by Emma Foehringer Merchant
August 24, 2018

In parts of the West, coal is still king. 

That could soon change, however. Though Wyoming, the country’s largest coal-producing state, lies in the region, falling prices for renewables means Western utilities are increasingly looking toward clean energy to meet capacity needs. Current debates over regionalizing the Western grid have increased the potential pressure on the area’s coal plants, with the possibility that clean energy from states like California can more actively compete in states still reliant on coal.   

An analysis from the Rocky Mountain Institute (RMI) published this week examines the potential for Western cooperative utilities to transition to more clean energy resources. The report specifically looks at the Tri-State Generation & Transmission Association, a co-op utility with 43 members in Colorado, Nebraska, New Mexico and Wyoming that serve 1 million consumers.

Using public data, it finds that by incorporating more renewables, Tri-State members could save $600 million by 2030. 

“In the last six months to a year, we’ve just seen amazing low prices for renewables in this region of the country,” said Mark Dyson, a principal with RMI and an author of the report. “What we did in this analysis is to extrapolate from those prices what that would mean for a portfolio of generating assets. I think the total magnitude of savings is compelling; it is a little bit surprising, and to me it means there is cause for further study and collective action.” 

Tri-State disputed RMI’s findings, and said the organization lacked the “detailed inputs and complex models” needed to forecast resources and their cost. 

“Tri-State already takes advantage of the current low costs of market power and renewable resources,” said Tri-State spokesperson Lee Boughey in a statement on the report. “We blend these market opportunities in with our owned and contracted low-cost resources to deliver reliable, affordable power to our members.” 

The report — though RMI asserted its intent was to test a hypothesis rather than offer explicit recommendations — suggests there’s opportunity for utilities that transition to clean energy more rapidly, but a disagreement on how soon that future is attainable. 

What Tri-State and its members stand to gain 

At the end of 2017, clean energy made up 30 percent of Tri-State’s portfolio: 367 megawatts of wind in Colorado and 85 megawatts of solar in both Colorado and New Mexico. That will rise to one-third by the end of this year, according to the utility. Coal accounted for 49 percent of the utility’s energy in 2017.

Under RMI’s “energy transition” scenario, all of that coal generation would retire by 2026. To make up the capacity, the utility would acquire wind and solar resources at prices equivalent to those in recent competitive procurements. Tri-State’s existing gas, plus additional purchases, would balance renewable variability.

RMI finds the transition would reduce rate increases by 30 to 60 percent through 2030, depending on a range of risk scenarios. 

Rocky Mountain Institute

Under the “business-as-usual” case, and with no changes to the policy landscape, rates would increase by $86 per megawatt-hour. A transition means lower rates — $9 per megawatt-hour less.

The analysis also found that, depending on certain policy changes, rates would creep up more slowly under the transition scenario because the supply mix would be less carbon-intensive and thus less heavily impacted by a carbon price scenario. Further, rates would depend more on purchased power than existing assets, where operating costs could fall on fewer remaining members if others leave the utility or choose to rely more on qualifying facilities for self-generation. 

The risk of members leaving Tri-State is real. In 2016, New Mexico’s Kit Carson Electric Cooperative paid $37 million to end its Tri-State power contract. The co-op said an interest in increasing renewable energy was a primary reason for its exit. Other members, such as Colorado’s Delta-Montrose Electric Association, are also eyeing the door. 

Western utilities are shifting away from coal more and more. In a June filing, Xcel laid out a plan to source 55 percent of its generation in Colorado from renewables, mostly wind and solar, by 2026 and to retire 660 megawatts of coal. Though Xcel touted the emissions reductions inherent to the plan — 60 percent below 2005 levels — the decision is also an economic one.

Rocky Mountain Institute

Comparing Tri-State’s current coal fleet against 2018 clean energy bids from Xcel and NV Energy indicates that fixed operations and maintenance costs plus fuel make the plants uneconomic compared to current renewables prices, including both integration and transmission costs. RMI used wind bids at $11 to $18 per megawatt-hour and solar bids at $23 to $27 per megawatt-hour as comparisons. 

“Long-term fixed prices available today for new wind and solar projects entering service in the early 2020s can outcompete just the operating costs of many existing coal assets, let alone the costs to build and run new coal- or gas-fired generating capacity,” writes RMI. 

Tri-State said it will retire its Nucla plant, the most expensive according to RMI’s analysis, by the end of 2022. While the utility is adding renewables, it said its coal resources still represent a reliable and low-cost option.

