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Minnesota Power moving toward first big gas plant

DULUTH, Minn. -- Minnesota Power is moving forward with plans to build a major natural gas-fired power plant, accepting bids through January from multiple companies in an ongoing push to move away from coal.

The utility is expected to negotiate with multiple bidders in 2016 for the plant which could be built anywhere in the Upper Midwest -- not necessarily in northern Minnesota, but within the Midwest electric grid system, company officials said.

Specifications require the proposals to be between 200 and 400 megawatts, and the facility -- essentially a large gas turbine that would fire to create electricity when demand requires -- will cost from $300 million to $400 million to build, said Al Rudeck, Minnesota Power's vice president of strategy and planning.

"We're site-agnostic; it really doesn't matter. What we are looking for is affordability and deliverability," Rudeck said.

In addition to considering outside bids, the Duluth-based utility expects to consider building the plant on its own.

"Whatever is best for our customers," Rudeck said.

It will be Minnesota Power's largest move into natural gas as a fuel, but it won't come fast.

After settling on who will build the facility and where, a proposal could be submitted to the Minnesota Public Utilities Commission for approval in 2017 or 2018, Rudeck said. Minnesota Power wants the plant operating sometime between 2022 and 2024.

"It's a very long process," Rudeck said, from engineering through environmental permitting and financing.

Minnesota Power has not yet had formal negotiations with any of the bidders. They include a Texas-based company that has talked with local officials in Cohasset about building a gas plant there. Navasota Energy of Magnolia, Texas, is proposing a $300 million plant at the Cohasset Industrial Park.

But Rudeck said Minnesota Power has no relationship with that firm and that Navasota's Cohasset proposal would have no advantage over other bidders in the selection process.

Minnesota Power officials say it would make no sense for any company to build a $300 million plant on speculation they would be awarded the utility's bid or get regulatory approval.

Coal cuts continue

Minnesota Power included the new gas plant proposal in its 15-year resource plan submitted to the PUC in September. It's the formal process to adopt its "Energy Forward" plan to produce  one-third of its electricity from renewable sources, one-third from coal and one-third from natural gas by 2025. That's after being nearly 95 percent coal-fired as recently as 2005.

The company is nearly at its goal for renewables, approaching 30 percent thanks to wind farms and hydroelectric power. And the utility is starting to decommission coal generators, taking the last coal capacity offline at Taconite Harbor in 2016 and phasing down coal-generated electricity purchased from Square Butte, N.D.

Minnesota Power is new to the natural gas game, eyeing the fuel only as it has become cheaper to buy in recent years. Compared to coal, gas produces less carbon dioxide, the greenhouse gas blamed for climate change.

It's just this kind of transition away from coal that is being debated at the ongoing climate talks in Paris.

Minnesota Power's first venture into gas was at its Laskin Energy Center in Hoyt Lakes, Minn., where a new 100-megawatt peaking plant was turned on this year. It replaces coal at the site and is fired up whenever regional demand requires.

But to hit one-third gas by 2025, Minnesota Power is going to need much more gas capacity.

With Laskin and the proposed gas plant, the utility will approach 500 megawatts gas out of its current total load of 1,900 megawatts, Rudeck said.

Minnesota Power also is increasing biomass use, moving toward all wood waste at its Hibbard plant in Duluth. The utility also is eyeing biomass generation as a "repurposing" of the Taconite Harbor facility, Rudeck noted.

How much coal, how much gas?

It remains unclear how much coal capacity Minnesota Power will retain in future years. Almost certainly it will keep its flagship Boswell 4 generator at Cohasset, Minn., operating for the foreseeable future after spending more than $350 million adding pollution control equipment that will cut mercury emissions by 95 percent. (The unit has no carbon-catching equipment, however.)

The utility says it needs that large amount of constant, reliable coal-fired capacity to power the heavy industry -- taconite and paper production -- that accounts for half of Minnesota Power's customer load.

But what will happen to Boswell's other older, smaller coal units is less certain. Environmental groups have pushed the Public Utilities Commission to order the coal units to be phased out quickly. Minnesota Power wants to keep them online at least for the near future.

The demand for that coal capacity, however, depends on the future of heavy industry in the region, especially the viability of taconite processing operations and whether the PolyMet copper mine is ever built.

"We're still projecting a 1 percent net load growth annually going forward" even after energy conservation efforts, Rudeck said. "We've seen (mining industry) cycles before. And we can adapt to that. ... But we see the need for additional capacity as well as conservation in coming years."

Nationally, gas is becoming more popular as coal is being phased out, often on an as-needed "peaking" basis when demand peaks and gas becomes cost-competitive -- and especially as federal regulators demand a reduction in carbon to control climate change.

Natural gas surpassed coal as the top source of electric power generation in the U.S. in April, the first time that's ever happened, according to a report by SNL Financial. About 31 percent of electric power generation came from natural gas that month compared to about 30 percent from coal. The federal Energy Information Administration predicts coal will continue to wane as renewables and gas take a larger share of the electric market.

But some critics say natural gas is not the long-term solution, and that Minnesota Power should be pushed to increase its renewable generation well beyond 33 percent.

"Minnesota Power and regulators need to bear that in mind as they consider options for new generation, and make sure that we don't commit ourselves to excessive amounts fossil fuels like gas," said J. Drake Hamilton, science policy director for Minnesota-based Fresh Energy, noting the cost of wind energy already has dropped below the cost of natural gas in some regions.

Eventually, Hamilton said, natural gas will be considered as old-school as coal is now, and there will be a push to eliminate all fossil fuel emissions. When that day comes, she said, Minnesota Power needs to be ready -- not tied to expensive, outdated gas plants.

"Eventually, it benefits all customers to have utility resources be as nimble as possible, and to reflect the reality that carbon-emitting resources like gas will have increasing costs in the future," she said.

In addition, Hamilton said energy conservation efforts, especially among large industrial users, may offset the need to replace coal with gas. There may be no need to replace the coal at all, she noted.

Does natural gas beat coal for climate-changing emissions?

Utilities and natural gas suppliers say that natural gas is a cleaner-burning alternative to coal, producing far fewer carbon dioxide emissions -- about half -- while also being relatively inexpensive and able to power turbines 24/7, unlike some renewable fuels.

Even some environmentalists have called gas a  "bridge fuel" to get big utilities from burning nearly all coal to a future of generating nearly all electricity from renewable sources.

But some critics have said natural gas really isn't much better than coal at reducing greenhouse gases that most experts say are causing global warming. That's because the process of capturing underground natural gas from deep wells releases large amounts of methane, another potent greenhouse gas.

But a 2014 study, published in the journal Science, says natural gas may indeed be better than coal. The study found that the amount of methane leaking from natural gas wells had been overestimated and isn't enough to offset the carbon dioxide savings, giving gas the edge.

-- Forum News Service