Xcel Energy’s new proposal to retire coal and build new clean energy resources will lower both customer bills and fossil fuel emissions
Xcel Energy’s Colorado Energy Plan, which will be considered by the Colorado Public Utilities Commission this month, has made national news with its promise to save the utility’s customers more than $200 million by shuttering an aging coal plant and replacing it with a combination of renewable energy and battery storage. Colorado is the latest state where utilities are turning away from operating fossil fuel-fired energy generation and instead embracing clean energy portfolios that both save customers money and cut harmful carbon and air-pollution emissions.
The proposal from Xcel—an investor-owned utility operating across eight states—also provides a real-world counterpoint to recent federal moves to financially support aging, uneconomic coal plants and prevent their retirement. Xcel has provided detailed evidence that customer costs will decline and reliability will stay steady by shuttering aging plants and harnessing innovation in clean energy technologies and the power of competition.
A Low-cost Electricity System Driven by Renewables, with No New Gas
The Colorado Energy Plan relies on a portfolio of diverse resources. First, 725 megawatts (MW) of coal-fired capacity—Comanche Unit 1 and Comanche Unit 2—will be retired 10 years ahead of schedule, in 2023 and 2025, respectively. To fill this need and meet expanding load, Xcel would acquire a suite of clean energy resources, including 707 MW of solar, 1,131 MW of wind, and 275 MW of battery storage. Any near-term costs from retiring the Comanche units earlier than originally planned will be offset by reducing an existing rider on customer bills that funds renewable energy programs.
Notably, Xcel has not proposed investing in any new-build gas-fired generating capacity to replace the coal units. Many utilities moving away from coal generation have relied on significant new gas construction as a replacement. But building large amounts of new gas generation capacity can create unneeded plants in the future (the investments in which are known as stranded costs), and also expose customers to rate increases created by gas price volatility. While Xcel’s Colorado Energy Plan does propose the acquisition of 383 MW of gas capacity, that consists of two existing gas plants. Today, these plants sell power to Xcel through contracts that are set to expire over the course of the Colorado Energy Plan implementation timeframe. Xcel’s proposal is to purchase these existing gas resources and use them primarily as capacity resources. The utility expects the overall amount of energy generated from gas on its system to decrease. Cutting gas use reduces emissions and lowers fuel price risk to customers. Further, because Xcel is purchasing existing gas plants rather than building expensive new plants, customers’ risk of future stranded costs is reduced.
In Colorado, Xcel Is Embracing a National Trend Toward Clean Energy Portfolios
In a recent report, Rocky Mountain Institute finds that recent innovation and rapid cost declines in renewable energy and distributed energy resources—like storage and efficiency—means clean energy portfolios often can be built at significant net cost savings, with lower risk and zero carbon and air pollution emissions, compared to building a new gas plant. Xcel joins utilities in Michigan, California, and across the Western US in proving the case for clean energy portfolios to cost-effectively obviate the need for new gas-fired generation, while supporting a reliable grid.
RMI’s analysis also suggests that, due to expected cost declines in renewable energy and battery storage technology, the costs of optimized clean energy portfolios may fall by about 40 percent within the next 20 years. Depending on the price of natural gas, the falling costs of clean energy portfolios will begin to outcompete just the operating costs of a highly efficient gas plant by between 2026 and 2040. And, as the Colorado Energy Plan shows, this transition already is underway in parts of the country. Natural gas–fired power plants could thus see their revenues shrink, and their investment costs become stranded, as clean energy portfolios outcompete them. Utilities like Xcel that choose to avoid new gas infrastructure investment can mitigate this stranded asset risk.
Collaboration and Market Forces Can Drive Innovation
Xcel did not arrive at the Colorado Energy Plan proposal in a vacuum; rather, the Colorado Energy Plan arose out of a stipulation filed by a diverse subset of parties to Xcel’s pending Electric Resource Plan (ERP). The stipulation sought authorization for Xcel to present a Colorado Energy Plan for the Colorado Public Utilities Commission’s consideration as part of that proceeding. The stipulation was supported by a notably diverse stakeholder group—including the utility, residential consumer advocates, conservation organizations, large industrial customers, independent power producers, and renewable energy developers.
Once the stipulation was approved in March, Xcel was authorized to present a Colorado Energy Plan portfolio in the Electric Resource Plan. In Colorado, utilities are expected to utilize competitive solicitations to meet any resource need, and the Colorado Energy Plan was no exception. Xcel issued a request for proposals seeking bids for generation resources, regardless of technology. In response, the utility received “unprecedented,” “shockingly-low” bids for renewables and battery storage. The Colorado ERP process harnesses the power of competitive markets to identify resources and bid them aggressively into an open market, leading to cost savings for Colorado electricity customers without relying on utility-centric assumptions about the costs of emerging resources. Such assumptions have a hard time keeping up with innovation in the market in the face of rapidly declining resource costs.
A Graceful and Swift Exit for Old, Uneconomic Power Plants
Xcel’s Colorado Energy Plan is a model for how to thoughtfully transition the energy grid toward a cleaner, lower-cost future, with attention paid to local community impacts, reliability needs, customer costs, and environmental concerns.
Local Community Impacts: The Colorado Energy Plan includes significant new investment in the county where the retiring Comanche units are located, resulting in an overall net benefit to the tax base of the local community. And, because the existing coal units will not fully retire until 2023 and 2025, there is time to develop a smooth transition plan for plant employees.
Reliability: At a national level, there is a narrative that aging, uneconomic generators are key to national security, and should be “rescued” from timely retirement through customer- or taxpayer-funded bailouts. However, utilities like Xcel, with direct responsibility for maintaining system reliability and keeping the lights on in a growing 21st-century economy, find no reason to worry about retiring aging assets from a reliability or resilience perspective. In fact, Xcel proposed the Colorado Energy Plan with an explicit recognition that “we are never going to sacrifice reliability.”
Consumer Costs: What’s more, the retirement of older, dirtier, less flexible generation is in customers’ best interests. The economics of clean energy have changed dramatically and today, transitioning the generation fleet can actually lower costs for customers.
Environmental Concerns: The proposed Colorado Energy Plan also will provide significant reductions in emissions of greenhouse gases and other harmful air pollutants. Once the Colorado Energy Plan is implemented, Xcel’s emissions of carbon dioxide will be 60 percent lower in 2026 than in 2005, which is consistent with the science-based emission reduction targets set by the Paris Climate Agreement. Sulfur dioxide and nitrous oxide pollution will be 90 percent lower than 2005 by 2026.
Xcel’s Colorado Energy Plan is the latest example of a major utility recognizing the changing economics of the grid and moving away from high-cost legacy assets in order to accelerate the shift to a clean energy future. Supported by a growing body of evidence that suggests this shift cuts costs and protects the environment, while also preserving grid resilience and fostering energy choice, Xcel’s customers in Colorado are the latest—but likely not the last—to benefit.
Erin Overturf is deputy director of the Clean Energy Program at Western Resource Advocates.
This article was republished with permission from Rocky Mountain Institute and originally appeared here.