Posted: 03/26/2018 3:00 AM
Late last year, Xcel Energy decided to shutter two coal plants in Pueblo, Colo., but only if lower-cost alternatives could replace their 660 MW and cover the added cost of winding them down 10 years earlier than planned. The utility saw the opportunity for potential savings of about $US175 million for its Colorado customers. Xcel was amazed by the enthusiastic response to its Nov. 30 solicitation, in terms of both the number of bids received and the historically low level of the prices. With more than 430 bids, 350 were for renewable energy. For wind, the median bid was 1.8 cents US per KWh (2.1 cents if storage is required). For solar, it was 3.0 cents US (3.6 cents if storage is required).
Why is the keen market response to Xcel’s solicitation relevant to Manitoba? Xcel is Manitoba Hydro’s most loyal export customer, with sales going back to 1970. It is also currently Hydro’s largest customer with existing contracts for firm energy between 375 and 500 MW. But Hydro’s contracts with Xcel run out in 2025, now only seven years away, and there has been no news yet that they have been renewed.
So now Xcel has homegrown renewable energy backed up by storage available to it at an impressive cost between 2.1 and 3.6 cents US per KWh. Even more significant, these low prices are a continuation of a global trend in recent years for steadily declining prices for renewable energy from the sun and the wind. Prices can be expected to decrease even more. From its recent submission to the PUB, we learn that Hydro’s business plan counts on average prices for export sales to the U.S. increasing from their current value of 3.6 cents Canadian to 8.3 cents by 2035-36. These projections include opportunity sales that typically fetch much less than half of what firm energy returns so Hydro’s hopes for returns from its firm energy contracts are even higher.
It is significant that Xcel’s prices are for energy backed up by storage making them more than fully competitive with our hydroelectric energy. It is hard to imagine how Hydro’s export revenue forecasts can be realized. On the other hand, failure will be disastrous to ratepayers and taxpayers in Manitoba.
This market situation is not news. These trends were evident back in 2016 when Hydro’s expansion plan was reviewed by the Boston Consulting Group, and even earlier. Hydro could have mothballed both Keeyask and Bipole III until the business case was stronger. Instead, it based its argument for continuing, in good part, on fictitious projections of foregone export revenue if the projects were halted.
Hydro is now faced with projects that will be delivering electricity in a few years at a marginal cost of about 14 cents Canadian per KWh (if the cost of both generation and transmission are considered). Not needed domestically, it will have to be unloaded at fire-sale prices, ramping up the pressure for future domestic rate increases and bailouts even more than we are experiencing now.
Garland Laliberte Bipole III Coalition