Colorado utility regulators are putting a dollar value on carbon emissions’ impact and will ask Xcel to account for it

State’s largest power utility could challenge a formula that is poised to make natural gas less competitive against solar and wind Colorado utility regulators have waded into new political and economic waters with a vote that requires the state’s largest utility to put a dollar figure on the impacts from carbon emissions tied to future power sources. Last month’s ruling by the Public Utilities Commission, which targets the “social cost” of carbon emissions, won’t cost Xcel Energy and its subsidiary, the Public Service Company of Colorado, anything out of pocket, other than some additional number-crunching. And it won’t show up as a charge on the bills that consumers pay each month. But in the next few years, when Xcel next assesses how it plans to meet demand, a new coal-burning plant will be nearly impossible to justify and it will make natural gas turbines less competitive against wind, solar and other power generation sources with zero emissions. These hurdles could also prompt the utility to challenge the formula — but not the concept — the PUC uses to assess carbon’s social cost. “It is more monumental as a statement of belief and direction than it may be in terms of immediate effects,” said Seth Belzley, an attorney with Holland & Knight and director at the Colorado Solar Energy Industries Association, which supported adding a social cost of carbon in the utility planning process. The social cost for carbon, which Black Hills Energy will also face, is what regulators call a “sensitivity” or an attempt to plan for a future but unknown cost. “If you are looking at building a (power) generation asset after 2022, you need to count $43 per ton of carbon dioxide emissions,” Belzley said. That price tag goes up to $69 a ton by 2050. Given that the Trump administration is de-emphasizing greenhouse gas emissions as a contributor to climate change, the Public Utilities Commission’s vote also represents a political statement as well as an economic one. Putting a cost on CO2 In 2009, the Obama administration assembled the Interagency Working Group on Social Cost of Greenhouse Gases to come up with a hard number on what a ton of carbon emissions costs in terms of impacts. Michael Greenstone, director of the Energy Policy Institute at the University of Chicago and one of President Barack Obama’s top economic advisers, has described the concept as “the most important figure you’ve never heard of.” “We know that carbon pollution impacts people around the world and people in Colorado,” Erin Overturf, chief energy counsel with Western Resource Advocates, told The Denver Post. Droughts, wildfires and reduced crop yields are just some of the side effects that environmental groups and climate scientists argue result from the additional carbon dioxide that power plants, vehicles and other sources release into the atmosphere. And those costs can get personal. Higher summer temperatures lead homeowners to run their air conditioning units earlier in the season and more often. More frequent and severe wildfires in Colorado and other Western states have required more tax dollars be spent fighting fires and pushed up home insurance premiums in some areas. And if climate change reaches the point where it greatly reduces the state’s snowpack, it could irreparably harm the state’s skiing and rafting industries. The social cost of carbon represents a way to put a dollar figure on what economists call an “externality,” or a side effect whose costs aren’t included in the price of a good or service. But some critics of social cost question the calculations behind such a specific dollar amount. Also, those critics say, if greenhouse gases are harming the environment in Colorado, they could be coming from as far away as China or Russia or as near as surrounding states. And there are those who question what impact carbon emissions are having. President Donald Trump in late March issued an executive order to roll back several climate initiatives, including disbanding the Obama administration’s working group on social costs. The executive order, however, doesn’t prevent states from making their own call when it comes to adding a social cost for carbon emissions. The PUC vote puts Colorado in the camp of states such as New York, California and others that have added a finger on the regulatory scale in favor of renewable sources and zero carbon emission sources such as nuclear. Resource plans About every four years, Xcel and Black Hills, the state’s only regulated power utilities, must provide the PUC with an electric resource plan that estimates expectations for future electricity demand and how those will be met. The plan includes details on what generation sources will be retired and added, and calculations on the generation costs associated with those sources versus alternatives. Costs tied to carbon emissions were part of the equation