Minnesota's Energy Future?^©

Minneapolis, MN
October 20, 2003

Part V:  Minnesota Needs & Government Response

 

Part V:  Minnesota Needs & Government Response	260
Minnesota Energy Sources, Uses, & Needs	260
Minnesota's Future Energy Demands	265
Table 16: Minnesota Energy Inputs by Source, 1998	265
Table 17: Minnesota Energy Growth by Consumer Class & Source 1970 – 1998	266
Table 18: Minnesota Energy Use by Economic Area, 1998	267
Table 19: Household Energy Sources for Space Heating, 1997	268
Minnesota’s Energy Growth & the Price Tag	270
Table 20: Population Growth & Projected Energy Demand	270
Table 21: Projected Construction Costs & New Generation Under the Status Quo Growth Scenario	271
Table 22: Projected Construction Costs & New Generation Under a Sustainability Scenario	274
The Government & Environmentalists’ Response: “Smart Growth”	277
Concluding Comments	281
Epilogue	284

Minnesota Energy Sources, Uses, and Needs

What apparition turns on the lights?

This section begins with a brief outline of Minnesota's looming energy predicaments and proposed remedies as provided in state energy reports.  It then combines current Minnesota energy patterns with Minnesota population projections in order to discover future energy possibilities.  Because these matters were discussed earlier, little additional comment will be made at this point other than to say the state proposals are a version of the Holland lad at the dike, temporary at best.  Worse, the California model the Minnesota process is duplicating will intensify long run energy difficulties.

Consistent with the Olduvai Theory, Minnesota and U.S. energy issues appear to have evolved from one of designing programs to better living standards to questioning what lower level will be sustainable.

Selective energy interruptions (“brownouts”) are a California development that will become commonplace nationally within a few years.  Minnesota, for example, has near zero capacity cushion at this time, and the system was forced to reduce energy output requesting the shutting down of businesses and residential electrical use in the summer of 2001.  A precarious energy status will soon become a way of life.  For example, the winter of 2002 – 2003 experienced the initial national episode of inexorably deteriorating natural gas supply.  The coming winter of 2003 – 2004 will continue the progression.  Within one or possibly two years, Minnesota will have at least a 5% overall negative electricity energy balance.  The result will be spreading brownouts and possibly rolling blackouts.  Obviously, the greater the Minnesota growth the more disturbing the coming energy realities.

Legislative proposals to remedy Minnesota's energy predicaments are found in two research reports, “Quadrennial Energy Policy & Conservation Report 2000” and “Keeping the Lights on: Securing Minnesota’s Energy Future.”  The Minnesota Department of Commerce, Energy Division, prepared both reports.  Information from these reports and state demographic data are presented in this paper and used to develop the growth related energy projections.¹

In October 2001, the Minnesota Department of Commerce released the initial report in the energy series, “Minnesota Energy Planning Report”.  The second report was issued December 15^th 2001 and the final report in the series was completed December 15, 2002.  The final report builds on the information from the previous two reports.  It develops additional details and notes some of the approaches which have been implemented at least in part, but which were only proposed previously.  The approaches and strategies seen in the earlier reports are essentially identical in the final report.

The report was first made available on the “Sustainable Minnesota” website.  This is puzzling because the state energy report does not affirm in any measurable way the idea of Minnesota sustainability.  Indeed, the “Sustainable Minnesota” network is the grouping of organizations promoting the oxymoronic “smart ‘population’ growth” program.  As discussed later in this segment, smart growth translates into “more growth” without limit.²

The initial Minnesota energy report began and ended with an August 2000 quote from Michael Kahn, Chairman, California Electricity Oversight Board, stating that, “California's electric system is no longer consistently reliable.”  Attempting to use fear to promote its position, the suggestion is made that unless the state proposals are followed, Minnesota will soon duplicate today's alarming California energy situation.  If one has read the preceding sections of this paper one would conclude that following the California strategy will result in the California outcome.

