An old idea to generate electricity by exploiting differences in ocean temperatures is getting a new look thanks to rising energy prices.

The technology known as OTEC first came to Hawaii in the 1970s when the Arab oil embargo sent crude prices soaring, highlighting the state’s lack of energy security.

The state launched an OTEC test project on a barge off the Kona Coast that successfully produced a small amount of electricity for a three-month period in 1979. But with the eventual return of cheap oil, interest in OTEC fizzled.

The main attraction of OTEC, which stands for "ocean thermal energy conversion," is that the process can provide firm power using an inexhaustible resource: ocean water. The biggest downside is its high capital cost. OTEC becomes economically viable, its proponents say, only when done on a large scale on a floating platform anchored offshore.

Rising energy prices have spurred interest in a variety of alternative energy sources in recent years. Solar and wind power have grabbed the lion’s share of attention, with OTEC being viewed as more of a novelty.

Several of the players involved in the 1979 OTEC project, bolstered by new federal funding, have refined the original technology and are pushing ahead with plans to build what would be the world’s first commercial-scale OTEC plant off the coast of Oahu.

A major step toward that goal took place Friday on Hawaii island with the dedication of a major component of an OTEC demonstration project at the Natural Energy Laboratory of Hawaii at Keahole Point in Kona. The heat exchanger is the heart of the OTEC system and will eventually be used to test the system’s electricity-generating capability.

In an OTEC system, warm water from the ocean’s surface is used to heat up a fluid with a low boiling point, such as ammonia. Vapor from the boiling ammonia turns a turbine that drives a generator to produce electricity. Deep-sea water is pumped up to cool the ammonia and return it to a liquid state to be used again.

The project at NELHA is being designed by Waimanalo-based Makai Ocean Engineering in partnership with Lockheed Martin Corp., the U.S. Department of Energy and the Navy. Both Makai Ocean Engineering and Lockheed were involved in the original OTEC project at NELHA in 1979.

Makai Vice President Joe Van Ryzin said completion of the heat exchanger was critical because it has allowed researchers to test new materials and processess that will keep costs down and make the OTEC technology viable as it its scaled up for commercial use. One major breakthrough achieved by Makai Ocean Engineering was figuring out how to replace titanium parts in the heat exchanger with ones made from less expensive aluminum.

"The goal is really to get the capital cost for the OTEC plant down. If you can come up with some new ideas on heat exchangers using some new innovative materials, you can significantly drop the cost," Van Ryzin said.

Because the plant is designed only to be a demonstration project, its potential electricity output is limited to a modest 100 kilowatts, enough to power a thousand 100-watt light bulbs, he said.

The project is located at NELHA because of the proximity to deep-sea water pipes at the facility. The goal is to develop a 100-megawatt, utility-scale OTEC plant that would be mounted on a floating platform positioned several miles off of Oahu. The plant would feed electricity to the Hawaiian Electric Co. grid via an undersea cable, Van Ryzin said. A 100-megawatt plant can provide power for about 100,000 homes.

OTEC has advantages over wind and solar because it is considered a "firm" source of power along the lines of HECO’s oil-fired generators, he said. Wind turbines and solar panels are considered less reliable because they are subject to fluctuations in wind speed, cloud cover and darkness.

Dennis Cooper, Lockheed Martin’s point man for OTEC in Hawaii, said the next step in the process will be to build a 5-megawatt pilot project by 2014 or 2015. That would be followed by the full-scale 100-megawatt plant sometime between 2016 and 2018.

"Funding is the whole issue right now," Cooper said. "We’re starting with a pilot project to prove a lot of factors of OTEC before we can attract private investors. We’re in the risk-reduction phase."

Building an OTEC system of sufficient size is key to its success because the technology relies on economies of scale to a much greater degree than other alternative energy sources, Van Ryzin said.

"You can build a very large system like a 100-megawatt OTEC plant at a much lower cost per megawatt than you could build a little one," he said. Expenses for things like mooring the platform, dropping the cold water pipe to depths of 2,000 feet or more, and the engineering services "are almost the same cost for a little one as they are for a big one."

Van Ryzin said he believes an OTEC plant of at least 100 megawatts could compete with wind power on a cost basis.

"We know that HECO has talked about a power-purchase agreement for wind that came out to 21 cents to 23 cents per kilowatt-hour when the cost of the interisland cable is included. That’s in the ballpark of where we believe we could build a 100-megawatt OTEC plant. So we’re close. It looks quite promising that we will be able to provide economic power."

OTEC and other alternative energy sources were not considered when the state and private developers advanced a plan to build massive wind energy projects on Lanai and Molokai and transmit the electricity to Oahu through an undersea cable. Many critics of the plan say such an omission is a major oversight in the planning process.

Doug McLeod, energy commissioner for Maui County, said state officials leading the push to build a combined 400 megawatts of generating capacity on Lanai and Molokai have not taken into consideration advancements in alternative technologies, such as solar power and OTEC.

"Ocean thermal energy conversion appears to be technically feasible and should be more fully explored as a reasonable alternative," McLeod said in a letter to the state Department of Business, Economic Development and Tourism, urging officials to broaden the scope of the environmental impact statement that will need to be conducted before the project can proceed.