July-August 2005

Native American Empowerment: A New Frontier for Distributed Energy

Though it may not qualify as a gold rush, there's a growing market for distributed energy surging across Native American lands.

Fueled by a rapidly growing population neglected by traditional utilities, more than 550 tribes are aggressively seeking economic empowerment and, in many instances, their demand for energy outpaces their resources. It’s a unique market that runs from impoverished tribal communities without electricity to power hungry multi-million-dollar gaming casinos.

But this isn’t your typical customer. Native American tribes are sovereign nations---or independent governments within the US, with their own legal systems. Moreover, they have unique cultures, politics, and educational and legal systems. Some even have their own full-scale utility operations, as does the Navajo Tribal Utility Authority (NTUA) in Fort Defiance, AZ.

With an estimated 18,000 homes on the Navajo reservation lacking electrical grid connections, the NTUA had a problem. At a construction cost of $27,000 to $30,000 per mile to extend the grid, the economics were prohibitive, according to Larry Ahastein, NTUA renewable energy specialist. But those conditions provided an ideal opportunity for SunWize Technologies, a solar technology company specializing in integrated solar power systems.

In May 2004, SunWize delivered 63, 880-W PV/wind generators that combine Shell Solar modules with Southwest wind turbines. The units deliver 2 kWh of AC per day, in worst-month conditions. SunWize did the assembly in Fort Defiance and NTUA electricians attended an extensive training program with participants from Rolls Battery Co., Southwest Windpower, and Sandia National Laboratories. Ahastein noted that the NTUA stressed local workforce development in the project as part of its efforts to alleviate the high unemployment rate in Navajo country.

Training and education is a mainstay of many key players in tribal energy. The Department of Energy’s (DOE) Tribal Energy Program collaborated with the Council of Energy Resources Tribes (CERT) in conducting 10 regional tribal workshops in 2004 to provide tribal leaders with informed energy choices. The Southwestern Indian Polytechnic Institute in Albuquerque recently offered renewable energy undergraduate courses and the Bush administration developed the White House Initiative on Tribal Colleges and Universities to provide additional programs.

Obviously, issues of education and workforce development can work as strong selling points for companies vying for Native American business. It was a deal maker for Proton Energy Systems and the Mohegan Tribal Nation. Proton installed a regenerative backup power system at the Mohegan Sun Gaming and Entertainment facility’s Fuel Cell Education center. Funding came from the tribe, the DOE, the Connecticut State Energy Office, and the Connecticut Clean Energy Fund.

“Education is the biggest hump for tribes,” says Rodger Taylor, director of the NREL Tribal Development Program. “It makes a big difference in how you work with the tribes to help them understand their opportunities and decision making so they can get ahead.” And looking at the NREL’s project list, plenty of opportunities are ahead for distributed energy suppliers.

The NREL has 45 projects in various stages of development. Many are nearing the phase of asset purchase (for a complete list see www.eere.energy.gov/tribalenergy/) The NREL focuses on strategic planning, education, feasibility, permitting, and financing. However, they stop short of providing funds for actual hardware or construction.

Not surprisingly, wind is the most popular technology. As Taylor explains, “It’s primarily because of the economics and the number of tribes that have really good wind resources in places like the Dakotas. But there is some biomass and we’re excited about the Tulalip project in Washington State.”

With its benefits to local dairy farmers, Tulalip fishermen, and conservationists, the biogas project is a win-win solution for all parties. Located in Snohomish County, WA, the project began with a $250,000 feasibility study grant from the DOE. The Washington state legislature deeded 277 acres of land to the tribe on the condition that it is used for a biogas plant. Then, an additional $500,000 came from the Department of Agriculture (USDA) to help fund construction costs estimated at $2 million.

Local dairy farmers are happy because the facility will treat cow manure and allow them to increase the area’s total herd count from 2,500 to 4,235. That additional capacity would ultimately add an estimated $19.7 million to the county’s economy. For the Tulalip Tribe, the facility addresses the problem of pollution that has degraded the health of their salmon fisheries. Also, hundreds of construction jobs will arrive and, finally, the plant will employ about 30 people.

With all the positive impact, outsiders might find it surprising that the tribe is still scrambling to fill a gap in funding. The situation is typical for renewable energy projects, says Karen Atkinson, president of Tribal Strategies Inc. Atkinson provides legal services and advises tribes like the Tulalip and businesses involved in governmental and energy development issues.

“There’s a huge potential for renewable energy resources,” Atkinson explains. “Yet, currently there are no financial incentives.” One alternative solution may come from the same model used by the Rosebud Sioux Tribe Wind Farm---the first large-scale Native American–owned and operated wind turbine in the US. Located in South Dakota, the Rosebud project used a DOE grant plus a loan from the Rural Utility Service, but stalled until it secured help from NativeEnergy, a financial development firm that targets creative funding for renewable energy projects.

