Colo. utility is betting on renewables. It might pay off

Source: Benjamin Storrow, E&E News reporter • Posted: Monday, January 8, 2018

Xcel Energy Inc.’s announcement in August that it could save Colorado consumers money by closing two coal units early and replacing them with renewables drew scoffs in some corners.

But early indications suggest the utility made a wise bet.

In a filing with Colorado regulators last week, Xcel disclosed that it had received 430 proposals for new generation as part of its quadrennial planning process. The last time Xcel went through that exercise, in 2013, it received 55 bids.

The vast majority of the recent bids call for the deployment of wind and solar. And notably, wind could end up being cheaper than the coal power it might displace.

“It’s heartening to see the market in the same place of where we thought it was, and in fact is even better than we thought it was,” said Erin Overturf, chief energy counsel at Western Resource Advocates, an environmental group supportive of Xcel’s plan. “In all likelihood, there is going to be more savings for customers than we expected, based on these bids that we’ve seen.”

In its August announcement, Xcel said it would pursue plans to close two of the three coal units at the Comanche Generating Station in Pueblo, Colo., and replace them with a combination of wind, solar and natural gas. The utility hopes it can free up transmission access for renewables by closing the coal units.

The plan has drawn skepticism from critics, who note that the utility has yet to pay off its coal units.

Amy Oliver Cooke, executive vice president at the Independence Institute, a libertarian think tank, estimated that closing the coal plants would cost consumers $170 million.

“In addition to squandering $170 million, ratepayers will have to pony up for the cost of replacement generation,” she said.

Xcel has sought to address those worries by turning to a pot of money previously available to renewables. Colorado voters in 2006 adopted a fee to support renewable projects. Under Xcel’s plan, that fee would be halved, with the money saved redirected to paying down the remaining payments on its coal plants.

But much of Xcel’s plan still hinged on the developers’ ability to propose renewable projects that were competitive with traditional fossil fuels. Xcel originally projected the lifetime cost of a wind project at $20 per megawatt-hour and solar at $30 per MWh.

At those prices, the company predicted savings of $175 million over 39 years.

Developers ultimately came in below Xcel’s projections. The median price of the 96 wind bids received was $18.10 per MWh; for the 152 solar bids, that figure was $29.50 per MWh.

There were also 11 bids for wind and energy storage with a median price of $21 per MWh and 87 bids for solar with storage at $36 MWh.

“So much to talk about in the @XcelEnergyCO all-source solicitation, but let’s focus on this: The *median* bid price for wind+storage was $21/MWh, and for solar+storage was $36/MWh,” said Shayle Kann, an adviser at GTM Research. “Lowest known solar+storage price to date is $45/MWh in AZ.”

Xcel received two bids for combined-cycle natural gas. A median bid price was not disclosed.

The operating costs on the two to-be-closed Comanche units are around $17 per MWh, according to Xcel filings with Colorado regulators. But that figure does not include an additional $14 per MWh in fixed costs, the company noted.

“This is what they were actually waiting for: projects at a low cost that can actually provide the savings,” said Mark Dyson, who tracks the power sector at the Rocky Mountain Institute. “Based on what we’re seeing, it seems that would be the case.”

The numbers are particularly notable because they track with what developers have proposed in the Great Plains and Southwest, which boast stronger winds and sunshine than Colorado, Dyson said.

Other utilities, he noted, have contemplated taking similar steps to Xcel, but the Minneapolis-headquartered power company is among the first to take the plunge.

“This is relatively unique, but I expect it to be a portent of things to come,” Dyson said.

The proposal still has a series of regulatory hurdles to clear. Colorado regulators first have to approve a stipulation that would allow the company to include its coal closure plan as a possible scenario under its quadrennial plan, known officially as an electric resource plan, or ERP. If the stipulation passes, Colorado regulators would also need to approve the coal closures as part of the wider ERP.

An Xcel spokesman declined to comment beyond the company’s filings, saying the figures disclosed there were preliminary and could be subject to change following the passage of tax reform and the outcome of a trade case on imported solar panels.

But observers said they did not expect those hurdles to trip up Xcel’s proposal. While the trade case could push solar prices upward, renewables emerged relatively unscathed in the federal tax reform. If anything, tax reform should push prices down, they said.

Xcel’s push also coincides with an initiative from Gov. John Hickenlooper (D), who has called on utilities to voluntarily lower their emissions by switching to less-polluting sources of electricity generation. A key component of Hickenlooper’s plan is that such a transition be made at no cost to consumers.

The early bid figures suggest Xcel is on track to deliver.