fedgazette

The new coal rush

Rising energy needs and relaxed regulations fuel a resurgence.

Frank Jossi - Contributing Writer

Published September 1, 2004  |  September 2004 issue

Turn on a light in Vancouver, Canada, a few years from now and the power just may originate from a coal-fired power plant in tiny Hardin, Mont. The businesses and homes of the Twin Cities region may sometime trace the source of their power to a unique coal "gasification" plant in northern Minnesota that may require congressional support.

As demand for electricity increases and the price of natural gas skyrockets, utility companies in and near the Ninth District have begun to turn to coal as a source of power for the future. The proposals range from small plants to huge facilities hoping to cash in on growing metropolitan markets like the Twin Cities and those of the Pacific Northwest. (See Proposed Ninth District Coal-Fired Plants.)

Coal has become a hot commodity, a potential answer to the nation's insatiable desire for inexpensive power and a potential economic boost for remote towns that welcome the industry with open arms. Coal offers a large reservoir of reserves and provides a more accessible and dependable power supply than gas, wind or solar energy, and a less dangerous one than nuclear power, supporters say.

Huge coal-fired plants are being proposed in small towns throughout North Dakota and Montana, as well as near more populous Wausau, Wis. A liberal count puts the number of publicly announced coal-fired plant proposals in or very near the district at six in Montana, two in North Dakota, two in northern and western Wisconsin, and one each in Minnesota and South Dakota. Even the Upper Peninsula of Michigan is getting in on the coal action, boasting an intriguing proposal that would use a federal government loan to install a new coal cleansing process that would be added to an existing plant.

Hot opportunities

Environmentalists and the media report that utilities have made more than 100 proposals for new coal-fired plants across the nation since 2000 at a total cost of more than $72 billion.

"There's no question about it, there's been a resurgence in interest in coal-fired power plants," said Jerry Vaninetti, president of Great Northern Power Development Co. of Denver, which has proposed two 500-megawatt coal-fired plants, one each in Montana and North Dakota. "It's the best reasonable option we have. The natural gas market has had great volatility and a tripling of prices in the last few years ... combine that with the fact there's been no building of nuclear plants recently and you begin to see how coal has become the best option available."

Though Minnesota has but one concrete proposal on the energy table, it likely represents only the beginning of a new age for coal in the state. Kandace Olsen, spokeswoman for Elk River, Minn.-based Great River Energy, said she has heard that nearly every major utility in the state—including Great River—is conducting studies to determine when and where its next coal-fired plant should be built. "Everyone has something in the works," she said. "We've been talking to other utilities about projects but nothing's definite."

Assisting coal's resurgence as an energy source—after dropping off as utilities began building cleaner-burning natural gas plants—has been the Bush administration's relaxation of environmental standards and, ironically, several new technologies that allow for coal-fired power plants to burn cleaner and emit less mercury than in the past.

Relatively recent techniques such as coal gasification and "circulating fluidized bed" technology—a process employed in many European countries—promise to sequester and reduce pollutants. Minnesota's proposed coal gasification plant in Hoyt Lakes, at an abandoned taconite mine, has received unusually favorable regulatory treatment from the state, but its owners are still awaiting a controversial $800 million federal loan guarantee in the energy bill stalled in Congress at the time of this writing.

The cause has been aided by the U.S. Energy Department's Clean Coal Power Initiative, which offers interest-free loans to innovative projects. Coal also received a boost when the East Coast blackout last year called attention to the nation's geriatric transmission grid and aging fleet of power plants. Piecemeal deregulation at the state and federal level has likely induced a bit of speculative building by the industry as well.

Still, the industry faces heavy criticism and scrutiny from an environmental community concerned over carbon dioxide, sulfur dioxide and nitric oxide pollution, as well as mercury. More coal-fired plants—even clean-burning ones—may only aggravate global warming, they argue. Critics charge that the utility industry wants to "acquire federal permits for coal-fired power plants before it loses control of the White House to a more public-health-friendly administration," according to the Web site of GreenWatch, an environmental watchdog group.

