Burning wood and building an empire


Ed. note: District Energy is at the center of the burning controversy in St. Paul. Wood, coal, natural gas, garbage — the arguments swirling around fuel sources sometimes generate more heat than light. This article looks at one of the major players: St. Paul’s District Energy.

Looking out over downtown St. Paul on a winter day, you won’t see much smoke billowing from the tops of businesses and government office buildings. That’s because 80 percent of the city’s downtown is heated from the same source—the District Energy biomass plant on West Kellogg Boulevard. Most of the major downtown corporations, as well as the buildings that make up the state capitol complex, have hot water pipes that lead to District Energy’s center of operations, a 28.5 megawatt incinerator that consumes 280,000 tons of wood waste a year. From an office adjacent to the furnace, the company has carved a name for itself in the world of renewable energy, earning itself admirers, opponents, and people who are just confused about how exactly the whole thing works.

A “district energy” system refers to a centralized source that buildings can tap into for power. Such centralized systems are rare in Minnesota these days. During the 1950s there were 40 district heating systems across the state, but the number has since dwindled to only a handful.

Anders Rydaker, president of District Energy, says most of the state’s older systems were powered by steam, rather than hot water, and have therefore struggled to stay competitive due to steam’s lower energy efficiency. Rydaker is proud of the fact that his biomass facility is set up for cogeneration, providing both heat and electricity, to obtain the maximum amount of energy efficiency. It’s this efficiency, as well as the fact that it has replaced much of its coal burning with wood fuel, that has caused endorsements of District Energy to rain down from many sectors of society. Just as vocal, but often less publicized, are the critics who say the company is playing up its environmental image to seduce taxpayers into supporting its plans for expansion at the public’s expense

In 1987 the concept of “district energy” became a trademark when the District Heating Development Company changed its name to District Energy St. Paul. Over the following years, the non-profit has created a dizzying lineup of for-profit companies, retaining some ownership interest in all of them. Some of these companies, such as Market Street Energy, are wholly owned by District Energy. All employees of District Energy are also employed by Market Street Energy, and the overlapping entities operate from the same office, with profits from Market Street being channeled back to District Energy. Rydaker says it was necessary to create a for-profit arm of the company to leverage funding to construct the biomass plant in 2001.

“For a small company, that’s a massive investment,” he says. “As a non-profit we didn’t have any equity and we had to go to private industry to get money to build the project. A non-profit also can’t do business with a for-profit selling electricity, so at that time we had to form a subsidiary.”

District Energy Subsidiaries

• Market Street Energy
• District Cooling St. Paul, Inc
• St. Paul Cogeneration LLC
• St. Paul Steam Company
• Environmental Wood Supply LLC
• Honolulu Seawater Air Conditioning LLC
• Market Street Energy Managing Company LLC
• Renewable Energy Innovations LLC

One for-profit arm soon led to others. District Energy also needed a corporate partner to help fund the plant. To solve the problem it put on the Market Street sock puppet that allowed it to turn invisible and cross over into the corporate world. Market Street teamed up with Trigen-Cynergy Solutions (now part of Duke Energy) in 2001 to form St. Paul Cogeneration LLC, a group made up of equal halves of both players. St. Paul Cogeneration now sells the electricity to Xcel Energy and the hot water back to District Energy for distribution.

District Energy has solved a problem that plagues many of the country’s biomass plants—finding an adequate wood supply to meet the burner’s demand. Waste wood is becoming a hot commodity fought over by industries that produce mulch and animal bedding, as well as other biomass plants. When District Energy wasn’t able to secure enough of it through the private market, it managed to gain control of the city’s waste wood supply by creating yet another for-profit company. This company, also a 50/50 partnership with Duke, is Environmental Wood Supply LLC. Through an arrangement with the city of St. Paul, it now operates the municipal wood waste recycling center on Pigs Eye Island, where tree debris is shredded into wood chips to feed its downtown burner.

“We’re saving the city money,” says Rydaker. “They originally were paying $350,000 a year to manage the site; today we’re paying them a lease to use that land.”

Understanding the structure of District Energy and its for-profit satellites can be like watching a game of three-card monte. District Energy is a private non-profit corporation. But, when combined with its six spinoff corporations, it tends to rest in a twilight zone somewhere on the border of public and private, for-profit and non-profit. Additional factors set it apart from most non-profits. For example, half of its members are selected by the St. Paul mayor and city council, making it a quasi-public entity. The full board is composed of three of these members, three members elected by its clients, and one member appointed by the other six. Some community members have questioned the wisdom of a having this kind of company dabbling in a critical public infrastructure like heating when it isn’t a publicly regulated utility company.

