US must remain open to new decarbonization technologies – Xcel CEO

As the US pursues ambitious decarbonization goals, Xcel Energy Inc.'s chief executive believes that it is critical that his industry remains open to new and developing technology.

"The challenge that we are trying to solve is complicated," Xcel Energy Chairman, President and CEO Bob Frenzel told S&P Global Commodity Insights. "And I do think we as a country and we as a company are going to need to look at all technologies."

Minneapolis-headquartered Xcel said in 2018 that it aimed to generate 100% carbon-free electricity by 2050, a goal environmental groups said then was the most ambitious climate target of any US power company. Xcel also set an interim target to cut its carbon emissions 80% by 2030, from 2005 levels. To accomplish its aims, the company plans to rely on a combination of renewable energy, small modular nuclear reactors, carbon capture, energy storage and hydrogen.

Xcel Energy Chairman, President and CEO Bob Frenzel sees the company exploring all new technologies. Source: Xcel Energy Inc.

US President Joe Biden wants the power sector to produce 100% carbon-free electricity by 2035 — a goal many in the utility industry have called too ambitious — and is targeting economywide net-zero emissions by 2050. The Inflation Reduction Act (IRA) of 2022 is providing a big boost for financing this transition.

"The energy provisions included in the IRA are sort of a once-in-a-lifetime tailwind for a clean energy transition," Frenzel said in a recent interview at the Platts Global Power Markets Conference in Las Vegas. The IRA contains $370 billion in energy transition spending, including about $270 billion in tax incentives for solar, wind, hydrogen and energy storage projects.

During Xcel's first-quarter earnings call, executives said they were already seeing strong interest in the purchase of renewable energy tax credits as part of the new law's transferability option, which allows developers of solar and wind projects to convert federal tax credits into cash payments.

"Transferability of tax credits invites a much larger ecosystem of suppliers and providers who can come to the table with energy solutions to help us solve this problem," Frenzel said.

Essential nuclear

Xcel also is mindful of the role that existing baseload generation will play in the energy transition, particularly with regard to maintaining reliability and affordability.

"First and foremost, it is about preserving the existing nuclear fleet, which constitutes about 20% of the carbon-free energy that's made in the United States today," Frenzel said. "The existing fleet is critical to our transition ... and as I think about the future, next-generation nuclear technology has a lot of promise, a lot of opportunity."

Xcel operates the 1,092-MW Prairie Island and 646-MW Monticello nuclear plants in Minnesota. "We're in the process of extending our license at the Monticello plant for another 20 years, and we're working with the state of Minnesota and our partners there to think about potentially extending the license at the Prairie Island facility as well," Frenzel said.

The Xcel CEO also finds the potential cost and safety advantages of small modular reactor (SMR) technology "really attractive."

"The opportunity to build a sophisticated piece of machinery in a factory and then ship it out to a power plant site is very different than how we've built central generation stations in the past," Frenzel said.

Hydrogen and storage

The utility in late January entered into a partnership with Form Energy Inc. to build long-duration storage projects at two Xcel coal plants scheduled for retirement in Minnesota and Colorado. The 10-MW, 100-MWh, multiday iron-air batteries are scheduled to be connected in 2025.

In addition, Xcel has received a $12 million grant from the US Energy Department to pilot high-temperature hydrogen production using excess steam and electric power from its Prairie Island nuclear plant.

"We look at the next decade as an incredible opportunity to invest into a clean energy transition from a very organic perspective," Frenzel said. "We think we can do it all at less than the cost of inflation."

'National investment in transmission'

Frenzel also highlighted the increasing demands on transmission systems as well as a need to preserve certain fossil fuels as part of the country's move to cleaner energy.

"We need a national investment in transmission," Frenzel said. "We [at Xcel] sit at the intersection of one of the most attractive transmission regions in the country. We have a distribution grid that we're trying to enable all sorts of new technology on, whether it's electric vehicles, or rooftop solar, or community solar gardens, or batteries and storage."

The company is "looking at relieving transmission congestion" through a number of solutions, the CEO said.

"You can install a battery in that location to use that wind energy when it's available," Frenzel said. "You could have new electric load incentivized to go and locate where the energy is available."

Xcel Energy also is replacing four large coal units in the Upper Midwest with two natural gas-fired combustion turbines, underscoring a strategy of relying on gas as a bridge fuel.

"We've committed to being able to co-fire those turbines on a clean energy molecule, like hydrogen, in the short term and then fully firing them on a clean fuel over the long term," Frenzel said. "The fuel we put through that turbine over time will be increasingly clean, if not 100% carbon-free."

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.