Top US biomass plant largely idle; Austin Energy cuts purchases

HOUSTON Thu Dec 6, 2012 4:49pm EST

HOUSTON Dec 6 (Reuters) - The largest U.S. biomass plant, a 100-megawatt facility that a Southern Co unit recently opened in east Texas, sits idle most days, unable to compete with cheaper natural gas-fired power plants.

The $500 million plant burns non-commercial wood and wood waste and began commercial operations in mid-July with much fanfare. Now some local vendors who serve the plant say they are losing money.

"I'm very concerned that the plant is not running," said Jerry Don Williamson, Precinct 1 Commissioner in Nacogdoches County.

Output from Southern Power's Nacogdoches Generating Facility, 145 miles (228 km) northeast of Houston, is sold to Austin Energy, a municipal utility serving the state capital, but Austin Energy only buys the power when it is economical, a spokesman said.

"It's dispatched based on market economics," said Austin Energy spokesman Ed Clark. "So it has not been running in recent time. Natural gas prices are very low and it's not uncommon for a number of plants not to run."

Clark said the plant produced power through the summer and into September, but has not run since.

Under its 20-year contract with Southern Power, Austin Energy pays a capacity charge to keep the plant available all year. He declined to say what that charge is.

When the plant runs, the utility pays about 9 cents per kilowatt-hour compared to current wholesale prices in Texas which are running between 3 and 4 cents per Kwh.

"The plant is operational," said a spokesman for Southern Power, the Atlanta-based unit of utility Southern Co.

The contract is part of Austin Energy's ambitious goal to obtain 35 percent of its electricity from renewable sources by 2020 to serve its 420,000 customers.

Clark said the biomass plant output, along with purchased wind and solar power, puts the utility's renewable supply at about 27 percent.

"What we are striving for is diversity in our renewable portfolio, but other factors we have to consider are market economics," Clark said.

When Austin Energy signed the contract with Southern in 2008, gas prices were much higher, Clark said. "The world has changed," he said.

"We're prepared to buy the annual output if the economics work out in the nodal market," Clark said. "In the summer time, it's probably going to run all the time."

Clark said he knows local vendors are disappointed that the plant does not operate more.

Plants harnessing renewable resources such as wind and solar bid into the wholesale market at low prices, so units can run whenever the wind blows or the sun shines, Clark said. "This contract was not set up that way," Clark said.

Several top Southern Co executives, including Chief Executive Tom Fanning, attended the July event to celebrate the project's completion. The plant has about 40 full-time employees and about 100 service contracts with local businesses, Southern said.

Southern Co has also created a forestry scholarship at nearby Stephen F. Austin State University.

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