Aligning electricity energy policies in Alaska: analysis of the power cost equalization and renewable energy fund programs

Abstract

Most rural Alaska communities are not road connected and must cope with challenging arctic environmental conditions. Due to their remoteness and sparse populations, these villages depend on isolated non-grid connected electric generation systems that operate on fuel oil. In Alaska, the Power Cost Equalization program is a 25 year long energy subsidy that targets rural residents to provide energy costs relief. A more recent state incentive program, the Renewable Energy Fund, was developed to expand the use of renewable resources and lower the cost of energy. Some rural communities have benefited from this program and have integrated renewable energy to their systems, particularly installing Wind-Diesel systems. Both programs have congruent goals of alleviating dependence on high cost fossil fuels to generate electricity as means to foster development and higher quality of life in rural Alaska communities. However, their incentive structure may conflict. This paper provides a review of these two energy subsidy policies with a particular focus on the Power Cost Equalization program and offers potential changes to its structure such that social cost impacts to rural residents are minimized while removing incentive barriers against energy efficiency and integration of renewable energy in rural Alaska communities.