Mirroring statements made regarding the California energy situation, lack of infrastructure ―primarily transmission lines― is said to be at the root of Minnesota's looming energy problems.  However, the state report concludes that within five to six years (2005 – 2006) —in less time required to construct a single baseline generating facility— the region will be short 5.4 gigawatts (gWh) of energy.  3 gigawatts of that are in Minnesota with another 15% increase due in 2007 when Prairie Island is scheduled to close.  This mind-boggling energy requirement is almost the equivalent of one-third of today's total electrical energy use.  It is equivalent to about five Prairie Island nuclear generating plants.  Given that 5.4 gWh are needed soon implies that an extraordinarily rapid build or sharp reductions in consumer use are just around the corner.

The use of the California reference may have another purpose as well— to frame thought.  According to the state's energy proposals, the fundamental issue is the reliability of Minnesota's energy system.  The use of the term “reliable” implies adequate energy supplies are available, only that its delivery is questionable.

Despite the wordsmithing, the fact is an energy short (people long) nation or state is very different from a problematic delivery system.  North America has exceptionally far reaching energy transmission and distribution systems.  An attempt to literally duplicate the energy systems constructed to accommodate the massive population growth of the post WW-II “Boomers” in order to accommodate an equal or larger population boom today will be prohibitively expensive.  Some of the costs involved increasing existing natural gas and electrical infrastructures were discussed previously.  For government or industry to have a strategy of doubling or tripling (or more) existing natural gas, oil, or coal energy delivery systems is a political chimera.  Indeed, a primary reason for the program to construct numerous smaller generating facilities in areas adjacent to users is an effort to help minimize the transmission and distribution expense associated with additional electrical energy.

Population growth as a topic of concern is dismissed in a state prepared chart contrasting population growth and gasoline consumption.  Its purpose appears to be to seed in the viewers mind that growth is of little matter, that gasoline use increased over this period at a greater rate than population.  As discussed under “managing data” in Part IV, the use of this chart communicates more about the state's reporting methods than resource requirements.  A discussion of Minnesota's rapid population growth is strangely absent in all state energy reports, even those projecting energy use!

Evidently, state authorities believe an apparition is responsible for turning on the lights!  Perhaps, it would be more accurate for the state to say an apparition is responsible for turning off the lights.

Three profound defects of the state reports are a failure to:

1.)       Examine petroleum, natural gas and coal reserves;

2.)       Integrate energy reserves and use with population levels; and

3.)       Examine the practicality and reasonableness of alternative energies.

The short-term outlook of state policies is partially responsible for the energy and growth myopia.  The foreseeable future described by state studies is a significantly shorter period than judicious planning would suggest.  Implementing their definition of the foreseeable future, state budgets are for five years and the Minnesota Commerce Department allows long run energy planning to be less than 15 years.  Fifteen years is less than the time required to propose, permit, and construct a baseline energy unit.  The October 2001 Minnesota energy report's planning horizon is a brief nine years.  Because there are no long run explicit state population policies, the default policy falls to a hazardous and unsustainable one: unlimited growth.

For example, long run natural gas supply appears to be of little concern.  In the text and a conspicuous colorful sidebar the report says “despite the existence of adequate natural gas supplies for the foreseeable future, gas production levels have not yet geared up to meet the new levels of demand.”  As documented in this paper under the heading of “natural gas”, this statement is only partially true; natural gas supply is unlikely to match demand.  “Reliability” according to the state is connected only with the aggregate size of the natural gas delivery system not the supply of natural gas.  The irony is that government and environmentalists promote the use of natural gas, but appear unable to comprehend that its use implies drilling in environmentally sensitive areas.

