Fairbanks Daily News-Miner (Alaska), July 19, 2008

FUNDING BIOMASS FUELS MAY BE A HURDLE

By Rena Delbridge

FAIRBANKS -- Proponents of a plant that would make liquid fuels out of coal say such a facility could be the solution to high energy costs in Fairbanks and Interior villages.

However, a financial specialist warned that private-sector financing will be hard to find without some government assistance, either as cash, loan guarantees or off-take agreements.

The borough and Fairbanks Economic Development Corporation have proposed building a plant that would produce between 20,000 and 40,000 barrels of liquid fuel a day from coal and biomass -- a plant that would probably cost at least several billion dollars.

High-ranking officials from the U.S. Department of Energy and the U.S. Air Force, as well as more local players, gathered Friday in Fairbanks to discuss how to fast-track a biomass and coal-to-liquids facility. They heard from seven speakers representing pieces of the project.

While the gasification and coal-to-liquids technologies are well- established, few companies have experience building and operating the facilities, said Radoslav Shipkoff, director of Greengate LLC, which provides financial advisory services in energy and infrastructure sectors worldwide. That increases financial risk for investors, who prefer supporting projects built by companies that can offer performance guarantees.

Project advocates are looking to the U.S. Air Force for some financial backing in the form of off-take agreements, or commitments to purchase fuel produced by the plant. General Howie Chandler, Commander of Pacific Air Forces, attended the summit.

"We are the largest user of energy in the Department of Defense," Chandler said. The bill totaled $6 billion last year for jet fuel, $12.5 million of which was at Eielson. And that, he added, was at $2.20 a gallon.

"For that reason, we're interested in conservation, and we're interested in new ideas," he explained.

Kevin Billings, the Air Force's deputy assistant secretary for energy and the environment, said the Air Force has committed to certify its entire fleet to fly on a synthetic fuel blend -- and, once that happens, to buy 400 million gallons of synfuel annually.

"The project here would be a huge part of making that happen, and in making us much more energy secure in the United States," he said.

The military isn't the only likely beneficiary of a coal-to-liquids plant, which would turn out the same fuel that much of Alaska already has the infrastructure to use -- diesel.

Alaska Energy Authority Director Steve Haagenson said his primary goal is to quickly reduce the costs of energy in Alaska. He added that Fairbanks and Interior villages depend on each other economically and in energy issues.

In particular, he said Alaska needs to develop fuels that can be used in the existing infrastructure -- most of which, in the Interior and in villages, is built to run on diesel.

"Alaska is kind of hooked on diesel fuel," Haagenson said. "It used to be cheap, and it used to be convenient. Now, it's just convenient."

Liquid fuels are necessary in order to supply both population centers like Fairbanks and rural Interior villages with energy, advocates contend. That's because cars, homes and other buildings are already set up to run on diesel. Developing liquid fuels is even more critical for rural villages, where the Denali Commission has made significant investments in improving infrastructure to handle and store diesel in the past 10 years, said George Cannelos, federal co-chair of the Denali Commission.

Summit attendees also heard from Dr. William Davey of Hatch LLC, the company retained by the Fairbanks Economic Development Corporation for a $500,000 study of the proposed facility.

He described the products that could be made at a coal-to-liquids facility and detailed coal and biomass gasification as well as Fischer-Tropsch processes.

One of the biggest caveats surrounding coal-to-liquids technology is how to dispose of carbon dioxide, a byproduct that was once vented into the atmosphere but is now accepted as a major cause of global warming.

No decisions have been made about what to do with the carbon dioxide the plant would produce.

Other presenters included Joe Usibelli Jr., president of Usibelli Coal Mine, which would provide coal to the plant, and Dr. Carol Lewis, Dean of the School of Natural Resources at University of Fairbanks. She talked about biomass in the Interior, a second raw material that could be transformed into energy.

Alaska Railroad CEO Patrick Gamble said his trains are ready to roll, although some new engines and coal cars may have to be purchased. He also discussed ways the railroad could provide financial support through its ability to sell tax-free revenue bonds.

Clarence "Bud" Albright is the Undersecretary of the U.S. Department of Energy. He attended the summit to show support for the project.

"I do think this project is very, very interesting, and probably has as much thought and effort and energy -- no pun intended -- put into it as any I've seen," he said. "We are real excited."

Stevens and borough Mayor Jim Whitaker are hosting the Interior Alaska Strategic Energy Summit, which continues today at Chena Hot Springs Resort. Fairbanks Economic Development Corporation is assisting.

(c) 2008 Fairbanks Daily News-Miner