Solar Beats Out Natural Gas in Minnesota

Over the past couple of weeks, we have looked at the energy picture, focusing largely on the disruptions caused by the unusually low natural gas prices. First, we looked at how these low prices were giving stiff competition to nuclear and wind, in some cases forcing them to compete against each other, rather than against coal as they had done in the past. Then we looked at the EIA projections that gas will overtake coal as an electric generator fuel by 2040.

How then is it, that in Minnesota, of all places, we have a report that solar beat out natural gas, based on pricing? We're talking about Minnesota here, not Arizona or Nevada, places that get so much sun they wish they could get rid of some of it. No, Minnesota, ice-cold Minnesota, the state that is right next door to North Dakota, the place where so much of that new-found oil and gas is coming from. How did this happen?

It was a judge, actually, who decided. Eric Lipman, an administrative law judge for the Minnesota Public Utilities Commission (PUC), issued a ruling regarding several competing energy investments for Minnesota's future. The proposals were offered by Xcel, the state utility, and several others in response to an anticipated 150 megawatt power need. Going head to head were a new fossil fuel plant powered by natural gas and a series of distributed solar plants to be built around the state, known as the $250 million Geronimo solar proposal.

The judge put the matter forward as a contested case hearing, calling on numerous experts to give testimony. Among these were representatives from several energy companies, environmental advocates and representatives from the state PUC. After listening to this testimony, the judge concluded, “that combining Geronimo’s proposal with the Great River Energy 's (GRE) proposal, represents the most reasonable and prudent alternative to meet Xcel’s near-term needs.”

When all factors were considered, including projected demand, environmental impacts, the possibility of cancelation costs, and the scalability of the approach, the judge selected Geronimo's proposal based on the lowest “total life cycle cost.”

While it's true that Minnesota has a solar energy standard that requires the state to purchase a minimum amount of solar energy over the next six years, there is a loophole in that law, which has allowed the PUC to select fossil fuels or other alternatives if the pricing is lower. That loophole has been utilized any number of times during the 20 years that the law has been on the books, so it's safe to say that compliance has been the exception rather than the rule. Nor should that law be offered as the over-riding reason for Judge Lipman's decision.

Here are the five proposals that were evaluated:

  • Xcel proposed three 215-MW natural-gas-fired, simple-cycle combustion turbine generators. Two would be at its Black Dog facility in Burnsville, MN and two others at its Red River Valley facility in Hankinson, ND;
  • Calpine proposed a 345-MW combined cycle gas plant at its Mankato Energy Center. This would add 290-MW of intermediate combined-cycle capacity and 55-MW of peaking capacity to the system;
  • Geronimo Energy proposed 100-MW (AC) of distributed solar capacity spread across approximately 20 sites;
  • The Great River Energy (GRE) cooperative proposed the sale of capacity credits;
  • Invenergy proposed a 179-MW combustion turbine peaking facility at Cannon Falls and two 179-MW combustion turbines near Hampton, MN.

Geronimo's proposed Aurora solar project encompasses some 20 different commercial-sized sites (2-10 MW) each for a total of 100 MW. These plants will feed into existing substations, offsetting roughly 20% of the load for each.

Construction is scheduled to begin in 2015 with all of the sites online by the end of 2016 to serve Xcel's capacity needs in 2017 and to qualify for expiring investment tax credits. It's also worth noting that Geronimo operates a number of wind farms in Minnesota.

Besides the ability to add capacity incrementally, and provide emission-free energy, this proposal offers fuel price predictability and stability that can be established at the outset through a power purchase agreement (PPA).

This surprising decision in Minnesota is truly unprecedented, challenging the conventional wisdom about gas being the dominant player in today's world of power generation, at least for those taking the longer view. It will be interesting to see if other states decide to follow suit.