Nor does a mere proposal make a plant. Some proposals remain highly speculative, often based on factors such as whether the country's transmission grid can be upgraded to efficiently deliver power generated in rural towns. Getting the appropriate permits, environmental and otherwise, usually takes years and often includes lawsuits, and construction of a coal-fired plant itself requires at least four years.

If the past is prologue, those 100 proposals nationwide will be whittled down dramatically due to competition from other energy sources, costly and time-consuming lawsuits, changing federal priorities and other complex hurdles faced by the energy industry.

Why coal, why now?

Most coal-fired plants in the nation and the district are between 20 and 30 years old, according to state and utility officials. A construction boom in coal-fired plants in the late 1970s and early 1980s left Minnesota and much of the Upper Midwest "overbuilt" and with more than enough power, said Olsen. During that time Great River built the 1,200-megawatt Coal Creek Station 50 miles north of Bismarck, the largest power plant in North Dakota, that required a high-voltage, direct-current transmission line, which drew many protesters.

"Now we used up that capacity," Olsen said, adding that coal remains "the best fuel" for larger "baseload" energy plants that supply 24/7 energy to meet the daily needs of consumers.

Blessed with a mother lode of coal, Montana and North Dakota have become hotspots for generation activity. "Montana has the biggest coal reserves of any state in the country," said Vaninetti. "There's enough coal in that state to serve the country for 12,800 years at current production rates." Add North Dakota to the equation, he said, and the two states together have enough coal to replace the nation's entire energy infrastructure—hydroelectric, nuclear, wind and solar—with enough fuel to last 2,800 years.

Unlike in the other states in the region, new coal-fired plants in these two states will export as much as two-thirds of their energy into transmission grids bound for the Twin Cities, the Pacific Northwest and Canada. Centennial Energy Resources of Hardin, Mont., will sell its energy to BC Hydro, one of Canada's largest utilities.

Montana and North Dakota have different approaches to energy production based largely on the quality of their coal. With coal mining industry employment ranked sixth in the country in 2002, Montana boasts several rich veins of sub-bituminous coal in the Powder River Basin it shares with Wyoming. (The region also boasts coalbed methane, covered in the January 2003 issue of the fedgazette.)

Although recent statistics show that Montana exports more than 70 percent of its coal production annually, the new plants would export power, not coal, using "mine-mouth" operations at several locations. Mine-mouth combinations, already popular in North Dakota, place the power plant next to the mine. North Dakota's brand of coal, called lignite, holds a third of its weight in water, making the transport of it uneconomical, said Jim Deutsch, director of the reclamation division at North Dakota's Public Service Commission. The state currently ranks 10th in coal production, he said, all of it used to power the state's seven electricity plants.

The potential of rising demand for coal-fired electricity has also fueled the ambitions of Sioux Falls, S.D.-based Dakota Minnesota & Eastern Railroad (DM&E), which wants to spend $2 billion to upgrade and build new lines connecting the coal-rich Powder River Basin of Wyoming with markets to the east. Bitterly opposed by many communities that fear the prospect of 100-car trains running through their towns daily, the railroad nonetheless has moved forward on two fronts this year by winning a court battle with South Dakota over the question of eminent domain and by securing a $233 million loan from the federal government.

Opponents have pointed out that Xcel Energy's decision to convert power plants in Minneapolis and St. Paul to natural gas will reduce the state's coal needs as much as 20 percent. Though DM&E's Chief Executive Officer Kevin Schaeffer has said the rail will move grain as well as coal, the economics will not work without coal. In a May 4 article, Schaeffer told the Argus Leader of Sioux Falls that "everything requires the Powder River Basin project as an anchor."

Big industry, sort of

Coal mining and power generation is one of the largest employers in North Dakota, with more than 20,000 workers producing a $1.5 billion economic impact, according to statistics compiled by the St. Paul-based Partners for Affordable Energy, and represents around 15 percent of the state's economy. With coal such an instrumental supplier of jobs in both North Dakota and Montana, their governors, predictably, are doing all they can to promote growth.

