Large coal power plants getting life extensions

By David Shaffer • dshaffer@startribune.com

BIG STONE CITY, S.D. – The nation's big coal-burning power plants are not ready to become dinosaurs.

Utilities are making substantial investments to keep their largest coal generating stations operating for decades — and emitting millions of tons of carbon dioxide annually.

Upgrades planned or underway at more than 100 Midwestern coal power plants will reduce emissions of mercury or other air pollutants. But they won't affect greenhouse gas emissions that the Obama administration says it will regulate in 2015 to address climate change.

"Companies are making … in some cases billion-dollar decisions on these plants, and it would be unfortunate if greenhouse gas regulation down the road ends up undermining those investments," said Eric Holdsworth, director of climate programs for the Edison Electric Institute, a power industry trade group. "That is a very big concern."

Retrofits to large coal plants are taking place even as utilities are shutting down small, older coal-fired units, including a dozen in Minnesota over the next few years. Utility executives say the large coal plants will be needed for a long time, and investing in air pollution controls to cut emissions like mercury still makes sense. Coal generates about 40 percent of the U.S. electrical supply.

On a hilltop 3 miles west of the Minnesota-South Dakota border, the Big Stone power plant is undergoing a $405 million retrofit, one of the largest such upgrades in the Midwest. This summer, 225 workers are pouring concrete and erecting steel to house new air pollution control equipment. The workforce is expected to double before the job is done in 2015.

Big Stone is a prime example of the class of coal plants the utility industry wants to preserve. They are large, averaging about 350 megawatts, and capable of powering thousands of homes and businesses. Most were built in the 1970s but need mercury or other air pollution controls to keep operating.

"We have to make our decisions based on what we know today and the laws and the rules that are in place," said Jan Rudolf, vice president for energy supply at Otter Tail Power, Big Stone's operator.

When the work is finished at Big Stone, its 498-foot-tall smokestack will emit far fewer air pollutants, improving air quality as far as 300 miles away in northern Minnesota's Boundary Waters Canoe Area Wilderness. The plant's carbon dioxide output, 2.6 million metric tons a year, won't go down.

As for future greenhouse gas regulation, Rudolf said, "I have been in the business long enough to know you just have to wait and see what comes out."

Otter Tail Power Co. of Fergus Falls, Minn., and two other utilities that co-own the plant looked at other options to comply with air quality rules, such as replacing it with a natural gas-burning generator. Those units typically emit about half as much carbon dioxide as coal burners. But the company and Minnesota utility regulators concluded that the retrofit represented the best deal, even if carbon dioxide regulation adds costs in the future.

More than 100 other coal plants on the 11-state Midwest power grid are planning or undergoing environmental retrofits, according to the grid operator. They includes plants in Cohasset, Minn., Alma, Wis., and Genoa, Wis.

In June, the Obama administration ordered the U.S. Environmental Protection Agency to draft greenhouse gas regulations for existing power plants by next June and finalize them a year later. No practical carbon dioxide-removal technology exists, so the regulations likely will rely on other approaches, such as market-driven incentives. The Obama directive also called for regulatory flexibility.

"Those standards are not going to shut down every coal plant in the United States," said Daniel Lashof, director of climate and clean air programs for the Natural Resources Defense Council, an environmental group that has proposed giving each state a carbon-reduction benchmark.

Greenhouse gas regulation likely will focus on energy conservation and expanding clean sources like wind power — strategies already employed in Minnesota, Lashof said.

"On average, you would run coal plants less," he said.

In another era, environmentalists might have applauded utilities like Otter Tail for reducing mercury and haze-causing emissions at a coal plant. But increasingly, environmental groups say that such investments are a mistake because greenhouse gas regulation looms.

"The amount of carbon coming out of these power plants is something a lot of people are not aware of," said J. Drake Hamilton, science policy director for St. Paul-based Fresh Energy, which joined other environmental groups to oppose the Big Stone upgrade. "They are by far the No. 1 source of carbon pollution in the state and in the country. To continue year after year adding to that very negative legacy is not a viable policy."

Dairyland Power Cooperative of La Crosse, Wis., is wrapping up $318 million in pollution control upgrades at two coal power plants along the Mississippi River at Alma, Wis., and Genoa, Wis.

"For us to just abandon those plants and build all renewables or all natural gas would be an economic hit on our ratepayers that would be just unbelievably bad," said Brian Rude, vice president of external and member relations at Dairyland.

Yet utilities don't always agree about coal's economics. Great River Energy, a utility based in Maple Grove, buys under contract half the output of Dairyland's Genoa plant. Great River wants out of the deal, saying the plant is uneconomical and should be retired.

As utilities put money into big coal plants, they are expecting them to operate for years to pay off the investment. In Minnesota, utilities are required to consider whether that's a reasonable gamble under future carbon-dioxide regulation.

One project facing review is a planned $431 million air pollution control upgrade to the coal-fired Boswell 4 power plant in Cohasset, Minn., owned by Minnesota Power of Duluth and WPPI Energy, which supplies Wisconsin municipal utilities.

"It is the lowest-cost plant," said Al Rudeck, Minnesota Power's vice president for generation.

The state Commerce Department has endorsed the retrofit, telling state regulators in May that retiring Boswell 4 "would not be a cost-effective option under any scenario."

That advice to the state Public Utilities Commission was issued after Gov. Mark Dayton declared a goal of "eliminating all power from coal-fired plants." In an interview, Dayton said a major power plant like Boswell 4 poses a dilemma.

"It's a major source of power for major industrial operations — refining and paper mills in northeast Minnesota," Dayton said. "You want to upgrade and improve [such plants] and reduce the emissions and come in compliance with state and federal regulations, but it extends the life … and that is the trade-off involved."

To address future greenhouse gas rules, Minnesota Power and some other utilities have adopted a strategy to upgrade and preserve their largest coal plants but retire smaller, older coal units. They also are investing in wind and other renewable energy, or building natural gas generators. Minnesota Power, Xcel Energy and Otter Tail say their overall carbon emissions are down dramatically.

Minneapolis-based Xcel, the largest power company in the state, has in the past decade replaced two Twin Cities coal plants with natural gas units and installed state-of-the-art emission controls on its coal-fired Allen S. King plant in Oak Park Heights. Over two decades, Xcel also has become the nation's leading wind power utility.

Yet the company is having trouble deciding what to do with two 1970s-era coal-burning units at its giant Sherco power plant in Becker, Minn. Xcel is making modest upgrades to Sherco's two oldest units. Adding advanced controls would cost another $340 million but do nothing to reduce carbon dioxide emissions. Xcel has decided to wait.

"It is a very difficult issue to manage," Xcel CEO Ben Fowke said. "Obviously, it would be very helpful if we knew what the rules were. … When those rules come out, we'll know what to do with Sherco."

David Shaffer • 612-673-7090 @ShafferStrib