Spreadsheets, analysis, and predictions are all great. But nothing compares to the free market if you want to really understand the trajectory of clean energy pricing.
A recent bidding process for utility giant, Xcel Energy, just rocked the industry. Bids for clean energy projects including solar, wind, and batteries, came in lower than anything ever seen before.
This wasn’t just a few crazy, low bids, it was hundreds. These rock bottom prices weren’t the lowest bidders, they were the average of all bids.
Xcel told state regulators that “the response to this solicitation is unprecedented.”
Who is Xcel and why does their bidding process matter?
Xcel is a US$11 billion gas and electric utility giant that serves 3.3 million people across 8 states.
Last year, Xcel reached an agreement to shut down two Colorado coal plants 10 years earlier than planned. But there was a hitch. The plants would only be shut down if Xcel could replace their 660 megawatts of power with lower-cost clean energy alternatives.
On August 30, 2017, Xcel put out a solicitation for bids to see what the market could offer.
The last time Xcel did an open solicitation, they received 55 bids in total. This time 430 bids were received. 251 included solar, 119 included wind, and most surprising of all, 105 included storage.
The sheer number of responses was stunning but it was the price of the bids that made international news headlines.
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How do these bid prices compare to the current market?
According to the US Energy Information Administration (EIA), a new coal plant would produce electricity at a cost of 12-14 cents per kilowatt hour. But, no one is building new coal plants.
So analysts fall back to looking at the marginal cost, or just the cost of running an existing coal plant. The EIA says that’s about 3.6 cents per kilowatt hour – 2.5 cents of coal and 1.1 cents for operations and maintenance.
The world’s collective jaws hit the collective floor when bids for wind came back to Xcel at 1.8 cents per kilowatt hour and solar came back at 3.0 cents.
Of course, it would be fair to point out that solar and wind are not a true replacement for coal because they only run intermittently. So, the really big news from the Xcel solicitation was the more than 100 bids that also included storage. Storage can be expensive but in the Xcel responses, the average bid for wind+storage came in at 2.1 cents and solar+storage was 3.6 cents per kilowatt hour.
Yes, 3.6 cents per kilowatt hour for solar + storage is the same as the marginal cost of operating a coal plant. Xcel did not provide details on how much storage was included in the bids so it’s likely that true 24/7 electricity would require more storage than was bid.
The Freeing Energy perspective…
In the world of energy, this is a tectonic event. Years earlier than even the most optimistic projections, clean energy is less expensive than fossil fuels. Even with storage, these bids remain cost competitive with every form of traditional energy.
The Xcel bidding process highlights the emerging story on clean energy. It started out as a way to help the planet by cleaning up old, dirty power plants. But, it ended up being a story about saving money. They say you can’t have your cake and eat it, too. But, when it comes to wind, sun, and batteries, it looks like maybe you can.