“We build resource scenarios, including those suggested by the public, and then run models on an hour-by-hour basis over a period of many years to understand how costs and reliability are affected,” said Tri-State’s Boughey.

But under three scenarios modeled by RMI, including business-as-usual, retirement of a plant and a “fuel-saver” concept where a coal-fired plant continues operating but wind and solar offsets some production, retirement looks to be the cheapest option.

Rocky Mountain Institute

Fuel-saving, by reducing how much a coal plant runs, would be about 10 percent cheaper than the business-as-usual scenario. Retirement is cheaper still; about 20 percent less expensive than business-as-usual, according to RMI.

Dyson also noted that RMI understands resources like wind can’t come in and entirely replace coal in a portfolio. But he also questioned traditional thinking about reliability. 

“Baseload generation is an artifact of how the grid ran in the last century,” said Dyson. “That term, and that way of thinking about operations, reflects an outdated view of what is truly required to maintain reliable service.” 

The nonprofit organization assessed how a set of resources could replace coal and found that by supplementing renewables integration with power purchases and greater use of Tri-State’s gas, costs would fall while capacity is met. The report did not analyze possible applications of technologies like energy storage and demand response.

Generating Asset Portfolio Costs With Legacy Assets vs. New Projects

Rocky Mountain Institute

Aside from being cheaper overall than the business-as-usual scenario, the analysis suggests the transition is just as reliable for meeting utility needs. 

A regional grid 

Utilities like Tri-State could feel even more pressure soon, under a scenario where the Western grid becomes regional rather than continuing to be controlled by a patchwork of balancing authorities.   

Authorities across the West have considered that option for years, but the debate has gotten a recent boost as California Governor Jerry Brown has framed it as a priority before he leaves office. Proponents suggest it could lead to higher penetration of renewables across the West at cheaper prices, while critics worry it would push California to align policies with less ambitious states and invite federal scrutiny. 

Dyson said the possibility of cheaper resources becoming more available to Tri-State members would further risk coal assets and its revenue as a generation and transmission cooperative.

“What we believe is that under expanded markets, however they end up arriving in the West, higher-cost assets are going to face increasing competition, in particular from new energy — renewables and increasingly battery energy storage participation in wholesale energy markets,” he said. “If expansion of the market brings price transparency and access to lower-cost energy to load-serving entities that currently purchase from G&Ts, that could lower the sales and lower the revenue associated with these higher-cost coal-fired power plants.” 

By making connections between Western states more elastic, a July report from nonprofit Next 10 said a regional grid could save Californians $700 million and the entire region $1.5 billion by 2030.

Costs are lowest if California is flexible about procuring renewables from outside its borders (the 1 vs. 3 scenario in the chart above) at a comparatively cheap price, according to CAISO.

Most of the reductions in the $1.5 billion scenario come from avoided RPS-related investment and reduced wholesale production, purchase and sales costs. 

The possibility to more easily dispatch low-cost renewables across state borders could put further pressure on coal plants, as cheap wind resources from states such as Wyoming and Montana supplant California’s solar, and California’s assets compete with coal in Wyoming and Nebraska.

“Wind and solar power have no fuel cost and very low operation and maintenance costs compared with fossil-fueled competitors. In a competitive market, renewable generation will be used before costlier and more polluting fossil generation,” writes Next 10. “Given the enormous amount of high-quality renewable energy resources across the West, and the relatively small amount of coal power plants, it is hard to envision coal succeeding in a truly competitive market, so long as rules do not unfairly favor incumbent or obsolete technologies.”

That report, however, was written before the Trump administration announced its Affordable Clean Energy rule this week. 

Dyson recognized the changes in that proposed regulation, which allow plants to avoid costs associated with reviewing plant upgrades, could change the go-forward costs of operating some coal plants. But he said it's not yet clear what impact that would have for the economics of coal plants in the West.

That rule will likely be caught up in the courts for years, much like its predecessor the Clean Power Plan. Meanwhile, RMI notes that Western and Midwestern utilities are already moving forward with clean energy plans. 

In addition to the examples of NV Energy and Xcel, the organization points to Rocky Mountain Power’s plans to buy 1,150 megawatts of wind power in Wyoming and Great River Energy’s commitment to 50 percent renewable energy by 2030. 

“Some utilities are moving to capture the opportunities presented by low-cost renewable energy quite quickly,” said Dyson.