Emphasizing infrastructure over long run natural gas reserves, state reports indicate that even with average temperatures there are insufficient natural gas pipeline volumes to provide for the construction of an adequate number of summer electric peaking generating facilities for summer cooling.  The natural gas pipeline crisis will be unmistakable on the most uncomfortable days of summer and winter!  Concentrating on natural gas for additional electricity appears to be an unwise practice.  Reminding one of the California pattern and of spiking prices, the summer supply constraint has been exacerbated by the recent construction of three natural gas peaking facilities.  The crisis will be intensified by the planned conversion to natural gas of Xcel Energy’s coal burning Riverside (north Minneapolis) and Black Dog Power Plant (located on the Minnesota River just south of Minneapolis).  As discussed previously, the winter of 2003 – 2004 —and subsequent years— will demonstrate the state’s misunderstanding of natural gas and the incorrectness of any proposed conversions.

Continuing the avoidance theme, state energy reports offer a cautionary note regarding the availability of petroleum products yet immediately attempts to dispel supply anxiety.  Making what appears to be a nearly senseless statement, the reports state that “eventually petroleum will be depleted” because the world uses much more oil than “are created” each year.  There is little reason for genuine concern, the report continues, because it “may be possible to find or manufacture new sources and substitutes for these products”.  The research previously cited in this paper supports a different point of view and outcome.

In planning what amounts to be the most optimistic of possible viewpoints, authorities are placing the state and its citizens in a position of maximum uncertainty and vulnerability.

The Minnesota situation is reminiscent of the statements made by Matthew Simmons in discussing the impending national energy status.  Providing 80% of Minnesota's supply, Northern Natural Gas has no additional capacity available for the winter heating season.  In other words, there is no pipeline capacity reserve and demand for additional generators or needs of growth will only further strain existing infrastructure and reserves.

·         Conservation of existing energy sources;

·         Construction of additional sources of energy, natural gas peaking plants, and renewable and alternative energies, primarily windpower; and

·         Increasing prices to ration consumer use.

·         Eliminating property taxes on new or currently taxed energy facilities;

·         Granting “eminent domain” condemnation property rights to related firms;

·         Streamlining the construction process by removing “barriers” to construction such as environmental compliance review, even going so far as to discontinue important aspects of the Certificate of Need process; and

·         The establishment of a supra-government organization which will have complete authority over state and regional energy matters.  The North American Electric Reliability Organization (NAERO) will require mandatory compliance and involves the inclusion of other industry interested parties, including non-utility.

Assuming average weather, peak-pricing programs postpone brownouts or blackouts until consumption and growth equals the level that would have been the energy peaks reached in previous energy programs.  On a graph it is represented by the peaks and lows around a straight-line average of an undulating trendline —a sine-wave on an oscilloscope.  The brownouts or blackouts would occur near the high peaks of the chart.  The function of peak pricing is to compress the highs and lows —ideally making use vary little around the straight-line average.  And, as stated several times, it permits populations to grow to levels where options are reduced and vulnerabilities increased.  Finally, it implies that the citizens of Minnesota are being coerced by government action to significantly lower standards of comfort.  Minnesotans are being compelled to be uncomfortably hot in summer and cold in the long Minnesota winter with the principal underlying reason to provide for more Minnesotans.

The use-leveling “peak pricing” plan is unrealistic because it assumes completely average weather and no delivery problems.  Authorities trust that in energy use and weather, Minnesota citizens are the same as in that most famous of Minnesota towns, Lake Wobegon, always merely average!

Furthermore, the reports state that as supply surpluses disappear wholesale fuel prices will increase.  Because supply surpluses do not exist even at this time, the consequences of a rising price policy were amply demonstrated during the winter and summer of 2001 and 2002 and continues into the summer of 2003.  Combining the quadruple whammy of the expense of constructing additional baseline generating and peaking facilities, consumer use pricing, and higher commodity costs of fuel supply, suggests that consumers will experience ratcheting higher prices in lock-step with increasing population driven demand —the California model is the Minnesota model.  Similar to the California model, the peak demand periods will be the period of highest prices and potential for supply disruptions.

