so we need to conduct a cost analysis and see."
According to the U.S. Department of Energy's information agency, as of Jan. 7 natural gas cost just over $8 for enough to produce a million BTUs of energy, versus about $17 for the equivalent amount of oil. (See tonto.eia.doe.gov/oog/info/ngw/ngupdate.asp.)
Seeking Alternatives
WAPA has also put out a request for proposal (RFP) calling for small-power providers interested in setting up shop in the territory and helping WAPA reduce its dependence on fossil fuels. (See "WAPA Looking for Alternative-Energy Providers to Supplement Power Production.")
In 2004, WAPA was mandated by the Senate to select a small-power provider for St. Croix. While the authority subsequently entered into negotiations with Missouri-based Innoventor Technologies, a wind-energy producer, a power-purchase agreement was never finalized. WAPA officials have since said that their decision to suspend negotiations centered, among other things, on the concern that the company's wind turbines would not be able to withstand hurricane-force winds. This time WAPA is seeking a provider or providers that could help out in both districts.
"The RFP is important," Hodge said. "Originally we sent the RFP to 90 possible bidders, but the Dow Jones Newswire did a piece on it, exposing it to a much broader, national audience and we are hopeful that will increase bidders and interest."
When WAPA sent out the first RFP in 2004, it was sent to five companies, but both the PSC and members of the Legislature objected, wanting it limited to two companies. (See "PSC to WAPA: Don't Send Out RFP without Approval." and "WAPA Deal Key to Industrial Complex, Senators Told.")
Smith agreed WAPA's recent RFP is one critical step toward addressing the territory's reliance on oil-based electrical generation. He suggested the government's overdue electrical bills might help finance the project.
"WAPA is between a rock and a hard place," he said. "My personal recommendation would be, if we can find some way to pay the 16-plus million dollars owed by the government and autonomous agencies to WAPA, we would recommend they put it to the purposes of finding alternative-power sources."
One possibility with some promise would be the addition of a 20-megawatt petroleum coke-generating facility, he said. Hovensa produces petroleum coke, which is similar in price and characteristics to coal, and much cheaper than oil.
Looking to Solar
But he also suggested several lines of action not entirely under the purview of WAPA.
"There is some talk in the Legislature about mandating solar hot water in all new buildings," Smith said. "Meanwhile, the government could lead by example by having solar hot water in any new government building. Having the government become a large purchaser will help drive the costs down, too."
Hot water accounts for about a third of most household-electricity usage, and at current territorial energy costs, a residential unit pays for itself in less than three years.
Solar electricity is a good option, too, but not necessarily for WAPA, Smith said.
"People say WAPA should do solar power, and I'm a strong proponent of solar power myself," Smith said. "But photovoltaic or solar electricity is really best on the demand side. The space involved makes rooftop installation attractive.
We would like to try to put a panel on every rooftop. And again, if the government gets into large purchases that will bring down the costs for everyone."
Smith emphasized he was speaking about what he would recommend, and that the governor's energy proposals would be unveiled soon.
There are already some tax credits for installing residential solar power, Smith noted, and as of last year, it is now possible to connect to the grid and sell any excess power back to WAPA under net metering. And the high cost of the energy the territory now has actually makes alternatives like solar more fiscally practical, he noted. So it may be time to push just a bit harder on that front.
"The governor may be supporting legislation to strengthen the territorial tax incentives to make it much easier to bring in solar panels and other renewable-energy equipment into the territory," he said. "Currently there is excise tax on these goods. So we are looking to broaden the existing tax credits to improve the viability of renewable-energy products such as photovoltaic, wind generators, ethanol — we have that plant on St. Croix — biodiesel, hybrid vehicles and alternative-fuel vehicles."
Specifics have yet to be buttoned down, and deJongh will likely lay out some proposals in the state of the territory address, Smith said.
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