in earlier resource plans, but from a regulatory — not societal — perspective. Since 2007, Xcel Energy has included two different regulatory carbon cost measures in its planning process, said Jack Ihle, director for environmental policy at the utility. The utility initially questioned whether a third carbon cost measure was necessary and whether the commission had the authority to impose it. But in a 2-to-1 vote earlier this year, the state’s utility commissioners sided with the parties wanting to add a social cost for carbon. Given how late the PUC’s change came in Xcel’s resource planning process, the state’s largest utility will use the new social cost measure in its current plan. But when it submits the next one, possibly four years from now, the utility may challenge the math behind the per-ton dollar figure for carbon dioxide. “We want to have a further discussion with the PUC and the commission before we use this in the next round of resource planning,” he said. Unless coal-powered plants come equipped with expensive systems that capture carbon dioxide emissions, they are the most disadvantaged in Colorado under a social cost scenario. Neither Xcel Energy nor Black Hills Energy, the other investor-owned utility in the state under PUC regulation, was planning to ever build another coal plant in Colorado. “New coal is not competitive against natural gas, new wind or new solar,” Ihle said. “We haven’t proposed a new coal plant since 2003 or 2004,” Black Hills has gone a step further and stopped using coal-based power generation sources in Colorado. “We are well-positioned to serve our southern Colorado customers as the first in the state to convert our energy resources from coal to all natural gas and renewables,” said Julie Rodriguez, a spokeswoman for Black Hills. Where things get more complicated is in weighing the cost of generation from natural gas versus renewable sources. Newer natural gas plants produce 50 percent to 60 percent fewer carbon dioxide emissions per unit of electricity generated than a coal plant. But their emissions would still fall under the social cost of carbon for planning purposes. In 2015, gas-powered generation produced about 4 million metric tons in Colorado, according to the federal Energy Information Administration. Although social costs aren’t placed on existing sources, the dollar figure for new turbines would work out to around $172 million. “Any resource that has lower or no carbon emissions is going to look better from an economic perspective,” Overturf said. Compared with other states in the region, Colorado, despite abundant natural gas resources, has shifted a smaller share of power generation from coal to natural gas, and adding social costs into the mix could make it harder to fill the gap. Instead, many utilities in the state have focused on wind farms. Wind generation has come on strong certain hours of certain days, at times producing more than 60 percent of the electricity on Xcel Energy’s system, Ihle said. But when the wind stops blowing, something else needs to fill the gap. Because gas turbines can fire up on short notice, they help balance fluctuations associated with renewable energy sources. That may allow gas to maintain a role even if renewable sources pencil out as more affordable in future resource plans. “Gas is a flexible resource, and it serves an essential function,” Ihle said.

Study Shows National Solar Installers Price 10 Percent Higher Than Local Firms

A recent study from the National Renewable Energy Laboratory (NREL) found that large solar installer (those that installed more than 1,000 systems in any year from 2013 to 2015) quotes were $0.33/W higher (or 10 percent) than non-large installer quotes offered to the same customer. Large installers offered a higher quote price than a corresponding non-large installer in about 70 percent of pairings. The NREL study is unique in that it uses price quote data versus installed pricing data in order to compare quotes offered to the exact same customer. The study concluded that customers could benefit from obtaining more quotes before deciding to install a system. Drivers of Cost of Solar Difference Between National and Local Solar Firms The study offered several hypotheses on why the pricing difference exists. Large installers may bid higher prices due to imperfect competition in the customer quote collection process. Customers may also attribute benefits to large installers (perceived or real), including higher quality or trustworthiness, or large installers may offer superior warranties or inverter replacement terms. Large installers may also have customer acquisition scale advantages, although Telsa and other large firms recently announced a reduction in acquisition spending. This reduction in spending is likely a key driver to the estimated 41 percent decline in solar in California in the first quarter of 2017. Below is a summary of pricing behavioral differences between large and small firms from the study.