Increasing prices and expanded restrictions on use are an expansion of government control and by any other name a reduction in freedoms and living standards.  State proposed energy policies, notably by the Department of Commerce and the Utilities Commission (the State proposal for NAERO) are excellent examples of the loss of freedom and control at a variety of levels.  Moreover, the construction of numerous small generating plants (natural gas) with limited siting review, a short-circuited approval process, and limiting environmental evaluation or public involvement are all indicators of the novel government approach.

Minnesota's (misdirected) attack on the automobile is another example.  The anti-automobile program is evident in reduced road building budgets relative to the needs, proposals for “car-free” days, and proposals for issuing expensive special licenses to drivers of single occupant automobiles but not commercial vehicles.  State policies are clearly evident today in such telltale disorder as increasing traffic gridlock.  Apparently, the goal is for congestion to become a permanent way of life in order to discourage automobile use.  Today, this practice is seen in the conversion of highway lanes into exclusive car-pooling or bus lanes (mandatory carpooling), government demands for “light rail transit” and toll road proposals.  Sadly, current state energy plans like the State Demographer's report, suggests the depth of state actions in order to maintain the status quo.

A simple and effective method of facilitating traffic flow would be to sequence traffic signals so that vehicles traveling the posted speed would not be stopped at every traffic signal.  California has had this practice for decades, functioning extremely well to enhance traffic flow.  It has an important additional benefit of significantly improving gasoline mileage.  The present “bunch and stop” method of traffic control wastes enormous amounts of energy.

With untold irony, “growing pains” was the descriptive term used to describe these developments in one state energy report.  These “growing pains” include reduced living standards and increasing restrictions on freedoms.  Further, it suggests that the California model will be the energy roadmap followed in Minnesota and that current proposals appear to begin with the de facto, if not actual nationalization of energy and authoritarian powers over consumer use.

The paper now examines the numbers involved in energy production and consumption and integrates growth projections with Minnesota energy requirements.
 

Minnesota's Future Energy Demands

In 1998 Minnesota produced a total of 1,419 trillion BTUs of energy and consumed a total of 1,261.3 trillion BTUs.  The difference between production and consumption are due to infrastructure losses.  Production and transmission losses are important because they indicate the total generation facilities necessary to produce the energy demanded.  Calculating the losses, the 1998 ratio is 12.5% (1.0 – (1,419 ÷ 1261.3) = 12.5%).

Table 16 depicts Minnesota energy production by source.  It demonstrates that about 92% of Minnesota energy is derived from non-sustainable sources, coal, natural gas, and oil.  More than two-thirds of Minnesota’s energy sources are in significant reserve decline (alarmingly so in the case of natural gas and oil) and increasingly dependent on foreign sources for supply.

Table 16:  Minnesota Energy Inputs By Source, 1998

Trillion BTUs. *Includes wood and burning of wastes. Data from Minnesota Energy Planning Report.
 

Indicating Minnesota's future energy demands, the following are historical rates of Minnesota growth for a variety of energy items (“real” means adjusted for inflation):

Table 17:  Minnesota Energy Growth by Consumer Class & Source 1970 – 1998

Data from or calculated from Minnesota Energy Planning Report.

The central theme underlying Table 17 is that prices have bottomed and are now in uptrends.  It is also evident from the growth tabulations that sometime in the 1980s a tidal change occurred; consumption increased at higher rates than previously and the apparent slack in energy reserve systems began to dwindle.  In some measure, Table 15 seen earlier (p258), reflects this growth.  With basic resource supply beginning to trail demand, energy prices rose, and sharply in some instances.  Discussed in Part I, few are aware or acknowledge that the substantial increases in use paralleled population increases, slow then rapid.

The fundamental energy pattern over the 1970 to 1998 period was that in spite of increasing demand, increasing rates of population growth, consumption was able to increase without price increases.  This was the sublime period for energy.  Chief among the price developments was the inflation adjusted price declines in primary energy sources (gasoline and electricity) and, until very recently, only nominal changes in natural gas prices.

