Biomass Feasibility Project Final Report - Xcel Energy

e a 75 MW plant using alfalfa stems as fuel, and the EPS/Beck project was to burn cultivated
whole trees. The third project, St. Paul District Energy, required the first amendment to the
statute, allowing the use of waste wood as fuel. The utility argued that the high efficiency of a
CHP plant justified a weakening of the fuel standard. The MNVAP and EPS/Beck projects
eventually came to an end when they couldn’t secure financing. NSP cancelled the MNVAP
PPA for non-performance, but the EPS/Beck PPA transferred to other developers with the
Laurentian Energy Authority ultimately acquiring it. In the ensuing years, political and market
forces both had a role in deciding which projects would be built under the Biomass Mandate.
The Projects
The following brief history of Biomass Mandate projects is drawn largely from documents from
Public Utilities Commission dockets. Other sources include news reports and interviews with
interested parties. The history of these projects teaches lessons that policy makers and project
developers might heed as they consider the future of biomass power in Minnesota.
MnVAP
Interest in developing a power plant fired by alfalfa stems arose a year or more before the 1994
Prairie Island agreement created the Biomass Mandate. In 1993, NSP asked researchers at the
University of Minnesota to identify agricultural products that potentially could be used as fuel.
The researchers quickly settled on alfalfa, and that led NSP to conduct an informational meeting
with farmers in the Southwestern corner of the state that summer. The outlined project would
strip alfalfa leaves from stems and pelletize them for use as high-protein animal feed. The stems
would then be gasified to generate up to 75 MW of power. In the following year, a group of
farmers formed a cooperative called MnVAP, and a study of the project was conducted by
NSP, the University of Minnesota, DOE and EPRI.
Initially MnVAP had seen NSP as a partner, but before the end of 1993 NSP had explained that
the utility would not develop the project themselves but would invite MnVAP to participate in
the competitive bidding process for biomass power projects (Kokmen, 1999). MnVAP chose to
pursue the project, and in mid-1996 won in competitive bidding. They received $4 million from
the Department of Energy for design work and permitting ("Northern States", 1996), and became
eligible for up to $40 million in construction financing ("Minnesota Farmers'", 1996). After
negotiating for a year and a half, MnVAP and NSP agreed to a PPA, which they filed in February
of 1998. The Public Utilities Commission then took 14 months to approve the project (PUC,
1999b). The long approval period was due in large part to the intervention of Minnesota Energy
Consumers (MEC), a coalition of large energy customers, who complained that MnVAP’s power
would cost Minnesota’s ratepayers $30 million more than power from natural gas (PUC, 1998).
Although MEC failed to prevent the PUC’s approval of the PPA, the delay was largely
responsible for the project’s slow unraveling over the course of 1999. In early 1999 Enron, a major
financial backer of the project, pulled out. The Department of Energy then followed suit by
freezing its funding of the project (Kokmen, 1999). By the end of the year NSP had terminated its
PPA with MnVAP for nonperformance (NSP, 1999), and MnVAP announced that it would no
longer pursue the project. Reports of the episode suggested that the added costs of the
prolonged debate over the PPA caused Enron to pulling out of the project. Others conceded
that this was a factor, but that the project was probably too ambitious, and that PUC’s delay
simply gave the financiers an opportunity to reconsider the risks and costs of the project
(Kokmen, 1999; Mooney, 2000).
MnVAP’s involvement in biomass power continued beyond the termination of their PPA. The coop
actually was close to signing an agreement with Fibrominn for the transfer of their PPA when
Identifying Effective Biomass Strategies: Page 91
Quantifying Minnesota’s Resources and Evaluating Future Opportunities