Student Post: Going the Extra Mile for Cleaner Coal: Is It Worth It?

Great River Energy is a Minnesota-based wholesale cooperative that serves roughly 650,000 customers in our area. Since 2007, the company spent $437 million to construct and put into operation a coal-fired plant in Spiritwood, ND. Now, Great River is shutting operations down at the plant.

As we have learned in our readings, burning coal is the economically productive function of coal. Combustion produces steam, which drives a turbine, and this turbine then produces electricity. Coal combustion, however, is also a major source of air pollution. Further exacerbating environmental concerns is that coal is accounts for roughly 50% of the nation’s energy source. To combat the dangerous levels of air pollution resulting from coal-fired plants Congress enacted the Clean Air Act (“CAA”) and established the Environmental Protection Agency (“EPA”) in 1970.

The CAA requires plants to have pollution controls in place to limit their emissions. Well, coal is in great abundance in the United States but it is known as a “dirty fuel.” This basically means that energy companies must expend a greater amount on pollution control if they are burning coal rather than other fuel sources such as oil or natural gas. Additionally, electricity industry incentives have changed so much over the last three two decades that competitive pricing has replaced the once administratively set energy rates. This in turn has led energy companies’ incentive to invest in cleaner, more efficient (and costly) energy sources to wane. An increasing number of states are rejecting applications for new coal-fired plants citing environmental concerns. Thus, the cheaper alternative of coal-based energy has not been growing at the same rate as other power sources.

Coal plants require larger investments, and that is precisely what we saw with Great River Energy’s Spiritwood plant. Great River certainly believed that the investment was well worth it. In the mid-2000s, the company faced a strong growth in demand for electricity, so it decided to build Spiritwood as a long-term, valuable asset to meet this forecasted demand. According to Great River’s web site, Spiritwood also boasts the use of the best, state-of-the-art technology to make the plant “one of the cleanest coal-based power plants in the world.” Its fuel source is lignite coal mined at the surface, and then dried and refined nearby utilizing a proprietary method called DryFine. DryFining is a process in which waste heat from the plant is used together with a proprietary fluidized bed drying process to remove moisture and impurities from the feedstock lignite to produce refined coal. The DryFining method results in less fuel being burned, reduced emissions, and overall lower maintenance costs. Unfortunately, despite all of its innovation, Great River was still subject to the fickle economy and the recession.

Great River stalled the production date of the Spiritwood plant as a result of weaker demand and the recession; however, the company still believed in the value of the plant in the long run. Great River has said that it will delay further operations at the plant at least until 2013. As of last November, plant employees began a “protect, preserve, and maintain mode” that has tacked on an additional $30 million to the nearly half a billion dollar price tag. The budgeted $30 million is to cover the costs of maintenance, and to cover bond interest and depreciation.

Is there a lesson to be learned? Well, Great River Energy was still keeping the environment in mind, and in alignment with federal regulations. The company developed a refinement process and other innovative technologies, at great cost, to more efficiently produce electricity in an increasingly cost- and environmentally-conscious world where oil and (especially) natural gas producers are looking to emerge as the dominant players in commercial and residential energy production. Carbon taxes or offsets have made it more expensive to operate, however, North Dakota and Minnesota provided exemptions and other incentives for the Spiritwood plant.

According Brad Crabtree of the Minneapolis-based nonprofit, the Great Plains Institute, Great River was penalized for its environmental innovations. The extra investment in “resources to do the right thing environmentally and [] build the most efficient advanced-combustion power plant in the Midwest” was largely ignored by the marketplace.

Ultimately, the market has the final say. Despite considerable efforts, the decrease in growth, demand, and electricity prices coupled with the loss of a major would be customer severely weakened the Spiritwood plant’s potential.

Sources:

Great River Energy, StarTribune

Bosselman, et. al., Energy, Economics and the Environment, 3rd Ed.