Rising costs have Rochester debating whether to move back 100% renewable energy goal

ROCHESTER – Federal tariffs and higher-than-expected contract costs for renewable energy sources have local utilities officials in a bind: Do they push the added expenses onto residents or do they push back the city’s much touted sustainability goal?

Rochester Public Utilities plan to gauge community interest in moving back its timeline to have 100% net renewable energy by 2030, allowing renewable energy sources to cover Rochester’s energy consumption and reduce carbon emissions.

To accomplish that, residents would have to eat a 6% electric rate increase next year and likely weather similar increases through the end of this decade. Or residents can have an average of a 4% rate increase for the next few years and Rochester likely won’t get to hit its renewable energy goals until 2040.

“We’re trying to frame customer research as ‘Should we stay the course at higher expense for earlier environmental benefit ... or should we follow Minnesota’s carbon-free standard at slightly less short-term costs?’” said Tim McCollough, general manager at Rochester Public Utilities.

If Rochester chooses to delay its renewable energy timeline, it would mean a significant shift in vision the city had planned for the better part of a decade. It would also mean losing the city’s place among communities in adopting sustainable energy practices amid Minnesota’s push to get carbon-free energy production statewide by 2040.

Minneapolis and St. Paul have committed to 100% net renewable energy by 2030, while Moorhead’s electrical system met its 100% renewable energy goal in 2021. Other communities like Hibbing are striving to meet energy goals through wood-burning and other biomass sources, though it’s unclear whether the state counts that as carbon-free.

In 2015 then-Mayor Ardell Brede announced Rochester would seek to become energy net-zero by 2031, though utilities officials would later aim for a year earlier. The proclamation positioned the city as an early adopter in community climate change efforts.

In an effort to realize its commitment, RPU decided against renewing its contract with the Southern Minnesota Municipal Power Agency (SMMPA) once it expires at the end of the decade. Only about a quarter of SMMPA’s energy comes from renewable sources; much of the rest comes from coal and natural gas.

Yet recent federal movements, from ongoing tariffs on building materials, have driven the cost of switching to renewables significantly past what utilities officials projected over the past few years.

McCollough said in the past week alone, RPU saw some renewable projects repriced at 25% higher — not even counting the loss of federal energy tax credits as part of the recent “Big Beautiful Bill” budget package.

RPU anticipates spending $240 million for infrastructure and new power generation over the next few years, in addition to securing long-term energy supply contracts to complete its renewable energy push.

McCollough said Rochester could still meet those needs without significant rate increases by delaying some of the renewable projects and holding off on some of the contracts scheduled for around 2030 in which they won’t be able to offset costs.

“I don’t perceive this to be a metric that we can say, ‘If it’s over 52% we can do it,’” said Councilmember Patrick Keane, who also sits on RPU’s board. “But it is an important influence.”

Keane said he anticipates there will be some “community angst” over the decision, as city officials will have to be mindful of increasing costs for property owners at the same time as following residents’ wishes to adopt more environmentally friendly energy practices.

Keane said he’s also concerned infrastructure and energy contract costs may increase regardless of what steps Rochester takes.