Xcel suggests early retirement of two Sherco coal units, with a combined-cycle replacement

Xcel Energy (NYSE: XEL), due in part to the U.S. Environmental Protection Agency’s almost-final Clean Power Plan, has shifted gears and now wants to retire its coal-fired Sherco Units 1 and 2 early to mid next decade, instead of around 2030 as it originally planned.

Xcel’s Northern States Power subsidiary on Oct. 2 filed with the Minnesota Public Utilities Commission a revision to a Resource Plan that it originally filed with the commission in January. In the original plan, it wanted to keep Sherco 1 and 2 in operation until 2030, though with gradually decreasing reliance on the units as that shutdown deadline approached. Notable is that the newer, bigger and cleaner-emitting Sherco Unit 3, also fired with coal, is not part of this shutdown discussion.

The 2,222-MW Sherco plant is located at Becker, Minn., 45 miles northwest of the Twin Cities, on the Mississippi River. The Sherco units are:

  • Unit 1 – 680 MW – commercial start in 1976;
  • Unit 2 – 682 MW – commercial start in 1977; and
  • Unit 3 – 860 MW – commercial start in 1987.

“In our initial Resource Plan, we shared a vision of a 40 percent reduction of carbon dioxide emissions from 2005 levels by 2030,” said the Oct. 2 update. “Since that time, other parties filed comments recommending different approaches, and the Environmental Protection Agency has issued its final Clean Power Plan (CPP). We have reviewed and analyzed the comments filed by our stakeholders. We have also conducted a preliminary analysis of the CPP, though we recognize much more will develop around this rule.”

Xcel said its revised proposal would result in a 60% reduction of carbon emissions from 2005 levels by 2030. “We recognize many pieces of a complex effort need to come together to achieve these benefits,” it added. “We outline this proposal to begin the necessary discussions and actions and to allow parties to consider how we may work together to achieve this outcome while weighing it against other alternatives.”

The revised proposal has four primary elements:

Accelerate the transition from coal energy to renewables

  • Achieving 60% carbon emission reductions by 2030,
  • Ceasing coal generation at Sherco Unit 2 in 2023,
  • Ceasing coal generation at Sherco Unit 1 in 2026, and
  • Advancing the addition of substantial renewable generation (1,200 MW by 2020).

Preserve regional system reliability

Xcel proposes to continue operation of its nuclear units during the current resource planning period and construct sufficient gas fired generation and infrastructure to maintain reliability with an appreciation of regional, state, and local community economic and policy considerations. To that end, it envisions:

  • Reaffirming its commitment to nuclear energy through the current licenses of existing units,
  • Adding a combustion turbine in North Dakota by 2025,
  • Studying a Sherco Unit 2 boiler conversion or combustion turbine alternative,
  • Studying gas infrastructure and transmission expansion, and
  • Replacing Sherco generation with a combined cycle plant no later than 2026.

Pursue energy efficiency gains and grid modernization

Xcel proposes to continue a commitment to energy efficiency and new technologies, and looks to capitalize on these efforts rather than seeking to replace coal capacity megawatt for megawatt. It believes that modernizing the grid will further enable customer-driven solutions.

Ensure customer benefits

Xcel proposes to work with the commission, the Minnesota Pollution Control Agency (MPCA), and stakeholders to ensure customers get the full benefit of this proposal by:

  • Working with the MPCA, along with its counterpart environmental agencies in the Xcel-served states, on the CPP state compliance plans to maximize the benefits of compliance for customers and communities,
  • Pursuing rate plans and cost recovery mechanisms that smooth costs for customers.

Xcel says there are benefits to moving now on renewable energy options

“We believe there are tangible benefits to moving now,” Xcel noted. “For instance, we will have the opportunity to maximize the anticipated Production Tax Credit extensions in the acquisition of renewable energy. Additionally, addressing the future of Sherco Units 1 and 2 now helps us avoid the situation where we are replacing all of our baseload energy generation in the early 2030s.

“Second, environmental regulations will continue to place pressure on the operations of Sherco Units 1 and 2. The possibility that NOx reductions would require installation of Selective Catalytic Reduction (SCRs) at the Sherco Units in the mid- 2020s was a factor that advanced this proposal. We do not believe committing significant amounts of capital to these Units represents a realistic view of our energy future. We have successfully operated Sherco Units 1 and 2 to produce cost-effective energy while exceeding environmental regulations; however, the environmental pressures on these Units will continue to build.

“We recognize that others in the region may not be able to make changes now due to recent investments in plants (for instance in South Dakota), higher percentages of coal energy (for instance in North Dakota), or the desire to see how various litigated issues are resolved. We believe our action here can help our region successfully make this transition, encourage the development of renewable energy in our states, and provide jobs and investments for our communities.

“Third, our customers increasingly want cleaner energy. More of our customers are asking us to provide options for all renewable energy or are making individual or corporate commitments to sustainability and the environment. Likewise, our cities are making commitments to sustainability. Potential new customers deciding whether to locate their businesses in our states have asked for clean energy options.”

