The City Council of Unalaska has lost confidence in the ability of a private partnership to develop geothermal power from the Makushin Volcano, which is about 12 miles from the remote island city that is home to about 4,000 in the Aleutians. The Unalaska City Council made the decision during a recent meeting when presented with the past timeline of the project and the alternatives for moving forward.
Unalaska has been working for decades to try to develop geothermal power from volcanic sources, but the original investor partnership, Ounalashka Corporation and Chena Power, LLC, which formed in 2019, was not able to meet numerous stage-gated deadlines.
Difficulties meeting those deadlines led to the city council ending its formal business relationship with Bernie Karl, who has a joint partnership with Unalaska’s Native corporation, Ounalashka Corp. Karl and Ounalashka have a 50-year lease on the volcano but just haven’t been able to secure the financing.
Unalaska had an agreement to purchase power and has allowed extensions to the partnership several times, while financing kept slipping away.
Geothermal projects are the cutting edge for energy in Alaska, but any project would require a massive upfront investment. It appears the city of Unalaska believes it can secure a $500 million government grant to move forward without Ounalashka Corporation and Chena Power, LLC.
In January, the Makushin Geothermal Energy Project group said it was at the Final Investment Decision stage for private investors.
“The project construction and logistic plan is complete, engineering procurement and construction contract (signed with Ormat Technologies), and rigorous design criteria and specifications have been developed that allowed for the competitive and best value selection of all remaining contracts with speciality contractors and vendors. Nearly all contracts are in the queue awaiting the right time for their execution,” the project group said on its website update. It projected three years of work ahead, based on permits in hand or near completion.
“Our focus now is securing the total project financing package. This process has taken longer than ever anticipated, which led us to our decision last fall to add a year to the project schedule,” the company said. “Our decision requires an amendment to the existing Power Purchase Agreement (PPA) with the city of Unalaska . That, understandably, involves a community process which must be complete before we are able to advance a final financial package – you get the drift it’s been like the game ‘whack-a-mole.'”
Ounalashka Corporation and Chena Power produced an inspirational film to court investors:
“As with all development projects, such as these, it has constant twists and turns, however the project continues to march forward in lock step with that vision we had from the get go,” the partnership said in January, explaining the delays.
Must Read Alaska has learned that once the project is built, power costs in the out-years are projected to go as low as 2 cents per kilowatt to the community, which depends on diesel. Unalaska Island and the Aleutian Islands chain is mainly a treeless landscape, and so burning wood for heat is not viable. But the chain of islands does have volcanoes.
The City of Unalaska had committed to buying 100 megawatts of power over 30 years for a value of about $500 million. A memo from the city manager to the city council and mayor said the power purchase agreement had been amended on three occasions for reasons that include: extending the commercial operation deadline; extending the project financing due date; and for a mutual commitment to an interconnection/integration plan. The project financing deadline, Dec. 10, 2023, was also not met.
Those close to the project say it is the No. 1 place in Alaska for proof-of-concept for how geothermal could work. While Bernie Karl, owner of Chena Hot Springs outside of Fairbanks, had the vision, he and his partners didn’t have the hundreds of millions of dollars needed to complete it. However, Must Read Alaska has learned Karl is going to keep helping Unalaska as it goes it alone to try to develop the project. He is committed to the concept, even if it means he is not in charge of it.
“The City invested significant time working with OCCP to continue moving the project forward. Three amendments to the original PPA were negotiated and approved by City Council. The City adopted the MGP within its state and federal legislative priorities and included OCCP representatives in legislative fly-in visits with state and federal elected leaders. The City and OCCP have worked together to develop the electric integration/interconnection plan that would connect the new electric source to the City’s existing distribution system,” the Unalaska city manager’s memo stated.