The decline in the inflation-adjusted price of gasoline is consistent with the oil graph and descriptions seen earlier (Figure 5, p56).  More than any other single element, the decline in the real —the inflation-adjusted— price of gasoline explains why gasoline consumption increased over the period.  Suggesting a range of possible prices today, if gasoline prices had increased at an inflation rate of 3% from 1970 to 2001 its price would be about $3.50 per gallon.  Even at the unheard of hypothetical price of $3.50 per gallon it would merely equal actual consumer prices paid three decades earlier.

Similar increases are likely in store for natural gas.  The price of natural gas has been inexpensive because of plentiful supply and competition between suppliers, primarily Canada and pipelines traversing the southern U.S. heartland and the Northern Natural, Viking, and Great Lakes pipelines.  Because the Viking (7% of Minnesota supply) and the Great Lakes (3% of Minnesota supply) pipelines are connected to Canadian sources it is likely these two companies will soon be confronting an uneconomic natural gas situation.  Due to unfavorable domestic natural gas supply, competitive pricing will soon diminish.  Of more immediate concern, Canada may be set to revise export policies and substantially raise prices and or actually limit exports of natural gas.

Because of the low historical price baseline and now rapidly increasing use of natural gas for generation of electricity (especially peaking facilities), the coming increases in Minnesota natural gas prices could be well above the national average.

The same low baseline price situation applies to the price of electricity.  Until recently, the substantial increases in inexpensive natural gas used to generate electricity forestalled substantial consumer electric price increases.  It also avoided the environmental consequences of using other fossil fuel based generating facilities (if pollution controls were downplayed).  Reflecting natural gas limitations, local prices could rise steeply depending on the relative contribution of natural gas to the local economy, local electric grid.  Because there is no local system-wide excess capacity to moderate costs and any additional generating capacity will come online at higher costs, Minnesota electricity price increases will be above historical trends and the national average.

In summary, the decades long period of flat or declining real prices encouraged use and masked the burgeoning Minnesota and the nation's population growth.  It also masked  implications of developing a sustainable society.  More recently, reality is asserting its inexorable omnipotence and as researchers foretold decades earlier, the large population increases and resource realities are now resulting in rising prices.  In the near future public discontent is likely.

The relative impact of rising prices and resource supply will parallel the use of energy by economic sector.  The potential for economic impact is demonstrated in Table 18 outlining consumer energy use by Minnesota economic area.  Not directly identified in the table is that the very large service sector of the economy will likely be as, or more, impacted than the commercial sectors.  Many of the service sectors are discretionary, thus consumers may chose to do without, reduce use, or do themselves.  Reductions in service sector activity will channel those funds into higher priced energy, savings, or into the purchase of goods.

Table 18:  Minnesota Energy Use by Economic Area, 1998

Trillion BTUs EIA data. See at < http://www.eia.doe.gov/emeu/recs/tables/enduse_consump.html >.

It is clear from the table that Minnesota’s transportation and industrial sectors will carry the burden of resource changes.

State and federal conservation and energy efficiency programs, however, focus primarily on residential consumer use.  It is unclear from Table 18 why residential consumers would be the focus of energy programs.  According to government data, overall residential consumers use approximately 17% of total annual energy consumption.  Therefore, targeting non-residential use will extend the life of reserves substantially more than targeting residential use.  If non-residential use assumed a higher, even disproportionate percentage of price increases then the effects would impact demand across a broad economic spectrum.  A phased in elimination of the tax deduction (20% each year) for energy, would be step leading to a sustainable economy.  It would place large energy users on par with the small residential consumer.  In this manner the economy would more effectively allocate reductions in consumption and energy use than a direct hit at the residential consumer.  A more effective energy cost reallocation would, for one illustration, be reflected in such items as overpackaging.

Moreover, the elimination of the energy tax deduction is an extension of Jevons and the conservation paradox (discussed in Part III) on an international scale.  Thus, reducing and re-allocating U.S. resource use creates a strong economy in the long-run; in the short-run it provides increased supply at less expensive prices to competitor nations.  Other than the initial transition years, this will have insignificant economic impacts over time.  Indeed, as the oil and natural gas production peaks and rolls over, those nations preparing early will have access to markets and options no longer available to late-comers.

