Photo: Xcel Energy Center

Xcel Commits to 100% Carbon Free Energy. Why is this a big deal? How will they do it?

, Senior Energy Analyst | December 14, 2018, 8:52 am EDT
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A 100-plus-year-old company became the first major US utility to target 100% carbon-free electricity by 2050. The company, Xcel Energy, serves millions of customers across eight states. The company’s announcement builds on previous goals to reduce carbon emissions. But setting an ambitious goal is one thing; implementing it can be tricky.

 

Xcel Energy serves eight states, note the locations, they’ll play an important role later.

Xcel’s service territories are clustered in three Southwestern states (New Mexico, Colorado, and Texas) and in five Midwestern states (North and South Dakota, Minnesota, Wisconsin, and the upper peninsula of Michigan). In many of the states where Xcel operates, independent analysis has already shown that there are plenty of cost-effective carbon reductions available.

In New Mexico, UCS has concluded that renewable energy (not gas) can replace the state’s coal resources in a cost-effective way. (Note: The coal generation in New Mexico isn’t owned or operated by Xcel; the analysis illustrates that the state’s clean resources are more economical than fossil fuels).

In Minnesota, several independent assessments (including this one by Clean Power Research and this one by Vibrant Clean Energy) have concluded that the state can hit high carbon reduction targets.

In Colorado, analysis has shown much of Xcel’s coal fleet could be economically replaced with clean energy.

The company seems finally ready to commit to eliminating carbon emissions by 2050 building on an interim goal of 80% emissions reductions by 2030 (measured from a 2005 baseline).

Why is this a big deal?

More and more utilities are recognizing the deteriorating economics of coal plants. PacifiCorp, another large electric utility that operates in multiple western states, acknowledged that 60% of its coal plants are uneconomic. NIPSCO, a large utility in Indiana, released an analysis showing the lowest cost and lowest risk plan for its customers is to shut down all its coal-fired power as fast as possible. But in both examples, the utility balked at the idea of committing to a rapid transition to clean energy.

There have been great advances at the state level toward 100% clean energy. Hawaii, California, and DC have also passed or advanced legislation that would commit their utilities to 100% carbon-free energy. There has also been a slew of cities to do the same (over 100 as of December 2018).  However, local policymakers pushed for such goals, not the utilities.

For some time now, advocates have been pointing out that utilities can cut carbon emissions and reduce customer bills at the same time—doing what’s right while avoiding a laborious policy route. What set’s Xcel’s announcement apart is that it is the first major US utility to recognize that this transition is in their shareholder and customer interest.

How will they do it?

Xcel has broken out their plan into what I’m characterizing as two phases: 80% reductions by 2030 (let’s call that “near-term”) and carbon-free by 2050 (the “long-term”). The near-term goal of 80% reductions is based on a 2005 baseline. So, they can get 80% reductions over a 25-year period and the last 20% of reductions will take another 20 years.

Near-term goal: 80% by 2030

The company expects that existing technology will get them to 80% reductions by 2030. This is because affordable and reliable electricity, and integrating renewables is, to a degree, a solved problem.

Wind, solar, and energy efficiency are already the most cost-effective resources, with other technologies, like storage, being affordable in specific circumstances. And storage costs are expected to continue to decline, which will that resource more cost-effective.

To meet its near-term goal, Xcel will need to procure as much wind and solar as possible as fast as possible. This is where Xcel’s location will come into play.

Both of Xcel’s utility service clusters include parts of the US where some of the richest wind resources exist.

Xcel has a strategic advantage in its location, where there is plenty of wind potential. Colorado, New Mexico, and Texas have also seen some very low prices for solar and the various states in the Southwest are continually fighting for the title of lowest solar price in the country. Clean energy has been so affordable in the Southwest that utilities are receiving offers for long-term renewable contracts at prices below the cost of operating existing fossil fuel plants.

Solar’s economic competitiveness isn’t limited to the southwest. Even in states like Michigan, utilities have found solar is the best way to replace coal.

Pairing wind with solar will help deliver around-the-clock renewable energy. Adding storage capabilities will help make sure that renewable energy is best matched to when it is needed most, ensuring that Xcel will be able to maintain a safe and reliable grid.

Long-term goal: CO2 Free by 2050

Most experts agree that the last tranche of emissions reductions is difficult to get. So, it is not surprising to see Xcel note that they aren’t certain on how they will get the last 20% of emissions reductions. The last 20% of carbon emissions will, according to the company, require further technological or economical advancements.

What does that mean?

Xcel wants to find a pathway of no regrets as they strive to cut their carbon footprint. They aren’t willing to remove any option from the table just yet. After all, a lot can change over ten years.

Maybe they’ll be able to get all the way to zero by unlocking the full potential of dispatchable renewables, energy efficiency, flexible demand, storage, and other existing technologies. But maybe that won’t be enough. As a result, the company and stakeholders will need to take a long hard look at Xcel’s nuclear fleet.

Considering importing clean energy from neighbors or reconsidering joining competitive energy markets should also be part of the conversation.

But even after all those options are investigated, they might need to look at other options, including technologies that aren’t yet matured, like carbon capture and sequestration.

I am not asserting that any one of these options is the best way for Xcel to hit their long-term goal. The fact is that neither Xcel nor I really know. Just being honest.

Looking forward to helping Xcel Energy

The trick to eliminating Xcel’s carbon emissions will be wise and thoughtful planning along the way. For example, any plans to build new gas-fired power plants may be incongruent with carbon-free goals. Xcel must do robust and transparent modeling to see if coal can be economically replaced with a portfolio of clean energy options, as UCS found in Illinois.

UCS is engaged in many of the states where Xcel will be looking to achieve carbon emission reductions. Take Minnesota for example, where Xcel is undergoing a long-term planning process that will include looking at the broader Northern States footprint. The timeline for the long-term plan was extended and the utility plans to take the additional time to closely look at economic decarbonization. The last time Xcel went through this process, its plan included investing in gas-fired plants in 2025 and 2026. Those plants are likely to still be around, emitting carbon pollution, in 2050. This raises a lot of questions:

Will the carbon-free goal force Xcel to make a “retrofit or retire” type decision? Does this force Xcel to bank on carbon capture technology being ready? Will investors or consumers be on the hook for any un-depreciated plant balance if those plants have to shut down?

These questions are going to be hard to answer, and UCS looks forward to engaging and helping address these questions. The last thing we want is for the utility industry to repeat the same mistakes it made with coal.

UCS and our coalition partners will be pushing Xcel to look at all their options and make sure that cost-effective measures, like energy efficiency, don’t get shortchanged as they set on this tricky path.

Photo: Xcel Energy Center
Xcel

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