Power Engineering - Minnesota puts its weight behind coal gasification

July 2003 -- An energy bill signed into law in late May in Minnesota by Governor Tim Pawlenty provides a big boost for a coal gasification project planned for the Iron Range of northeastern Minnesota, where more than 10,000 jobs have been lost over the past decade due to low world steel prices.

In practical terms, the law entitles Excelsior Energy, which is developing the Mesaba Energy coal gasification project, to a 450 MW power purchase agreement (PPA) with Xcel Energy. Excelsior will be exempt from most regulatory requirements, including the certificate of need that is required for all generation and transmission projects planned for the state. The law also requires utility Xcel Energy to buy, for all time, a minimum of 2 percent of its energy needs from the Mesaba Project because it is an "innovative energy" source as defined by the statute, if it is reasonably likely to be the low-cost supplier and the Public Utility Commission does not find the source to be contrary to the public interest.

"Unlike other parts of the country, Minnesota has an immediate need for new generation capacity and practically nothing new has been built in the past decade," says Julie Jorgensen, a principal with Excelsior Energy, former CEO of Cogeneration Corporation of America, and a former NRG Energy executive. "Xcel has been the 'gatekeeper' through its competitive bidding process for new capacity additions, and though thousands of megawatts have been put out for bid, no bids

have been awarded in the last decade except for wind and biomass facilities, which were mandated by the State legislature the last time cask storage for the Prairie Island nuclear facility was approved."

Although the PPA is for 450 MW, Excelsior is contemplating an initial 750 MW integrated gasification combined-cycle (IGCC) facility to gain some economies of scale. The company is trying to line up additional power buyers who may be interested in diversifying their energy supply options and hedging against volatile natural gas prices by purchasing some of the other 300 MW of capacity.

gas prices, coal is an attractive option in Minnesota, but tightening environmental restrictions make conventional coal technology a big risk," says Jorgensen. "Minnesota is very environmentally conscious and the odds that a conventional coal plant could be built in the state appear remote." While the capital costs of the IGCC plant would be slightly higher than those of a conventional coal plant, Jorgensen believes that the cost of electricity will be cheaper because the IGCC technology is more efficient and uses less coal than conventional technologies, and in the long run, conventional technologies would end up spending more to comply with existing and pending environmental regulations.

Output costs will be further reduced by the advantages of the project site. The Mesaba IGCC plant would be built on a former LTV Mining site near Hoyt Lakes, Minn. The site has two rail lines and a dedicated port on Lake Superior, providing attractive fuel transportation options for the facility. Low-cost high-sulfur Eastern coal, for example, could be backhauled to the plant on empty ore boats and unit trains that move taconite out of the region. The gasification process removes sulfur in a pure, marketable form, making it possible to use lower cost, high-sulfur coal.

Excelsior has closely examined the start-up and operating records of several of the IGCC plants that have been or are in operation in the U.S. and overseas. "With proper planning, I don't believe the start-up and operating risk for an IGCC plant is any more than that of a circulating fluidized bed plant," says Jorgensen. Further, based on lessons learned at the Polk, Wabash River, and Eastman Kodak gasification facilities, the construction schedule could likely be shortened significantly.

Excelsior is proceeding along several different fronts to advance the project. A transmission line to bring the power from the Iron Range to the Twin Cities is needed, which, while exempt from all other regulatory requirements, requires a siting and routing process with the state Environmental Quality Board. The recently passed law grants Excelsior the right of eminent domain to ensure an expedited construction process. Excelsior is also actively seeking a strategic equity partner interested in becoming the ultimate owner of the IGCC facility. This partner could participate in shaping the project to their specifications and in submitting and requesting final approval of the power purchase agreement from the PUC.

Excelsior will also be taking a closer look at the various commercial gasification technologies, including those of Shell, Global Energy and ChevronTexaco, to begin zeroing in on a project design. Assuming development proceeds smoothly, the IGCC plant could come on-line in 2008 or 2009.

Add RSS Feed