Securing Additional Capacity: The Dogwood Option

IPL likely will close the Blue Valley power plant and will to replace the loss of 70 MW generating capacity at city-owned power plant on Truman Road, based on clear recommendations in the 2018 master energy study.

One clear option identified in the master energy study was obtaining additional capacity by expanding IPL’s ownership interest in the Dogwood Energy Facility.

Dogwood Energy Facility

Dogwood Energy Facility

Most of the preferred options involved IPL acquiring either 25 or 50 MW in Dogwood making this a likely option if, and when, Blue Valley is closed.

The master energy plan states: “This option provides the opportunity for IPL to add efficient natural gas generation to its portfolio at a relatively low cost.” (pg. 9-11). IPL could meet its capacity needs without incurring the major capital investment of a new power plant.

Buying into Dogwood will be expensive and cost - a general estimate - between $12 million and $28 million in capital costs based on information presented to the City Council.

What is Dogwood?

The Dogwood Energy Facility is a 650 MW natural-gas generating plant located in Pleasant Hill, Mo which became operational in February 2002.

It was originally known as Aries and was developed by Aquila, later sold to Calpine before being acquired by Kelson Holding, the current owner which operates the project under Dogwood Energy LLC.

In 2012, IPL decided to pay $45.8 million for 75 MW which was a 12.3% ownership interest in the power plant. This was considered the best option available because coal-fired plants were becoming expensive to operate because of environmental operation.

IPL’s purchase was funded through a bond issue. By virtue of its ownership interest, IPL has a seat on an operating committee. Here’s the operating agreement.

As of June 30, 2018, there is a balance of $33.1 million left on the 2012 bond issue which has a maturity date of June 2037. The bonds are callable in 2021 which would provide an opportunity to restructure the debt at that time.

Ownership Interest - Kansas Municipal Energy Agency 2018 Bond documents

Ownership Interest - Kansas Municipal Energy Agency 2018 Bond documents

Several utilities also bought ownership interest in the natural gas plant including the Missouri Joint Municipal Electric Utility Commission, Board of Public Utilities (Kansas City, Ks/Wyandotte) and the Kansas Power Pool.

In March 2018, the Kansas Municipal Energy Agency bought approximately 62 MW (a 10.1% interest) in Dogwood and issued $32.5 million in bonds to finance the project.

That purchase will provide capacity and energy to five KMEA members: Garden City, Gardner, Ottawa, Russell and Lindsborg. 

With the purchase, Dogwood Energy LLC has 42.1% will available and has indicated its “intent to market and sell” its remaining interest, according to bond documents. IPL holds a 12.3% ownership interest which provides 76 MW of generating capacity. IPL also holds a position on a management committee which meets once a quarter.

IPL Options

The core question for IPL is how much additional Dogwood generating capacity to purchase, if and when Blue Valley is shut down.

The master energy study considered 13 different energy options to consider a diverse set of potential power supply portfolios. The main conclusion from the computer modeling was that “paths with increased shares in Dogwood Energy Center are generally lower cost.”

While buying 50 MW would be provide lower cost energy, there are some “additional risks.” The master energy study states:

“The lower costs are realized due to increased energy sales within the Southwest Power Pool (SPP) market sold for a profit. While this may provide an opportunity for IPL to offset costs, it also presents a risk that IPL will have invested more capital than required to meet its capacity obligations. Market energy economics can fluctuate, especially if natural gas prices increase and make Dogwood less cost competitive compared to other generation within SPP.”

Dogwood has offered IPL a price - redacted in the master energy report - which the study notes is “an attractive price and is located relatively close to the IPL service territory.”

The master energy study also notes a 50 MW purchase would result in IPL having one-third of its peak capacity in a single power plant.

There also is the issue of meeting capacity requirement as opposed to actual energy needs.

The Southwest Power Pool requires all members - IPL is a member - to have capacity reserves of approximately 12% over and above demand technically known as Planning Reserve Margin. More details here.

The challenge is IPL’s growing portfolio of renewable energy (wind and solar) do not get full credit toward meeting SPP capacity obligations because they are intermittent - depending on available wind or the sun to generate power.

The master energy study states:

SPP 2018 Resource Adequacy Report - page 18

SPP 2018 Resource Adequacy Report - page 18

“If Blue Valley units are retired, IPL will need capacity, but not necessarily energy. IPL has sufficient energy under control through its contracts with energy from coal units, Dogwood (existing ownership), and renewable projected to be above IPL’s annual energy requirements.”

The master energy plans offers, as other considerations, the desirability of meeting capacity obligations through short-term decisions that would “allow flexibility for future options” including new technologies such as battery storage. Major capital expenditures would limit future options.

One approach would be a “mix of resources to account for variability in load forecast.” The study notes other municipal utilities are meeting capacity obligations through short-term and mid-term capacity contracts rather that asset purchases which Dogwood would be.

Southwest Power Pool

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The Southwest Power Pool provides low-cost, reliable power by combining the generating capacity of providers within a large geography.

SPP serves 18 million people in all or parts of Arkansas, Iowa, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and Wyoming.

SPP includes over 750 generating plants with approximately 61,000 miles of transmission lines.

In 2014, SPP established an Integrated Marketplace to provide the lowest-cost, most reliable power to participating SPP members.

In a media release marking its fifth anniversary, SPP noted it had saved members $2.7 billion in energy costs while providing more access to renewable energy - primarily wind. Wholesale energy costs in the SPP region are the lowest in the nation.

“SPP dispatches the most reliable and lowest-cost generation to meet load, remaining agnostic to fuel sources (i.e., SPP doesn’t favor fossil fuels, renewables or any other particular generation type over another),” the release states.

Wind is a growing part of that. The release notes:

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“In 2008, wind energy made up just 3 percent of SPP’s annual energy production: about six gigawatt-hours (GWh) of the 176 GWh produced that year. In 2018, SPP produced 276 GWh of energy, of which wind made up 23 percent or 65 GWh. At a given moment, SPP has reliably met as much as 69 percent of its load with renewable resources and 64 percent with wind alone: a level that would have been unthinkable just a few years ago.”

Over the past decade, SPP has invested $10 billion in transmission infrastructure to move wind and solar energy to where it is needed.

These trends are expected to continue.