ANALYSIS OF THE IMPACT OF GRID
CONNECTIVITY TO SOCIAL WELL-BEING
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Executive Summary
This white paper explores the current electrical
capacity in five communities—Anadyr, Hammerfest,
Iqaluit, Nome, and Reyðarfjörður—in the circumpolar
north, as well as the subsequent effects on local
economic and social well-being. Electrical grids differ
throughout the circumpolar north; however, Arctic
communities share similar social and economic
challenges. The cost of energy in Arctic communities is
almost uniformly higher than national averages and
governments throughout the region have sought to
offset the true cost of energy. For instance, in
Hammerfest, residents are not required to pay
consumption or value-added taxes related to energy
usage. Power Cost Equalization (PCE) in Alaska has
had the most significant impact and provided the
greatest relief to high electric prices in Nome. The real
cost of energy in Nunavut is kept artificially low by
subsidies and revolving funds. The situation in Anadyr
presents an interesting case study, because all fuel
offsets stemmed from a single philanthropic individual
as part of a larger 2.5 billion dollar economic stimulus.
Despite such relief efforts, the cost of living in these
regions remains stubbornly high. Given economic
realities and budgetary contractions, most of these
northern communities have unsustainable energy costs.
If Arctic communities and residents are forced to
devote more money towards energy costs, important
sources of funding will be diverted from other
priorities, which will inherently affect the local
standard of living.
Throughout the high north, tough decisions are already
being made in regards to balancing social well-being
with energy affordability. Educational attainment for
all communities in this case study lags behind national
averages. Even in relatively wealthy Northern
communities, such as Hammerfest, dropout rates are
high and local educational institutions are not
producing needed skilled labor. In Iqaluit over twenty
INSIDE THIS WHITE PAPER
Executive Summary and Findings
1-4
Case Study: Anadyr
5
Case Study: Hammerfest
7
Case Study: Iqaluit
10
Case Study: Nome
12
Case Study: Reyðarfjörður
15
percent of the territorial budget is reserved for fuel costs,
yet local schools are underfunded, resulting in high
unemployment and low career mobility.
Grid Connectivity Effect on Economic Stability
All five northern locales share similar challenges
regarding the economic and social well-being of their
inhabitants, however, a comprehensive electrical grid
perhaps showcases the starkest contrast between the
communities. Two communities--Hammerfest and
Reyðarfjörður--are connected to the national
Norwegian and Icelandic grids respectively, while the
electrical grids of Iqaluit, Nome, and Anadyr operate
as stand-alone entities. Furthermore, in the Nordic
communities, renewable sources provide a majority
of electrical power, whereas in the North American
Arctic and Russian Far East diesel generation powers
the local grids. It is important to note that
Hammerfest is not a net exporter of energy. In fact,
over the past several years local generation sources—
which include renewables— have failed to produce
enough power to meet demand mostly stemming from
insufficient rainfall. Despite this, Hammerfest was
able to maintain a stable and affordable electrical
supply, due to excess power production in
neighboring Norwegian counties. Conversely in
Reyðarfjörður, the Kárahnjúkar hydropower plant
produces excess power in the community and
aluminum smelter, which in turn can be exported
domestically to more populated areas.
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Grid Connectivity to Social Well-Being
The stand-alone electrical grid in Nome provides an
excellent contrast to the integrated grids in Hammerfest
and Reyðarfjörður. In winter 2012, a storm prevented
Nome's 3,500 residents from getting a fuel delivery by
barge in November. Without the tanker delivery,
supplies of diesel fuel, gasoline and home heating fuel
were expected to run out well before a barge delivery
again in late May or June. In order to pump 1.5 million
gallons of fuel oil to Nome’s on-shore depots, rescue
vessels had to traverse about 300 miles of thick sea ice
under the most difficult of conditions. Iqaluit and
Anadyr’s stand-alone diesel grids could potentially face
similar situations in the future. Additionally, if local
renewable sources of energy are developed, the absence
of transmission lines makes it impossible to divert
excess production to neighboring communities.
