Xcel says big reason it needs to spend millions on new projects is regional grid’s reliability risks

The growing risk of unreliability and potential expense of buying energy on the open market is a big reason why Xcel Energy wants to make significant investments in its infrastructure.

The issue was underscored last month when the head of the regional electricity grid said there are “material, adverse challenges” in meeting energy needs during peak times, especially with severe storms becoming more frequent and intense.

In other words, Minnesotans need to rely on their own energy sources as much as possible, Xcel says.

“On those coldest hours of the year, when it is an emergency situation, we want our resources to be available to serve our customers,” said Bria Shea, regional vice president of regulatory policy for Xcel, during a Minnesota House hearing in late February.

That prediction has drawn some questions, including from clean energy developers who say sharing resources through the Midcontinent Independent System Operator (MISO) results in cheaper energy and that Xcel has financial incentive to have more of its own power sources. But last month MISO called for action to reduce the risk of outages in its 15-state area.

More severe weather, supply chain issues and slow construction of renewable power to replace retiring coal plants are just some of the challenges facing the regional grid.

“The transition that is underway to get to a decarbonized end state is posing material, adverse challenges to electric reliability,” wrote MISO CEO John Bear in the latest update of a report titled “The Reliability Imperative.”

Xcel in early February filed its 15-year blueprint for electricity plans with the state Public Utilities Commission (PUC), outlining what types of energy sources it will need for the company to exit coal generation by 2030 and reach a carbon-free system in Minnesota by 2040. The plan includes extending the life of its two nuclear plants and building a pair of natural gas facilities and a boatload of new wind, solar and battery power.

The proposal itself does not mean the plants will be built. Each needs individual approval by the PUC. But underlying those plans is modeling and analysis of the energy market and the needs of Xcel customers. For instance, Xcel is predicting a rare spike in energy demand primarily because of new data centers and wider adoption of electric vehicles.

Xcel said in a scenario where some of the company’s energy needs come from buying power through the MISO market, there would be times when prices might be unreasonably high. And Xcel found risk that enough power “simply will not be available.”

“This situation could lead to an energy shortfall, disrupting the supply to consumers and potentially causing widespread outages,” the company wrote.

The reason: As utilities move on from coal and other energy sources for both environmental and economic reasons and replace the energy mostly with variable wind and solar, Xcel said there will be less excess power available to buy in the MISO footprint at times of high demand. That includes an unexpected frigid storm or a heat wave.

The MISO report confirmed that concern. So, for instance, the two proposed gas plants are meant to be used only periodically during times of peak demand.

“They’re saying there’s so much risk and uncertainty out there, we have to cover our own butt,” said Beth Soholt, executive director of the trade group Clean Grid Alliance.

Shea said the plan doesn’t represent a shift in Xcel’s strategy. Xcel has long had enough power on its own to supply customers, she said. The company will still buy and sell power on the open market to make or save money, just not to meet its basic obligations.

But, if the pieces are approved, it does represent a big price tag for new infrastructure projects for a go-it-alone strategy for the Upper Midwest.

Still, Soholt said the reason large power pools were created was to share resources. She said some utilities are looking to MISO for a bigger slice of their energy needs because wholesale prices overall are currently good. But Xcel is doing the opposite.

Soholt said Xcel is trying to be prudent, but she’s concerned that if the practice becomes widespread it could lead to companies building more power generation than a region needs. That would mean higher costs for customers.

“It’s a question MISO is struggling with: ‘How much new does everybody need to build to keep the lights on?’” Soholt said. ”Everybody wants a shiny new plant or two in their portfolio. Not everybody needs a shiny new plant.”

The MISO report, though, says while the power supply is transitioning from fossil fuel plants to weather-dependent power, it is straining the overall grid.

That can be especially troublesome during extreme weather events, which have become more frequent and severe. They are straining the system in part by driving up energy needs — and sometimes hampering power supply, including from gas plants.

Supply chain and permitting issues also are delaying critical projects while energy demand is rising broadly, said the February report from MISO, which extends south to Louisiana and north to the Canadian province of Manitoba.

MISO called for accelerating more projects meant to increase grid reliability, and to maintain some existing “transition” power sources as insurance until new technology like long-duration batteries, small nuclear reactors and carbon-free hydrogen become more viable.

Xcel is not criticizing the planning done by MISO or other utilities, Shea said. In fact, the transition to renewables requires a greater level of coordination.

Still, she said, Xcel needs to acknowledge that while all of the utilities are in transition, the company wants to ensure it has the right resources in Minnesota to withstand strain on the grid.