On the last Friday before Thanksgiving, Xcel Energy filed a document with Minnesota’s Public Utilities Commission called a Renewable Energy Standard Rider. In two read-throughs, a reasonably informed layperson would have only an even-money shot at understanding it.
The gist, though, is that Minneapolis-based Xcel asked regulators to approve bringing more than $100 million of wind-energy projects into the calculations of regulated electricity rates. And the news is that the new power will be cheaper.
“People tend to focus on what goes up and not what goes down,” said Chris Clark, president of the Xcel’s Minnesota, South Dakota and North Dakota region. “That wind coming into service is actually displacing other generation sources, so we are actually saving customers money with the wind we’re bringing on to the system.”
An unconscious focus on only what increases in price doesn’t really explain the intensity of arguments over electric energy, which can seem more like the Wars of Religion than a discussion of costs. Yet the case the industry makes — renewables are cheap enough, and getting cheaper — is getting clearer in the latest numbers.
“The pricing that we are seeing on this build-out that we are doing — and we are doing one of the largest build-outs in the nation of wind — is substantially undercutting the price of our coal units,” Clark said. “We had thought it would be mixing it up with them, but it is actually undercutting the coal units.”
The cost to generate electricity from the new wind projects falls in the range of $15 per megawatt hour to $25, Clark said. The same electricity from a coal-fired generating station costs between $25 and $35 per megawatt hour.
But there are a couple of wrinkles in the cost picture.
Development of new wind power facilities generally has been subsidized by what’s called the production tax credit, or PTC. It’s a simple federal tax credit — for taxpayers that otherwise would have a tax liability — based on the power generated and sold by an eligible generating project.
In the past, though, there have been years when the PTC had been set to expire, leading to a development boom to beat the deadline. That has been happening again, as the tax credit is going to be gradually phased out after Jan. 1, 2021.
Xcel is one of the first utilities in the country to start a project that will earn less than the full PTC credit, Clark said, as “we knew we couldn’t get it in by the 2020 time frame, but as that rush of 2020 ends there will actually be the ability to do build-out at a very competitive price.”
The wind-power industry has gotten a lot more efficient since it first got going in earnest here in the 1980s. There are older and far less efficient turbines still spinning on sites with some of the region’s most consistent winds, and “repowering” older wind farms with new towers, blades or whole turbines is one approach the industry has taken.
Utilities are eager to see how much more efficient big utility wind power can become as the PTC slides to zero. “The big debate is whether they will be able to take enough costs out … of the build-out of those wind projects to stay below that $25 per megawatt hour range,” Clark said.
With no tax credit, the current wind technology would deliver energy at maybe $40 per megawatt hour, at least according to Xcel. And here’s where it gets more interesting, because that’s comparable to the high end of the range on what it costs to generate power with the so-called combined-cycle gas plants the industry uses, like the High Bridge Generating Station Xcel operates in St. Paul.
Big utilities invest in gas plants because of their usefulness in balancing the overall portfolio when a lot of the power comes from sources with variable output, like turbines dependent on the wind.
But at up to $40 per megawatt hour for wind and gas, old-fashioned coal can look cheaper — if those coal plants can dump their emissions into the air for free.
The electric utility industry emits more than carbon dioxide from its fossil-fuel plants, but it’s carbon that gets most of the attention these days. The most recent total for a year’s emissions in the state from electric power generation is about 31 million tons. That’s a lot of carbon.
The cost of emissions is known as an “externality” in economics, a well understood idea that’s been around a very long time. All it really means is that there is a cost or benefit that someone isn’t paying for.
It can be a good thing you don’t have to pay for, like farmers collecting the benefits of pollination thanks to a neighbor’s honeybee operation. They can certainly be bad, too, getting stuck with part of a cost that someone else got away with not paying — like stack emissions.
Putting a price on carbon emissions is a dark art, relying on economic modeling rather than the bid-and-ask price of an active market. The numbers used by the state fall in a big range, arrived at through what appears to be objective analysis mixed with politics, with even the industry’s players in the past differing on what the right number should be.
Yet it’s not clear how anyone could stand next to Xcel’s big Sherco coal-burning generating station in Becker, look up and argue all that stuff going into the air costs nothing.
If you apply a carbon cost to Sherco unit 3, that adds at least $5.50 and up to $27.50 to the cost of one megawatt hour of power. At a midpoint in that range, the real cost of coal surges past the current cost of wind power even with no federal tax subsidy.
There’s a lot of stuff still to be figured out for a big power company like Xcel to reach its goal of delivering all carbon-free power by 2050, yet how to produce reasonably priced carbon-free power appears to no longer be one of them.