The energy world got some big news in December: Xcel Energy, one of the biggest utilities in the US, committed to going completely carbon-free by 2050 (and 80 percent carbon-free by 2030).
Xcel Energy said Monday it plans to shut its Minnesota coal plants, the last two in the Upper Midwest, a decade earlier than scheduled, putting the utility on pace to be coal-free earlier than expected.https://t.co/tcXDp1Om4W— MPR News (@MPRnews) May 20, 2019
Xcel, based in Minneapolis, serves 3.6 million customers across eight states — Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas, and Wisconsin. Its CEO, Ben Fowke, is part of the leadership at the Edison Electric Institute, the main utility trade group.
It is the first major US utility to pledge to go completely carbon-free. And this week, the company announced it will be fast-tracking the retirement of its two remaining coal-burning power plants, which are in Minnesota, by 2030.
So make no mistake: This is industry-shaking news. Here’s our explainer, first published December 5.
Greater ambition is in Xcel’s political and economic interests
Xcel has been a leader on clean energy for a while. According to the company, it has reduced its carbon emissions by 35 percent since 2005.
Earlier in 2018, it announced plans to, by 2030, reduce carbon emissions 60 percent (from 2005 levels), increase the level of renewable energy in its fleet to 55 percent, and shut down 50 percent of its coal capacity — in the state of Colorado. Those goals were enough to win the company Utility Dive’s Utility of the Year Award for 2018.
But the new goals go much farther. And they cover Xcel’s entire eight-state territory.
So what pushed the company’s ambition so much higher?
First, renewables are getting really cheap. In its recent solicitations, Xcel has gotten more bids for renewables, with more variety, for much cheaper. Wind and solar plants paired with storage are bidding in cheaper than the ongoing operating costs of existing coal plants. Renewables are even giving natural gas a run for its money.
Second, Xcel’s customers — particularly cities — are demanding it. “When your customers are asking for this over and over,” Fowke said when announcing the news, “you really do listen. Boulder, the city of Denver, Breckenridge ... Pueblo, they’re considered or they have already decided that they want to pursue 100 percent renewable.”
Remember that, because it’s important in an age of no federal climate policy: Cities can move utilities, and utilities can move the energy industry.
Third, the political landscape is shifting. Democrats took the governor’s mansion in Colorado, Michigan, New Mexico, and Wisconsin. In Colorado and New Mexico, they now have a “trifecta” — governor and both legislative houses. Running for governor in Colorado, Jared Polis supported a new renewable energy standard of 100 percent by 2040; with Democratic majorities in the state legislature, he might get it passed.
Renewables are on the rise in the West, popular with politicians, cities, corporations, and ordinary ratepayers. It is to Xcel’s benefit to get ahead of the curve and give the people what they want.
Fourth, Xcel would very much like to build more stuff.
It is a vertically integrated monopoly. The areas in which it operates have not been “restructured,” i.e., generation has not been split off from transmission and distribution. Xcel owns and runs all of that stuff.
Regulated monopoly utilities, as I’ve explained in previous stories, do not make money on the power they sell or the fuel they buy. They make money by drawing a rate of return on investments in power infrastructure. These “rate-based” investments are the utility’s bread and butter.
In a broad sense, the shift to renewables is good for such utilities. When they shift from existing fossil fuel plants to new renewable energy, they shift from fuel (coal and natural gas) costs, which they make no money on, to investments in new renewable energy power plants, new batteries to store power and electric car chargers to help electrify the vehicle fleet, and tons of new transmission lines, much of which they can rate-base.
These goals (perhaps combined with a new, more stringent RPS in Colorado) will help Xcel get permission from regulators to depreciate lots of uneconomic old fossil-fuel assets (which activists have been hassling it about anyway) and build, build, build a bunch of new stuff.
Rate base! While looking like a climate hero for the newly elected politicos in its states (which should grease the skids in pushing back any utility regulatory reforms).— Travis Kavulla (@TKavulla) December 5, 2018
In short, Xcel stands to profit handsomely, and benefit politically, by giving its customers the clean energy they want. (Many ratepayer advocates worry that utilities like Duke are taking advantage of this dynamic, using clean energy as an excuse to build stuff that local, distributed energy could handle better — but that’s a different post.)
A more interesting question is how this might affect Xcel’s monopoly status. On one hand, riding a political wave as a climate champion allows it to stay ahead of grumbling or desire for restructuring.
On the other hand, Xcel suddenly needing so much clean energy might help grease the skids for regionalization, i.e., the creation of a restructured Western wholesale power market run by a regional transmission operator (RTO). If all of the West is heading toward decarbonization together, the region’s utilities will need to pool their resources.
In fact, they might need to pool their resources rapidly, because the federal tax credits for wind and solar power are set to expire soon. Buying a lot of capacity before then could save a lot of money.
Fifth — and this may be somewhat peripheral, but it’s interesting — on the very same day Xcel made its announcement, the Boulder City Council voted to move forward with creating a municipal utility and breaking off from Xcel.
