Guzman Energy proposal would finance retirement of Tri-State coal plants, add 1.2 gigawatts of new wind and solar power

By Joe Smyth | [email protected] | @joesmyth

Guzman Energy is proposing a deal that would help Tri-State Generation and Transmission Association meet Colorado and New Mexico's new clean energy policies, by replacing nearly half of Tri-State's remaining coal fleet with 1.2 gigawatts of new wind and solar power projects, along with a mix of energy storage and natural gas. Guzman Energy executives said that the proposal would also immediately lower costs for Tri-State, and could allow member co-ops to increase the amount of local renewable energy they can build.

“Rapidly changing economics, combined with new carbon reduction goals in states that include the majority of Tri-State’s members, mean there’s a lot at stake for those who own and are served by Tri-State," said Guzman Energy President Chris Riley in a press release. "We’ve put a proposal on the table that would help Tri-State and its members lower costs right now while simultaneously reaching compliance with new laws. We look forward to taking the proposal directly to Tri-State’s owners and facilitating an open and transparent dialogue.”

In an interview, Riley explained that the company had presented the deal to Tri-State executives, as well as to several Tri-State member co-ops. Riley said that while some member co-ops expressed support for the proposal, Tri-State executives indicated they did not plan to continue exploring the proposal until after rulemakings and implementation of the new climate legislation in Colorado and expanded renewable energy standard in New Mexico. That will likely take several months, and could increase costs as federal tax credits for wind and solar projects begin to expire. Guzman Energy executives hope instead that its proposal will be reviewed in parallel with the rulemakings, and decided to publicly announce the proposal so that it can be considered by Tri-State member co-ops and their members.

Guzman Energy would finance replacement of Tri-State coal plants in Colorado and New Mexico
​A key part of Guzman's proposal involves an infusion of cash from Guzman Energy to Tri-State of around half a billion dollars, in order to finance the retirement of Tri-State's remaining coal generation in Colorado and New Mexico. Tri-State already plans to retire the 100 megawatt coal plant in Nucla, Colorado by 2022, and the 427 megawatt unit 1 of the Craig coal plant by 2025.

Under Guzman Energy's proposal, the 253 megawatt Escalante coal plant in New Mexico would also be retired, along with the remaining two units at the Craig coal plant. Tri-State is the operator of the Craig coal plant and owns unit 3 (448 megawatts), along with a 24% share of unit 2 (410 megawatts). Decisions about Craig unit 2 would have to include the other utilities with ownership stakes in the unit: Xcel Energy, Platte River Power Authority, Salt River Project, and PacifiCorp.

Guzman Energy executives also said that the proposal includes financial assistance to communities impacted by coal plant retirements, and that those plans would be developed in consultation with local leaders, organizations, elected officials, and other partners.

Under the proposal, Guzman Energy would sell Tri-State replacement power for the coal units. That would come from 1.2 gigawatts of new renewable energy projects, roughly evenly split between wind and solar, as well as dispatchable generation in the form of battery storage projects and natural gas. Guzman executives said that the new generation portfolio would be more than 70% renewable while also providing the same energy and capacity as the retired coal plants, using Tri-State’s own definition of capacity.

A key factor that makes Guzman Energy's proposal possible is the declining costs of renewable energy. Last year, Xcel Energy received bids that showed that new wind and solar power in Colorado is now cheaper than the cost of running existing coal plants. Under its Colorado Energy Plan, Xcel plans to close two units at the Comanche coal plant near Pueblo and replace it with 1,100 megawatts of wind power and 700 megawatts of solar power, along with new battery storage projects and existing natural gas plants. Reports published by Rocky Mountain Institute and Moody's Investors Service have also found that Tri-State could reduce its costs by replacing coal plants with lower cost renewable energy. 

In an email, Colorado Energy Office Executive Director Will Toor said:

“As technology has advanced, the costs of wind and solar have come down so much that building new wind and solar is cheaper than operating many legacy fossil fuel generating plants. This is opening up new market possibilities to retire fossil fuel plants and replace them with clean, renewable energy. While we can't comment on any individual proposal from a private company to a utility, we are excited to see creative proposals coming forward.”

Guzman Energy has pursued other deals in the region that leverage the declining costs of renewable energy: it financed Kit Carson Electric's exit from Tri-State in 2016, aims to facilitate a similar deal with Delta-Montrose Electric Association, and entered into a "renewable energy swap agreement" with Holy Cross Energy last year.

Guzman Energy's proposal could also include allowing Tri-State member co-ops to build more local renewable energy projects. Currently, Tri-State policies limit co-ops from generating more than 5% of their energy needs from their own projects. That could be increased under Guzman Energy's proposal, although the details would depend on negotiations since that could affect other components of the deal.

New clean energy policies in Colorado and New Mexico impact 80% of Tri-State's electricity sales
​In an interview, Colorado Speaker of the House KC Becker said that "there are a few reasons that Tri-State should look hard at this opportunity," including a changed regulatory environment, support from member co-ops for more renewable energy, and the shifting economics of energy projects.

New climate and energy policies in Colorado will require Tri-State and other utilities to significantly reduce carbon pollution. The Climate Action Plan to Reduce Pollution, which Colorado Governor Jared Polis is expected to sign this week, directs the Air Quality Control Commission (AQCC) to develop regulations to reduce statewide greenhouse gas emissions at least 26% by 2025, 50% by 2030, and 90% by 2050, from 2005 levels. The legislation also encourages "the development of clean energy plans that will require greenhouse gas emissions caused by Colorado retail electricity sales to decrease eighty percent by 2030," and specifies that the AQCC "will consult with the public utilities commission with regard to rules that affect the providers of retail electricity in Colorado."

So it's clear that Tri-State will be required by Colorado law to significantly reduce the emissions from its operations, but it could take several months to know the precise details, as the AQCC and PUC develop those rules. Guzman Energy executives hope that Tri-State and its member co-ops will consider its proposal as those rules are developed.

In addition to the climate legislation in Colorado, New Mexico Governor Michelle Lujan Grisham signed the Energy Transition Act in March 2019. That legislation sets a 50% renewable energy standard for electric utilities in New Mexico, including co-ops, by 2030, and a zero-carbon resources standards for investor-owned utilities by 2045 and rural electric cooperatives by 2050.

Tri-State sells electricity to 43 electric cooperatives in four states, with around 80% of its electricity sales to co-ops in Colorado and New Mexico.

Further reading:

Energy News: A small company sees opportunity in revolutionizing Colorado's energy supply

Colorado Energy Office: 2019 Legislative Session Snapshot

Colorado Public Utilities Commission will oversee Tri-State resource planning

Reports examine the impacts of Tri-State's high wholesale power costs​

Rocky Mountain Farmers Union calls on Tri-State to adopt flexible contracts and more clean energy

Governor-elect Jared Polis says moving Colorado toward more renewable energy will be a top priority

Report: Tri-State could save $600 million by shifting from coal to renewable energy​

Moody’s report: “High quality renewable resources” could help Tri-State and Basin Electric navigate rising carbon transition risks

New wind and solar power in Colorado is now cheaper than existing coal plants