Grid Connectivity as an Economic Driver
Northern communities have less economic diversity
than other regions. The public sector is a key economic
driver and represents a significant portion of local
employment. Public sector employment makes up the
majority of jobs in Nome and Iqaluit, and private sector
jobs exist primarily in the form of extractive natural
resource industries. The high cost of energy is also a
major contributor to the high cost of doing business in
the Arctic and is a barrier to economic growth. Outside
of the public sector, employment opportunities are few
and far between, creating double digit unemployment in
Nome and Iqaluit. In Hammerfest and Reyðarfjörður,
grid connectivity has stabilized energy costs and
encouraged private sector investment. In Hammerfest
public sector investment remains high--over thirty
percent--but natural resource jobs have grown
considerably. In fact, recent developments have spurred
an in-migration of skilled workers and pushed
unemployment down.
In East Iceland inexpensive and reliable power was a
driving force behind decisions to develop an aluminum
smelter linked to a single hydropower plant.
Reyðarfjörður was able to completely reverse economic
decline by utilizing the region’s extensive glacial rivers
for hydro power. The community’s population
stabilized and local incomes and tax collections
increased, creating a new source of municipal funds. In
The Melkøya plant
(Hammerfest), visible from the
city (Photo: Eilif Ursin Reed)
Iqaluit, mining exploration could be a potential
economic boon and help diversify the local
economy; however mining interests have cited the
high cost of electricity as a barrier to develop, which
has in turn stalled project start dates. Planned hydro
development in Iqaluit would give a boost to the
development of mining nearby and make large scale
projects more appealing, and could perhaps parallel
the economic reversal experienced in East Iceland.
Similarly, the potential development of geothermal
sources near Nome could sustainably generate
power to be delivered to both Nome and nearby
mines. Furthermore, this development could benefit
all the surrounding communities on the Seward
Peninsula through the development of a regional
integrated electrical grid. In many ways, the pursuit
of natural resource development has a secondary
effect of lessening regional energy costs. Many
projects, such as mines, take place near other off
grid locations, forcing industry to rely on expensive
diesel generators. Energy is often one of the largest
costs for mining and other industrial projects, and
developing local renewable sources for energy can
cut diesel consumption considerably and also be
distributed to surrounding communities. In this
regard, private industry can be viewed through the
lens of both job producer and infrastructure partner.
“Private industry can be viewed
through the lens of both job
producer and infrastructure
partner.”
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Grid Connectivity to Social Well-Being
Social Structure Components
Economic stability and economic opportunities have a
profound effect on the social stability and characteristics of
a community. In the far north, grid connectivity has an
outsized and interconnected effect on these two issue
areas. The communities that derive their power from
stand-alone grids have similar economic outlooks. Anadyr,
Iqaluit, and Nome simultaneously suffer from joblessness
and decreasing amounts of public support. High energy
costs discourage private investment, which in turn creates
high unemployment and social dependence. This cycle is
not conducive to a maintaining a healthy population for
several reasons. All three regions experience either
population stagnation or outmigration, mostly of young
and skilled residents. Energy costs and grid connectivity
can be thought of as the base of a pyramid--a strong
infrastructure base that supports the higher levels of the
pyramid which in this case are jobs, local government
budgets, public health, education, and social mobility.
The high costs of energy resulting from stand-alone grids
also negatively affect the public health and social wellbeing of residents. High prices effectively encourage
extended families to live together in housing in order to
save on heating costs, which results in overcrowding.
Iqaluit in particular suffers from extreme overcrowding
because the government lacks the funding to expand
heating infrastructure for additional residential units. The
Alaskan Arctic also experiences higher overcrowding rates
than state and national averages. Conversely, homelessness
is also an issue of concern. These trends in housing
instability in turn affect other aspects of daily life, such as
school attendance and graduation rates.
The social structure in Hammerfest and Reyðarfjörður was
similar to that of the other communities not long ago. Both
experienced outmigration and lower educational
attainment rates respective to national averages. The allure
of cheap energy promoted several major economic
endeavors in both communities. Over time both
communities were able to stem population losses and later
grow. The economic growth in Reyðarfjörður was
particularly dramatic and personal income and reported
personal satisfaction for community residents increased as
a result. Hammerfest actually became a magnet for other
Norwegians as the need for skilled labor increased. The
trend was particularly pronounced among young people
and residents with families, who no longer needed to look
towards other domestic locales for job opportunity.
Iqaluit’s main
diesel power
plant. (Photo:
Nunatsiaq Online)
The growth in Hammerfest and Reyðarfjörður, however,
did not come completely risk free. Both communities are
relatively small and experienced rapid economic growth.