Xcel said it considered the state Department of Commerce’s recommendation to convert one Sherco unit to a natural gas boiler in 2025. “While the Department’s recommendation sets forth a practical alternative, we believe that beginning a two-Unit transition effort now best positions our customers to benefit from favorable market pricing and a construction schedule for replacement generation in the early 2020s,” Xcel added. “This timing also demonstrates leadership on implementation of the CPP, provides an adequate planning horizon for our employees, and positions us for an orderly transition to the future.”

Xcel said the technical feasibility of this new proposal is still under study. In a March 16 filing in this resource case, it noted that Sherco Units 1 and 2 are key components of its transmission system, that the grid has grown up around them for nearly 40 years, and that the units’ size, location, and operating characteristics require detailed technical study to confirm that Xcel fully understand sthe implications of their removal from the NSP and Midcontinent Independent System Operator (MISO) systems.

To that end, it described the MISO Attachment Y2 and Xcel Energy Transmission Reliability studies it is initiating to examine the effects of phased retirement scenarios of one or both Sherco units. Xcel would also need to revisit its Black Start plan that currently relies on these units to restore the system in the case of a catastrophic event. “While we still need to complete our Transmission Study and Black Start analysis, we have received the MISO Y2 study results,” the utlity wrote. “The MISO Y2 Study found that ceasing operations of one Sherco Unit will likely require some mitigation for expected reliability impacts. Ceasing operation of both Units, however, creates a significant voltage issue in the Monticello area. Importantly, MISO also declared Sherco Units 1 and 2 as System Stability Resources (SSR), which means that before we can cease operations of those Units, MISO must approve our plans to ensure we have sufficiently mitigated any anticipated impacts on the transmission system. The preliminary results from our Transmission Reliability Study are consistent with the MISO Y2 findings with respect to system impacts of a one versus two Unit closure.

“The most significant reliability issues that require additional study include: (1) ensuring the Monticello Nuclear Plant meets Nuclear Regulatory Commission (NRC) requirements related to voltage during all system conditions; and (2) ensuring we can reliably serve Twin Cities area load by providing sufficient generation and voltage support. In January 2016, we anticipate receiving the results of our Transmission Reliability Study that will provide further insight into system stability and reliability under various Sherco retirement scenarios; this study is also likely to identify topic areas for additional study.”

Converting a Sherco unit to gas not looking good, but combined-cycle is a good option

With respect to Sherco, Xcel is continuing to study the potential to convert one of the boilers to gas, as suggested by the Department; however, preliminary assessments suggest that refueling with natural gas poses significant operational challenges. Further study of this option, as well as combustion turbine alternatives is necessary.

“When Sherco Units 1 and 2 are retired, we believe that a combined cycle generating unit at the Sherco location provides many needed benefits to the transmission system, including needed reactive power for voltage support and dynamic response for system stability,” Xcel added. “Replacing Sherco Units 1 and 2 with a combined cycle unit facility also reinforces our commitment to Central Minnesota generally, and Becker specifically. This would provide continued commitment through jobs, property taxes, and presence in the communities of Central Minnesota. We also believe the development of solar energy on the Sherco site further demonstrates our continued commitment to the community. Our customers will also benefit from replacement because the Company can capitalize on the existing infrastructure at the site, including transmission, land, water, and site services.

“Replacing Sherco Units 1 and 2 with a combined cycle facility also benefits Liberty Paper, who relies on the steam output of Sherco Units 1 and 2 for their operations. A combined cycle onsite would enhance natural gas supply and provide options for continuing support of steam supply to Liberty Paper. Liberty Paper is a valued customer, an important employer in the Becker area, and a critical part of Minnesota’s recycling industry.

“We also propose to add a combustion turbine unit in North Dakota by 2025. Adding North Dakota-based generation is important from both a policy and reliability perspective. North Dakota is a growing part of our integrated system – and nearly all of the generation serving North Dakota customers is in Minnesota. Given that, North Dakota has requested that the Company commit to build generation resources in the state—and we agreed. From a reliability perspective, siting generation in North Dakota is preferable given its proximity to the growing load centers. This proximity promotes system reliability and allows for a rapid and effective response in the event of a power outage due to an adverse weather event.”

Xcel proposed the following next steps:

  • Work with commission staff on a procedural schedule that continues to build the record for this revised proposal in this proceeding. With that in mind, it is open to supplementing the record incrementally as it completes various analyses and studies.
  • Between now and January 2016, Xcel proposes to collaborate with parties to share work, obtain valuable feedback (including in the form of filed comments, if the commission so orders), and identify areas of concern.
  • Between now and January 2016, it proposes to schedule additional stakeholder outreach meetings.
  • Xcel proposes to immediately begin working with the Commerce Department and the MPCA on a schedule to accommodate the CPP state complaince plan, as well as collaborate regarding the scope of a nuclear study.
  • Xcel proposes to develop a Metro Emissions Reduction Project (MERP)-type proposal that it will be prepared to bring forward in the spring of 2016. The last time it significantly transformed its fleet was in the early 2000s when it worked under MERP with the commission and stakeholders to repower the Riverside and High Bridge plants, and make environmental improvements to the King coal 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.