WILLMAR -- A power supply study recommends Willmar Municipal Utilities buy power from a variety of sources to minimize costs and risk associated with economic uncertainties and environmental policy changes.
The study by Central Minnesota Municipal Power Agency of Blue Earth was designed to plan for long-term uncertainty in the electric power sector, specifically looking at the price of natural gas and the possibility of carbon regulation.
The study developed power supply "portfolios'' that reflected the cost of possible carbon credits and price increases on coal, natural gas, hydro and diesel fuel, and minimized risks from economic and policy uncertainties.
The study was prepared for Willmar and five other utilities in a group called the Power Supply Coalition. The six utilities formed the coalition after the Big Stone II power plant project in eastern South Dakota was cancelled in October 2009. Willmar and the other utilities had hoped to buy power from Big Stone II.
Instead, the utilities formed the coalition to aggregate their electrical load in hopes of receiving better pricing from the energy market and purchasing power supply for their future needs, said Bruce Gomm, Willmar Utilities general manager.
The study was presented by Steve Thompson, Central Minnesota chief executive, Kyle Haemig, resource planner and economist, and Shankar Karki, senior engineer.
The study recommends Willmar plan for the possibility of carbon regulation -- mostly affecting coal -- and that highly uncertain prices will be attached to carbon emissions. The study said Congress has temporarily shelved carbon legislation, but it is still more of a question of "when" and not "if" carbon tax legislation will happen, according to the study.
"Our planning horizon is long and legislation can be enacted at any time,'' said Thompson.
Coal and diesel fuel costs should increase at roughly the rate of inflation. Natural gas prices should increase slightly faster than inflation, but will also be uncertain. The study said future wholesale costs over $100 per megawatt in today's dollars are possible with high gas or high carbon prices or both.
The study said Willmar's best portfolio would include the local power plant. In an interview, Gomm said there's value to having local generation, but the study said the plant should be subjected to a more detailed economic assessment.
The study said buying hydro power would be attractive, based on projected numbers of potential future hydro power coming from Canada. "That's yet to be seen what the exact price of that will be,'' said Gomm.
The portfolio should include power from a gas turbine generator and a steam generator. The "combined cycle'' setup captures heat from the gas turbine to generate steam and turn an additional steam turbine.
"So instead of just wasting that heat out the exhaust, you capture some of that create steam and power another turbine,'' Gomm said.
The existing diesel generators would continue to be used to provide peaking load.
The commissioners received the study but delayed a decision on participating in a second phase, which would determine the right portfolio for Willmar. The coalition will eventually seek bids from power providers.
Gomm said the numbers in the study are concerning to officials.
"We are aware that generation costs continue to rise. What it really showed us is that extreme cost that carbon tax would add to our generation cost. Even if it forced us away from all coal generation, it would force us into other options that would be extremely expensive,'' said Gomm.