“When regulated utilities want to increase rates or do anything there’s a public process that’s overseen by the Public Utilities Commission. Those energy companies have to open up their books and explain why they want to take a particular action. District Energy doesn’t have to,” says John Schatz, a member of a community group called Neighbors Against the Burner that advocates for alternatives to incineration.

Much of the criticism of the company has been drowned out by the praise it has won for converting its former coal-burning plant to wood. It’s been cheered by politicians with a variety of environmental stances, from St. Paul Mayor Chris Coleman to even President Bush. Bush even made a personal appearance at the plant in 2003, calling it “a model of energy efficiency.”

District Energy’s website also heralds the environmental benefits it has obtained from phasing out coal burning: “Air emissions have been significantly reduced; 150 smokestacks and 50 cooling towers on downtown buildings have been eliminated, as well as 300 chimneys on nearby homes.” In 2005 the biomass plant won an “Environmental Initiative Award” from the Minnesota Environmental Initiative.

Whether or not the cogeneration plant in St. Paul has reduced the city’s air pollution levels isn’t an issue that can be cut down, shredded, and mulched so easily. The plant still burns significant amounts of coal, particularly in the winter months. It produces lower amounts of some volatile chemicals, such as sulfur dioxide, which has been linked to acid rain and respiratory disease. It also produces large amounts of particulate matter, including ultra-fine particulates under 10 micrometers, which the EPA labels “inhalable coarse particles.” For more detail on the debatable statistics about particulate emissions, click here.

Many researchers claim that these micro- particles pose a hazard to respiratory health. A 2001 report on biomass prepared for the Swiss Federal Office of Energy states: “Since efficient solutions at low cost are not available yet, the reduction of aerosols [particulates under 10 micrometers in diameter] from biomass combustion will remain a challenge for the future.”

Schatz says that the definition of the ‘green energy’ that District Energy is promoting needs to be expanded. According to Schatz, smoke from wood incineration is “a public health issue that I don’t think has been given a lot of serious thought.” For Schatz, “Being environmentally friendly doesn’t just mean greenhouse gases. It also means public health.”

Whatever long-term effects the emissions may produce, the issue definitely hasn’t dampened the resurgence of enthusiasm for district heating and cooling systems modeled on St. Paul’s. The city of Virginia and Hibbing, MN are both converting their district heating systems to burn wood waste. The admiration District Energy has gathered from its work in St. Paul has also caught the eyes of politicians in other states, many of whom are turning to the company for help building similar systems. In Portland, Market Street Energy has been busy collaborating with another corporation called Midtech Energy to build a district heating and cooling system with water from the nearby Willamette River. In Hawaii, it’s planning a system that uses ocean water to cool buildings in downtown Honolulu through another of its spinoff corporations, Honolulu Seawater Air Conditioning LLC.

Closer to home, District Energy is seeking to extend its influence in a hotly-debated arena. Rydaker hopes to use the District Energy model to heat the University Avenue central corridor linking the Twin Cities, while providing power to St. Paul’s Rock-Tenn paper recycling factory. This would require the building of a new power plant, and Market Street Energy has been hired as a consultant to the St. Paul Port Authority to advise it on the feasibility of such a project. It’s also a potential candidate to run the plant, causing what Schatz and other members of Neighbors against the Burner see as a conflict of interest.

Another conflict revolves around what fuel this plant would actually burn. Port Authority publications stress that the fuel will be both “green” and “renewable” but the actual type of fuel hasn’t been determined yet. Among the fuels District Energy is considering, one stands out as a possible shade of brown amongst the green fuels—Refuse-Derived Fuel (RDF). RDF is shredded municipal waste that is burned to produce electricity in several facilities across the state. Don Arnosti of Institute for Agriculture and Trade Policy says at least half of the this fuel is made up of plastics. Even Rydaker admits it “isn’t 100% green.” District Energy’s apparent willingness to expand its operations by burning such a fuel has left some environmentalists puzzled.

“I think it’s very easy in today’s climate to throw around the word ‘green’ and ‘sustainable’ without taking a hard look at the data, and this is an example,” says Schatz.

District Energy has put St. Paul on the map by creating the country’s largest combined heat and power plant. But it still remains a small player compared to powerful utility corporations like Xcel Energy, which grossed $251.7 million this year. If it builds the central corridor project, whether or not it pulls out with its “green” reputation still intact, it stands to gain an entirely new base of customers that would be locked into long-term power purchase contracts for their heating needs. Many years down the road, when the contracts are finally up for renewal, energy derived from plant material and municipal waste may fall out of favor as the fuels are replaced by newer innovations. Or they may stick around to become the next big thing, as some are predicting with ethanol. In the constantly shifting world of energy markets, District Energy has shown itself willing to adapt its fuel sources, and possibly its values, to stand the test of time.

Dan Gordon (upagainstthewalrus@riseup.net) is a freelance writer in the Twin Cities.