Xcel Energy has long been a leader in renewable energy, investing in wind and solar even when they were not the cheapest alternatives.
Today, however, the tables are turning. New wind and solar are often cheaper than existing coal generation. And Xcel is now moving to retire major coal plants and invest $2.5 billion in wind, solar and batteries to replace that generation — saving ratepayers up to $374 million.
Jonathan Adelman, the area vice president of strategic and resource & business planning at Xcel Energy, sat down with GTM to talk about the utility's transition.
GTM: What are your thoughts on the key drivers for renewable integration in power markets in the next 10 to 20 years?
Jonathan Adelman: I think it fundamentally comes down to economics. The secondary driver is customer expectations. Lastly, policy both at a state and federal level.
GTM: Do you think these economic drivers will continue to look so promising in the next couple of decades?
Jonathan Adelman: In many areas, the incremental cost of renewable generation is currently less than the embedded cost of existing generation. That is a very important part of this transition. If we can buy a new resource at a lower cost than the existing resource, that is going to advance the transition.
This is exactly the market we have seen over the last few years. That market has been supported by declines in renewable prices and progressive tax policies that are set to expire over the next few years. It’s a great question regarding the ability of the renewable industry to maintain these favorable economic conditions as the tax incentives potentially expire. I am optimistic that the economics will still support renewable transition, but perhaps at different pace of adoption. Policy will also clearly impact the future market.
GTM: You mentioned tax policy. How are you forecasting the impact of the PTC/ITC phase-down on your renewable generation development portfolio at Xcel Energy?
Jonathan Adelman: At Xcel Energy, we have moved very progressively into renewables over the last decade. The economics have been very favorable for our customers. The tax benefits are supportive to these economics, and we captured the tax benefits for our customers.
There are competing forces in these industries. The renewable industries have clearly demonstrated their ability to substantially drive down costs. I personally continue to be relatively optimistic that these industries will find savings to stay competitive, even with the reduction of tax incentives. Another big driver in this equation is the cost of the alternatives. We have also been enjoying historically low natural-gas prices that challenge the transition to renewables. The price of natural gas will be a large variable here.
GTM: As we recently reported, Xcel announced the replacement of 660 megawatts of coal with more than 1,800 megawatts of wind and solar. Tell us about that.
Jonathan Adelman: This is another progressive step in our transition to meet broad environmental objectives that are coupled with our responsibility to maintain reliable, cost-effective service for our customers. The point I like to share is that all these efforts have not been driven by compliance standards; we are well ahead of those across our service territories.
Our plan, the Colorado Energy Plan, will result in a system that includes an approximately 60 percent carbon reduction from 2005 levels and about 55 percent of our energy from renewables. This plan also includes customer savings to customers of about $215 million. In my mind, these are not easy things to do, but they are really good things to do.
GTM: Given this shift, let's focus on long-term resource planning for utilities and regional markets. That's what you'll be talking about at our upcoming Power & Renewables Summit 2018 in Austin on November 14.
Jonathan Adelman: There is a substantive transition underway in generation, and that transition is being driven by everything we have discussed regarding renewables. The challenge is how to smoothly transition to a nontraditional generation fleet while meeting our fundamental responsibilities for both reliability and cost.
The RTOs/ISOs and utilities have a shared responsibility here. I see two different sides of an industry dealing with substantial change. The RTOs/ISOs are managing an increasing number of requests to integrate new resources and retire old ones. I think every RTO/ISO is facing challenges in how they manage this process. The utilities are managing the same transition with a different set of challenges.
GTM: One of the key questions we will be posing during the conference is how utilities and grid operators can adapt their long-term resource planning to actual available market forecasts more effectively.
Jonathan Adelman: The market is moving faster than the traditional utility process moves, both in terms of what customers want and in terms of the technology options. Customers traditionally have not been as interested in our processes as they are now.
The ability to scale renewables makes them much more accessible to customers. Environmental concerns are also more integrated in generation planning. The scalability of renewable generation and environmental concerns both drive customer interest in generation planning. Generation planning decisions in the regulatory arena can take years. There is value with a slow and methodical process as these are big decisions that take time, and should be balanced against the desire to move more quickly.
GTM: We know the Trump administration sees an energy mix with high renewable penetration rates as a threat to grid reliability and even national security. Do you believe these are well-founded concerns?
Jonathan Adelman: Reliability is the foundational responsibility of the utility industry. Our renewable transition includes a very comprehensive look at our system. We must have the same level of confidence that we can maintain reliability we have today under a new system configuration. We are very confident that we will do that under this transition.
Fully dispatchable generation resources will continue to be part of our system and, in fact, they play an increasingly important role in supporting renewable integration. Regarding the broader national security issues, I think this ultimately comes down to energy independence. Our ability to use more domestically produced fuels greatly supports this independence. As does the use of domestically produced renewable energy. I don’t see those opportunities in conflict.
Come to Austin on November 13-14 for the Power & Renewables Summit 2018 to join Xcel Energy and other leading players in the U.S. power space, including Exelon, ERCOT, FERC, First Solar, APS, LADWP, Microsoft, Volkswagen America and many more. The event will gather industry views on how renewable energy integration, decarbonization, electrification, and the growing need for increased capacity and flexibility are impacting electricity systems.