Even Great River's coal plant — next to a coal mine — is hurting financially

Even coal-fired plants with a coal mine next door can have economic woes these days.

Maple Grove-based Great River Energy — Minnesota's second-largest electricity provider — is mulling the future of its big Coal Creek power plant, with early closure among several alternatives. The North Dakota plant is increasingly being undercut in wholesale markets by lower cost electricity from natural gas generators and wind power.

"We are studying our options, and we have many of them," said Jon Brekke, vice president and chief power-supply officer for Great River.

Coal generates nearly 60% of Great Energy's electricity, and Coal Creek has long been a low-cost operation.

"Coal Creek is a very efficient coal plant and it's very reliable," Brekke said, "but it still faces the same pressure as other coal plants."

Indeed, as coal-fired power has become less economic in wholesale markets, Xcel Energy — Minnesota's largest electricity provider — earlier this year said it plans to run half its coal fleet on a part-time basis.

Xcel's move comes after the Minnesota Public Utilities Commission launched an examination of the cost efficiency of running coal plants continuously.

Coal Creek's two generators can together pump out 1,145 megawatts of electricity, making it one of the biggest power plants in the Upper Midwest. Opened around 1980, Coal Creek is one of five power plants in North Dakota that are adjacent to lignite coal mines.

Conveyor belts deliver coal to Coal Creek, not trains — an obvious cost savings. And Great River has invested millions of dollars in the plant since the mid-2000s to reduce emissions and increase its efficiency.

Still, "on an actual cost basis, we are losing money relative to the market [at Coal Creek]," Brekke said, including in his calculation the plant's fixed costs such as taxes and depreciation. "We measure Coal Creek's performance against market prices. What we can't recover from the market we recover from our members."

Great River is a nonprofit wholesale cooperative owned by 28 retail electric cooperatives that supply power to around 700,000 customers, mostly in Minnesota. Great River's largest members are Connexus Energy and Dakota Electric, which respectively serve parts of the northern and southern Twin Cities metro area.

Despite Coal Creek's issues, Brekke said Great River has "never been in a stronger financial position" and that its rates are competitive. Leaders of its large retail co-ops concurred. "Rates have actually been very steady," said Tim Sullivan, CEO of Wright-Hennepin Cooperative in Rockford.

Essentially, Great River has a fiduciary responsibility to its member co-ops, and a hard analysis of Coal Creek's future is a key part of that. "The question for Great River is, how do you deliver affordable, reliable and increasingly clean energy?" Sullivan said.

Answer by year's end

Great River said it plans to have answers to its Coal Creek questions by year's end.

At a regular quarterly meeting in late January, workers were told about challenges at the power plant, which is near the small town of Underwood in west-central North Dakota. A "large number" of employees are working on various options, according to the company. Great River wouldn't discuss them in detail.

But they are wide-ranging, from adding more wind turbines to building a gas plant or buying more wholesale power to deploying batteries — or a combination of several. Coal Creek could be throttled back or the plant could shut down early.

Brekke said nothing has been decided, except that Coal Creek is committed to providing electricity to the regional grid through May 2021 and most likely through May 2022. "After that, all options are on the table."

Great River opted in 2013 to fully depreciate Coal Creek by the end of 2028, Brekke said. Essentially, that means the plant could be fully paid for by then. As for Great River's contract with the independently owned mine next door, it lasts until 2045 — or until Coal Creek is retired.

Renewables — mostly wind — are Great River's largest power source after coal, accounting for 25% of generation last year. That should rise to 30% this year with the recent opening of a new North Dakota wind farm, the company said. Great River is aiming for 50% renewable power by 2030.

But wind and solar power are by nature variable, lacking the 24-hour reliability of fossil fuel or nuclear power plants. Great River has one other coal-fired plant, but it's a tenth the size of Coal Creek. The company has no natural gas generators that could cost-effectively provide continuous power.

Great River could build a big gas-fired power plant on or close by the site of Coal Creek. The transmission infrastructure is already in place. In fact, Great River just last year completed a major upgrade on the power line running from Coal Creek to the Twin Cities.

"What that shows is we plan to be in business in North Dakota for a very long time," Brekke said. He also noted that Great River "will be mindful" of its employees and "stakeholder communities." Coal Creek employs about 265; the coal mine, around 400.

Gas plants have models

Brekke wouldn't speculate on building a gas-fired power plant, but Great River has examples it could follow.

Xcel plans to invest roughly $800 million in a big gas-fired power plant that would come online in the mid-2020s. The gas plant would help replace over 1,300 megawatts of coal-fired power that will be lost when two generators at Xcel's massive Sherco coal complex in Becker close by 2026.

Minnesota Power, the state's third-largest electricity provider, would be half owner of a $700 million natural gas-fired plant in Superior, Wis., also planned for the mid-2020s. While approved by Minnesota public-utility regulators, an appeals court has ordered a further review.

Environmental groups objected to both Minnesota Power's and Xcel's gas plants — and would likely protest any other such proposals. Gas-fired plants emit about half as much greenhouse gases as coal generators. But environmental and clean-energy groups argue that renewables are the greenest and most cost-efficient long-term solution.

Great River, since it's a co-op, isn't regulated in Minnesota to the same extent as Xcel and Minnesota Power, both of which are investor-owned utilities. And in North Dakota, Great River would likely find a considerably more fossil-fuel friendly regulatory atmosphere. Plus, Coal Creek is close to North Dakota's oil and gas fields.

The surge in natural gas production in North Dakota and U.S. shale-oil states is a key reason for Coal Creek's current problems. The abundance of fracked gas has had a big price effect.

"Since 2008, there have been sustained low natural-gas prices, but in the last three or four years, they have gone even lower," Brekke said.

Brekke said low gas prices have increasingly affected the wholesale electricity market run by the Midcontinent Independent System Operator (MISO), a nonprofit that operates the grid in a large swath of the Midwest, part of the Mid-South and Manitoba.

MISO, like other regional grid operators, dispatches wholesale power based on price, which in turn is largely determined by fuel costs. The wind and the sun, of course, provide free fuel, so those renewables get used first. Generally, nuclear, coal and gas come next in order by price in the MISO queue, Brekke said.

But increasingly, lower-priced gas-fired power has been displacing coal, hamstringing Coal Creek and other plants, Brekke said. "Sustained low natural-gas prices and competitive renewable energy are making alternatives cheaper while reducing wholesale energy-market prices."

Mike Hughlett • 612-673-7003