Moving on: Unalaska Makushin Volcano geothermal project to continue without initial partnership

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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.

15 COMMENTS

  1. “It appears the city of Unalaska believes it can secure a $500 million government grant” I suppose with the current administration it is possible, if not probable that $500,000,000.00 would be spent for a small town of 4,000 people. That’s only $1,250,000.00 per person.

    Completely absurd.

    • Not out there it’s not.
      In addition many businesses/ fishing/ shipping will pay for & use the energy.
      This is Dutch a busy place.

        • Steve-O: I does remain absurd. just to repay the initial investment, not including any other operating costs or interest on the loan each resident will have to make a $347.22 monthly payment each month for 360 months before the initial investment is repaid.

  2. At two cents a kilowatt hour in a market as small as Unalaska it’s going to take literally forever to recoup a 500 million dollar investment.

  3. Stranger things have happened with this administration and “green energy” projects in remote areas. AP News 7 days ago: “The $366 million plan will pay for solar, battery storage and hydropower projects in sparsely populated regions where electricity can be costly and unreliable. The money comes from a $1 trillion infrastructure law President Joe Biden signed in 2021.”

    WASHINGTON (June 28, 2023) – Today, the U.S. Environmental Protection Agency (EPA) launched a $7 billion grant competition through President Biden’s Investing in America agenda to increase access to affordable, resilient, and clean solar energy for millions of low-income households.

  4. Great project that should continue moving forward. Will definitely pay for itself quickly and provide relief to Rate Payers in Unalaska & Dutch Harbor.
    Another concept worthy of consideration is:
    … “Micro-Reactor Modularized Nuclear Power Plants”

    • El Salvador is operating something like this, however, a better investment may be one that is viable anywhere.
      Thorium Reactors aka Molten Salt, are safer, more efficient, and cheaper to build. Giving local communities independence from carpet bagging corporations.

      • Agree … Has utility industry implemented these Thorium Reactors on a small scale (such as would the case at Dutch Harbor // Unalaska) or, is it still in the development phase?

    • ROb B.: Exactly how is it going to pay for itself quickly? The Market is just too small to make it feasible and that is why there are no investors

      • Most likely, there will be a combination of Fed Grant and Private Investor monies infused into this project. Maybe(?), the project won’t pay for itself “quickly” but, it appears the owners proposed to sell the electricity for $0.22 per kWh. I believe the rate payers are currently paying $0.45 to $0.55 per kWh there at Dutch Harbor // Unalaska. When you take into account the potential cost of Diesel, Tank Maintenance, Spill Risks – Mitigation, Diesel Generator Operations – Maintenance – Replacement (over the next 20-30 years) … no doubt the communities would benefit from reduced electric rates. AND(!), they might even be able to offer electricity to Akutan, via subsea cable (most likely not though, as that’s a pretty spendy endeavor).

  5. This has always been a project almost entirely dependent upon loud mouthed promoters looking to government grants for personal enrichment. It seemed to have the right story, the right timing (so far as doing away with fossil fuels), and a partnership with Native and municipal talk. But no one actually risked any money, and in this rare instance God was protecting taxpayers – at least so far.

    Think of the dollars that have wasted so far! We are lucky that the state has had limited involvement despite all the lobbyists working this over the years, not all of them registered as such.

    Like the Knik Arm Crossing, the Juneau Second Crossing, WATANA, and a North Slope gas line (to anywhere) these big dreams will now fade as the Alaska petroleum era sunsets. Coming out of WWII the newcomers to Alaska knew how to get things built, but the oil money grew new generations that mistake lobbying for risking one’s own money. The Alaska economy will very likely continue to ratchet downward to smaller times and expectations.

  6. It must be a viable project. If it weren’t the Alaska Industrial Development and Export Authority would be involved.
    I’m not surprised that Bernie Karl is going to keep helping Unalaska even though his company was cut out of the project. He is a dreamer and a visionary. He says he has never had a bad day. In fact, there is a video by that name.

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