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Download Energy and Environmental Policy Frank Prager Vice President, Environmental Policy & Services
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Energy and Environmental Policy Frank Prager Vice President, Environmental Policy & Services Xcel Energy April 9, 2012 Xcel Energy Inc. Northern States Power Company Minnesota Public Service Company of Colorado Northern States Power Company Wisconsin Southwestern Public Service Company No. 1 wind energy provider No. 5 in solar additions Largest green pricing program 4TH largest DSM program Industry-leading voluntary emission reductions Leader in pursuit of new technologies Gas Customers Electric Customers 1.9 M 3.4 M How Electricity is Made U.S. Utility System National Transmission Grids Investor Owned Utility Finance Most utilities are subject to “cost of service” regulation ▬ Earn on prudent capital investments ▬ ROE set by PUCs ▬ Rate cases establish rates and bills Need a reasonable return to raise capital ▬ Stock / debt ▬ Risk issues Xcel Energy and Energy / Environmental Policy Energy portfolio closely tracks nation’s energy mix ▬ Difference: Renewable energy ▬ Impact of policy on Xcel Energy indication of effect on nation Nuclear 20% Hydro Renewables 7% 4% Natural Gas 24% Coal 45% U.S. Hydro Nuclear 5% 12% Renewables 9% Natural Gas 24% Coal 50% Xcel Energy Electric Generating Resources COAL Low price NATURAL GAS Lower capital than coal Relies on existing capital Environmental challenges ▬ CO2 Operational benefits Lower emissions Historic price volatility ▬ Other Pollutants Permitting new plants difficult New shale gas resources ▬ “Fracking” ▬ 100 year low cost supply? RENEWABLES NUCLEAR No emissions Zero emissions Political Excellent acceptance Large capital, but with declining costs baseload resource Extremely high capital ▬ Relies on Post-Fukashima subsidies regulatory and safety concerns Usually intermittent – integration challenges Public and political concerns OUR GOAL – BALANCE AND DIVERSITY EPA’s Regulatory Agenda EPA is implementing an unprecedented series of major rulemakings affecting coal-fired electric utilities ▬ Most are focused on air quality ▬ Billions of dollars in emission controls ▬ Widespread power plant retirements Timing ▬ Usually requires compliance within three to five years ▬ Need several years for planning, engineering, procurement and installation ▬ Concern about infrastructure capabilities, uncertainty, “stranded” investments Xcel Energy’s leadership strategy reduces cost and risk Climate Change Concentrations of CO2 in atmosphere are rising ▬ Pre-industrial level: 280 ppm ▬ Current level: 380 ppm ▬ Projected BAU level in 2100: 700 – 1100 ppm Goal of climate change policy: ▬ Stabilize atmospheric levels ▬ Reduce emissions Climate change debate has shifted ▬ Science no longer “settled” in public discourse U.S. Greenhouse Gas Emission by Sector (2005) Residential U.S. Territories 5% 1% Commercial 6% Agriculture 8% Power Sector 33% Industrial 19% Transportation 28% Source: U.S. Environmental Protection Agency The Challenge of Climate Change Climate Change policy will require: ▬ Significant emission reductions ▬ Huge capital investments ▬ Long-term technological transformation ▬ A diverse portfolio of resources Utilities will bear the lion’s share of the reductions ▬ Key issue: maintaining reliability and reasonable price Clean technology will lead the way Or…Will there be any national climate policy? Federal Legislation: What is “Cap and Trade?” “CAP”: National limit on CO2 / greenhouse gas emissions ▬ One allowance = right to emit one ton of CO2 ▬ Cap decreases over time “TRADE”: Allowances may be bought or sold ▬ Goal: Use allowance market to find the most cost-effective emission reductions Details of policy have a great effect on cost ▬ Key Design Issues: Allocation/Auction; Credit for early action Political perspective: “Cap and Tax” But…EPA already moving forward to regulate CO 2 ▬ Likely to be Inflexible/Expensive ▬ March 27: EPA bans new coal plants A Coal Plant Owner’s Dilemma Retire and Replace with NGCC Higher Operating Costs? Invest in Environmental Retrofits More Retrofits in the Future? Future Carbon Costs? The Election and the Environment Xcel Energy’s Environmental Leadership Strategy Goal: “Clean Energy That Works for You” ▬ Maintain traditional role – reasonably priced, reliable energy ▬ Meet interests of communities ▬ Assess and employ new technologies ▬ Create value for customers, shareholders and employees ▬ Address long-term regulatory risk through balanced, diverse energy portfolio Components ▬ Renewable Energy ▬ Energy Efficiency ▬ Emission Reductions Our Renewable Energy Advantage Nation’s #1 wind provider ▬ Great wind resources ▬ Most aggressive state renewable standards Leader in solar technology advancement ▬ Solar Technology Acceleration Center (SolarTAC) MW 7000 6000 5000 4000 3000 2000 1000 0 Xcel Energy Wind and Solar Capacity Solar Wind 2006 2009 2015 2020 Energy Efficiency (DSM): Nation’s Fourth Largest Program 2008 2010 System-wide DSM Achievements (GWh) 482 626 System-wide DSM Spending ($ Million) $71.5 $146 Emissions Reduction: Overview of Major Activities & Rationale Retrofit “Anchor” Coal Units Colorado Comanche 3 (2004) Retrofit Two Units (700 MW) Construct New Supercritical Coal Unit (750 MW) Reduce Environmental Risk Colorado Clean Air-Clean Jobs Act (2010) Retire “Heritage” Coal Units Retrofit Three Units (951 MW) Retire Four Units (551 MW) Repower One Unit to Natural Gas (352 MW) New Cherokee NGCC Unit (569 MW) Maintain Reasonable Long-Term Cost Make New Plant and Retrofit Investments on Favorable Terms Xcel’s Declining CO2 Emissions: 2003 to 2020 Million Tons 100 95 90 25% Reduction 2003-2020 85 80 75 70 65 60 2003 2020 Sound Energy, Environment and Climate Policy Should… Set emission targets and timetables that: ▬ Are achievable ▬ Protect reliability ▬ Promote a balanced, diverse energy portfolio ▬ Minimize costs Be flexible and use market-based approaches Allow a broad range of compliance options ▬ Retrofit, repowering and efficiency improvements Avoid inefficient mandates to retrofit retiring units Provide credit for early action Sound Energy, Environment and Climate Policy Should… Assure recovery of costs Coordinate federal environmental goals with state regulatory processes Create a climate of certainty to promote investment of capital Promote the use of clean technology
