Connecting Western Co-op Members With Cost-Effective Clean Energy

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The emergence of very low-cost renewable energy pricing in the United States has created unprecedented opportunities, and some risks, for utilities currently reliant on high-cost, legacy generating assets. And while some utilities are moving quickly to capture the cost-savings opportunities on behalf of their customers, pursuing aggressive renewable energy targets above and beyond state mandates, others are moving more slowly and still have an opportunity to seize near-term opportunities for a lower-cost supply mix.

In a new report, Rocky Mountain Institute (RMI) examines an indicative case study of this broader national trend located in the Mountain West region of the United States, where renewable costs are falling quickly and legacy asset costs are relatively high. The report uses publicly available data to examine the cost-savings opportunities available to Tri-State Generation & Transmission Association (Tri-State) and its member electric cooperatives through scaled procurement of cost-effective renewable energy projects, while maintaining system reliability requirements. Through analysis of two illustrative scenarios, we find that Tri-State members could save $600 million through 2030 on a net present value basis, and minimize the risk of rate increases associated with continued reliance on legacy generating assets by 30–60 percent.

The case study illustrates the role and value of cooperative utilities in aiding their members in achieving a low-cost, low-risk energy future. The report recommends a strategy of collective action, based on transparency and open dialogue, that can help mitigate risks, identify regionally appropriate solutions, and leverage aggregate buying power, enabling an efficient and equitable transition toward a more cost-effective energy supply mix.

A national, cost-effective shift from legacy assets to new renewables

Renewable energy prices have come down 65–85 percent in the past 10 years, much faster than expected, and many utilities have been quick to act to take advantage of both these low technology costs as well as the currently available tax incentives and low interest rates available to finance new projects. Investor-owned, co-operative, and public utilities are finding it cost-effective to transition from legacy generating assets to new projects that are often available at less than the operating costs of aging power plants. Examples from 2017 and 2018 from Xcel Energy, NV Energy, Great River Energy, Rocky Mountain Power, and the Platte River Power Authority illustrate a building trend toward swapping low-cost renewables for higher-cost fossil-based generation, while encouraging rural development and easing the economic transition for communities that presently rely on legacy power plants for employment and tax revenue.

A case study in the Mountain West

The Mountain West region of the US is a focal point for the trend of moving from legacy assets to new renewables. As a case study of the opportunities available to other utilities in the region, and particularly electric co-ops, we examine the economics of various supply options available to Tri-State Generation & Transmission Association. Tri-State is a nonprofit, member-owned cooperative which provides wholesale power to 43 distribution co-op members and, ultimately, over one million consumers in Colorado, Nebraska, New Mexico, and Wyoming.

Tri-State’s current energy mix is 30 percent renewable via purchases, but the majority of its capacity and energy come from a fleet of five coal-fired power plants built between 1959 and 2006. We analyzed the costs of continuing to run Tri-State’s coal-fired power plants, and compared them to the prices available (based on regional benchmarks) for new wind and solar projects, adding transmission and other integration costs to the latter. Figure 1, below, illustrates that most of Tri-State’s coal assets are more expensive to continue running compared to procuring new renewable energy projects.

Figure 1: Go-forward operating costs of Tri-State’s coal fleet versus regional renewable energy benchmark prices
Renewables can offer lower rates to co-op members

Looking out to 2030, we analyzed the economics of two illustrative power supply portfolios that Tri-State might pursue to continue meeting its members’ service requirements, including the costs of maintaining reliability needs.

First, we analyzed a business-as-usual portfolio, where Tri-State’s owned generating assets continue to run much as they did in 2017, but factoring in announced retirements. We also analyzed an energy transition scenario where coal-fired electricity is replaced with energy from new wind and solar projects, at prices consistent with the results of recent competitive procurements. We assume a gradual retirement scenario for coal-fired plants, that existing gas-fired assets are used to provide balancing energy to integrate new renewables projects, and that firm capacity purchases cover most of the capacity gap left by coal retirement.

We find that the energy transition scenario would save approximately $600 million on a net present value basis through 2030, versus continued reliance on legacy coal-fired generation.

Minimizing risk

In addition to lowering expected costs, scaled adoption of renewable energy would also mitigate risks of rate increases associated with reliance on existing assets for electricity supply. We examined three illustrative risk scenarios for a range of risk factors including increased self-generation from members, member exit from Tri-State’s system, and greenhouse gas pricing. We found that a supply mix based on renewables and purchases, versus legacy assets, reduces the risk of rate increases by 30–60 percent, due to a lower reliance on high-fixed cost assets and lower carbon intensity of generation. Figure 2 illustrates the results of this sensitivity analysis.

Figure 2: Impact of three risk factors on estimated average rates in 2030
An opportunity for collective, cooperative action

The opportunities illustrated by this case study are indicative of a broader trend across the country, where utilities currently operating legacy assets can now take advantage of attractive economics for alternative resources. To capture these opportunities and mitigate risks along the way, distribution co-ops and their providers can pursue a strategy of collective action to bring focused innovation, regionally appropriate solutions, and scaled buying power to the situation at hand. In the case of cooperative utilities, both the opportunities and risks hinge on the collective action of multiple stakeholders; acting alone, any one group may find it advantageous to take actions (e.g., regressive rate structures, load defection) that make unilateral economic sense but could limit the opportunity for cooperative action among parties. Collective action can help solve for the least-cost system for all parties, and help speed a transition to a low-cost, clean energy future in the Mountain West.

Image courtesy of iStock.