IREAâ€™s principal functions traditionally have been to obtain and distribute reliable, low-cost power. Those functions remain central to our business â€“ but today we also focus on obtaining carbon-free energy â€“ when it is available at reasonable cost, and designing a grid and rate structure that can support increased rooftop solar energy. An overview of our power supply position follows.
Western Area Power Administration
IREA receives approximately 5% of its power in the form of hydropower from the Rocky Mountain region of the Western Area Power Administration. The power WAPA provides is the most inexpensive energy IREA purchases. We buy all of the WAPA power we can, but this clean, inexpensive power is fully subscribed and more is unlikely to be available any time soon.
Comanche Unit III
IREA owns 25% of Comanche Unit III, a super-critical pulverized coal power plant located just outside of Pueblo. It is the newest and cleanest coal plant in Colorado. IREA signed an agreement in 2004 to purchase its share of Unit III. At that time natural gas prices were several times their current level and very volatile. IREA bought into Unit III to hold down costs and maintain stability. That move has had its intended effect; IREA has not had a general rate increase since 2013 and has returned tens of millions of dollars to customers since 2010. As baseload generation, Unit III continues to bend our power cost curve down; last year Unit III saved IREA more than $7 million compared to what our power costs would have been without our ownership interest. Some people claim that renewable energy is now available at less cost than energy from Unit III, but they ignore demand, back-up and integration costs, which are material and change the equation.
Nevertheless, as the move toward carbon-free generation accelerates we face both the prospect of government-imposed carbon costs and the opportunity of less expensive carbon-free energy. We are therefore planning for a future without Unit III and have accelerated depreciation of the plant.
Public Service Company of Colorado/Xcel Energy
In 1995, following the bankruptcy of IREAâ€™s previous wholesale power provider, IREA signed a power purchase agreement (PPA) with Public Service Company of Colorado (PSCo) â€“ now doing business as Xcel Energy â€“ through which Xcel provides the power to meet IREAâ€™s needs beyond its other power sources. The PPA requires that Xcel be IREAâ€™s only wholesale power provider through a term that expires in 2025. There are, however, a few exceptions, or â€ścarve-outs,â€ť to this contract:
IREA is allowed to purchase power from customers who install their own solar systems that qualify for net metering under state law. We believe customers should be able to generate their own energy if they wish and our personnel assist customers with the interconnection process. We also believe that rooftop solar customers should pay fairly for their use of the grid and the energy we deliver to them rather than relying on subsidies from other customers. In 2015, we adopted a rate rider that requires customers with low load factors, which includes many net metering customers, to pay for some of the demand they use, thus reducing the subsidy that arises when customers who buy energy at retail sell it back at retail rates. Some people object to this step, arguing that we are â€śpunishingâ€ť solar customers by reducing their subsidy. But the rate rider merely recovers some of the costs we incur in serving solar and other customers, nothing more.
We have continued to see rooftop solar added to our system and expect that trend to continue. Today we have about 12 megawatts of rooftop solar capacity on more than 2,200 homes. We are working to design infrastructure and rates that can sustain much more than that.
PURPA projects and negotiated carve-out
The Public Utility Regulatory Policies Act (PURPA) is a federal law, enacted in the late 1970s, that requires a utility to buy the power from certain renewable energy qualifying facilities if the power can be purchased at or below IREAâ€™s â€śavoided cost,â€ť i.e., the cost we avoid by purchasing from the qualifying facility. In the last year, IREA has negotiated the purchase of more than 110 megawatts of solar energy from developers building utility-scale solar PURPA projects in IREAâ€™s service territory.
In 2015, IREA negotiated with Xcel to create a new carve-out in our PPA that allows IREA to obtain a limited amount of renewable power from other sources. IREA entered into a contract to purchase the output of a 12.8-megawatt, utility-scale solar project now generating outside of the town of Bennett. IREA currently is considering how to obtain the remaining renewable energy available under this carve-out.
Our wholesale power contract with Xcel expires at the end of 2025. It is a priority for us to make sure that we will be able to have the flexibility to maximize renewable energy acquisition at that time or sooner while ensuring reliability and reasonable cost. The cost of wind and solar energy has fallen to the point that a large amount of energy from those sources can be integrated into the grid cost-effectively, despite the need for backup generation. Batteries may someday be used for backup, but their expense currently limits their role principally to reducing peak load, maintaining grid stability when intermittent resources stop producing and resolving voltage and other grid issues. We are optimistic that, with a few key developments and technological improvements, we will be well-positioned to have both continued price stability and less carbon-based generation.
One development that is crucial to achieving these goals is a regional wholesale power market that will make it possible to offload some of our Comanche Unit III generation and acquire renewable energy in the marketplace as circumstances may warrant. You can read more about this here.