The following table illustrates that natural gas is the preferred energy source for residential space heating.

Table 19:  Household Energy Sources for Space Heating, 1997

Competing directly with residential cooking and space heating, natural gas is also the state and nation's preferred source for electricity generation.  Because non-residential energy use greatly exceeds residential use (Table 18, previous page), increasing use of natural gas for non-residential purposes is a program that has not been carefully evaluated.  Although an energy transition must soon begin, an alternative to residential natural gas heating must be considered as improbable.

Due to rapidly accelerating demand, future supplies of natural gas will be less certain and, following the recent pattern of petroleum, price changes and supply disruptions will become pronounced.  Internalizing the full —or disproportionate— energy cost increases facilitates the economic adjustments toward a sustainable economy.  Unless existing pricing arrangements are changed the non-commercial user will be compelled to absorb a disproportionate share of coming price increases.  With residential natural gas prices already up to 225% higher than for other users, the public may consider different resource allocations and price priority important.

Because of its minor energy contribution and unreliability, the growth of windpower is not presented in the list.  In 1999 Minnesota produced about 800,000 megawatts (MW) of wind generated electricity.  Despite the considerable investments, the full current capacity of windpower is substantially less than the output from a single baseline generating plant.  Contrary to the script exalting its importance, windpower produces a miniscule fraction of Minnesota's total electric use.

Discussed under alternative energies, the rapid development of windcommerce is not consumer or market based.  Large-scale subsidies to existing utilities are involved in developing alternative energies.  Currently, windcommerce is being promoted by a 1994 law requiring Xcel Energy (Northern States Power) to obtain 425 MW of wind power and the Minnesota Public Utilities Commission has required another 400 MW of wind developments.  In addition to the earlier comments, it should also be said that the best available Minnesota sites are now in commercial development.  The development of these premier sites will make windpower comparisons as favorable as possible when studies of appropriate wind locations document that it seldom will be the case.

There are other areas of subsidy in the State proposals.  One seldom mentioned is the Renewable Development Fund paying Xcel Energy (NSP) $500,000 every year for each cask of waste nuclear fuel stored at the Prairie Island facility.  Although investors will potentially reap a windfall, these are not investor provided funds, but storage costs passed on to ratepayers through utility bills.  The money collected was to be placed into a special fund for the development of additional renewable energies.  The misallocation of funding sources and that none of that money has been spent or interest accrued requires legislative review.

State funding of alternative energies using utilities as the intermediary is a tool used to direct patterns of alternative and renewable energy development and may promote the interests of the utility rather than interests of the market or the public.  Because no state sustainability or sustainable energy study has been performed, the state is likely following the policy recommendations of special and vested interest groups.

Utilities and the Minnesota Dept. of Commerce promote the notion that it is more cost effective and sustainable to construct large natural gas peaking plants, windcommerce, and additional infrastructure than homeowner solar or wind developments.  Yet, homeowner solar power was successfully promoted by 1980s legislation operating to overcome market disadvantages.  The advantage of solar over windpower is that the days when it is most needed are the days it is most available, the coldest winter days.  With technology it can also be used on those suffocating hot summer days when windpower is less available to cool homes.  On the other hand, because non-residential use greatly exceeds residential electricity use it may be an unsuspected means of subsidizing the non-residential user.  It appears to be a means of maintaining the current status of utility companies as exclusive providers of energy.

Net energy studies indicate that neither wind nor direct solar power is an efficient use of resources.  Moreover, the full energy capacity available from standard baseline generating units is immediately available at any point in time.  In contrast, wind energy is measured over a period of time (and unavailable much of the time).  This is especially noteworthy when considering the energy payback relative to energy invested (energy returned on energy invested).  With typical oil and gas generating facilities the return ratio has been in the 20 to 40: 1 range.  Windcommerce returns, because of lower efficiencies, output has an energy return ratio in the 3 to 4 : 1 range.  Moreover, when considering all factors, the net energy produced is frequently negative.
 

