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April 6, 2010

Forum: Biomass plant idea lacks credibility

By J. STEPHEN HENDERSON

Traverse City Light & Power claims a local biomass plant would be cheaper than coal or gas, improve local reliability, provide local jobs and keep $4 million in our community. In support, Light & Power has commissioned an Integrated Resource Plan study by R.W. Beck. That study purports to show that at least one, perhaps up to three, biomass plants are superior to coal and gas alternatives on a risk-adjusted, least-cost basis.

The study is deeply flawed mostly because of poor assumptions.

The gas-fired baseload plant analyzed in the study is a small combined cycle facility costing $150 per megawatt hour, including about $16/MWh for environmental permits.

In contrast, the U.S. Department of Energy supports $93/MWh as the comparable cost of a conventional CC plant. Light & Power's $106 biomass plant may win against the study's small CC at $150, but not against conventional CC technology at $93 with a carbon tax and certainly not at $83 without it.

The study's treatment of risk is not credible. No investigation of biomass risk is made. Instead, the study assumes, without support, that the volatility of biomass fuel prices is the same as that for coal. But even this small source of riskiness plays no part in the study's final analysis. Ignoring risk, the study itself would find that the second and third biomass plants favored by Light & Power are uneconomical.

Overall, Light & Power's least-cost claims are unsupported, at best, and seem incorrect given the study's view of gas-fired alternatives and risk.

Light & Power's claim that reliability would be improved by a small local plant is not addressed in the Beck study and no other support, such as a reliability study, has been offered. The claim seems dubious given our location, and our overwhelming reliance on downstate generation that won't change much under any local generation plan. The idea of local jobs is nice in theory, but not at a premium in electric rates, which seems likely with biomass. The issue is not whether to keep $4 million in our local economy, but whether to spend $4.5 to $5 million locally (say) or only $4 million downstate. I vote for downstate power if it's cheaper.

This entire debate is a bit surreal. We've suddenly gone from $50 wholesale power to more than $100 without a whimper, all because of a hypothetical carbon tax regime that is highly uncertain. The idea that Light & Power, in effect, should mandate such a tax is a momentous step not needed in advance of any national or state requirement.

Biomass is not needed to meet the state's 2015 10 percent Rewable Portfolio Standard requirement, and Light & Power's breathless pace to go further seems an unlikely way to build consensus.

I could understand a discussion about how we might adapt in the future to a carbon tax, or how we should assess its risks, but we seem to be well beyond that point -- we'll inflict the tax on ourselves even if the feds don't.

About the Author: Steve Henderson is a six-year resident of Traverse City, and a Ph.D. economist with 35 years experience in electricity economics as a university professor/researcher, federal energy regulator and electric utility consultant.

About the forum: The forum is a periodic column of opinion written by Record-Eagle readers in their areas of interest or expertise. Submissions of 500 words or less may be made by e-mailing letters@record-eagle.com. Please include biographical information and a photo.

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