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Xcel execs call Biden's 2035 clean-energy goal tough, but do not dismiss it

Highlights

Biden's goal is carbon-free grid by 2035

New technologies need to happen sooner, be economic

  • Author
  • Justin Horwath    S&P Global Market Intelligence
  • Editor
  • Agamoni Ghosh
  • Commodity
  • Electric Power Energy Transition
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  • Wind energy
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  • Energy Transition Environment and Sustainability US Policy

Xcel Energy Inc. executives cautioned on Jan. 28 that US President Joe Biden's aspiration for a carbon-free grid by 2035 requires major technological advancements in the power sector, but did not dismiss the possibility of achieving the benchmark.

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Xcel was the first major US utility to set a carbon-free power goal. The company made waves in December 2018 when it announced a goal for a carbon-free power fleet by midcentury. A coalition of three Western environmental groups called it "the most ambitious commitment to climate action of any power company in the country." Since that time utilities across the nation have made decarbonization into a core strategy as the falling cost of renewable energy has helped push coal out of markets.

Following Xcel's announcement, the rapid deployment of wind and solar power, emergence of battery storage, and the march of nascent technologies such as hydrogen, utility-scale battery storage and offshore wind toward commercialization came faster than even the most optimistic advocates had expected. The political climate has rapidly shifted too, with environmental activists successfully pushing Biden for more ambitious climate policies.

Benjamin Fowke, chairman and CEO of Xcel, said during the company's fourth-quarter earnings call that Biden's goal for carbon-free power by 2035 "would take incredible emergence and acceleration of technologies that I think are still a ways away." Xcel is aiming for an 80% reduction in its carbon emissions from 2005 levels by 2030.

"So could we go faster than our goal of 2050? Well, it's possible," Fowke said. "[B]ut I think that would mean that those technologies that we refer to — whether it's the next-generation nuclear, whether it's the development of hydrogen, whether it's carbon capture working economically, whether it's long-term storage — they have to come into the money much sooner than I think they will."

Xcel executives maintained they are ahead of the curve. Fowke said that in 2020, "we estimate that we reduced carbon emissions by about 50% from 2005 levels." Xcel is "on track to achieve an 80% carbon reduction by 2030" with plans to convert its 1,018-MW Harrington coal plant in Potter County, Texas to natural gas by the end of 2024, as well as early retirement dates for the 1,285-MW Craig (Yampa) and the 441-MW Hayden coal plants in Colorado.

'An element of pragmatism'

"We will address the remaining coal plants in Colorado in our resource plan filing at the end of March," he said.

But Xcel, like other utilities, remains committed to natural gas plants.

"And we're going to need a little more of a gas backup, not necessarily using more gas, but having it ready when some of the renewable resources might not be there," said Brian Van Abel, executive vice president and CFO.

Xcel executives said that under the Biden administration, they are expecting an acceleration of electric vehicle deployments, renewable energy tax credits, transmission investments, and clean-energy research and development.

"So I mean, again, if technology can emerge, but 2035 is like tomorrow in utility land as far as technologies go," Fowke said. "So I think there's going to be an element of pragmatism that gets baked into those goals. And I've always said, we'll move as fast as the speed of technology and that's what we'll do."

Fowke remains optimistic the utility can produce returns while powering ahead toward a carbon-free fleet. Xcel reported fourth-quarter earnings of 54 cents per share, matching the S&P Capital IQ consensus estimate for normalized EPS for the quarter and down from 56 cents per share in the fourth quarter of 2019. Xcel affirmed its 2021 GAAP and ongoing earnings guidance in the range of $2.90 to $3 per share.

"But you've heard me say before, I never bet against technology," Fowke said. "So more to come on that."