Decouple: All about coal
Mark Nelson, managing director of the Radiant Energy Group, joins us for his second masterclass, this time all about coal. Much maligned by environmentalists and a significant source of air…
Electric utility companies like Xcel Energy are not always forthcoming to ratepayers about the impacts of renewable energy sources on their electricity rates.
Just take a look at Xcel’s “Renewable Energy” page on its website. The page claims: “Today wind energy is a low-cost, reliable and fundamental part our energy supply. Not only do wind projects help reduce carbon emissions and improve our overall environmental footprint, they also produce significant financial savings by reducing fuel and other costs over time.”
When addressing their shareholders, however, Xcel tells a different story about the impact renewable energy sources have on consumers.
In its most recent annual securities and exchange report to investors, Xcel admitted exactly what American Experiment has been saying for years – that renewable energy sources increase electricity rates, create energy grids with excess and idle capacity, and lead to a more unreliable energy system.
So, in case you’re ever questioning our stance on these issues, I have inserted below several paragraphs written by Xcel that confirm many of our arguments:
The electric utility sector is undergoing a period of significant change. For example, public policy has driven increases in appliance and lighting efficiency and energy efficient buildings, wider adoption and lower cost of renewable generation and distributed generation, including community solar gardens and customer-sited solar, shifts away from coal generation to decrease CO2 emissions and increasing use of natural gas in electric generation driven by lower natural gas prices.
Over time, customer adoption of these technologies and increased energy efficiency could result in excess transmission and generation resources as well as stranded costs if Xcel Energy is not able to fully recover the costs and investments. These changes also introduce additional uncertainty into long-term planning which gives rise to a risk that the magnitude and timing of resource additions and growth in customer demand may not coincide, and that the preference for the types of additions may change from planning to execution.
The resource plans reviewed and approved by our state regulators assume continuation of the traditional utility cost of service model under which utility costs are recovered from customers as they receive the benefit of service. Xcel Energy is engaged in significant and ongoing infrastructure investment programs to accommodate renewable distributed generation and to maintain high system reliability. Changing customer expectations and changing technologies are requiring significant investments in advanced grid infrastructure. This also increases the exposure to potential outdating of technologies and the resultant risks. Xcel Energy is also investing in renewable and natural gas-fired generation to reduce our CO2 emissions profile.
Early plant retirements that may result from these changes could expose us to premature financial obligations, which could result in less than full recovery of all remaining costs. Both decreasing use per customer driven by appliance and lighting efficiency and the availability of cost-effective distributed generation puts downward pressure on load growth. This could lead to under recovery of costs, excess resources to meet customer demand and increases in electric rates.[Emphasis added]
Xcel routinely uses phrases such as “could result,” “could lead” and “may result” to cast doubt as to whether these negative effects will actually occur. But we’ve already seen them happen here.
Minnesota used to have lower electricity rates than the national average, but expensive renewable energy investments have caused electric bills to increase by 58.7 percentsince 2004 – or 4.5 percent each year. This is comparatively worse than the national average during the same time, which only rose 2.9 percent each year.
Investing in renewable energy, like wind and solar, has resulted in the amount of power plants in Minnesota to increase by 69.5 percent from 2007 to 2017 – rising from 213 to a staggering 361 – despite electricity consumption remaining flat during this time. This means Minnesota ratepayers are paying for more power plants to generate the same amount of electricity as before.
You may be wondering, “why not just replace existing sources with new wind and solar farms?”
The short answer is, we can’t.
Because wind and solar facilities are intermittent energy sources, they can only produce electricity when the wind is blowing or the sun is shining. As a result, these facilities sit idle approximately 65 and 84 percent of the time, respectively. However, no one would be happy if we didn’t have electricity on windless days or at night, so we build backup sources of generation that can produce 100 percent of the energy we need when wind and solar output is zero. These backup sources are mostly natural gas plants.
This means when Minnesotans pay for new wind or solar farms to “replace” an existing coal plant, for instance, and they oftentimes must also pay for the construction of new natural gas backup energy sources, even though these backup facilities may sit idle for long periods of time. Footing the bill for all of these generation sources is the primary force driving up electric rates.
Unfortunately, this means that Minnesota has already done what Xcel warned about above – the adoption of renewable energy sources has led to “excess resources to meet customer demand and increases in electric rates.”
As Xcel mentioned, the electricity sector is “undergoing a significant period of change.” If we acknowledge that this period of change is taking place and costing billions of dollars simply to bring renewables up to 25% of total generation, imagine then how much expensive this situation could get if policymakers decided to mandate renewables at 50% or more of total generation.
Again, don’t just take my word that more policies mandating renewables or carbon reduction goals will be very expensive – look at what Xcel had to say about increasing the carbon reduction goal to 80%:
[I]t is important to acknowledge that an 80 percent reduction in GHG emissions implies a complete transformation in the way electricity is produced and used. The Company’s CO2 emissions of 30.6 million tons in 2005 would need to decline to about 6 million tons per year by 2050.
Importantly, each increment of CO2 reduction may be more challenging and costly than the last.
Initially, it was possible to retire relatively older, smaller and less efficient coal units, to invest in the most cost-effective renewable resources, and to invest in the “low-hanging fruit” among DSM opportunities.
To reach an 80 percent reduction implies retiring larger, highly efficient and cost-effective baseload units, whose generation is expensive to replace. [Emphasis added]
With the retirements of Sherco Units 1 and 2 – two affordable, reliable coal power plants – scheduled for 2023 and 2026, retiring cost-effective units is also already taking place.
This is especially harmful to ratepayers because Sherco Units 1 and 2 are completely depreciated – meaning that Xcel no longer has to pay-off the construction costs it took to build the facilities. This should be a boon to ratepayers who have “paid off the mortgage” on these plants through their electricity rates, and they should be benefiting from the lower prices at these facilities.
However, Xcel, at the behest of lawmakers, has chosen to shutter these affordable plants in favor of constructing expensive, intermittent sources of energy like wind and solar.