NativeEnergy supplied the needed construction and operating capital by selling the “green tags” or renewable energy credits in advance, thus allowing the tribe to access the projected value of the credits for the life of the turbine. “Right now you have to cobble together different pieces to make a renewable project economically viable,” notes Atkinson. But there are some new ideas in the future.

A modification to production tax credits could help. Currently, they aren’t available because as sovereign governments in and of themselves, tribes don’t pay federal taxes. But they could attract outside partnerships with distributed energy resources if tax credit rules were changed to allow non-tribal partners to write off the tribe’s portion of the credits. Under the current structure, partners are restricted to tax credits based upon their percentage of equity. So a 50% equity would equal a 50% tax credit. Another possibility is a congressional move toward federal renewable portfolio standards that would offer double credit for new renewable development on tribal lands.

Distributed energy suppliers may also find partnership resources within the Office of Economic Diversity and Impact (http://diversity.doe.gov/). The organization is focused on helping small businesses---including Native American businesses---enhance their opportunities to do business with the DOE (see sidebar).

Despite the lack of incentives, some tribes have succeeded by bridging the financial gap with their own contributions. Such was the case with the Hualapai Nation in Peach Springs, AZ. The tribe funded a $2 million project with grant funds from the Rural Utility Service, the Federal Aviation Administration, and their own money.

The project is a hybrid solar PV system to serve the Grand Canyon West community on the Hualapai Reservation. According to Jack Ehrhardt, planning and development director for the tribe, working with government agencies is nothing less than a “dizzying experience.”

“There are so many hoops to jump through and the government is a hodgepodge of agencies cross-referencing back and forth,” says Ehrhardt. Nonetheless, the project is moving forward and Ehrhardt is seeking bids from distributed energy manufacturers for the system’s backup power requirements. Battery, hydrogen, natural gas, and fuel cells are all being considered. Additionally, the tribe is a member of Wind Power America and currently conducting wind feasibility studies for another project.

While most of these renewable projects struggle with funding issues, one sector of the Native American market develops distributed energy on a more traditional financial business model---Indian gaming. About one-third of the nation’s 562 tribes have gaming operations. From glitzy affairs that rival Las Vegas to modest rural outposts, they all seek reliable, cost-efficient power. And many distributed energy companies have sold high-dollar co-generation systems to these tribes.

Hess Microgen provided just such a solution to the Agua Caliente Tribe’s Spa Resort Casino in Palm Springs, CA. The system is based upon four, 375-kW generators, a chiller, and a site-supplied cooling tower. It’s highly efficient, reports Carl Dunaway, national accounts manager at Hess, performing at efficiency levels above 70%. The system was cost-competitive thanks to a modular design and skid packaging that eliminated customized engineering and installation work. However, the extreme climate of Palm Springs did require some unique hardware.

“In the desert you have terribly high temperatures of 45†C [113†F], explains Dunaway. “It can affect the electronics so we safeguarded them with their own dedicated chillers.” The generators connect in parallel with the grid and were designed as the primary power source for the 228-room resort. But they don’t meet the building’s entire load.

According to Donald Violick, tribal chief engineer at Agua Caliente, the design called for operating under base load in order to ensure that the engines run 24/7 at their optimum range. On some cooler winter nights when the hotel has experienced low room occupancy, Violick has chosen to route excess power onto Edison’s grid. But those have been rare occasions. Also rare are the times when Violick has turned to the power plant’s backup electric chiller. All told, the first year in operation has been a resounding success and Violick notes that the tribe is ready to develop a second project at the their Rancho Mirage resort and casino. That system will again use four, 375 kW units, but with the benefit of hindsight, the cooling tower will be larger---1,200 tons rather than the typical size of 900 tons. It’s a new project that Dunaway expects to run smoothly. He hasn’t seen any of the issues that confront renewables and notes that the tribe does business just as any of Hess’s other customers. Violick agrees, but with one caveat: vendors can expect tribes to stress a strong concern for environmental issues.

“The tribe always tries to meet or exceed code requirements,” says Violick. “For example, as a sovereign state we didn’t come under the jurisdiction of California’s South Coast Air Quality District. But we still paid them to review our plans and issue permits.” Violick sees environmental benefits as one of two strong arguments for distributed energy. “With the efficiency of co-generation equipment and market conditions there’s more of an incentive to create energy on Indian lands,” he adds.

As for renewables, they may require more creative approaches to funding, but grants by the DOE alone have seeded the market with $8.4 million in recent years, and the agency has requested a budget of $5.5 million for 2005. “The future of renewables in tribal country is almost assured even if our program was to go away,” explains Roger Taylor of the NREL. “There are many projects that have started and other programs by the Department of Agriculture and the Bureau of Indian Affairs are continuing.”

As tribe populations and businesses continue to grow, the Native American market for distributed energy will follow. From small, residential solar PV to co-generation systems powering casino resorts, the opportunities are ready for those with the competitive solutions to meet the demand.