Northern States Power updates plans for new gas plant to replace Sherco coal units

Northern States Power is proposing construction of a 786-MW combined-cycle power plant next decade at the site of its coal-fired Sherburne County plant as a way of replacing two of the three existing Sherburne County units.

Northern States Power, a subsidiary of Xcel Energy (NYSE: XEL), on Jan. 29 filed with the Minnesota Public Utilities Commission a aupplement to its 2016-2030 Upper Midwest Resource Plan as required by a Jan. 6 commission order. This Supplement provides the detailed analysis supporting the proposal it outlined in October 2015, which for the first time suggested the retirement next decade of the smaller, older Sherburne County Units 1 and 2, leaving in place the coal-fired Unit 3.

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.

This updated plan consists of:

  • Accelerating the transition away from coal by ceasing coal operations at Sherco Units 1 and 2 in the 2020s;
  • Adding 1,400 MW of large solar to the system, including 400 MW by 2020;
  • Adding 1,800 MW of wind, including 800 MW by 2020;
  • Adding natural gas generation in the 2020s;
  • Operating the carbon-free nuclear fleet through their existing plant licenses, and
  • Continuing a commitment to increased energy efficiency and seeking out new technologies that will advance customer-driven solutions.

Incidentally, Northern States on Feb. 8 filed a copy of this updated plan with the Public Service Commission of Wisconsin for informational purposes only and is seeking no action on it at this time.

New capacity at existing site would address grid reliability issues

Northern States Power noted in the Jan. 29 update: “As we make this transition, maintaining the reliability of the system is critical. Our reliability studies confirm that, before ceasing coal operations at the second Sherco unit in 2026, we must take measures to maintain reliability. Our operational analysis confirms that the most cost-effective way to stabilize the transmission system and meet our customers’ load requirements is to build a combined cycle plant at the existing Sherco site. By locating the plant at Sherco, we are able to use existing infrastructure and interconnection rights, which will result in significantly lower costs as compared to locating it elsewhere. We can also use our existing water allocation to wet-cool the plant, further improving cost and performance. Finally, we believe that the impacts on the Becker community should be properly considered in this proceeding, and the siting of a combined cycle at Sherco will promote economic development for the community.

“We also propose to add a combustion turbine near one of our load centers in North Dakota. This will balance the interests of the states that we serve and maintain the benefits of an integrated system for all of our customers, while also addressing the reliability concerns of the North Dakota commission, which wants the Company to build cost-effective and dispatchable generation in their state.”

The company submitted its 2016-2030 Upper Midwest Resource Plan in January 2015. On Oct. 2, 2015, Northern States replied to parties’ comments, in part committing to maintain a goal of 1.5% Demand Side Management (DSM) through the planning period and find ways to stimulate greater demand response with customers – and in addition, outlined a Revised Proposal that would transition its system from coal generation, advance the acquisition of significant levels of renewable generation, recognize nuclear energy as a critical carbon-free baseload resource, and confirm a commitment to energy efficiency efforts. On Jan. 6, the commission approved the request to submit a supplement on Jan. 29, and set forth several informational requirements for the supplement.

Northern States said the Current Preferred Plan proposes a bold energy vision that is centered around four principles:

First, accelerate the transition from coal energy to lower- and zero-carbon resources. Specifically, the company proposes to:

  • Achieve a reduction of in CO2 emissions of nearly 60% (from 2005 levels) by 2030;
  • Cease coal generation at Sherco Unit 2 in 2023 and Sherco Unit 1 in 2026, and
  • Advance the addition of substantial renewable generation (1,200 MW by 2020).

Second, preserve regional system reliability. The preservation of system stability will be critical as the company makes the transition from coal energy to renewables, and it will preserve it by adding natural gas to the system and by continuing to operate the carbon-free nuclear fleet. It therefore proposes to:

  • Reaffirm a commitment to nuclear energy through the current licenses of existing units;
  • Add a combustion turbine (CT) in North Dakota by the end of 2025, and
  • Replace Sherco generation onsite with a combined cycle (CC) no later than 2026.

