The generation of electricity is big business in North Dakota. It’s been true for decades, but recent years have seen the industry grow significantly with different forms of generation taking their place alongside traditional sources like lignite-fired plants.
This expanding resource mix has North Dakota policy makers asking questions about what the state’s energy future looks like. A few months ago, I moderated a session at the Greater North Dakota Chamber’s Annual Policy Summit that explored this topic.
Having observed these developments over the years as both a state and federal energy regulator, I’d offer a few thoughts as North Dakotans debate the future of electricity generation.
Change is inevitable in the electricity generation business. North Dakota policy makers cannot unilaterally stop the changes that are occurring, and public policies in other states and the federal government are outside of North Dakota’s control. Yet given North Dakota’s remarkable diversity of natural resources, if it adopts policies that increase the competitiveness of all its resources rather than pitting one against another, it will capitalize on whatever the future holds.
North Dakota utilities’ electricity resource decisions are shaped by macro-trends in technology and interstate electricity markets extending far beyond the state’s borders. These electricity markets are designed so that the lowest cost generation is dispatched first, regardless of state lines. In so doing, the markets help consumers save money by ensuring they are served by the lowest cost electricity available at any given time.
That is why affordable natural gas has dramatically changed the utility business. Abundant, inexpensive natural gas influences which generators run, what they get paid, and what kind of new plants get built. North Dakota’s increased production of natural gas has played a part in this, putting downward pressure on natural gas prices, and making natural gas fired electricity generators extremely competitive. Meanwhile, zero-fuel cost, but intermittent, wind energy production has grown significantly during the same timeframe. These events have helped keep energy costs low for consumers and created economic development opportunities for states, like North Dakota, that have these resources.
In light of these realities, I view the “lignite vs. wind” debate that has sometimes played out in North Dakota policy circles as misdirected and overly simplistic. Barring a repeat of the Obama administration’s “war on coal,” North Dakota’s existing lignite plants are better positioned than coal plants in other parts of the country.
On the whole, North Dakota lignite plants are newer and more efficient, and their status as “mine mouth” operations is a competitive advantage over those that need to transport their fuel source over many miles. In addition, North Dakota lignite plants are owned by utilities that have mechanisms to cover fixed plant costs if the electricity markets don’t properly value the plants’ attributes. Finally, the state’s ongoing investment in lignite research and development gives this industry an opportunity for continued economic and environmental viability.
At the same time, when new electricity generation plants are needed, regulated utilities look for the lowest cost options that provide necessary reliability. For many utilities recently, the preferred option has been a mix of natural gas plants and utility-scale renewables. That cost-driven trend shows no sign of stopping and it looks to be true even without the production tax credit for wind, which is being phased down.
North Dakota is well-positioned to take advantage of these opportunities. Sitting atop a premier wind resource and a large natural gas formation is an incredible asset for the state as the region’s resource mix evolves over time.