When it came time to build Michigan’s first new utility power plant in 25 years, the Lansing Board of Water and Light chose combined heat and power. The new 100-MW plant began operating in July. Elisa Wood explores how and why Michigan’s state capital came to choose CHP to replace an aging coal-fired generating plant and coal boiler.

BML's REO Town Headquarters and Cogeneration Plant is part of a larger city revitalisation project
BML’s REO Town Headquarters and Cogeneration Plant is part of a larger city revitalisation project

The US state of Michigan is best known as home to Detroit, an auto manufacturing giant now infamous for its economic decline. While Detroit’s problems get much of the attention, Michigan’s capital city, Lansing, has been quietly prospering and paints a far different picture of the state.

Lansing grew tremendously in the last century with the rise of the auto industry. But today the city prospers through a diversified economy. General Motors still operates in Lansing, but ranks a distant fourth as a jobs producer. Government, education and healthcare are the largest employers among the city’s 115,000 inhabitants.

Lansing has the advantage of serving as both the seat of the state government and home to Michigan State University. The city has two medical schools, one veterinary school, two nursing schools, two law schools, the state Supreme Court and Court of Appeals, a federal court, and headquarters of four national insurance companies. In 2011, Forbes Magazine ranked Lansing as 19th for job growth among mid-sized cities, jumping 49 spots from its 2010 scoring.

The 100-MW combined cycle cogeneration plant entered commercial operation in July
The 100-MW combined cycle cogeneration plant entered commercial operation in July

The city receives such praise in part because of its urban revitalisation programme started more than a decade ago. Against the backdrop of this renewal, the Lansing Board of Water and Light (BWL) – Michigan’s largest municipal utility – decided to replace its 50-year-old coal-fired power plant and a separate coal boiler with a state-of-the-art, natural gas-fired combined heat and power facility.

Called the REO Town Headquarters and Cogeneration Plant, the 100 MW combined-cycle project went into commercial operation in July to help serve the municipal utility’s 151,000 customers (96,000 electric, 55,000 water and about 225 steam/chilled water) who consumed 2.9 million MWh in 2012.

The project’s beginnings go back more than half a dozen years, when BWL realised it would need to replace the coal-fired power plant known as the Eckert generating station. The utility furthered the idea in its 2008 Integrated Resource Plan, where it noted that cities of the future need inexpensive energy supply and plenty of it. Major data centres, the report noted, can consume as much electricity as an automobile assembly plant. It was not that Lansing was expecting any large increase in its electric demand, certainly nothing like the 5-10% annual rate the city saw during its manufacturing boom of the 1940s–50s. In fact, like much of the US, Lansing was forecasting modest growth of about 1.4% annually. But utility planners saw little future for the Eckert plant. It was aging beyond its useful life, and even its newer units were likely to require expensive upgrades to meet evolving environmental standards. Lansing needed new power to replace it.

Coal loses favour

At first, BWL planned to meet the need with a hybrid biomass/coal baseload plant, plus renewable energy and energy efficiency. The utility reasoned that the hybrid would protect customers from fossil fuel price spikes and the overall strategy would lower the utility’s emissions profile.

But BWL soon began to reconsider because of new rules that the Environmental Protection Agency (EPA) was floating for coal-fired boilers. Of particular concern was the Maximum Achievable Control Technology rule for industrial, commercial and institutional boilers and process heaters, known as Boiler MACT. The rule limits mercury, carbon monoxide, fine particulates and other forms of air pollution from new and existing boilers of a specified size. Complying with the rule carries a hefty price tag for the 14,000 industrial boilers affected: an average US$4.4 million per coal boiler and $1.9 million per oil boiler for necessary capital improvement and compliance measures, according to the EPA.

Boiler MACT does not apply to power generation facilities, so Lansing was not concerned about its new power plant. But it was worried about its neighbouring Moores Park steam plant. The coal boiler supplied steam to heat buildings in downtown Lansing, including the state capital building, as well as the nearby General Motors Grand River assembly plant. But like the Eckert generating station, the steam plant was showing its age and not measuring up in a world that demanded cleaner power. Three of the Moores Park units were more than 55 years old, and the fourth unit more than 40 years old.

BWL could undertake an expensive retrofit or pursue other options, such as replacing Moores Park with new natural gas boilers or combined heat and power. The utility announced its decision in July 2010 – it would move forward with CHP because of its efficiency, low life-cycle costs and environmental benefits. This would allow Lansing to replace both its generation and steam facilities with one new plant.

The utility typically finances capital improvements through internally generated funds. But given the size of the REO Town plant, BWL chose to issue municipal bonds as a financing vehicle. BWL was able to secure the bonds at a low borrowing interest rate because two major rating agencies – Standard & Poor’s and Moody’s – issued AA ratings for the company. This placed BWL in the top 30% of rated US public power utilities. The agencies found that BWL has strong financial metrics and highly competitive electric rates, below the state average. BWL sold $250 million in bonds in increments of $5000, first to Michigan retail investors and then to institutional investors. The bonds sold in two days.

With the financing in place, the utility broke ground on the facility in May 2011. Construction began soon after in early summer. The facility took about 18 months to build with construction creating about 1000 local jobs.