Initially, local governments were unable to keep up with
the pace of growth, resulting in housing shortages and
insufficient public services. Economic growth and
immigration meant more children in local classrooms and
an expanded need for health care. The initial
infrastructure was not necessarily in pace, which caused
social stress due to housing storages. Eventually, local
governments were able to meet the demand and the issues
lessened. Additionally, as industry was expanding, local
schools were not properly preparing students for these
new jobs, resulting in a skills mismatch. Coordination
between industry and educational institutions needed to
occur in order to properly prepare students for work
experience placements. This experience could provide a
valuable case study for the three other communities as
they seek to spur economic development by developing
integrated grids and more inexpensive energy sources.
Looking Forward
In the face of fluctuating fuel prices and the emerging
threat of negative climate impacts, the focus of the
global community has increasingly shifted to renewable
sources of energy as the primary target of sustainable
energy development. Many governments are turning to
the use of renewables in Arctic communities as a source
of significant savings on energy costs, and as a means of
preventing supply shortages with negative implications
for fuel prices as well as human well-being. Due to the
small size of many Arctic communities and the absence
of major industry, large scale energy production is not
economically feasible. In many ways small regional
grids with stand-alone power plants, often based on an
alternative energy source, represent the best path
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Grid Connectivity to Social Well-Being
towards energy security for rural communities. There
are potential geothermal and hydroelectric projects
currently being explored in Nome and Iqaluit,
respectively; these projects, if fully developed and
externally financed, could be linked to the surrounding
areas through transmission lines to share cheap power
among communities regionally.
The Anadyrskaya wind power plant in Chukotka has
proven successful in reducing community dependence
on diesel-fueled generators, and has improved security
of supply by establishing a local alternative to
transporting electricity and fuel from the Bilibino
nuclear power facility. In Nome, wind farms have
likewise allowed significant reductions in local diesel
use, and further reductions may be expected as more
turbines are constructed. However, wind generation
suffers from problems of intermittency which prevents
wind from representing a viable stand-alone energy
source. In addition, extremely high overhead
construction and operating costs are prohibitive for
municipalities with low income, and more often than
not, such projects are simply not economically feasible
for Arctic communities without the benefit of large
investments from public sector or private sources. The
community of Iqaluit, another autonomous grid that
would stand to benefit enormously from improved
energy security, is currently working towards
hydroelectric development, although preliminary
feasibility reports indicate exceedingly high start-up
“However, continuing concern over
the rapid pace of social change, the
permanence of social benefits, and the
sustainability of operations offered by
the plants prevents the community
from being considered a unilateral
success story.”
costs. Large-scale projects, such as the plant in Chukotka,
represent the best opportunity for increased employment and
population growth, yet these projects are nearly impossible
for communities to sponsor without substantial financial
support.
Because the community of Hammerfest is connected to the
national electric grid owned and operated by state-run
companies, energy prices are not as high and lack of supply
does not represent as serious a threat to well-being.
Hammerfest does contain a small hydroelectric plant which
satisfies roughly 10% of the community’s needs, and has
made recent advancements in tidal and wind power;
however, due to seasonal fluctuations in water supply and
strength of wind currents, these sources do little to address
the situation of energy deficit during the winter. Accordingly,
Hammerfest does not rely on renewables to meet critical
energy needs but rather approaches these sources as a way to
support the energy needs of growing petroleum and mining
sectors.
Reyðarfjörður as well benefits from strong grid connectivity,
although unlike Hammerfest, the primary sources of both
power supply and community and economic stability are
renewables-based: the hydro-powered electricity and
aluminum plants that were constructed locally by a
nationalized company. This community represents a prime
example of the potential social gains in employment
opportunity, community wealth, and population growth.
However, continuing concern over the rapid pace of social
change, the permanence of social benefits, and the
sustainability of operations offered by the plants prevents the
community from being considered a unilateral success story.
Significant damage also occurred to coastal and marine
habitat near the sites, and local water sources were affected
by contamination of toxic materials and depletion of
groundwater reserves. Consequently, East Iceland is
investing heavily in future projects to deploy geothermal
resources as a less environmentally harmful option. Despite
this, issues of land conversion, water quality, and noise and
air pollution remain challenges in future renewable energy
planning.