DTE Energy Services Seeks Renewable Energy Acquisitions

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--A mothballed coal-fired power plant in California will be converted to burn biomass after a local air permitting agency green-lighted the project.

The Port of Stockton District Energy Facility was closed in 2009 after operating for 20 years. DTE Energy Services (DTE ES) (Ann Arbor, Michigan), a subsidiary of DTE Energy Company (NYSE:DTE) (Detroit, Michigan), purchased the idled coal-fired generator last year as part of a plan to build a billion-dollar portfolio of renewable electric generation.

"We are excited to move this project forward," said Steve Sorrentino, vice president of DTE Energy Services, after the San Joaquin Valley Air Pollution Control District approved converting the Stockton generator last month. "The plant conversion to biomass energy advances DTE Energy's commitment to green energy. It will ensure a reliable source of energy with state-of-the art-technologies to preserve the environment. Most importantly, the project will bring hundreds of jobs to the Stockton area."

The Stockton facility was rated at 50 megawatts of generating capacity, but after the conversion, its generating capacity will be 45 MW. DTE ES will sell the plant's output to Pacific Gas and Electric Company (San Francisco, California), the utility unit of PG&E Corporation (NYSE:PCG) (San Francisco). The California utility will be able to count the output from the converted Stockton plant toward the state's renewable portfolio standard (RPS), under which utilities have to get 33% of their electricity from renewable sources by 2020.

The converted generator will be 100% fueled by biomass, primarily wood fuel derived from urban wood waste, tree trimmings and agricultural residues. The conversion project, which has a total investment value (TIV) of $15 million, is scheduled to kick off next May and be completed by October 2013. The conversion will create about 100 construction jobs. Once the plant is operating, about 100 additional jobs will be created among local fuel suppliers and other service providers.

In pursuit of building a billion-dollar portfolio of renewable generation, DTE Energy Services has invested "a couple of hundred million dollars in recent years," John Reis, a project developer with DTE ES, told Industrial Info in an interview.

"The Stockton plan was a good fit for us because of our company's experience in operating coal-fired power plants," added DTE Energy spokesman John Austerberry. "Smaller plants like Stockton have been the best opportunities for us."

DTE ES continues to seek other acquisition targets. Austerberry said the company is seeking either operating or idled plants that functioned as either industrial power sources or utility generation.

"For biomass generation, one of the most important considerations is local fuel supply, which we define as within a 50-mile radius," he continued. "We will look at plants in either urban or rural settings as long as there is an adequate fuel supply. Also, we're looking for projects in states that have a renewable portfolio standard (RPS), which helps create a market for renewable energy. And of course we need to negotiate a power-purchase agreement (PPA) with a utility that will take the electricity."

As it assesses potential acquisitions, DTE ES will focus on plants in the 40- to 50-MW range, noted Reis. "When you get much larger than that, it's hard to imagine a local fuel source that would be adequate to fuel the plant." The Stockton plant will burn about 350 tons of urban wood waste per year, he estimated.

"We've carved out a niche for ourselves" in coal-to-biomass conversions, Reis said. "There's a limited universe of projects out there that meet our size, fuel, RPS and PPA needs. Industrial power sources can be very attractive to us, even more so than utility plants because they're typically a bit bigger than what we're seeking. For us, conversions have proven to be the most economic. We would consider building a grassroot project. But while you never say 'never,' grassroot projects don't appear to be as economic for us."

To achieve its goal of amassing a $1 billion portfolio in renewable energy projects, DTE ES is not limiting itself to coal-to-biomass conversions, though that is one area of strength. DTE ES operates the Mobile Power Island Cogen station in Mobile, Alabama and the Woodland Biomass Plant in Woodland, California. It has completed a 53-MW coal-to-biomass project at the E J Stoneman Power Station in Cassville, Wisconsin, and has another conversion under way at the Mount Poso Cogeneration facility in Bakersfield, California.

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