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US senator aims to help North Dakota's lignite-fueled power plants

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US senator aims to help North Dakota's lignite-fueled power plants

Power plants fueled by locally mined lignite produce nearly two-thirds of North Dakota's net generation but face an uncertain future due to low market prices and competing wind resources.

The situation prompted one of the state's U.S. senators, John Hoeven, to meet with Federal Energy Regulatory Commission Chairman Neil Chatterjee in late February and ask the agency to ensure that coal-fired resources are fairly valued for their reliability and resilience.

"North Dakota's lignite is a leading source of our country's baseload power, a critically reliable resource always available to keep the lights on when intermittent resources cannot. Premature retirements of these vital coal-fired generation resources puts our nation's grid at risk, particularly during events of extreme temperatures," Hoeven, a Republican, said in a separate statement to S&P Global Market Intelligence. "That's why we're working with FERC to ensure the electricity markets under their jurisdiction fairly value coal for the resiliency and reliability characteristics it brings to the grid."

The state does not have an explicit renewable energy standard. In 2007, legislation was approved establishing a voluntary renewable energy objective of 10% of retail sales by 2015.

Other states do have renewable portfolio standards, and three states have passed laws to issue credits that value the zero-carbon benefit of existing nuclear plants.

While certain generation benefits have been priced into approved state electric rates, Jason Bohrer, president and CEO of the Lignite Energy Council, a North Dakota-based trade group, explained that this model has changed over the last two decades with the addition of a new attribute valuing "environmental impact."

"The theory behind that value was that generation sources were not properly paying for their environmental impact, a concept known as negative externalities," Bohrer said. "While policy makers have acted to decrease negative externalities, we are now suffering because sources like coal are providing a huge benefit to the grid, but that benefit is overlooked."

"So what we are hoping FERC can do is take a step back and lead an initiative to revisit how we value some overlooked attributes, like resilience or fuel security, and minimize the existence of positive externalities by creating mechanisms to properly account for currently ignored positive attributes such as resilience, etc.," Bohrer continued.

An earlier proposal by former U.S. Department of Energy Secretary Rick Perry to have FERC fully value plants like coal and nuclear that store fuel onsite was rejected by FERC in January 2018. The commission opened a separate proceeding to examine the resilience of the bulk power system (FERC Docket AD 18-7-000).

Lignite mines and power plants

Lignite-fired power plants in North Dakota have more than 4,000 MW in operating capacity, nearly half the state's installed generating capacity, S&P Global Market Intelligence data shows. North Dakota's five lignite coal mines produced 27.2 million tons of coal in 2019, according to the Lignite Energy Council, down from the previous two years as several power plants experienced outages.

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NACCO Industries Inc. subsidiary The North American Coal Corp. owns three of the five mines in the state. The Freedom mine in Mercer County supplied a total of 8.1 million tons in total last year to Basin Electric Power Cooperative's 900-MW Antelope Valley and 667-MW Leland Olds plants and MDU Resources Group Inc.'s 104-MW R.M.Heskett Generating Station, Market Intelligence data shows. Both companies serve customers in multiple states, including North Dakota.

The Coyote Creek Mine, also in Mercer County, sent 1.7 million tons of coal to the 429-MW Coyote plant, which is coowned by three power companies and a municipal power agency.

The largest lignite-fired power plant, Great River Energy's 1,147-MW Coal Creek station, is supplied by North American Coal Corp.'s Falkirk mine. In February, several regional newspapers reported that while the two-unit plant, which is about 40 years old, is cost-effective, Great River was weighing its long-term future because of market pressures.

"We are currently conducting an analysis of the economic conditions facing Coal Creek Station and our alternatives to address those challenges. If Great River Energy decides to make any changes regarding Coal Creek Station, those will be announced at the appropriate time," Great River spokesman Lyndon Anderson said in a March 13 email.

Coal Creek's operating and maintenance costs averaged $20.99/MWh in 2018, lower than Midcontinent ISO day-ahead power prices that averaged $26.98/MWh in 2018 and $22.53/MWh in 2019 at the Minnesota hub for around-the-clock strips. Year-to-date through March 20, prices averaged $18.09/MWh.

The Center Mine, owned by ALLETE Inc. affiliate BNI Coal Ltd., delivered 4.1 million tons to the 692-MW Milton R. Young coal plant, co-owned by Square Butte Electric Cooperative Inc. and Minnkota Power Cooperative Inc. Minnkota Power is studying a carbon capture project, called Project Tundra, at the plant.

Competition

Three of the coal plants are 50 years old or more but the rest of the fleet is younger and in 2018, according to Market Intelligence figures, all but one operated at capacity factors above the national average of 47.5%, including four above 81%.

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Despite its consistent use, coal's share of the state's overall net generation has been declining, down 10 percentage points since 2014 to 64.6% in 2018. Meanwhile, wind's share rose to 25.1% from 16.9% four years prior. According to the American Wind Energy Association, North Dakota had more than 3,600 MW of wind capacity installed as of the end of 2019. According to Market Intelligence data, more than 3,500 MW of additional wind capacity is in planning stages.

Some of the state's largest electric utilities have changed their priorities as well. Basin Electric, which is headquartered in North Dakota and supplies generation and transmission service to distribution cooperatives in nine states, has added wind resources to its portfolio. Xcel Energy Inc. which serves customers in the eastern part of the state, has committed to 100% clean energy by 2050. MDU subsidiary Montana-Dakota Utilities Co., which serves customers in central and western North Dakota, as well as in three neighboring states, in early 2019 said it would retire the two units at the Heskett station by the end of 2020 and replace that capacity with a gas-fired peaker.

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