Trump is pushing coal as utilities choose renewables

Source: Benjamin Storrow, E&E News reporter • Posted: Monday, June 11, 2018

The Trump administration is threatening to force utilities and consumers to buy coal power. But a pair of developments this week show how the power sector is moving toward renewable energy.

In Colorado, the state’s largest utility unveiled its final plan Wednesday to close two coal units and replace them with large amounts of wind, solar and energy storage. The utility, Xcel Energy Inc., says it expects the move to slash carbon emissions 60 percent by 2026 and save consumers more than $200 million.

The Xcel plan was followed by a vote yesterday of one of the largest power consumers in Arizona. The Central Arizona Project, or CAP, a water delivery system for the Phoenix area, voted to approve two new power contracts meant to replace some of the electricity now delivered by the imperiled Navajo Generating Station (NGS). Solar energy would replace some of the coal power.

The massive coal plant, located on a Navajo reservation, is scheduled to close next year, though the Trump administration is trying to keep it open.

In voting to approve the contracts, the Central Arizona Project ignored a warning by the head of the Bureau of Reclamation, who wrote in a letter earlier this week that the congressionally established system of aqueducts could not enter into new power contracts without Washington’s approval (Greenwire, June 5).

Lisa Atkins, president of the board that oversees the water system, rejected that claim yesterday in a public meeting. “CAP is not required by law to buy NGS power,” she said.

The drama over NGS coincides with wider talk of a coal rescue at the White House, where officials are considering a Department of Energy proposal to subsidize coal and nuclear plants. DOE says the continued closure of coal and nuclear facilities represents a risk to national security (Greenwire, June 1).

This week’s developments expose opposition to Trump’s position.

“Xcel is not going to run a system that is not going to be very reliable or resilient. That’s not an option,” said Ron Binz, a former Colorado utility regulator who now works as a consultant. “This is just a great case in point that shows all the pretzel-twisting the DOE is doing to keep coal plants alive is not justified and will cost consumers money and damage the environment.”

Xcel’s plans call for closing two of the three units at the Comanche Generating Station a decade early. By swapping out coal units with 660 megawatts of capacity for 1,100 MW of wind, 700 MW of solar and 275 MW of storage, the utility reckons it can save on fuel costs, avoid costly operations and maintenance on its older facilities, and capture federal subsidies for wind and solar.

“It makes for a perfect storm where we can deliver a cheaper solution than if we didn’t do this,” said Alice Jackson, who leads Xcel’s Colorado division.

The plan now goes to Colorado regulators for approval. But the prices of the new renewables hint at the larger change in the industry.

The range of $30 to $32 per megawatt-hour received for a series of solar projects with battery storage is significantly lower than a $45-per-MWh deal struck by Tucson Electric Power for a solar storage project in Arizona last year, said Ravi Manghani, an analyst who tracks the storage industry at GTM Research, a consultancy.

There is also a matter of scale. America deployed 752 MWh of energy storage between 2013 and 2017. Xcel’s procurement calls for 1,000 MWh, Manghani said.

“These are absolutely gigantic solar-plus-storage projects,” he said.

Xcel’s wind projects, meanwhile, saw a price range of $11 to $18 per MWh, while solar registered at $23 to $27 per MWh. The continued cost of operating the Comanche units was slightly more than $30 per MWh, Xcel officials said.

Environmentalists said the prices are proof of what they’ve long argued: that utilities and consumers need not choose between clean air and low power bills.

“It tells us we’re realizing on the ground in Colorado a fundmental market change in the electric sector,” said Zach Pierce, a senior campaign adviser at the Sierra Club.

To be sure, federal subsidies help greatly. IHS Markit, a consulting firm, anticipates a bust in wind installations following the expiration of the production tax credit in 2021.

A bust is “coming up,” said Max Cohen, an IHS analyst. Still, continued technological improvements and cost declines should see wind costs decline and help the industry rebound in the long term, he said.

Arizona demonstrates the other side of the coin. CAP, the water system, is the Navajo Generating Station’s single largest customer.

But CAP officials are moving on from the plant after four utilities with a stake in the coal facility voted to shut it down. The federal government also owns a stake in NGS through the Bureau of Reclamation.

A CAP study last year concluded it would have saved $38 million in 2016 had CAP purchased electricity on the open market rather than through NGS. The water system has since proposed capping electricity contracts with a single plant at 20 percent of its total consumption.

The contracts approved by the water system yesterday would serve 14 percent of CAP’s total electricity demand. They include a five-year, $36.31-per-MWh contract with the Salt River Project to provide 38 MW of electricity from existing sources, and a 20-year, $24.99-per-MWh contract with a new 30 MW solar farm to be built by AZ Solar 1.

The coal-fired NGS plant, by contrast, cost more than $40 per MWh in 2016, the last year it operated under normal conditions, according to a CAP spokesperson. That price fell to $35 per MWh last year because the plant’s owners have stopped conducting regular maintenance.

The agreements don’t preclude CAP from buying NGS power, Atkins noted. If the power plant can deliver competitively priced contracts, CAP is willing to buy its electricity, she said.

The move was nevertheless opposed by coal and tribal interests seeking to keep the power plant open. A series of speakers yesterday made emotional appeals to the CAP board. They said the contracts would dissuade possible buyers of the power plant, leading to its potential closure.

A prospective buyer, Middle River Power, asked the board for 90 days to finalize an offer for the power plant. Joe Greco, a vice president at the firm, promised an innovative new approach for running the plant that would deliver electricity at prices below the contracts approved by CAP.

He did not identify what that approach would entail.

The CAP contracts and Xcel’s plans are further proof that renewables are cost-effective compared with coal, said Mark Dyson, an analyst at the Rocky Mountain Institute, a nonprofit that advocates for a transition to cleaner energy sources.

“There is a political conversation around coal that is being led by the White House. Then there are the leading utilities taking the economic view and coming to the opposite conclusion,” he said. “I would place my bets on the utilities being right.”