Big story tonight is council's vote to re-authorize Boulder to condemn Xcel's assets in a bid to create a city utility. Xcel today, of course, announced its intention to fuel 100% of its power from renewables by 2050 https://t.co/JzBQysqxxs— Shay Castle (@shayshinecastle) December 5, 2018
Xcel very much opposes that move. By ramping up its clean energy goals, it may not keep Boulder, but it could dissuade other similar-minded cities from following Boulder out the door.
Anyway, the decision to go carbon-free by 2050 is not a selfless act on Xcel’s part — it sees which way the wind is blowing and is focused on providing returns for shareholders. And the announcement leaves many, many details unspecified, including plans to shut down fossil fuel plants and transition plans for affected communities.
Nonetheless, it shows that incentives are beginning to align in a hopeful way. It is the smart move, politically and economically, for Xcel to set a course for zero carbon. That would have been unthinkable 10 or even five years ago.
A few other aspects of this story are worth highlighting.
Carbon-free, not renewable
Xcel explicitly did not promise 100 percent renewable electricity. It promised 100 percent carbon-free electricity. In this, it echoed California’s recent bill SB 100, which committed the state to 100 percent carbon-free energy by 2045.
The difference is that carbon-free includes not only renewables but also advanced nuclear power plants and fossil fuel power plants with carbon capture and sequestration, either of which Xcel may end up needing to get to 100.
The company was frank in its public statement:
The company believes that its 2030 goal can be achieved affordably with renewable energy and other technologies currently available. However, achieving the long-term vision of zero-carbon electricity requires technologies that are not cost effective or commercially available today. That is why Xcel Energy is committed to ongoing work to develop advanced technologies while putting the necessary policies in place to achieve this transition.
Both sides of this message are incredibly important and poorly understood by the general public.
First, we have a really good idea of how to get to 80 percent. Climate researcher Christopher Clack and his team showed in 2016 that the entire US could get to 80 percent using existing commercial technologies.
.@xcelenergy commit to 80% carbon free by 2030 using existing technologies. This is great! In fact we could do this across the whole United States. We showed it in @nature climate change way back in 2016: https://t.co/rX8ZBMnV5V Last 20% harder, but that shouldn't stop progress.— Christopher Clack (@DrChrisClack) December 5, 2018
We know we can get to 80, but 80 is a long, long way off almost everywhere. There is, in other words, no reason to wait. We know more than enough to get our asses in gear.
And second, we’re not yet sure how to get that last 20 percent, so we need to keep researching new techniques and technologies in the meantime. Xcel is going to work with state regulators to try to do some ratepayer-supported R&D. That seems like a really good idea.
Targeting zero carbon before we know exactly how to achieve it is the kind of aspirational courage that will very much be needed if the US ever gets anything like a Green New Deal. It’s a leap of faith — faith in human ingenuity.
A final side note here: Xcel runs two nuclear plants in Minnesota, which provide almost 30 percent of Xcel power in the Upper Midwest. Their licenses will be up around 2030. It’s very likely that to stay on track for its carbon targets, Xcel will need to keep those plants running for longer than that. Math like this is what has driven a substantial recent shift in opinion among greens about the wisdom of keeping existing nuclear plants open.
100 percent clean energy is going viral
Somewhat by coincidence, the same day Xcel made its announcement, A.P. Moller-Maersk, the world’s largest shipping container company, announced that it will target carbon neutrality by 2050, though, it said, “carbon neutral vessels must be commercially viable by 2030, and an acceleration in new innovations and adaption of new technology is required.” But it has faith — in human ingenuity.
If you want a sign of where technology and business are heading, Xcel Energy and Maersk pledging to go carbon neutral by 2050 are notable. These are highly competitive actions— (((Alex Gilbert))) (@gilbeaq) December 4, 2018
This came on the heels, last month, of Google’s announcement that it would strive to run all its operations on 100 percent clean energy, at all times, around the clock.
There are now hundreds of companies (Ikea, Apple, BMW, Coca-Cola, Facebook, etc.), more than 90 US cities (Minneapolis, Denver, St. Louis, Atlanta, Salt Lake City, etc.), and two US states (Hawaii and California) committed to reaching 100 percent clean electricity.
And now there’s a major utility.
This is how the real target — zero net carbon — will arrive in the US: not in a blinding flash or a big federal bill (at least not at first), but like a virus or a meme, catching hold and spreading through contact.
Researchers have found that both rooftop solar panels and electric vehicles are contagious. People are more likely to buy them when they see other people buying them. Human beings are social creatures, not autonomous utility maximizers. We don’t reason through our purchases and our lifestyles; we generally adopt what’s around us and do what people like us do.
The very same is true of urban policy makers, corporate officers, utility executives, and state regulators. You can show them all the charts and graphs you want — until they see others like them doing these things, they won’t feel confident.
Now more and more people are doing it, and more and more people are seeing other people doing it. The virus is spreading. With Xcel and Platte River Power Authority’s news commitments, the virus has spread into the utility industry. It won’t stop there.