In the electricity industry, demand is ­stagnant and environmental headaches abound.

With ever-increasing energy efficiency, houses and office buildings just don’t need as much juice these days. Coal, a primary source of power, is seen as the black beast of greenhouse gas emissions.

It doesn’t seem like a prescription for a bright future. Yet Minneapolis-based Xcel Energy expects to grow profits nonetheless and wean itself from coal by ramping up wind power, where it’s long been a national leader.

The company in May announced its largest renewable energy project yet, a $1 billion wind farm in Colorado that would produce as much power — at least when the wind is blowing — as its nuclear plant in Monticello.

Xcel also just unveiled this month a $500 million plan to upgrade its grid in Colorado, including installing digital “smart” meters to better track energy use.

“We’ve reduced carbon by 30 percent since 2005, and we are going to double down on that, reducing carbon over the next 15 years by another 30 percent,” Xcel CEO Ben Fowke said. “At the same time, we are going to invest in the grid. And we are going to do that in a way that is affordable to customers.”

That last point is critical. Like all regulated utilities, Xcel must convince regulators that its investments make economic sense — a ­delicate dance that might become more exacting with sluggish electricity sales. The company’s profit forecast depends on getting capital projects approved, yet regulators must look out for ­consumers’ pocket books.

“The biggest challenge for Xcel right now is to line up its investment plan with policies that regulators have set out and support, and that’s a common theme across the [utility] industry,” said Travis Miller, a stock analyst at Morningstar.

Renewable energy projects like wind farms can fit well with regulators’ agendas. And Miller said Xcel “has a real resource in its service ­territories — it is in prime wind regions.”

Falling sales ahead?

Xcel has about $11 billion in annual sales and covers eight states, including the Dakotas and parts of Texas and New Mexico. Its biggest markets are Colorado and Minnesota, and the latter is home to 5,500 Xcel employees — 45 percent of its total workforce.

The company has been riding high for its investors. Though Xcel’s stock is off about $2.50 from a record high last month, its total return for the past year — 26.5 percent — beat the Morningstar Utilities Index return of 19.7. The S&P 500 was up 5.7 percent over the same time.

Ultra low interest rates have fueled investors appetite for utility stocks, which sport relatively high dividends. “It’s really just a push for yield,” said Andy Smith, a stock analyst at Edward Jones. “Industry valuations are very high right now.”

The industry is facing the long-term problem of slow-growing or even falling electricity sales. U.S. electricity demand grew 1.6 percent annually from 1990 to 2010 but has been relatively flat since, according to a recent report from Stephen Byrd, a Morgan Stanley analyst.

“We believe the market does not fully appreciate the magnitude of the headwinds electricity demand is facing.”

Morgan Stanley forecasts a 0.3 percent decline in U.S. electricity demand over the next decade, though that rate would vary regionally.

A continued slowdown in electricity demand could make it hard for utilities “to sustain current investment levels without putting excess pressure” on customers’ bills, according to Morgan Stanley. That scenario would make rates cases with regulators “more contentious.”

Xcel serves cities and regions with growing populations and relatively healthy economies. Yet Fowke expects only “modest” sales increases — less than 1 percent annually — as residential and business customers use less energy per capita.

The big “game changer,” as Fowke put it, is energy efficiency. Appliances have become far more efficient just in the last decade. LED lights are 85 to 90 percent more efficient than incandescent bulbs.

“The PCs that we all loved in the ’90s and 2000s use about $50 worth of electricity in the course of a year, while your tablet computer uses about $1.50,” Fowke said. “And remember the plasma screen TVs in the early 2000s — how we loved those things — but they were energy hogs. The new generations of TVs — LCD — are about 70 percent more efficient.”

Betting on wind

Despite the weak sales outlook, Xcel forecasts a compound annual growth rate for profits of 4 to 6 percent through 2020. So how will that be done?

“One of the ways is by really investing where our customers want us to invest, and one of the biggest is areas is what I call ‘steel for fuel,’ ” Fowke said. He was referring to wind turbines — which are made with lots of steel — replacing fossil fuel burned in power plants.

That strategy means increasingly owning wind farms, not just buying power through purchase agreements with third-party owners — Xcel’s longtime practice. While the company made its first wind investments in the mid-1990s, it’s only become an owner over the last eight years.

Xcel bought two wind farms in 2015, bringing its total to four, all in Minnesota. A fifth is expected to come on line this year in North Dakota, though 90 percent of Xcel’s wind power will still come from purchase agreements.

The advantage to owning a wind farm — or any power plant — is that it becomes part of a utility’s rate base. Of course, that means the investment must get regulators’ approval. Fowke thinks he has winner in Xcel’s Rush Creek proposal in eastern Colorado.

It would be the biggest wind farm in the state at 600 megawatts and one of the larger wind generators in the country. Rush Creek “is going to come in at a price point” lower than any other wind farm in Xcel’s system in Colorado, Fowke said.

Indeed, with wind energy costs falling and federal tax incentives in place, Rush Creek will be less costly than gas-fired generation. “We can buy a wind farm and its levelized cost over a 20-year time frame is less than I can lock in for gas today.”

Xcel’s other big plan in Colorado is its $500 million initiative aimed at improving grid reliability. A similar proposal should come to Minnesota within a few years, Fowke said.

The company has its hands full right now in Minnesota, with a major rate case before state regulators. Xcel is asking the Minnesota Public Utilities Commission for an electricity rate increase of $297 million over three years, the bulk of which — $195 million or 6.4 percent — would be realized in 2016.

Coal still rules

Whether in Minnesota or Colorado, Xcel is under pressure to produce cleaner energy.

The company still relies on coal for 42.5 percent of its energy production — above the U.S. average of 33 percent, according to federal data. Xcel’s coal usage is highest in Colorado — nearly 53 percent of the company’s resource base there. It’s 33 percent in Minnesota and the rest of its Upper Midwest region, where Xcel’s only two nuclear plants produce more than a quarter of its power.

Wind drives about 14 percent of Xcel’s power generation in the Upper Midwest, while other renewables — primarily hydro power — constitute 10 percent. But by 2020, wind is expected to comprise 22 percent of Xcel’s generation in the Upper Midwest and 24 percent companywide.

Solar energy, which hardly registers right now in Xcel’s system, is expected to fuel 4 percent of Xcel’s power generation by 2020.

For all the attention given to solar, it’s a small part of the power mix. “Solar still remains quite a bit more expensive than any other sort of generation, particularly in the Midwest,” Miller said.

Over the past decade, Xcel has converted several coal-fired generators in Minnesota to natural gas, the biggest being the High Bridge plant in St. Paul. Natural gas is a popular fuel because it’s cheaper than coal and emits about half as much carbon dioxide.

Xcel announced last fall that it will replace its two big coal burning generators in Becker, Minn., with a natural gas-fired unit in the mid-2020s.

The proposal, under review by state regulators, would mean a 60-percent cut in Xcel’s total Minnesota carbon emissions from 2005 to 2030, up from the 40 percent planned initially.

“By the 2030s,” Fowke said, “there will be very little coal left, if any, in our jurisdictions.”