Minnesota's Energy Growth & the Price Tag

Assuming no growth of the current Minnesota population, 963 trillion BTUs of energy will require replacing, 641 trillion BTUs of oil and 322 trillion BTUs of natural gas.

Table 20:  Population Growth & Projected Energy Demand

1. Based on 1998 energy use, million BTUs (MW). Definitions: gWh: 1 billion watts; MW: 1 million watts; kWh: 1,000 watts.
 

Using the energy inputs by source in 1998 produces the additional construction cost by energy source in Table 21.

Table 21:  Projected Construction Costs & New Generation
Under the Status Quo Growth Scenario ($000,000)

NM: Not Meaningful. (Cost = $0.xx/kWh or BTU). Construction cost estimates per MW of generation in Table 20 (p270), Column F: Petroleum: $1,050; Natural Gas: $475; Coal: $1,200; Coal/gasification: $1,425; Nuclear: $1,550; Biomass: $2,200; Wind/Solar/Other: $1,200.

The table was developed using a computer model optimizing construction at minimum costs, given resource constraints.  The original 2005 optimization included 79 MW of petroleum.  The computer program was manually overridden to add this amount to natural gas because no petroleum fired generating facilities are appropriate for the mix of boiler fuels and the forecasts of natural gas construction appeared to understate actual estimated and budgeted construction.  The remaining periods were rounded and modified to better match resources and demands.

Table 21 represents the energy investment costs of growth.  Replacement of retired plants, operations and maintenance are excluded to reduce complexity.  Also not considered is a safety reserve margin ―normally 20%.  Thus actual expenditures will be much higher than these figures and increase as indicated.  Nationally, with more than 100,000 MW of electrical generation facilities over 40 years old, the costs of replacing aging generators will approach 50% of the cost of new construction.  Construction costs are not equal to consumer costs, but certainly are a significant cost factor.  Embedded in the calculations are existing consumer conservation programs and cost efficiencies.  Increasing productivity is assumed to equal construction inflation.

It is important to understand that these amounts are for construction of additional generating facilities exclusively due to growth in Minnesota.  The Mid-Area Continent Power Pool (MAPP) is larger, composed of the states of Minnesota, Iowa, Nebraska, South and North Dakota, the western half of Wisconsin, and a small area of eastern Montana.

The Mid-Continent Area Power Pool, as mentioned in Part II, estimates the Upper Midwest region could have a shortage of 5,000 Megawatts of generating capacity within three years, before summer 2006.  This is equal to five large baseline generating plants.  Only about 2,000 MW of the 5,000 MW (5-gWh) need are considered in the above table, or approximately two intermediate sized generating facilities.  The 3-gWh balance is for replacement of aging generating plants and due to construction is in phases with large generators built at each stage.⁴

Over the next 20 years MAPP anticipates that regional electrical generation will climb at an annual rate of 1.4%.  Table 20, Column G shows Minnesota average increases greater than the average MAPP increase.  On the one hand, it likely indicates overly optimistic (understated) average demand growth.  On the other, it likely reflects Minnesota’s faster rate of growth compared with the MAPP region.  MAPP projects that consumer sales at the same time are expected to grow at a 1.5% annual rate with much of the increase in transportation use with commercial sales also a significant factor.  Of some interest, the EIA forecasts declining prices over the 20 year time period.  Consistent with the EIA, MAPP projects electricity costs for transportation will decline at a rate of 1.2% per year with other uses declining about two-thirds that rate.  With the U.S. population projected to increase by more than 80 million over this period and the MAPP area growing commensurately, the MAPP data are clearly inconsistent with resource and growth trends.⁵

Nationally, no significant baseline coal unit is scheduled to be retired in the next 20 years.  The national data includes the MAPP region and its several antiquated coal plants.⁶  Because of the lack of momentum, the generation of electricity from coal cannot ramp-up sufficiently to satisfy demands.  However, because of looming natural gas constraints, the construction of coal-gasification facilities will help bridge the natural gas requirements.  The importation of LNG or tar-sands conversion or other alternative source of natural gas must be considered minor, expensive, and unsustainable contributors to meeting energy demands.  Coal-gasification plants may be the lifeline of the energy transition to a sustainable society.

