Xcel gives biomass power supplier a break on costs

Northern States Power, d/b/a Xcel Energy, on July 26 submitted to the Minnesota Public Utilities Commission a petition for approval of an amendment to a Power Purchase Agreement (PPA) with biomass-fired power supplier Laurentian Energy Authority I LLC.

In 1994, the Minnesota Legislature approved a biomass mandate that required Xcel to construct and operate, purchase, or contract to construct and operate 50 MW of farm grown closed-loop biomass energy by the end of 1998, and an additional 75 MW of such biomass energy by Dec. 31, 2002.

Since enactment, the Biomass Statute has been amended several times including: a reduction of the total biomass capacity requirement from 125 MW to 110 MW, and a revision to the definition of biomass to include the use of turkey litter and biomass fuels other than closed-loop fuels as fuel sources.

Currently, Xcel has PPAs in place for three projects to meet the 110-MW biomass mandate:

  • FibroMinnesota LLC (50 MW biomass facility using turkey litter);
  • St. Paul Cogeneration (25 MW biomass facility using wood waste); and
  • Laurentian Energy (35 MW biomass facility using trees and wood waste).

Since enactment of the Biomass Statute, the company has submitted and the commission has approved a number of PPA amendments in order to achieve the goals of the Biomass Statute. The most recent amendment to the Laurentian PPA was approved by the commission in 2009.

“Since the 2009 PPA amendment, several factors have contributed to the need for Laurentian to seek legislative changes for additional energy price increases and a fuel adjustment clause,” Xcel told the commission. “Laurentian faces a complicated supply structure and has little ability to control fuel prices. Laurentian has experienced fuel supply and fuel pricing challenges almost since project completion, and specifically since the 2009 PPA amendment was approved. Since that time, biomass fuel prices have increased due to a reduction in the supply of qualifying biomass fuels and increased competition for those fuels. In addition, with increasing fuel costs and fixed energy pricing, Laurentian faced challenges with its business model.”

The proposed PPA amendment addresses these issues. An energy price increase allows Laurentian to recover many of the near-term cost increases it has experienced. The fuel cost recovery clause allows Laurentian to receive reimbursement of future fuel cost increases above the established threshold without the need to seek further energy price increases.

“While Laurentian approached the Company with proposed PPA amendments, we were not comfortable negotiating changes to the terms of the PPA without statutory changes,” Xcel noted. “In response, Laurentian successfully sought legislative action on the issues addressed in the PPA amendment.”

The cities of Hibbing and Virginia, Minn., each own and operate municipal coal-fired generating stations that have been refurbished to also burn biomass fuels. The plants provide thermal energy for district heating and cooling to businesses and residents of the cities, and related electricity. The Hibbing plant delivers approximately 20 MW of biomass Capacity and Energy to NSP under the PPA, and the Virginia plant delivers approximately 15 MW of biomass Capacity and Energy to NSP under the PPA.

The two retrofitted plants began commercial operation in January 2007. A common site for quality control of fuel has been developed between the two city utilities where the fuel is processed prior to delivery to the boiler sites. Fuel usage consists of closed-loop biomass, open-loop biomass and coal. The closed-loop fuel supply consists of trees and shrubs grown specifically for harvesting and use at the plant. The open-loop fuel supply consists of wood waste and tree trimmings and other clean wood waste derived from sources in close proximity to the plant.

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.