Geothermal meltdown: alternative energy project pushes Southwest Alaska electric co-op into bankruptcy.

AuthorLoy, Wesley
PositionSPECIAL SECTION: Clean Energy

On Aug. 16, 2009, a small Southwest Alaska electric cooperative began drilling an exploratory geothermal well.

It seemed like a smart idea at the time, one born out of near desperation.

Like so many rural electric utilities across the state, Naknek Electric Association depended on shipments of diesel to run its generators. The cost of fuel was skyrocketing, and the co-op's residential power load was eroding as people migrated out of the region due to the high cost of living.

The hope was that a geothermal energy source might provide a cheaper alternative to diesel. The co-op could generate electricity with hot water from deep underground.

The geothermal prospects looked good, as the boundary of the volcanic Katmai National Park and Preserve was just east of the co-op's service area.

But problems soon developed. The drilling of the well, known as G-1, experienced a slew of technical problems. Costs escalated. Funding fell through.

Finally, on Sept. 29, 2010, Naknek Electric filed for Chapter 11 bankruptcy protection from creditors.

Recently, the co-op proposed a reorganization plan that includes rate increases to pay unsecured creditors about $20 million over 20 years.

It's a painful outcome, and a lesson on the potential pitfalls of pursing renewable energy projects in the remote outback of Alaska. While rural villages certainly need alternatives to imported fossil fuels, and while ideas such as geothermal, tidal and wind energy hold great appeal, the risks of pursing these options are real.

"I can see why communities take chances on alternatives," says Chris Rose, executive director of the nonprofit Renewable Energy Alaska Project. He hopes people don't take the Naknek Electric experience as a strike against geothermal--or alternative energy in general.

The co-op's stab at geothermal was, in the words of its bankruptcy attorney, an "incredible, ballsy leap of faith."

It went after the project full-bore, and wasn't alone in its optimism. The U.S. Department of Energy conditionally awarded $12.4 million to Naknek Electric for a geothermal "demonstration project."

The co-op acquired a 120-acre Native allotment a few miles east of the village of King Salmon and built a road to the site.

Rather than hire a contractor, the coop took out a loan to buy its own drilling rig for $8.5 million. It spent another $3 million on improvements and barged the rig up from Washington state.

The co-op's vision was to drill multiple wells to support a...

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