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

By Joe Smyth | joe@cleancooperative.com | @joesmyth

A new report from the Rocky Mountain Institute (RMI) finds that Tri-State Generation and Transmission Association could save its member co-ops over $600 million through 2030, by taking advantage of low cost renewable energy resources and shifting away from its reliance on coal fired power plants. Moreover, the report shows that if Tri-State fails to cut costs and continues to rely on its higher cost coal plants, the generation and transmission association will face increased risks, including losing electricity sales because of defection by its member co-ops, as well as by those co-ops’ members.
 
The RMI report compares the costs of each of Tri-State’s coal fired power plants – broken down by the costs of fuel, fixed operations and maintenance costs, and variable operations and maintenance costs – to the range of bid prices for new wind and solar energy in Colorado that Xcel Energy received this year in response to it Colorado Energy Plan proposal. Even after adding costs for expanding transmission and other integration costs to bring those new renewable energy resources online, it costs more to keep running Tri-State’s coal plants than it would to add new renewable energy.

Figure 2 from Rocky Mountain Institute report: A Low-Cost Energy Future for Western Cooperatives

RMI looked at three different scenarios for Tri-State’s Escalante coal plant in New Mexico: a “Business as usual” scenario where Tri-State continues to rely on the coal plant, a “Fuel saver” scenario where Tri-State adds 200 megawatts of new wind and solar energy, allowing it save money by running the coal plant less frequently, and a “Retirement” scenario, where Tri-State closes the coal plant and replaces it with 342 megawatts of new renewable energy, supplemented with capacity purchases. The results show that retiring the coal plant offers the most savings compared to business as usual - $32/MWh in operating costs, compared to $40/MWh. The "Fuel saver" scenario would also reduce costs at $35MWh thanks to reduced fuel and variable costs, but not as much as retiring the plant, because Tri-State would still need to pay for the plant's fixed costs.

Figure 3 from Rocky Mountain Institute report: A Low-Cost Energy Future for Western Cooperatives

RMI then assessed the total cost savings available to Tri-State's 43 member co-ops through 2030, by comparing “Business as usual” to an “Energy transition” scenario where Tri-State gradually retires all of its coal plants by 2026, adds new wind and solar energy, uses its existing natural gas plants to help integrate that new renewable energy, and purchases additional capacity. RMI concludes:
 
Under the energy transition scenario, Tri-State’s members, and the approximately 1 million end-use consumers
they serve, would save approximately $600 million in present-value terms between 2018–2030. Through avoiding both the operating costs and the go-forward fixed costs of running and maintaining legacy assets, and instead sourcing low-cost renewables and capacity in competitive procurement processes, Tri-State could lower supply costs by ~12% in 2030 and pass along those savings to its member-owners.

Figure 4 from Rocky Mountain Institute report: A Low-Cost Energy Future for Western Cooperatives

Tri-State responded to the RMI report with a post on its website that noted it is "currently soliciting for additional renewable energy supply, and has received more than 100 proposals totaling over 10,000 megawatts."



Is collective action still possible for Tri-State and its member co-ops?
RMI notes that other utilities with higher cost coal plants have similar opportunities to reduce costs by shifting toward low cost renewable energy. But the situation for Tri-State's member co-ops is noteworthy:

The opportunity for Tri-State’s distribution co-ops is particularly dramatic, as they are balancing the competing priorities of lowering their own members’ costs while also being financially responsible for costly legacy investments initially made on their behalf by Tri-State itself. The combination of rapidly evolving economics and competing priorities ensures that the transition to a lower-cost energy future for co-ops will be complex, and likely challenging.

To meet these challenges head-on, distribution co-ops and their providers can pursue a strategy of collective action, built on transparency and open dialogue, that can bring focused innovation, regionally appropriate solutions, and scaled buying power to the situation at hand. In the case of Tri-State, both the opportunities and risks hinge on the collective action of multiple stakeholders, including Tri-State itself, its co-op members, and their end-use customer members; acting alone, any one group may find it advantageous to take actions (e.g., regressive rate structures, load defection) that make unilateral economic sense but could limit the opportunity for cooperative action among parties.

​Some co-ops seem to consider that the opportunity for collective action has already passed - after years of efforts to shift Tri-State's direction, Delta-Montrose Electric Association is now seeking new financing options to end its contract with Tri-State. Kit Carson Electric Association ended it contract with Tri-State in 2016, and one of its directors says that “Getting rid of Tri-State is the best thing that ever happened to Kit Carson."

But staff and directors at other co-ops that I've spoken with are still trying to work with Tri-State to navigate the risks and opportunities of a rapidly changing utility industry. More on that - and the risks that Tri-State faces if it continues to rely on its higher cost coal plants - next week.

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Further reading:
RMI Report: A Low-Cost Energy Future for Western Cooperatives: Emerging Opportunities for Cooperative Electric Utilities to Pursue Clean Energy at a Cost Savings to Their Members

A Q&A with Mark Dyson, author of the RMI report, from Allen Best 

Mine cleanup funds at risk as coal power suppliers lose customers, from Mark Olalde

Colorado rural electric cooperatives look at cutting the cord, from Mark Jaffe

Moody’s report: “High quality renewable resources” could help Tri-State and Basin Electric navigate rising carbon transition risks
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New wind and solar power in Colorado is now cheaper than existing coal plants