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Natural gas blows budget for biomass project

By Paul Snyder

The label of renewable energy will cost Xcel Energy an extra $21.4 million after the utility realized its proposed biomass plant in Ashland will burn too much natural gas.

The Public Service Commission of Wisconsin approved the Bay Front Power Plant project, which will convert the plants last coal-fired boiler to burn biomass, in December. But the cost increase will push the project back before the PSC for another review.

“We’re still as committed to the project as we were before,” said David Donovan, Xcel’s manager of regulatory policy. “But now we have to figure out what process we have to go through because of cost changes.”

Xcel estimated the project cost at $58.1 million when the PSC first approved the conversion. But after four months of more detailed design and engineering work, Donovan said, planners agreed the original proposal would not efficiently burn biomass.

He said the boiler would have to burn 70 percent natural gas and 30 percent biomass to produce the targeted 20 megawatts of electricity.

“We want to make this a truly renewable plant,” Donovan said, “not just a modified fossil fuel plant.”

To achieve that goal, Xcel now estimates the project will cost $79.5 million.

Charlie Higley, executive director of the Citizens Utility Board of Wisconsin, said he is not surprised. The board originally opposed the project.

“We were very suspicious there were problems with their proposal at the start, and we thought the proposal represented a larger use of gasification than what they expected,” he said. “Now that’s exactly what they’ve identified.”

Had Xcel done more advanced engineering work, the utility likely would have identified the cost increase sooner, Donovan said.

“It was a judgment call, and we thought we had enough information,” he said. “Certainly we’ve learned from this experience, and it will weigh heavily on future decisions.”

Higley said Xcel also failed to show the PSC the project is the most cost-efficient way to provide electricity for utility customers. According to CUB testimony in the original review, Xcel could have bought natural gas, imported wind energy from other areas or bought other forms of renewable energy on the open market for less than converting the coal-fired Bay Front boiler.

“Clearly, it all just needs to be looked at again,” Higley said.

PSC representatives were unavailable to comment on the original review of the project.

Donovan agreed Xcel could get electricity cheaper by importing wind energy, but that would contradict state and company goals of producing more renewable energy in Wisconsin. He said the company could still hit the $58.1 million estimate if it sticks to a predominantly natural gas-fired boiler.

“But if you start using that much natural gas,” Donovan said, “eventually your fuel prices go through the roof.”

The $79.5 million project would come at a higher cost to Xcel ratepayers, Donovan said, but he said he could not provide details.

Xcel originally planned to start construction on the boiler in 2011, but the impending PSC review might change those plans.

“Our hope is it won’t be permanently lost,” Donovan said. “We want to get together with the commission in the next two weeks and try to get this project back on track, but I don’t have a clue how long this will take.”

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