Why I Oppose the Nacogdoches Biomass Power Plant.
August 20th, 2008Below is my letter opposing the City of Austin’s investment of $2.3 billion in a biomass power plant in Nacogdoches, Texas.
The Austin-American Statesman’s Editorial of Sunday, August 17th provides some context.
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Mayor Wynn,
As a former Resource Management Commissioner, I wish to register my objection to our City signing a power purchase agreement to build a biomass plant in Nacogdoches, Texas before the end of August, 2008.
There are two issues that need to be considered before approving this power purchase agreement.
First, it does not appear that competing bids were solicited to build or operate this plant. Other builders of these plants offer lower cost per MWh or lower construction costs. For example, without too much effort on my part, I have found one vendor, American Biorefining and Energy, Inc., who gave me a budgetary quote of $80/MWh. This is significantly below the $131/MWh ($2.3B / (20 yr * 8,760 h/yr * 100 MW)) cost of the proposed power purchase agreement. While many factors go into calculating the cost of a power plant, the $131/MWh price gives me pause. This price exceeds the cost of solar power as determined by Austin Energy’s 2006 Value of Solar Study of $104/MWh. This price was seen as too high in 2006. Yet it is less than the biomass plant’s power prices. While Mr. Duncan justifiably claims that a biomass plant allows Austin Energy to dispatch power to control its costs and improve system reliability, is that feature really worth a $27/MWh premium over the price of solar power and an even higher premium over the price of wind power? I have been told that engineering studies claim that an energy generation system can be reliably operated with less than 30% of non-dispatchable, renewable power. The other generators can provide enough flexibility for reliable operation of the system. Perhaps, because we have less than 30% of our power from non-dispatchable sources, it is too early in our energy mix to pay a $27/MWh premium for a biomass generating plant?
I have found a second vendor, Energy Products of Idaho, who gave me a budgetary quote of $170 M to build 3 33 MW plants or about $1,700 per kW of generation capacity. They expressed to me that the $131/MWh operating expense seemed high to them.
Since no competitive bidding was performed, I am justifiably concerned that we are significantly over paying for this plant. Of course, if we can get a price closer to $80/MWh, most of my objections except the below point are withdrawn.
Second, it is not clear from what I have seen whether we are locking in the price of fuel in this power purchase agreement. Considering the volatility in all fuel prices and the dramatic increase in the price of corn-derived ethanol over the last 2 years, I am concerned that we are exposed to an increase in the cost of fuel. Frankly, as a businessman, I would be very surprised if Nacogdoches Power would provide a 20 year fixed price without a fuel price escape clause. Since our staff believes that a biomass plant is a good idea, will every other power generator in the country jump on this bandwagon too? This would bid up the price of fuel thus driving up the price of our generated power. Since I cannot see the economics behind our purchase agreement, I cannot assess how vulnerable we are to fuel price increases.
Finally, if Council chooses to delay this agreement, I, as a former Resource Management Commissioner, would like to join a task force to examine our biomass and other energy generation options in more detail.
