Some of Colorado’s largest electric utilities are starting to sound the alarm over the pace, expense, and grid reliability implications of meeting the state’s decarbonization mandates.
Xcel Energy, the state’s largest electricity provider, is increasingly worried about its ability to reliably deliver power to ratepayers under current regulatory constraints, according to a recent letter sent to the Public Utilities Commission.
“In the coming months, PSCo will take steps toward securing generation resources in order to operate our system reliably – but we felt compelled to voice our concern with Commission outcomes that put at risk even our ability to do that,” reads the letter penned by three Xcel Energy executives.
Meanwhile, Colorado Springs Utilities is demanding policy flexibility from the state after skyrocketing costs and construction timelines for new wind and solar projects proved too much to foist onto the city’s residents.
“Recent developments related to power purchase agreements (PPAs) for renewable energy and transmission line capacity are shifting our energy transition strategies moving forward,” wrote CEO Travas Deal in a February post on CSU’s website. “Since issuing the RFPs, we have received over 200 proposals. Many of the PPA prices are at least 60% higher than expected for wind and 50% higher for solar. With customers already facing rising energy costs, we cannot ask you to also pay for these inflated contracts, many of which are 20-year-plus agreements, or the projects envisioned to support them.”
Taken together, the pair of warnings offer a sobering dose of energy realism and highlight the inability of rigid, centrally planned mandates to account for ever-shifting market dynamics.
Policy Constraints
Thanks to a pair of laws enacted in 2019, Colorado electric utilities are currently under a statutory obligation to slash their greenhouse gas emissions 80 percent by 2030, and must regularly file resource plans laying out how they plan to get there. While the laws caused some consternation at the time—including among the policy team at Independence Institute, who understood what their mandates would entail—the state’s utilities were broadly supportive.
After all, in 2019 wind and solar project costs were experiencing continuous year-over-year declines, electricity demand had been consistently flat, and an eleven-year deadline seemed too far removed to cause enough heartburn to outweigh the plaudits earned by utilities for being so forward-thinking in agreeing to decarbonize.
Fast forward six years, and the situation at hand today is quite different.
Supply chain snarls, transmission constraints, project delays, and higher interest rates have completely reversed those year-over-year declines in wind and solar costs. The rise of artificial intelligence and its associated data center projects, electrification mandates, and EV subsidies have led to an explosion in electricity demand not seen for generations. Always-available baseload resources like coal have since shrunk from providing nearly half of the state’s power to less than 28 percent last year. At the same time, the share provided by intermittent renewables nearly doubled.
Suddenly, 2030 no longer seems so far away, and neither public power providers nor investor-owned monopolies are immune to the difficulties of balancing their obligation to reliably and cost-effectively serve load with a rapidly shrinking resource base on a compressed timeline.
Energy Subtraction
Xcel specifically drew attention to this shifting resource base as the cause for its concern. It highlighted the key reliability attributes being lost by policy-mandated power plant closures and questioned the PUC’s reticence to approve building sufficient natural gas generation to fill in the gaps.
“The electric system is bringing on ever-increasing amounts of weather-dependent energy generation in efforts to meet energy policy goals,” the letter reads. “The electric system is also losing firm generation that is available 24 hours per day, 7 days per week, and we must take sufficient actions to secure replacement for the retiring generation over the medium- and long-term. Short-term actions and patches are not solutions for the long run.”
Under current resource planning agreements, Xcel is slated to retire all of its remaining 1,650 MW of coal capacity over the next five years. It will also lose another 784 MW of gas capacity over the same period, leading to a projected capacity shortfall of nearly 850 MW by decade’s end, according to the company’s 2024 resource adequacy report.
PSCo Loads & Resources Table / 2024 Resource Adequacy Annual Report
Additionally, the company projects that it will soon be unable to count on imports to save the day, as utilities elsewhere are increasingly dealing with the same policy-induced supply crunch.
“In recent summers PSCo has been looking to the market for firm energy purchases and solutions,” the letter reads. “This is not an option we can continue to rely on as western power markets get tighter and other energy providers experience the same demand growth we are forecasting in the PSCo territory.”
Colorado Springs Utilities, meanwhile, is apparently prepared to delay the retirement of its remaining fossil fuel-fired assets, including potentially the Ray Nixon coal plant, in light of its cost pressures.
“We will continue to enhance and extend the life of our existing assets to meet reliability expectations, manage costs and support the community’s economic health,” Deal wrote.
The Bottom Line
It remains to be seen if state lawmakers or the PUC Commissioners will take heed of the warnings raised by the two utilities, but they would be wise to do so. The two letters will almost certainly not be the last alarm bells to sound as Colorado’s policy deadlines draw nearer and the costs continue to pile up.
Emissions reductions are a worthwhile endeavor, but they must be a subordinate concern to grid reliability and affordability.
