Minnesota Power says small coal units in danger of pre-2020 shutdown

The Minnesota Power unit of ALLETE (NYSE: ALE) filed on Feb. 6 a study with the Minnesota Public Utilities Commission that examines how pending U.S. Environmental Protection Agency regulations, predicted regional energy growth and customer cost impacts will play key roles in its future power supply portfolio.

“The baseload diversification report is another important step in our continuous long-range planning process,” said Allan Rudeck Jr., Vice President of Strategy and Planning for the utility. “Over the next five to seven years, Minnesota Power will be making decisions that have long-term consequences for the supply and cost of electric power. Minnesota Power is committed to maintaining an ongoing dialogue with our stakeholders throughout all stages of resource planning.”

The study examines the cost and reliability impacts of retiring or continuing to operate Minnesota Power’s Laskin, Taconite Harbor and Boswell coal-fired facilities through 2034 amidst a range of proposed EPA regulations. The intent of the study was to consider a range of planning scenarios and explore potential impacts, not to draw any hard conclusions on the future of the company’s plants. The information will be used to help shape Minnesota Power’s next round of long-term planning, which will be detailed in its next resource plan to be filed with the commission in the summer of 2013.

Minnesota Power’s environmental investments in recent years have resulted in significant benefits at reasonable cost, the study found. Costs of anticipated controls to meet new EPA requirements will impact Minnesota Power’s smaller and oldest units the most. Investments at the company’s largest unit, Boswell 4, are showing environmental and economic benefits for customers for the long-term planning period, the report said. Coal-based generation shutdowns would carry significant costs to customers, including those associated with transitioning to new energy supply options.

“While we’re adding wind and hydro to our portfolio, we’ve also made substantial progress in ensuring cleaner, more efficient baseload facilities,” Rudeck said. “Cleaner and affordable aren’t mutually exclusive goals, but we can’t accomplish both without making smart investments in our existing generation plants.”

The company has invested more than $355m in the past six years to reduce emissions, such as SO2, NOx and mercury by more than 70% system-wide at Laskin, Taconite Harbor and Boswell.

“Taking early action on emission reductions has put us in a better position to meet new federal standards,” said David McMillan, Executive Vice President of Minnesota Power. “We know that environmental regulations will increase costs to our customers, and that knowledge has driven us to make the proactive investments we’ve made to date. For now, we believe we’ve taken the best steps we can to keep our energy affordable into the future.”

Input for this report was received from the state Department of Commerce-Division of Energy Resources, the Minnesota Pollution Control Agency, the Izaak Walton League, Fresh Energy, the Minnesota Center for Environmental Advocacy, large industrial customers and community members where Minnesota Power has coal-based generation.

“Some observers believe they know what new sources of electricity Minnesota Power should be using for the next 25 years,” McMillan said. “The fact is that the impacts of energy supply decisions last for decades and successful resource planning is a sophisticated process of balancing cost, reliability and environmental benefit. Minnesota Power has a long track record of strong environmental stewardship while providing a reliable, economic power supply. We will continue to wisely assess and act on power supply issues while involving all of our different stakeholders – including residential and business customers. Minnesota Power’s priorities will continue to include helping this region’s economy while maintaining a great quality of life.”

Three coal plants the focus of the report

Minnesota Power operates three coal-fired generating facilities in northeastern Minnesota: Boswell Units 1-4; Laskin 1-2; and Taconite Harbor Units 1-3. These three facilities have a current capability of approximately 1,300 MW, using Minnesota Power’s 80% share of Boswell Unit 4 net capability.

The report noted that the current company power supply initiatives impacting the projected capacity positions in the long-term outlook scenarios are: the implementation of Minnesota Power’s renewable plan, which incorporates 100 MW of additional wind resources in North Dakota above the current Bison 1, 2 and 3 wind projects by 2025; the gradual phase-out of 227 MW of coal-based generation from the co-owned Young 2 lignite facility in North Dakota by 2026; implementation of a 250 MW Manitoba Hydro power purchase agreement in 2020 through 2034; and the utilization of the wholesale market.

Minnesota Power also has considerable energy needs throughout the study period due to its customer load requirements creating significant load factors on its system. Minnesota Power’s most recent load outlook indicates the potential for significant new large industrial load requirements. Therefore, Minnesota Power is not pursuing another long-term, 100-MW baseload contract sale at this time. The company will revisit this item in its 2013 plan submittal to the Minnesota commission upon further clarity on timing and magnitude of industrial load growth.

As Minnesota Power examined expansion plan results, several trends emerged. The costs of future environmental controls required to meet EPA regulations impact the viability of the small coal units the most, especially at Laskin and Taconite Harbor Unit 3. Consideration of additional options at these facilities such as economical emission compliance strategies and refueling is needed.

Natural gas generation would be the prevailing technology to replace small coal-fired units. New wind additions beyond what is required to meet its current renewable energy plan were not identified as part of the lowest-cost resource plan for customers in the majority of scenarios. This indicates that Minnesota Power will reach an optimal penetration of wind after it completes its current renewable strategy program.

The level and timing of CO2 regulation considerably influences the shutdown risk to small coal resources on Minnesota Power’s system by either delaying a pre-2020 retirement to post-2020 or greatly reducing the economic benefit of a pre-2020 retirement.

Significant increases in capital investment for emission controls above the current continued operational plan would put Laskin and Taconite Harbor Unit 3 at risk of shutdown as baseload coal-fired generating sources before the year 2020.

Taconite Harbor Units 1-2 are less likely to be at risk of shutdown before the year 2020 as they require a lower increment of capital investment to meet more stringent EPA regulations due to recent emission reduction investments.

A major environmental retrofit was recently completed on Boswell Unit 3, also somewhat protecting this unit from near-term shutdown. Minnesota Power continues to evaluate requirements to reduce emissions at Boswell Unit 4 and investment in environmental control technology at this facility is showing itself to be environmentally and economically beneficial to Minnesota Power customers for the long-term planning period, the report said. Boswell Units 1-2 continue to be economic generating resources for Minnesota Power customers until extreme levels of environmental capital requirements are put into place.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.