Cheap solar bids a ‘watershed event’ for Public Service of Colorado

Solar energy costs were historically cheap during a recent solicitation, so solar capacity figures heavily into a resource plan that the Public Service Co. of Colorado unit of Xcel Energy (NYSE: XEL) filed with the Colorado Public Utilities Commission.

A heavily redacted public version of the Sept. 9 report summarizes the results of Public Service’s 2013 All-Source Solicitation, which was issued in order to meet a 2018 electricity supply need of about 250 MW. The commission also directed the company to consider the retirement of two coal-fired units scheduled to permanently fuel switch to natural gas. When those retirements are considered the resource need is as high as 717 MW.

“The solicitation was successful in attracting low-cost bids from wind and solar photovoltaic generation resources and from new and existing gas-fired generation,” the utility told the commission. “In fact, the bid pricing received represents a watershed event for Colorado. For the first time, the Company received bids for utility-scale solar PV resources that are cost-effective head to head with natural-gas-fired generation under base-gas price forecasts and no carbon emission cost adders. The gas-fired bids were not only low cost themselves, but also offered operational flexibility which helps system operators integrate intermittent generation from wind and solar onto the grid.”

The company attributes the success of this solicitation to:

  • Those Phase I commission decisions which created competition between existing gas-fired generators, denied carve outs or set asides for specific generation technologies, adopted an accelerated process for the receipt and evaluation of wind bids that allowed developers to capture and pass to customers the value of federal production tax credits;
  • the company’s self-build proposals offering brown field generation expansion and the evaluation of generation retirement options which effectively set the stage for strong competition between natural gas generators; and
  • the convergence of historically low photovoltaic (PV) panel costs, the 30% federal investment tax credit, and developers’ ability to finance large-scale PV power plants both in and out of the San Luis Valley.

After a thorough analysis of bids under the commission’s resource planning rules and its Phase I decision, the company selected a preferred portfolio that includes a total of 809 MW of firm generation comprised of:

  • Short and long-term power purchase agreements for 317 MW from existing gas-fired generation (276 MW of which is flexible generation meeting the 30-minute Reserve Guideline);
  • 450 MW of new wind generation resources, which is 100 MW less than sought previously;
  • 170 MW of new solar PV resources (70% outside of the San Luis Valley);
  • Retirement of the Arapahoe Unit 4 coal-fired generator at the end of 2013; and
  • Continued operation of the 352-MW, coal-fired Cherokee Unit 4 on natural gas after 2017.

The only new construction included in this preferred portfolio is for renewable generation. All of the proposed gas-fired generation is from existing generating resources.

Company touts fuel and geographic diversity in this plan

Aside from being a low cost combination of existing gas generation and new wind and utility-scale solar PV facilities, the utility said the preferred portfolio brings added customer value through:

  • Added geographic diversity within both the company’s solar photovoltaic and wind resources;
  • Added generation capacity above the 717 MW need of this resource plan that can serve a portion of projected 2019 capacity need at favorable pricing in relation to historic power purchase agreement (PPA) costs;
  • Increased fuel diversity within the company’s generation portfolio and decreased sensitivity to the potential of higher natural gas pricing over the next 20-25 years; and
  • Continued reductions in emissions of carbon dioxide.

Section 123 alternative energy sources not included

Although the company’s preferred portfolio does not include any of the bids under consideration as Section 123 resources, Public Service said it recognizes the commission’s obligation to fully consider the cost-effective implementation of new and clean technologies.

“It is our belief however that the bids under consideration as Section 123 resources in this Solicitation should not be deemed as ‘cost-effective’ options for customers,” it added. “Between the size, the operating characteristics, and the prices bid for the Section 123 resources, the costs to customers of substituting any of these resources into the preferred portfolio would be multiples higher than using bids from more traditional technologies. We remind the Commission that we do have one Section 123 resource on-line today – a 30 MW concentrating solar PV project in the San Luis Valley. We have also proposed a competitive solicitation for a small biomass project. The Company is open to working with the Commission to explore alternative processes for considering the cost-effective implementation of Section 123 resources that are not directly tied to the larger All-Source solicitation processes that take place as part of the four year electric resource planning cycle.

Section 123 in state law reads: “The commission shall give the fullest possible consideration to the cost-effective implementation of new clean energy and energy- efficient technologies in its consideration of generation acquisitions for electric utilities, bearing in mind the beneficial contributions such technologies make to Colorado’s energy security, economic prosperity, environmental protection, and insulation from fuel price increases.”

The company reported that it received thirteen bids totaling about 2,100 MW offering dispatchable gas-fired generation and dispatchable Section 123 resources. Through the bid review process performed in consultation with the Independent Evaluator (IE), approximately 1,700 MW of the most viable and economic gas-fired bids were advanced to computer-based modeling along with about 300 MW of dispatchable Section 123 bids.

The company received 14 bids totaling about 700 MW offering both non-dispatchable and semi-dispatchable solar technologies. In addition, three Production Tax Credit (PTC) Wind bids totaling about 550 MW (received and evaluated under the earlier PTC Wind Bid process) were evaluated further to test their competitiveness against the All-Source bids. Through the eligibility and economic screening process (performed in consultation with the IE), approximately 370 MW of the most viable and economic solar PV bids were advanced to computer-based modeling along with 125 MW of solar thermal with thermal storage Section 123 bids and the roughly 550 MW of PTC Wind Bids.

Identities of bidders aren’t revealed in the report.

From here, the IE is scheduled to provide the commission its final report on the PTC Wind Bid process no later than Sept. 23. In order that the developers can efficiently continue their development and ensure a start of construction by year’s end, Public Service seeks timely commission consideration of two winning bids. The schedule has the commission’s initial decision regarding the PTC Wind Bid process by Oct. 9 and the final commission decision by Nov. 1.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.