North Dakota, for example, created a private-public partnership called Lignite Vision 21, which helps subsidize the study of power plant proposals by utilities. And Gov. John Hoeven has aggressively pursued a deal with the Environmental Protection Agency, nearly five years in the making, which changes the way pollution from coal-fired plants will be measured, to facilitate the building of a coal-fired plant in South Heart, near Theodore Roosevelt National Park and the Lostwood National Wildlife area. (The federal EPA requires air quality standards four times more stringent near national parks than in other areas.)

Montana Gov. Judy Martz's Web site says she reduced "regulatory burdens" on generators and passed a "tax holiday" on coal-fired plants during her term. She has argued that Montana has $4 billion in untapped coal wealth. The federal government also agreed to transfer to the state land in the Otter Creek area boasting 533 million tons of coal, enough potential to attract the attention of a consortium of companies studying the potential of a 3,000-megawatt plant.

For all the talk of economic development, coal-fired plants no longer employ many people. A $300 million plant in Gascoyne, N.D., proposed by Montana-Dakota Utilities Co. offers work to only 100 people; the Hardin plant (built by an MDU subsidiary) will employ 35 people.

"You don't need a lot of people to run them anymore," said Dan Sharp, public relations manager for the company. "It's more about maintenance and monitoring in the plants. No one's shoveling coal anymore."

In a small town, however, even a small employment gain produces a noticeable ripple effect throughout the economy. Vaninetti argued that the two coal-fired plants proposed by Great Northern might employ only 150 people at each location but will have a multiplier effect on local employment. "There are a lot of jobs created in remote areas of the country which embrace power plant development," he said.

Rural towns remain hungry for growth. "Small towns are dying to have power plants built there," said Steve Wegman of the South Dakota Public Utilities Commission. "The best place to build a power plant is a small town in South Dakota or Wisconsin or Kansas or Nebraska. No one wants power plants in cities, but in rural towns they actually want the plants," Wegman said.

Marketplace and environmental challenges

There are two major stumbling blocks for more coal-generated power: transmission hurdles and environmental opposition.

The more tangible of the two problems is transmission. Regardless of how much power a plant generates, it all needs to be delivered somewhere else, and existing transmission capacity is badly strained. Currently, energy generated in the Dakotas, Minnesota and Wisconsin goes to the Eastern power grid, upon which energy in much of the Ninth District is transported. Montana splits the difference, with the eastern half sending power to the Eastern grid, the western portion to the Western grid.

Could power from North Dakota's new plants be transported to the East by today's transmission lines that carry power across the country? "No, definitely not," said Jeff Webb, director of planning for the Midwest Independent Transmission System Operator, a Carmel, Ind.-based nonprofit trade group promoting bulk power distribution. North Dakota's ability to transmit power is at capacity now—19,500 megawatts—and even planned upgrades will not increase that amount substantially in the next five years, he said.

Nor is electricity demand in potential export markets like the Twin Cities and Wisconsin not currently being met, said Webb. Since power plants take years to receive approvals and get built, he suggested that some proposals are banking on transmission capacity being added around the same time utilities finish building and begin moving power.

Energy companies are not sitting idle. Webb pointed out that utilities and transmission companies in the Dakotas and Minnesota have formed the Upper Great Plains Transmission Coalition to address the issue. MDU's Sharp said his company has embarked upon a study to look at how transmission can be increased.

But adding transmission comes with its own challenges. A good example is the Arrowhead transmission line proposed five years ago from Duluth, Minn., to Wausau, which just got under way at a cost of $420 million. It still faces legal issues and further negotiations for the purchase of rights of way in Wisconsin.

Charlie Severance, manager of supply and wholesale services for Wisconsin Public Service Corp. (WPS) in Green Bay, said building a baseload plant like one planned by his company outside Wausau is much easier than adding transmission lines since they involve "several hundreds of miles which effectively have thousands of landowners who could see their property's value drop. There's a lot of friction in building transmission lines."

WPS ought to know. The company is one of the backers of the Duluth-Wausau line and plans to tie it into a new 515-megawatt, $750 million coal-fired plant on the Wisconsin River south of Wausau called "Weston 4." As the name implies, three other coal-fired plants exist on the site, though none as big as the planned fourth one. Even with a new plant and the power transmission line, Severance said he sees Wisconsin's power grid as "gummed up" and likely in need of additional capacity in the near future.