Under the growth-as-usual scenario seen in Table 21, natural gas assumes an increasing role for as long as possible.  Replacement and maintenance of the substantial generation capacity from natural gas over the past decade is not evident in the tables, but will be significant.  Providing a rapidly diminishing fuel source explains why no additional natural gas plants are possible within this decade.  The projected use seen above is worrisome; however, it substantially understates current generating plans discussed earlier under “natural gas”.  Thus, further reliance on natural gas will lead to a somewhat surprising and unsatisfactory conclusion.  Although much more severe and earlier under the growth-as-usual scenario, there will be a natural gas squeeze under either scenario.  The coal-gasification plants in the tables are a recommended means to moderate the natural gas crunch and relieve some of the tensions of residential heat and industrial consumer needs.  A prudent alternative would be to halve the proposed natural gas generating facilities and replace them with coal-gasification plants.  The change would add energy flexibility and greatly facilitate the necessary energy transition.

Biomass is an unknown.  All current forms, ethanol and biodiesel in particular, are expensive and significant users of energy resources —net energy sinks.  Because of land and energy resource constraints, biomass utilization will likely peak before 2025.  Thus, the quantity of energy from biomass subsequent to 2025 is uncertain.  Although the table reflects an increase (due to implied technological improvements), in reality biomass energy may peak before 2020, then decline.  The suggestion is that it can only play a minor energy role.  Biomass should be a major contributor to a sustainable society.  However if its potential is to be realized, technological breakthroughs equal to solving the fusion question of nuclear power must be discovered to overcome the physics of processing losses.

Perhaps the most significant aspect of Table 21 are the “NM” notations.  They represent factoring-in available resources over the life of the generating facility.  It is clear that petroleum as a source of boiler fuel is no longer practical; the same holds true for nuclear energy.  Within ten years, natural gas will no longer be an appropriate source of electrical generation as well.  Indeed, to provide for future generations, several current natural gas facilities should be decommissioned before 2010.

Not only will additional generating facilities not be constructed, but for the same reasons, replacement of existing facilities will generally be forgone.  Replacement of existing facilities is a monumental task: all existing windturbines, natural gas, and nuclear power plants will require replacing before 2020 —many before 2010― as well as the replacement of several coal fired plants in the same time frame.  The lack of replacement facilities will likely be in proportion to the construction increases seen in Table 21 (p271), line1.  In other words, the necessary cost of construction under the current growth plan is not $1.6 billion within five years, but twice or three times that sum.  Likewise for 2010, in addition to the $1.9 billion cost of new construction will be an equal or greater cost of replacement of current generators.

In other words, the programs and generating facilities underway in the next approximately 5 to 15 years, will be the mainstay of the Minnesota economy and standard of living for a considerable period of time, for generations.  The table makes transparent the consequences of the growth scenario and how awesome are the energy and living standard effects even based on 1998 data.  Looking out less than 50 years to the year 2050, substantial resource and energy deficits are evident.  In addition to replacement energies not included in Table 21, the substantial energy deficits in new construction will have grave implications for living standards well before 2050.  The state and Metropolitan Council’s promotion of growth out to the year 2030 is ill considered.  The date 2050 reminds us that stopping population growth and energy demands generally requires a minimum of 50 years.  Minnesota and the U.S. are nearly four years into that period, yet continue to promote growth as usual.

Table 22:  Projected Construction Costs & New Generation Under
a Sustainability Scenario ($000,000)