After sitting idle for three years, a brand-new $437 million coal-burning power plant owned by a large Minnesota utility is generating its first watts of electricity.

Spiritwood Station, located about 85 miles west of Fargo, began burning coal a few weeks ago, and officially joined the power grid on Saturday, says its owner, Great River Energy, based in Maple Grove.

In an unprecedented step, the utility finished building the plant in July 2011, and immediately mothballed it. The plant’s electricity and steam — intended for sale to nearby industries — just wasn’t needed.

“Nobody anticipated the Great Recession,” Great River’s Chief Executive David Saggau said in an interview with the Star Tribune last week.

The plant was conceived at a time when the utility’s electric demand was “growing at 5 or 6 percent a year, which is meteoric load growth,” said Saggau. After the recession, demand sputtered and electric sales fell three years in a row.

Some customers complained that building the plant was a mistake that drove up electric rates.

But Saggau said the Spiritwood Station, with its dual energy output of electricity and industrial steam, has always been a good investment, and is proving so now.

“We knew when we made the decision to lay up the plant … that it would be perceived as a mistake to have built it — that it would be an indictment on coal,” Saggau said.

Saggau said it took some explaining to the 28 local electric cooperatives that own Great River Energy. The co-ops stretch from the Iowa state line to the Canadian border, and serve 655,000 customers, making Great River Energy the second-largest power supplier in the state.

“They understood the economics behind our decision to lay it up as opposed to starting it,” Saggau said. “We are very excited that the vision we had in 2007 is coming to fruition, just a bit later than the original plan.”

Efficient use of coal

The vision is efficiency.

Spiritwood not only generates 99 megawatts of electricity, enough to power 63,000 homes, but also sells steam to two nearby industries. Those operations, a malt plant and an ethanol plant now under construction, avoid burning natural gas for industrial heat.

The technology is called combined heat and power, and increasingly is used by factories and institutions to extract more energy from various fuels. In St. Paul, for example, District Energy burns wood waste to generate electricity as well as to heat and cool downtown buildings.

Great River Energy says Spiritwood Station makes use of 60 percent of the energy in coal, while conventional coal plants get just 30 to 35 percent.

Under the Obama administration’s proposed greenhouse gas rules for power plants, efficient ones like Spiritwood come out ahead. That’s because the Clean Power Plan doesn’t just count the tons of carbon dioxide spewing from smokestacks. Instead, regulators are focused on the ratio of carbon emissions to energy output.

Saggau said Great River Energy once considered building one or two more plants like Spiritwood. Now, with electric sales growing at 1 percent to 1.5 percent a year, Saggau said the utility sees no need for a big power station for a decade or more.

Yet to make Spiritwood’s economics work, Great River Energy is building something else: an ethanol plant.

It goes back, once again, to the recession. When the utility began work on the power plant, it had a deal to sell steam to a planned ethanol plant nearby. But the ethanol project couldn’t get financing. Without that steam customer, the power plant faced a hard time breaking even.

So Great River Energy decided to build the $155 million Dakota Spirit AgEnergy biorefinery next door to its power plant. That project is expected to be completed in 2015 and will be the second corn ethanol plant owned by the utility. The other one sits next to Great River’s coal power plant in Underwood, N.D.

Complaints over rising rates

All of this investment, and no immediate return, drew criticism from some customers.

Two Minnesota ethanol producers who rely on the utility’s electricity complained to the state Public Utilities Commission in 2013 about the utility’s rising rates. The state doesn’t set rates for most co-ops, which are governed by elected boards, but in a symbolic snub, the commission rejected Great River’s 15-year business plan, the first time that’s happened.

Company officials declined to say how much interest was paid on the Spiritwood debt while the plant stood idle. Any such costs already are part of the company’s rates, Saggau said. The utility recently commissioned a rate study by the Brattle Group consulting firm, which concluded that Great River’s rates are lower than the average of neighboring utilities.

Last of a breed?

Spiritwood, which burns lignite coal mined in North Dakota, could end up as one of the last coal-burning power plants built in the United States.

Although larger coal units have been built since 2010 in Illinois, North Carolina and Texas, the power industry trend is toward retirements, including a dozen plants in Minnesota. The Sierra Club’s Beyond Coal campaign says 178 coal-fired generators are slated to be closed nationwide.

“We need to get regulators and companies focused on the need to reduce greenhouse gas emissions, and new coal plants have nothing to do with reductions,” said Beth Goodpaster, an attorney who focuses on utility regulation for the Minnesota Center for Environmental Advocacy, a St. Paul nonprofit law firm.

Goodpaster said combined heat and power is an efficient technology, and Great River “is deserving of some credit for not investing in the most wasteful type of coal generation.” But cleaner fuels, including lower-carbon natural gas, also can be used with the technology.

“You don’t have to use coal as the fuel,” she said.