Replacing Xcel coal power units includes an efficiency push

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ST. PAUL, Minn. (AP) — As Xcel Energy prepares a filing to close its last coal units in Minnesota, a lesser-known provision of the settlement announced in May commits the utility to energy savings equivalent to another power plant.

The agreement with clean energy organizations and a labor union signed in early May requires Xcel to close the last two coal plants it operates in Minnesota, the Allen S. King facility in Stillwater and Sherburne County Generating Station (Sherco) Unit 3. In addition, the utility committed to building 3,000 MW of solar energy.

Fresh Energy, which publishes the Energy News Network, is one of the parties to the agreement.

Clean energy organizations, in return, will support the utility's acquisition of a natural gas plant in Mankato and at least some cost recovery on the coal facilities. The points reached in the agreement will be incorporated into the utility's integrated resource plan that will be presented July 1 to the Public Utilities Commission.

The efficiency goal — to be delivered next year as part of Xcel's integrated resource plan — calls for reducing demand by as much as 830 MW, said Mike Bull, director of policy and external affairs for the Center for Energy and Environment.

"It's really historic in what Xcel's agreed to do with efficiency in its resource planning," he said. "It has never been done in Minnesota, and I don't know of any place in the country where it's being done on this scale, either."

Trading a natural gas plant for more solar and efficiency investments created a bargain acceptable to most clean energy organizations, which routinely question the wisdom of any further investments in fossil fuel infrastructure as the impacts of climate change are increasingly felt.

While advisory in nature, the agreement is expected to have some influence as regulators begin analyzing Xcel's resource plan.

But a handful of critics in the clean energy field argue the Mankato Energy Center, a natural gas plant that Xcel agreed to purchase last year, is too expensive and may become a stranded asset and that the agreement was unnecessary.

Deciding whether to close coal plants "is the commission's job to do," said John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance. The commission would likely have concluded on its own a shift to wind and solar will be less costly than continuing coal plants beyond 2030.

If energy efficiency is the least expensive option, Farrell says, then the commission should require Xcel to do more of it. Efficiency is "probably the cheapest thing Xcel can do to provide energy supply," he said. "The commission should be requiring utilities to maximize efficiency before allowing any rate-based investment such as a natural gas plant."

Annie Levenson-Falk, executive director of Citizens Utility Board of Minnesota, believes the agreement could eventually hurt ratepayers. Separating the Mankato plant's purchase from the other energy sources could lead to higher bills for customers, she said.

"Xcel has been achieving a lot of energy efficiency so I don't doubt the potential is there," she said. "But we need to look at the full picture. Maybe the Mankato plant is a good use of customers' funds but we're skeptical because you can't answer that question without the full resource picture."

To supporters such as Bull, however, the sheer volume of the efficiency initiative, along with the solar investment, makes the deal worthwhile. The amount of electricity saved would be equal to the output "of a significant power plant," he said. "That's bigger than the Allen S. King Plant (Xcel) is retiring in 2028."

The impact of Xcel's efficiency initiative will far outpace the state's requirement that utilities reduce their annual retail sales by 1.5% through energy efficiency programs.

Utilities in the past simply reduced their sales forecasts in their resource planning by 1.5% to reflect expected compliance with the state's goal, Bull said, and then ran their resource plan modeling to select the balance of resources needed to meet expected customer demand.

Xcel plans to move well beyond that minimal compliance approach by using a new methodology in their computer modeling that allows the model to select energy efficiency in the same way it selects supply-side resources like wind, solar, and natural gas, he said. This modeling approach selected significantly more energy efficiency than the 1.5% annual goal, approaching nearly twice as much efficiency in some years.

"This new methodology revolutionizes energy efficiency in resource planning," he said. "Xcel is the first utility in Minnesota to treat efficiency as a real resource."

Other clean energy supporters generally like what the agreement does. "We think it's a really big deal," said Jessica Tritsch, senior campaign representative for the Sierra Club's Beyond Coal to Clean Energy Campaign "We know Minnesotans are calling for 100% clean and equitable energy. Maximizing energy efficiency is the foundation to build that future."

Once in opposition to the Mankato Energy Center acquisition, the Sierra Club saw the agreement as a "big first step in our energy future," she said. "It retires the remaining coal plants by 2030 and replaces the capacity with solar."

Efficiency measures will lead to less need for fossil fuel plants and pipelines in Minnesota, Tritsch said. The benefits of efficiency investments should go first to low-income customers, she added, because they would benefit much more than other income groups.

Xcel's proposal to replace Sherco with a natural gas plant will continue to be scrutinized by the organization, she said.

Still, the Sierra Club is not a fan of other aspects of Xcel's integrated resource plan. A preview of the plan "was disappointing" because it lacked investment in distributed generation and community solar, Tristch said.

The Minnesota and North Dakota chapter of the Laborers' International Union of North America (LIUNA) supported the agreement. Kevin Pranis, the union's marketing manager, said the agreement should help trade union members who work on energy efficiency projects.

Some union members who work in maintenance will be impacted by plant closures, he said. The agreement commits Xcel to selecting solar sites where that will have the greatest impact in construction jobs and apprentice opportunities, Prancis noted.

The union supports a transition to clean energy but the jobs that come as a result of moving to wind and solar have been a "mixed" experience for workers, he said. The agreement, he hopes, will help maintain some higher paying jobs in the energy industry.

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