Minnesota's new clean power mandate poses thorny and expensive challenges

Minnesota last week adopted an ambitious strategy to battle climate change, mandating 100% carbon-free electricity by 2040. Now comes the hard part of reaching that goal without blackouts or running up customers' bills.

The new mandate came with no price tag, but utilities and energy analysts put it at tens of billions of dollars as the state accelerates a fundamental reworking of its electric system.

"The scale of the deployment will really blow your hair back when you look at it today," said Allen Gleckner, lead director for clean electricity at advocacy group Fresh Energy in St. Paul. "But there is a will to make this happen, and the benefits are massive."

Many more solar and wind farms will be needed. The same goes for power lines and batteries to store electricity. New technology must be developed to smooth power flow when the sun is not shining or the wind isn't blowing.

And the state's largest electricity provider, Xcel Energy, says the lives of its nuclear power plants will need to be extended 20 years.

Clean energy groups and power companies say federal legislation passed last year will give Minnesota a good start. The law, dubbed the Inflation Reduction Act (IRA), provides $369 billion nationally in clean power subsidies over a decade.

"The IRA is a huge accelerant," Gleckner said.

On Tuesday, DFL Gov. Tim Walz signed the 2040 bill into law. For years, the 100% carbon-free standard has been a priority for DFL lawmakers, who see it as critical to cutting CO2 emissions while creating a host of new clean energy jobs.

Utilities face no penalties if they don't meet the 2040 target, though. And they can appeal to the Minnesota Public Utilities Commission (PUC) if costs of carbon-free alternatives would unduly burden ratepayers.

But they will encounter public pressure to meet the goal.

Getting to 100% carbon-free could be bumpy

Minneapolis-based Xcel already had a goal of 100 % carbon free power by 2050. Over the next decade, it plans to invest over $10 billion in renewable energy and infrastructure projects.

The IRA, particularly with its trove of tax credits, will shave about $1.4 billion from those costs, the company says.

"We really continue to expect we will be able to make the clean energy transition and keep the total bill for the customer in the range of two to three percent [annual inflation growth]," said Chris Clark, Xcel's president for Minnesota and the Dakotas.

Bills for Xcel's residential customers are considerably below the national average, though that's largely due to Minnesotans' relatively low energy consumption. Xcel's residential electricity prices were a hair below the national average in 2021, but higher than the state's policy goal.

Energy experts generally agree that costs will rise exponentially as the grid moves from 90% to 100% clean electricity due to difficulties in ensuring reserve power.

Still, 100% carbon-free power should cost less than today's grid, said Paul Denholm, a senior research fellow at the National Renewable Energy Laboratory (NREL) in Colorado,

Building and running a carbon-free grid is less expensive than the societal costs of pollutants — including carbon dioxide — from fossil fuel plants, NREL studies have found. A clean grid "should result in net savings vs. a business-as-usual future," Denholm said.

Current solar and wind technology will go a long way toward cost-effectively achieving the 2040 clean power goal.

The costs of grid batteries and solar and wind power equipment have been falling for years, and that should continue despite recent inflation-induced price increases, Denholm said.

"There is a pretty clear path ... to get to 80% carbon-free power cost effectively and, hopefully, that will give us time to develop the technologies to get to 90% and 100%."

Major retooling of grid necessary

Meeting the 2040 goal will require a major retooling of Minnesota's electricity generation.

In 2021, renewables — primarily wind — accounted for about 28% of electricity generated in Minnesota and nuclear, 24%. The rest came from coal and natural gas. Also, some coal-fired electricity is imported from North Dakota.

Complicating the replacement of all that fossil fuel: Electricity demand — long stagnant — is expected to surge as consumers switch from fossil fuel to electricity to power vehicles, appliances and heating systems.

Another complication: Wind and solar farms are mostly in rural areas, which often need better grid connections to transport power to cities. That means constructing thousands of miles of new power lines.

"We need a ton of transmission," Denholm said. "That is one of the big challenges and that does really worry me."

Large power lines often take a decade to build. They can face multiple regulatory hurdles and stiff public opposition because a power line next door is a tough sell.

Minnesota already has had a taste of how a paucity of transmission capacity can blunt the benefits of renewable power.

Power line congestion in southern Minnesota — the state's wind belt — has increasingly led to turbine shutdowns, leading to tax shortfalls in several counties. (Tax money only flows when turbines are turning).

Meanwhile, two large wind farms and five major solar projects have been permitted by the PUC, but they have not yet been built — partly due to delays in connecting to the electric grid run by the Midcontinent Independent System Operator (MISO).

With grid capacity scarce and transmission upgrades costly, MISO has a long queue of projects waiting for interconnection approval in Minnesota and the 14 other states it serves.

Technology necessary to avoid blackouts

One of MISO's main jobs is to ensure that electricity supply meets demand.

Last year, MISO warned of an elevated risk of rolling summer blackouts, saying power supplies could fall short of demand. Underlying MISO's warning was the grid's transition from coal to renewable energy.

Because renewable energy is inherently variable, new solar and wind farms aren't a one-for-one replacement for fossil fuel plants.

Blackouts were averted in 2022, but MISO faces a high risk of shortfalls even in normal peak weather conditions through 2027, according to the North American Reliability Corp., which monitors the U.S. power system.

Batteries increasingly will be critical to store renewable power and prevent shortfalls.

Grid batteries today are mostly based on lithium-ion chemistry, which can cost-effectively store power for only four hours. Longer-duration batteries will be needed.

An iron-based battery being developed by Massachusetts-based Form Energy looks promising: It can store up to 100 hours of electricity at a manageable cost. Minnesota will be the proving ground for Form's technology.

The company's first pilot project is expected to come online in Cambridge, Minn., next year for Great River Energy, Minnesota's second largest power producer. Xcel last month announced a larger battery project with Form that's slated to start up in Becker in 2025.

Nuclear energy will need to part of equation

The jury is out on whether batteries alone will be able to discharge enough power when the sun and wind are uncooperative.

"Our view is that we do need dispatchable resources to call on beyond just batteries," said Xcel's Clark. Denholm and Gleckner agreed. But the options come with catches.

Nuclear power is carbon-free, though it's saddled with the problem of toxic waste. Nevertheless, it's critical to Xcel's plans.

Xcel plans to extend federal licenses for its nuclear plants in Monticello and at Prairie Island before their expiration between 2030 and 2034. "I think it is realistic to expect we will want to operate both Monticello and Prairie Island for another 20 years," Clark said.

New nuclear power technologies that haven't been commercialized look promising, but "will take a lot to develop," he added.

Xcel also is betting on burning hydrogen — which doesn't emit carbon dioxide — instead of natural gas. "We are really looking to figure out how hydrogen can fit into our system," Clark said.

The company hopes to at least partially run its natural gas plants on hydrogen.

But gas-fired power generators now can, at most, run with about 30% hydrogen. And today's gas transmission systems can handle only so much hydrogen before it embrittles pipeline metal.

Plus, hydrogen as a clean electricity source only works if it's produced from renewable energy or nuclear power — not natural gas, as is common today.

The bottom line: Reaching the 100% clean power goal will require faith in technological innovation.

"What we are going to do about the last 5 to 10 percent, we don't know yet, but don't let it distract us," said NREL's Denholm.