Coal plants may get reduced role at Xcel Energy

With cheap wind power increasingly prevalent, Xcel Energy is planning to run two of its four coal generators on a part-time basis, a move the company said will save money for ratepayers and reduce carbon emissions.

Xcel's proposal comes as state utility regulators are examining the cost efficiency of running coal plants continuously when less-expensive wind power is often abundant in the wholesale electricity markets.

"This is a recognition by Xcel Energy that at least half of their coal fleet is no longer economic to run year-round," said Joseph Daniel, senior energy analyst for the Union of Concerned Scientists, a research and advocacy group. "They can get considerable savings."

The Union of Concerned Scientists and the Sierra Club, an environmental group, have both done research that found the traditional utility practice of "must-run" status for coal plants has become increasingly uneconomic, costing ratepayers hundreds of millions of dollars a year.

Such findings aren't just coming from clean-energy advocacy groups.

The Southwest Power Pool, a wholesale power-market operator in the southern Great Plains, concluded in a December study that must-run status distorts price signals, and that reducing the practice would lead to better profit maximization and ratepayer benefits.

Bloomberg New Energy Finance, an economics researcher, found in a 2018 study that 48% of the U.S. coal-fired power fleet ran at a loss from 2012 through 2017. "Fading are the days when coal plants earned their mettle as high-output baseload workhorses; coal is being reincarnated as backup capacity," the study concluded.

Coal plants on must-run status get dispatched to provide electricity in wholesale electricity markets, even when wind and gas-fired power are cheaper.

" 'Must run' has been the status quo for utilities for a long time, but more questions on the economics have been raised," said Allen Gleckner, energy markets director for St. Paul-based Fresh Energy, a research and advocacy group.

Wind is a free fuel, and the number of wind farms has mushroomed over the last decade, boosted by federal tax credits and falling equipment costs. At the same time, natural-gas-fired plants have increasingly displaced coal power, too. They are cheaper to operate, and natural gas emits half the carbon dioxide that coal does.

Xcel's proposal to partly abandon "must-run" status for coal isn't unique, but it's not common in the utility industry, either. "This isn't just something that Xcel can do," Gleckner said. "We are excited because it shows there is a different way to operate these plants."

Xcel, the state's largest electricity provider by far, has four large coal generators in Minnesota, three at its sprawling Sherco site in Becker and one — the Allen S. King plant — in Oak Park Heights. All would be closed early by the end of 2030 if Xcel's current plans go through.

In the meantime, Xcel is proposing as early as March to suspend normal operations at the King plant during the spring and fall shoulder seasons, when demand is lowest. The Minneapolis-based company plans to do the same at its Sherco 2 generator in September, according to its proposal to the Minnesota Public Utilities Commission (PUC).

During the shoulder-season shutdowns, the two coal generators would be started if they were needed for reliability — a power demand surge — in the regional electricity grid. Totally cold coal generators could take a couple of days to be fired up to full power.

Xcel in Minnesota also has two nuclear plants that run almost continuously, as well as several large gas plants that can be ramped up quickly. Indeed, the company noted the "excess capacity" in its generation system over the "next several years" in a regulatory filing for its coal proposal.

Xcel has already begun running King and Sherco 2 at so-called "economic levels," including short-term shutdowns that aren't just seasonal. Utilities nationwide increasingly operate coal plants more economically by ramping production up or down based on demand and prices — but usually without total shutdowns.

"Economic" operation leads to significant cost savings for fuel, Xcel said in a filing with the PUC. The operation of King and Sherco 2 on a seasonal basis entails incremental fuel savings, but it also materially reduces operational, maintenance and capital costs, the filing said.

Xcel said that by running the two coal plants on both a seasonal and economic basis, it would save $35 million in fuel costs between 2020 and 2023, and $13 million and $7 million respectively during the same period in operational and capital costs.

Also, Xcel said that by jettisoning must-run status for King and Sherco 2, carbon emissions would be reduced by about 5 million tons annually.

Last year, the PUC asked all three of the state's investor-owned utilities to review their must-run practices for coal plants.

Duluth-based Minnesota Power has two large coal generators in Cohasset. Their production oscillates with the amount of renewable power on the grid, but the utility has no plans to take them off must-run status.

"They are the backbone of the system and provide the ability to have 24/7 capacity," said Julie Pierce, vice president of strategy and planning for Minnesota Power.

Fergus Falls-based Otter Tail Power also said its coal-fired plants need to be on must-run status. "Xcel has excess capacity, which puts them in a different position than us," said Otter Tail spokeswoman Stephanie Hoff. "Our plants need to run to have adequate capacity to meet our load."

Mike Hughlett • 612-673-7003