Third, pursue energy efficiency gains and grid modernization. “We will continue our commitment to energy efficiency and new technologies and look to capitalize on these efforts rather than seeking to replace coal capacity megawatt for megawatt,” said the company. “We believe that modernizing the grid will further enable customer-driven solutions.”

Fourth, ensure customer benefits. “We will work with our state Commissions, the Minnesota Pollution Control Agency (MPCA) along with its counterpart environmental agencies in our other states, and our stakeholders to ensure our customers get the full benefit of our proposal. Specifically, we will work to maximize the benefits of complying with the Clean Power Plan (CPP) State Plans for our customers and communities.”

Preferred plan would add mix of renewables and gas-fired generation

The Current Preferred Plan proposes to address the capacity deficit through a combination of renewable resource additions in the early years, and the addition of natural gas CT and CC units. The proposed resource additions are:

  • 1,400 MW of large solar additions, including 400 MW by 2020,
  • 1,800 MW of additional wind, including 800 MW by 2020,
  • A 786 MW CC addition at the Sherco site in 2026 to replace the capacity of Sherco Unit 1 before it ceases operation,
  • A 230 MW CT located in North Dakota by the end of 2025, and
  • Over 1,800 MW of additional CT capacity.

“The early renewable energy additions in our Current Preferred Plan will allow us to capitalize on favorable market pricing associated with the recently extended Federal ITC and PTC tax incentives, reducing the cost impacts of our Current Preferred Plan,” the company pointed out.

Northern States proposes to locate the CC at Sherco because it will allow the company to cost-effectively address the transmission issues identified by the Midcontinent Independent System Operator (MISO) Attachment Y2 Study, ensure the stability and reliability of the transmission system, mitigate impacts to the local community and employees, and potentially provide improved access to natural gas supplies for communities in central Minnesota. Because it would not be replacing all of the MWs that result from ceasing coal operations at Sherco Units 1 and 2 with the CC unit, there will be additional interconnection injection capabilities at the site, which it is proposing to partially utilize by also constructing photovoltaic (PV) solar generation on the existing property.

Ownership of a CT in North Dakota provides important options to be able to expand generation onsite in the future to serve customers in the Red River Valley region. Expansion options could include a partnership with another utility or converting the facility to a combined-cycle operation. If a third-party owns the CT, these options may not be available or may be more expensive and difficult to implement. In addition, the North Dakota commission has expressed a preference for an ownership model to a power purchase agreement (PPA) model.

Consistent with the Minnesota commission’s Jan. 6 order, Northern States will not submit a Sherco conversion plan proposal any earlier than one month following the order in this Resource Plan proceeding. It expects that this proposal will take a similar approach to its 2002 Metro Emissions Reduction Project (MERP) petition under the Emissions Reduction Statute. Following an overview and summary of the proposed projects, it will present further details including projected book life, capacity, capital cost, annualized emissions reductions, and proposed project schedule for the proposed thermal and renewable projects. The proposal will also contain a suggested procedural schedule, which it intends to develop in consultation with appropriate state agencies.

Also similar to its approach in 2002, Northern States intends to submit a cost recovery petition within 60 days of its proposal. The Emissions Reduction Statute gives the commission the authority to implement rate riders to recover the cost of qualifying projects if they appropriately achieve environmental benefits without unreasonable consumer costs. 

Following assumed approval of the Sherco conversion plan and associated cost recovery filing, Northern States would proceed using a similar approach to the previous MERP conversion efforts. The company would commence the project under an owner-managed multi-contract approach similar to the previous MERP, CapX2020 and other major projects it has successfully completed in the NSP regions over the past 13 years. It would establish an agreed upon scope, schedule, and budget with the commission prior to proceeding and would expect to provide regular updates to the commission on the status of the project through completion.

Northern States would utilize a competitive request for proposal (RFP) process to purchase the major equipment and acquire specialized engineering design and construction resources. As with the MERP projects, the company’s Engineering and Construction organization would provide overall project management and oversight with support from departments within the company for environmental, purchasing, safety, and startup & commissioning.

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.