Gas is the Fuel to Beat in Iowa Utility's RFP for 550 Megawatts of Electricity

---

Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--King Coal is getting squeezed in Iowa. Interstate Power & Light Company (IP&L) (Cedar Rapids, Iowa), a unit of Alliant Energy Corporation (NYSE:LNT) (Madison, Wisconsin), is evaluating more than a dozen bids for up to 550 megawatts (MW) of electricity against an in-house plan to build a natural gas-fired generator. Although IP&L's request for proposal (RFP) didn't specifically seek natural gas generation, company spokesman Ryan Stensland told Industrial Info that gas was the fuel to beat.

"Cost will be our most important criteria" in assessing the bids, he said. "We want to do anything we can to lower the cost pressures on our customers. That means we'll pay close attention to the prices contained in the bids, as well as their emissions risks."

"We're relatively pleased with the response--there was strong interest," he continued. The utility received more than a dozen qualified bids plus a number of other bids that were incomplete or otherwise didn't meet requirements. Stensland could not provide any details on the prices or fuels contained in the bids.

"We have a very open mind about the bids," he said in an interview. "We're willing to consider a range of options, including signing a power purchase agreement (PPA) with an existing generator, signing a PPA with a planned generator, or buying a share of an existing generator." Bidding closed March 22 and results are expected to be announced late in the second quarter.

Today, IP&L gets more than 50% of its electricity from coal. Although the utility does not have a specific target for coal's mix in future generation, "I think it's safe to say that King Coal will probably be less than 50% of our future electricity mix," Stensland said. "We've been down that road before. A new-build coal plant won't work in the current regulatory environment."

In March 2009, IP&L cancelled plans to build a 640-MW coal- and biomass-fired generator, Sutherland Unit 4, due to regulatory and political uncertainty over regulation of a variety of power plant emissions, including carbon dioxide (CO2), sulfur dioxide (SO2), oxides of nitrogen (NOx), and mercury, the IP&L spokesman said. That project had a total investment value (TIV) of $1.25 billion.

One factor driving the RFP: IP&L does not plan to renew its contract to buy 470 MW of electricity from the Duane Arnold Nuclear Plant in early 2014. And IP&L has decided to close several older, smaller, and less efficient coal-fired generators in response to recent regulations from the U.S. Environmental Protection Agency (EPA) (Washington, D.C.), including the Cross-State Air Pollution Rule (CSAPR) and the Mercury and Air Toxics Standards (MATS) rule. For more on those new regulations, see October 13, 2011, article - EPA Proposes Technical Changes to Finalized Cross-State Air Pollution Rule, and December 27, 2011, article - Environmental Protection Agency Finalizes Mercury and Air Toxics Standards.

IP&L has converted several dual-fueled units at its Dubuque and Sutherland generating stations to burn 100% natural gas, thus lowering its environmental footprint and risks. The utility also is assessing fuel-switching options at several other generators, including Prairie Creek, Burlington and M.L. Kapp. And IP&L is scheduled to install pollution-control equipment on some of its larger, newer, more efficient coal-fired generators, including Lansing Unit 4 and Ottumwa.

Other than seeking "long-term" bids for power, Stensland said IP&L did not specify a particular duration in its RFP. "One thing we noticed, however, is that the industry's definition of 'long-term' has been shortened. In the past, long-term power contracts used to mean 10 years or more. But in our bids, we saw 'long-term' defined as 2 years, or 5 years, but certainly less than 10 years.

"The current volatility in natural gas prices has led to shorter long-term bids and more instability in contracts," Stensland continued. "When you think about the risks of hurricanes, or the potential for tighter environmental regulation of hydraulic fracturing, no one wants to be on the wrong end of a 25-year contract priced off gas at $2.50 per million British thermal units (MMBtu)."

And if IP&L doesn't find any of the bids to its liking, it is prepared to build a gas-fired power plant of its own in Iowa. Stensland didn't specify where in Iowa this plant could be built, or what it might be called.

"We're at an interesting crossroad," he told Industrial Info. "The weak economy and the surge in natural gas production creates options for a company like us" that is in the market for new power supplies.

View Plant Profile - 1012744 1076875 1009532 1014770 1014087 1015462 1014041 1012926
View Project Report - 29001111 29000877 29000878 29000830

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.