The inability to transmit power should not be underestimated. Over the past four years the majority of plants added to the nation's fleet of energy generators have been gas-fired, including several on the Gulf Coast that are not in production due to transmission challenges, said Ellen Vancko, director of communications for Princeton, N.J.-based North American Electric Reliability Council (NERC). "'Build it and they will come' didn't work because in the Southeast on the Gulf Coast they can't get the energy out," she said. "It's a big issue."

Vancko does not know whether the plants of the Ninth District are economically feasible, but NERC's own research suggests "capacity margins"—the difference between generation and need—are "declining after 2005." That may indicate a need for new plants, she said. On the other hand, NERC's data show power supplies available now will be more than enough to handle summer and winter spikes this year.

Black mark for environment

Since coal-fired plants represent more than a third of the nation's CO2 emissions—the rest comes from vehicles and other sources—coal's impact on the environment will have to be addressed at some future point by the nation's utilities, said Michael Noble, executive director of Minnesotans for an Energy-Efficient Economy. Though the Bush administration backed out of the CO2-reducing Kyoto Treaty, it is only a matter of time before the United States will be forced to seriously propose a national policy to begin eliminating CO2, he said.

Caps on CO2 emission have wide support in the U.S. Senate and even among oil companies such as British Petroleum and Shell, said Noble. Investors in utilities without carbon emission policies could take a financial bath in the future when, inevitably, international pressure on the United States eventually leads to a national policy of capping coal-fired plant emissions.

Noble points out the new coal-fired plants do burn cleaner and meet "modern pollution standards." But the existing fleet of plants requires upgrades to remove CO2 emissions, he added, and many are unlikely to be modernized anytime soon after the Bush Administration dropped allegations of Clean Air Act violations against dozens of coal-fired power plants late last year.

Coal-fired plants have been fingered as the primary source of mercury emissions in many streams and lakes, said Bill Grant, associate executive director of the Midwest Izaak Walton League. Mercury represents a health hazard for child-bearing women since it can cause neurological disorders in infants, he said. While new technologies can remove a great deal of mercury, he conceded, whether the new plants will employ them remains a question, especially since the EPA late last year changed mercury standards. (The Sierra Club has sued the EPA over the matter.)

In Montana, a proposal for a new coal-fired power plant in Roundup, a city of about 2,000 located roughly in the middle of the state, has generated a backlash for being located so near Yellowstone National Park, according to Jeanne Charter, a rancher and member of the Northern Plains Resource Council.

But there are other pressures moving against the proposal as well. Existing coal plants already put stress on the state's livestock, Charter said. Pollution from coal-fired plants results in acid rain that hurts vegetation on farms and ranches, and those same power plants often require great amounts of water not easily available in the drought-stricken West. "This kind of development competes with agricultural uses of water," she said.

Charter also questioned the ability to transmit power outside the region. "The biggest problem is there are no big power lines in that area," she said.

Ultimately environmental and transmission obstacles torpedo some projects, and with them, a portion of the coal market. Earlier this year, Dairyland Power Cooperative of La Crosse, Wis., had publicly announced the construction of a potential power plant in one of three small communities in Wisconsin and Iowa. The town of Alma, Wis., was more than willing to have a power plant constructed there and welcomed the utility's interest, according to news reports. Yet Dairyland quickly scotched that plan and now will likely invest in the construction of a 500-megawatt power plant in Wausau being proposed by WPS, said Deb Mirasola, communications director for Dairyland."We're evaluating our options," she said. "We're still in negotiations, and we'll likely announce more decisions toward the end of summer and early fall."

Great River Energy, recalled Olsen, used money from the Lignite Vision 21 project three years ago to look at adding a $700 million plant in North Dakota. A year later the company dropped the plan and refunded the state $500,000 for the cost of the study. It decided to build a "peaking" plant, a smaller natural gas plant that contributes energy in high-demand seasons like summer and winter.

In a press release Great River's managers cited the issue of transmission as a deal killer. Moving forward, other coal-fired plants might find the same challenge too daunting to overcome.

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