Minnesota utility regulators yesterday gave a $250 million solar energy project the nod over competing natural gas projects in a head-to-head competition to decide how the state's largest electric utility meets future demand.
The Public Utilities Commission directed Xcel Energy Inc. to negotiate power purchase agreements with developers of solar energy and natural gas projects, but the commission made clear that the gas projects would move beyond the negotiation stage only if there was sufficient demand.
The decision followed more than two hours of deliberations and weeks of speculation about whether regulators would go along with an administrative judge's recommendation favoring a solar energy project over three natural gas projects as the best way to meet the utility's energy needs in the coming years.
In the end, the commission agreed on the merits of the 100-megawatt solar proposal from Geronimo Energy, a wind and solar developer based in Edina, Minn.
But in adopting its own "all of the above" strategy, it also determined Xcel's energy demand may be greater than what was identified by the administrative judge and chose to also pursue one or more proposed natural gas projects.
By some estimates, Xcel won't need any new generation until 2019 -- and then only 26 MW. But commissioners decided to err on the side of caution by having the utility pursue development of additional generating resources.
"Picking the minimum is probably not prudent," commission Chairwoman Beverly Jones Heydinger said.
The Xcel case has been closely watched since an administrative judge's recommendation Dec. 31, especially by the renewable energy advocates who heralded the head-to-head victory with fossil fuels as a symbol of solar energy's market potential.
The commission determined a year ago that Minneapolis-based Xcel needed to add 150 MW of generating capacity by 2017 and as much as 500 MW by 2019. The need was driven by plans to retire two coal-fired generating units at the utility's Black Dog power station just south of the Twin Cities.
In the first ever such competitive bidding process in Minnesota, the commission received the Geronimo solar proposal as well as proposals for three natural gas projects. Another bidder, Great River Energy, offered to meet short-run demand with the sale of capacity credits.
But energy legislation signed by Gov. Mark Dayton (D), changes in the utility's load forecast and the Midcontinent Independent System Operator's reserve requirements shortly after bids were received threw into question how much new generating capacity was ultimately needed and how that need should be met.
And those changes weighed heavily in Administrative Law Judge Eric Lipman's proposed order Dec. 31.
In a 50-page proposed order, Lipman recommended that the commission direct Xcel to negotiate a contract with Geronimo for the solar project and, if additional generating capacity was needed before 2019, to acquire capacity credits from Great River Energy.
In a memorandum that accompanied the proposed order, Lipman noted that a statutory preference for renewable energy in Minnesota law that's been on the books since 1991 has been routinely overridden because energy from fossil fuels was offered at a lower cost.
"It seemed that nonrenewable energy sources always won the head-to-head cost comparisons," Lipman wrote. "Not anymore. Geronimo entered this bidding process as the sole renewable technology and beat competing offerors on total life-cycle costs."
'Part of the mix'
It was a point driven home by the attorney representing a coalition of environmental and clean energy advocates during oral arguments Tuesday and again by Commissioner Nancy Lange during deliberations Thursday.
"We need to address it upfront as a commission," she said. "Have we determined that the solar bid is not in the public interest? I think we have evidence in front of us that the solar bid is in the public interest. It should be part of the mix."
The Geronimo proposal involves photovoltaic solar arrays ranging from 2 MW to 10 MW spread across 20 sites in Xcel's service area. The systems, to be installed by the end of 2016, would be built near existing substations and have tracking systems that adjust the tilt of each array to maximize exposure to the sun.
Xcel and Invenergy LLC proposed to meet the demand with gas peaking facilities, while Calpine Corp. proposed a combined-cycle gas plant, any of which could also be built depending on need.
The solar project is also expected to help Xcel meet the solar energy standard signed into law last spring. The mandate, which requires utilities to supply 1.5 percent of retail sales with solar power, is in addition to a 30 percent renewable requirement that utilities must comply with by 2020.
Xcel this month laid out a plan to issue requests for proposals by mid-April for up to 150 MW of "large-scale" solar generation to be installed by the end of 2016.
The utility and other parties had suggested that Geronimo resubmit its proposal as part of that process, and that competition among various solar developers would yield the lowest cost.
But commissioners rejected that argument and said any solar developer could have participated in the generation procurement process.
"All solar projects had an opportunity to bid in," Heydinger said.
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