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United States

Utility seeks to fast track wind tender -- Recognises 500 MW of new wind power as least cost option

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Xcel Energy in Colorado says it will try to shoehorn the development of 500 MW of wind capacity in between lapses in wind's federal production tax credit (PTC) and will release a call for bids as soon as the state's Public Utility Commission gives it the go ahead.

The utility, which in 2001 rejected the 161 MW Colorado Green project in Lamar as too costly because it had underestimated the future price of natural gas, now says wind is a low-cost resource (Windpower Monthly, December 2003).

Its resource plan anticipates that wind power will cost $0.0326/kWh with the PTC, which is valued at $0.018/kWh for the first ten years of a project's life. That compares with natural gas generation, which the plan anticipates will cost $0.045-$0.055/kWh, with new coal at $0.04-$0.05/kWh and with solar at $0.10-$0.15/kWh.

"We're asking for fast tracking of the 500 MW of wind and to do that sooner so that we can take advantage of the continuation of the PTC," says the utility's Steve Roelstad. "The PTC usually comes with a sunset and we want developers to be able to jump and have their projects up and running before it expires again."

Xcel hopes to have the 500 MW of wind capacity online by December 2006. The PTC expired at the end of last year, but there is strong hope that it will be reinstated in legislation now working its way through Congress.

"What they're doing on the wind side with the 500 MW by 2006 is excellent," says John Nielsen of Western Resource Advocates, a long-time critic of Xcel Energy that was formerly known as the Land and Water Fund of the Rockies. "Wind protects both the utility and its customers from rising gas prices and we want to make sure the least-cost plan addresses that risk."

Fuel cost risk

Unlike its response in 2001 to the Colorado Green project, which was finally completed by PPM Energy and Shell WindEnergy in December 2003 (Windpower Monthly, December 2003), the utility is now considering fuel-cost risk, says Roelstad. At that time, the project competed head-to-head with other generating resources, but Xcel had placed its bets incorrectly on low future gas prices and erred on other costs, such as attributing wind with greater "imbalance" charges because of its variable supply than it actually incurs. Under those conditions, wind generation had little chance to compete (Windpower Monthly, June 2001).

Paradigm shift

Commenting on Xcel's change of course on wind's economics, Roelstad says: "I'm sensing a paradigm shift from wind needing spinning reserves to a position where wind is an important part of our portfolio." He adds "It's one of wind being more expensive to now being more cost-effective because it performs a function of cost avoidance."

The PUC will have to approve Xcel's full 3600 MW least-cost plan to get to the 500 MW in wind generation. The plan includes a potentially controversial proposal for the addition of a base load 750 MW coal-fired generating unit at the utility's Comanche Generating Station near Pueblo, needed, the utility says, to meet energy demand that has grown by more than 13% in the last ten years. Despite Xcel's plans to reduce nitrogen oxide and sulphur dioxide emissions at the plant beyond federal guidelines, the addition of new coal is a concern for Western Resource Advocates, says Nielsen, which says the utility should instead be considering more energy efficiency or renewables in its least-cost plan.

Xcel will release a second all-source solicitation in the future in which it will ask for bids from natural gas, other fossil fuel generation, renewable energy and demand-side management. Xcel anticipates that solicitation could result in adding even more wind generation to the utility's resource mix.

demand for wind

There is a lot of market pressure for more wind energy, Roelstad says. In Colorado alone, 30,000 customers have signed on to the company's green WindSource program and the state legislature for the third time this year considered legislation for a renewable energy market framework. While Xcel supported the legislation, it was opposed by the state's public utilities and was narrowly defeated. There is now talk of a citizens' initiative that would put the idea directly to voters.

"We look at that and see the customer demand for wind and now we're seeing a shift to wind being a cost-effective resource and that's why we're pursuing more," Roelstad says. Xcel already owns or buys the 221 MW output of three Colorado wind projects, including the Ponnequin, Peetz and Colorado Green projects. It has 3.3 million electricity and 1.8 million natural gas customers in 11 western and midwestern states. Its headquarters are in Minneapolis, Minnesota.

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