Comment: How renewable energy can save utilities money

Source: By Ron Binz and Ron Lehr, Utility Dive • Posted: Thursday, August 13, 2015

A number of national policymakers, utilities, and industry groups have repeatedly claimed President Obama’s Clean Power Plan regulations for existing power plants will raise utility costs and sacrifice reliable electricity service.

But Colorado tells a very different story, where renewable energy is replacing coal power plants and driving down the cost of electricity service without sacrificing reliability. Consider the 10th U.S. Circuit Court of Appeals recent rejection of a lawsuit claiming the state’s renewable energy standard was illegal and raised consumer utility bills because it limits out-of-state coal plants from selling electricity.

In 2004, Colorado voters passed Amendment 37, the nation’s first renewable energy standard adopted by popular ballot. The original standard was 10% renewables by 2015, since increased twice by the state legislature to 30% by 2020. The first promise of the ballot measure was to “save consumers and businesses money.” The latest utility bids for new renewable energy in Colorado show the promise to voters — renewable energy would grow up to save consumers’ money — has been kept.

Every four years, Colorado’s regulated electric utilities develop a plan to buy or build new generation to meet future electricity demand. Those plans are submitted to the Public Utilities Commission, which approves a portfolio of resources to be put out for bids. Once the bids are evaluated, utilities submit their recommended portfolio of projects for approval and then negotiate contracts with the winning bidders.

In 2011, Public Service Company of Colorado (PSCo) embarked on its scheduled planning, bidding, and contracting process after a decision to close 903 megawatts (MW) of coal-fired generation to comply with EPA ozone standards in the Denver air basin. While new natural gas plants replaced most of the early-retired coal, some of the early-retired coal was temporarily converted to run on natural gas, until the 2011 planning case could reveal better options – with surprising results.

PSCo received bids for more than 6,200 MW of new generation in response to its RFP, about seven times the amount sought. Early in the evaluation process, PSCo revealed some wind and solar bids appeared to be lower than the cost of generation from its existing fleet. In December 2013, the PUC approved the utility’s acquisition of 450 MW of wind and 170 MW of solar generation along with some new natural gas capacity. Importantly, the prices bid for these renewable resources were lower than system average generation cost. In other words, the new wind and solar resources will reduce costs and save consumers money.

Based on PSCo’s bid evaluations, we know the economics of solar and wind cannot be analyzed in a vacuum. Colorado enjoys terrific wind and solar resources that can be mobilized at low cost. Results might differ where resources are less productive or industry is less mature. Solar and wind investment and production tax credits also improve the economics of these resources. And new financing methods have brought down solar costs, providing lower cost investment funding and reducing energy prices.

But other factors worked against these resources. Wind plants had to cover their own transmission costs to reach sometimes-distant points of interconnection with the utility. No carbon costs were considered in the analysis, even though zero-carbon resources like wind and solar reduce the utility’s carbon footprint.

With new wind and solar below system average costs, interesting questions arise: Which additional fossil plants should be considered for early retirement? How can utility financial concerns about early retirement be addressed?  If this trend of lower renewable costs continues, how will utilities need to change grid operations to accommodate more variable generation? Finally, what incentives could be provided to utilities to move more quickly toward lower-cost clean energy?

Several approaches set out in America’s Power Plan can help policymakers answer these tough questions. Drawn from the expertise of over 150 electricity industry experts, the policy recommendations from America’s Power Plan provide a roadmap to a high renewables future without sacrificing affordability or reliability.

One of the plan’s main recommendations, moving toward performance-based regulation of utilities to reward shifting to a cleaner and more reliable grid, is already being explored in Colorado.

Smart regulation combined with rapidly improving economics of solar and wind are making Colorado’s electricity system more affordable and cleaner. PSCo’s experience shows wind and solar at utility scale can reduce consumer costs when included in a balanced generation portfolio. As wind and solar markets expand, these lower costs will benefit customers in additional states, facilitating the transition to a clean, affordable, reliable electricity system.

Editor’s Note: Ron Binz served as Chairman and Commissioner of the Colorado Public Utilities Commission from 2007 until 2011, and directed the Colorado Office of Consumer Counsel from 1984 to 1995. Ron Lehr served as Chairman and Commissioner of the Colorado Public Utilities Commission from 1984 to 1991.