Monday, April 9, 2012

The Politics of Coal to Gas Power Plant Conversions

Xcel Energy operates in an eight state area, with its largest operations in Minnesota and Colorado, through its wholly-owned utilities Northern States Power--MN and Public Service Company of Colorado (PSCo).  NSP-MN provides between 34-45% of Xcel's net income, according to the 2011 I0-K.  Similarly, PSCo provides 45-55% of Xcel's net income. 

With the passage of Colorado's Clean Air Clean Jobs Act, a Democratic Governor, worked with Xcel Enegy and natural gas producers to craft legislation mandating reduction of pollutants such as nitrous oxides by 88% compared to a 2008 baseline, by 2017.  Since Colorado is a large producer of coal, the coal industry opposed the legislation.  PSCo came up with a plan to convert 3,000 MW of coal powered steam boilers to natural gas-fired combined gas turbine technology, powered by GE turbines. 

Over the planning period to 2017, the conversions in Colorado and in Minnesota would have required about $1.3 billion in capital expenditures by Xcel Energy.  Of course, the problem with environmental goodies is that someone has to pay for them, like everything else,  More about that at the end.

According to the 2011 Xcel 10-K, their 2011 fuel costs per MMBtu were:
  • $2.06 for coal
  • $0.83 for nuclear
  • $6.56 for natural gas
With the economic recession, warm winter, high inventories, and production surge from North American shale, spot prices in 2012 have been down to $2.50 for natural gas.  Because of higher efficiencies and lower heat factors, natural gas prices don't have to be at parity with coal for gas to be the preferred alternative.  At current prices, the economics are no contest.

So what is holding back the rational economic transformation?  Politics, as usual.  Xcel's proposed cost recoveries for the $1.3 billion in capital expenditures would have rate payers in CO paying 1-2% more per annum in electric rates over the planning horizon.  In the discussions at the Colorado Public Utilities Commission, this was deemed unacceptable.  Also, there was a blizzard of irrational comments to add more scrubbers to antiquated coal-burning technology instead of going to a more efficient and longer-lived combined cycle gas technology.  Right now, it appears that Xcel is reconsidering its plans and the conversion of 3,000 MW of coal-burning boilers to natural gas has been stalled.

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