Minnesota wants carbon free power by 2040. Xcel wants at least one new gas plant

Xcel Energy wants to build wind turbines, solar panels and batteries on a scale never seen in Minnesota so it can eliminate coal and reach a state target for carbon-free energy by 2040.

But the Minneapolis-based company also has proposed one natural gas plant — and suggested it could soon build more — that it would fire up in times of extreme need, like the coldest winter nights.

That idea has been a sticking point before the state Public Utilities Commission (PUC) as the board reviews a critical blueprint for Xcel’s next 15 years of energy supply. Attorney General Keith Ellison, among others, are raising concerns about greenhouse gas emissions and higher customer bills.

“Such a massive investment in new fossil fuel plants is incompatible with the urgent need to reduce greenhouse gases as quickly and deeply as feasible,” says an August letter written by the environmental nonprofits Fresh Energy, Sierra Club, and the Minnesota Center for Environmental Advocacy, as well as a trade group for renewable developers Clean Grid Alliance.

Xcel says it will comply with the clean energy law. Its Upper Midwest system could reach 88% carbon-free by 2030 under this plan. And Xcel on Friday scaled back its hopes to build new gas plants after that criticism from Ellison and the environmental groups, saying it will scrap plans for a second facility.

The divide over gas nevertheless reflects the difficulty of ending a long reliance on fossil fuels while keeping the lights on at a manageable cost for customers.

The company argues gas has to be part of its current mix because newer technology like batteries and hydrogen fuel are too expensive or speculative to take its place. Minnesota also bans new nuclear plants.

“It would be very expensive to meet these same needs with the current battery technology available,” said Bria Shea, Xcel’s regional vice president of regulatory policy.

As it maps out the path to a carbon-free grid, one of Xcel’s biggest challenges is replacing the power lost when its two large coal plants retire by 2030. Contracts with several gas plants that supply significant power to Xcel will expire soon, too.

Then, Xcel needs even more electricity for the increasing number of electric cars, home heaters and stoves — plus new energy-hungry data centers.

The company says it needs electricity generators by 2030 that can provide more than 2,200 megawatts of power at any hour of the day, something that wind and solar cannot do. That’s enough energy to serve roughly 2 million homes.

Xcel says it’s not locked into any one technology to provide electricity. That can be determined later, and Xcel doesn’t expect to use gas for all those needs as batteries improve or other options become available.

Shea said Xcel can also renew expiring contracts to buy power from gas plants it doesn’t own.

Yet at the same time, its modeling recommends six or more new gas plants for what it calls “always available” energy. To start, Xcel had asked regulators to approve two new gas plants, one in Cass County, N.D., and another in Lyon County, Minn. They would sit idle most of the time but run when demand peaks, typically on the hottest and coldest days of the year.

“We certainly won’t be building six new gas plants,” Shea said. Xcel expects gas to be a smaller part of its energy supply in 2030 than it is now.

The carbon impact of a “peaker” plants is much lower than a traditional plant that runs continuously. They would also be able to operate partially on hydrogen fuel.

On Friday, amid negotiations with clean energy groups and Ellison’s office, Xcel told the Star Tribune it’s no longer seeking to build the North Dakota facility.

The decision was in response to feedback and promising options to contract with existing plants, but also the high cost to run gas infrastructure to the plant near Fargo, said Ryan Long, Xcel’s president in Minnesota and North Dakota. The company is hoping to add some additional batteries.

But Xcel said the Lyon County plant might not be the only gas plant it would build before 2040. Long said the company still needs more always-available power as Xcel takes coal of its system. “We’re going to watch technology ... and look for different avenues to solve that need going forward,” he said.

Before that change in course, the environmental groups pushed for the board of utility regulators to rule out the possibility of six new gas plants and limit reliance on fossil fuel overall.

Ellison’s office was particularly worried about the 40-year life span of new gas plants. The AG said Xcel would have to either retire the plants early as the state phases out fossil fuels by 2040, or pay for costly upgrades to retrofit each facility so it can run on hydrogen, or capture carbon emissions.

In a letter to the PUC, Ellison said Xcel has chosen this route because it has a financial incentive to build new infrastructure.

“Because [Xcel] is typically able to recover its investments from ratepayers, it does not have to worry about its investments becoming costlier in the future,” the letter says.

The coalition of four environmental groups did its own modeling, and said Xcel could build even more wind and batteries at a competitive cost while keeping the system reliable.

The organizations said Xcel can get by with building only one gas plant, as long as it renews some existing contracts with independent plants and buys more electricity on the open market.

These large power pools were created to share resources so that companies save money and don’t build more power generation than a region needs.

Xcel, however, worries that its neighbors won’t have enough energy to meet customers needs as utilities retire fossil fuel plants. Costs could spike in a winter storm as a result. That concern is shared by the regional grid operator.

“We want to make sure that at the end of the day we can serve our customers’ needs reliably and affordably,” Shea said.

Allen Gleckner, executive lead on policy and programs for Fresh Energy, said Xcel is taking a “big step forward in line with our position” if the company does drop the North Dakota gas plant and is open to third-party gas contracts and other technology for always available power.

Even a year or two delay in proposing gas plants can be important as batteries and other options evolve, he said.

Before Xcel scrapped the Fargo-area plant, Gleckner said in the grand scheme of energy planning, clean energy groups are largely on the same page as Xcel. He said gas peaker plants have the lowest carbon impact of fossil fuels.

“We’re talking about them because we’ve made so much progress on this other stuff and now we’re getting to the really hard part,” Gleckner said.