The plant uses a steam turbine and generator that was manufactured by Elliott Group in Jeannette, Pennsylvania. REO Town was built by Lansing’s The Christman Company, Granger Construction Company, Clark Construction Company and Kramer Management Group, among others.

A larger revitalisation

While the power plant was the core of the development project, BWL sought to bring other benefits to the community as well. The project became part of Lansing’s larger revitalisation effort.

The new plant is on a 2 ha site in the REO Town neighborhood. The location worked for BWL because it was close to the utility’s steam and electric distribution systems. Before BWL began construction, the property contained an asphalt parking lot and the former Grand Trunk Western Railroad depot, a building of historical importance that had suffered neglect and was closed to the public. The property once housed the Diamond Reo Truck Company, which was founded by Ransom Olds, the father of the Oldsmobile.

BWL decided to restore the building’s architecture to again make it an attractive focal point of the neighbourhood. But the utility’s goal was more than aesthetic; it wanted to help spur economic development in REO Town and Lansing and add to its revitalisation efforts. The complex makes space for 180 BWL employees and the restored Grand Trunk Western Railroad depot for meetings of the BWL Board of Commissioners.

Project achieves firsts

When the $182 million plant began commercial operation this July – both on time and on budget – it was noteworthy for several reasons. It became the first new utility power plant built in Michigan in 25 years and the first new BWL power plant in 40 years. In addition to providing 20% of BWL’s electric generation, the plant produces up to 136,000 kg of steam for BWL’s 225 steam customers in downtown Lansing.

BWL sees the plant as a step toward achieving its goal of a 20% reduction in greenhouse gas emissions by 2020. Compared to the coal-fired units it replaces, the new plant offers several environmental advantages:

  • A 50% reduction in greenhouse gases;
  • the elimination of 317,515 tonnes of coal use; and
  • a 99% drop in mercury and sulphur dioxide emissions and an 85% drop in nitrogen oxides.

Lansing expects the facility to bring further kudos to the city because of its environmental advantages. The facility is undergoing the process to achieve the prestigious designation of ‘LEED’ – Leadership in Energy and Environmental Design through the US Green Building Council. The headquarters’ green features include solar panels and a hydrogen fuel cell.

The REO Town plant produces up to 136,000 kg of steam for BWL's 225 steam customers in downtown Lansing
The REO Town plant produces up to 136,000 kg of steam for BWL’s 225 steam customers in downtown Lansing

The project’s green achievements are in keeping with BWL’s reputation as an environmental leader in Michigan. BWL describes itself as the first utility in the state to establish specific goals to acquire renewable energy, and the first to offer customers a group of energy-efficiency incentives. In 2008, the utility installed the Cedar Street Solar Array, at the time the largest solar array in Michigan with 432 photovoltaic panels.

In terms of REO Town’s operating costs, the market appears to be working in BWL’s favour. Natural gas prices have fallen significantly since the city first started looking into replacing its coal facilities. As a result, fuel costs for REO Town are likely to be less than expected, according to the utility. The New York Mercantile Exchange natural gas futures closing price was $8.39 on 27 August, 2008 and dropped 58.5% to $3.47 by 29 October, 2012, according to the Bureau of Labour Statistics. The prices have remained at historically low levels. The Energy Information Administration pegged Henry Hub prices at an average of $2.75 per MMBtu in 2012 and $3.71 per MMBtu in 2013, rising to an expected $4 per MMBtu in 2014.

Given the economic, environmental and aesthetic improvements brought by the REO Town project, the utility is calling the project transformational.

J Peter Lark, BWL general manager, said, ‘This state-of-the-art cogeneration plant scores a major victory for the environment. And, we’re proud that the project has been called a game changer for economic development in the Lansing region.’

But while the project clearly offers significant betterment for Lansing, will it have a larger influence on Michigan’s CHP industry?

Michigan’s performance has been somewhat middling when it comes to CHP. In all, the state has about 91 CHP plants that generate more than 3 GW, according to ICF International, which keeps a national database on CHP. Only a handful of Michigan’s CHP plants came on line in the last few years. Several are vintage, some dating back to the 1930s.

The state scored reasonably well, 12th for energy efficiency, on the American Council for an Energy-Efficient Economy’s 2012 scorecard. But in the CHP portion of the ranking, Michigan scored only two out of a possible five points, coming in below par for its policies on portfolio standards, incentives, net metering, emissions treatment and financing.

On the national level, the Lansing plant arrives at an important point. President Barack Obama has set a target to increase CHP installations 50% by 2020. This would increase the nation’s current CHP stock of about 80 GW by another 40 GW. ICF has identified 4.4 GW under development or construction. So the US has a long way to go.

With its 100 MW of new CHP capacity, the REO Town project may seem like a small contribution to such a big goal. But it may go down in history as one of the early leaders in a new round of US CHP development. It is particularly significant that the BWL project replaced a coal-fired plant with CHP. Older coal-fired plants are increasingly shutting down in the US, unable to compete in the face of low natural gas prices and increasingly stiff air emissions standards. EIA estimates that retirements could amount to anywhere from 19 GW to 45 GW. ACEEE says that some states could replace 50–100% of their coal-fired generation with natural gas-fired CHP.

Will this happen? It’s hard to say. But with its REO Town combined heat and power project, Michigan’s capital city shows how it can be done.

Elisa Wood is a US-based energy writer.