PUC Ruling for Geronimo Solar Provides an Educational Exhibit for Utility Economics

On March 27th, the Minnesota Public Utilities Commission ordered Xcel Energy to pursue a power purchase agreement with Geronimo Energy’s  proposal to build 20 large solar arrays totaling 100 MW adjacent to Xcel substations. The project would require no new expensive transmission lines and will improve electric reliability by providing voltage support to the substations.

Geronimo Energy beat out an RFP competition with three natural gas projects on grounds of cost competitiveness and the interests of ratepayers. Administrative law Judge Eric Lipman's ruled back in December that Geronimo was the most cost-competitive proposal.

The Geronimo project will help Xcel meet peak power demand times on hot summer days without straining the distribution system because solar availability predictably coincides with peak air conditioning demand. Traditionally, peak demand has been met by natural gas plants that only operate a small fraction of the year.

Xcel put forth a competing proposal to add a natural gas unit to its Black Dog generating station in Burnsville. In fact, the projected need for more power that launched these competing energy development bids comes from Xcel's climate-friendly move to retire the two remaining coal-burning units at their Black Dog facility. In late January, the state Commerce Department chose to take sides with natural gas developers and Xcel in urging PUC regulators to snub Judge Lipman's ruling that Geronimo solar would be the best deal. But the state mandate for 1.5 percent of power from solar by 2020, which the MN Commerce Department supported,  helped Lipman's solar ruling stand. The mandate means Xcel is required to procure about 300 megawatts of solar over the next six years: Geronimo will get them 1/3 of the way there. Given that this project would help Xcel meet its requirements, why did Xcel oppose it? 

 Solar energy has a major cost advantage over gas in that it has a guaranteed fixed price over 20 years, while natural gas prices spike unpredictably. This price risk for natural gas doesn’t hit Xcel’s bottom line however, because state law allows utilities to pass fuel costs on to their  “captive ratepayers” as a standard item on our energy bills.

 Ross Abbey, a policy associate the nonprofit Fresh Energy, spoke toward why the Geronimo recommendation got such a cold reception from traditional utilities.

 "These traditional utilities have a big stake in what energy investments are made and how those investments fit into the broader system. Partly it's an engineering thing, but they also have a self-interest in remaining in the driver's seat. In both of these cases, you've got outside suppliers coming in and offering to do it cheaper or better, and that is a bit of a challenge for utilities as central players in the energy sector."

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