The Real Cost of Xcel Energy Windsource

Xcel Energy’s Minnesota Windsource green pricing program lets you buy wind energy in blocks of 100 kilowatt-hours (kWh) for 2 cents/kWh extra. Over 23,000 Minnesotans participate in the green pricing programs at various utilities, buying almost 80 million kWh (which sounds impressive but is something around 1% of total sales). The average price of “regular” electricity is 7.27 cents/kWh from October to May and 8.27 cents/kWh from June to September. Theoretically you add 2 cents/kWh to that for the price of wind energy.

However, that’s not the whole story. As a Windsource customer you are exempt from the Fuel Cost Adjustment, which is essentially a way of “truing-up” your bill if the cost of fuel was more or less than what they predicted it would be when they actually went to buy some of the non-contracted fuel on the open wholesale markets. So what?

Well, the prices in every month since June 2005 have been higher than they guessed and so you see a little extra FCA charge on your bill each month. The theory for the exemption (the merger negotiation bargain from 5 years ago not withstanding), is that since you are buying wind energy, you aren’t using any of these fuels that have the added costs. In places that use a lot of natural gas (Texas and Colorado), this can make the wind energy the cheaper option in some months. Not Minnesota though, which gets a large percentage of its electricity from coal (41% coal and 3% natural gas for Xcel). But the FCA does add up to something.

Here is the data since June 2005, including a hypothetical average household that uses 700 kWh/month (Source: Xcel Energy electric bills):

You’ll note that in August 2005, it was no net cost to use wind energy since the FCA adjustment was right at 2 cents/kWh. But over the 16 month period, the real cost of Windsource is about 1.2 cents/kWh. The average family thinks they pay $14/month but it turns out to have been closer to $8/month.

Does it matter? Would more people sign up if they knew it was 1.5 cents/kWh or less? Maybe. One idea is for Xcel to forecast the FCA or use historical data to reduce the advertised cost of Windsource by some amount, and then adjust the actual Windsource cost similar to the FCA after the fact. To my knowledge Xcel is the only utility that offers an FCA adjustment benefit in Minnesota for buying green power. Also of note is that Xcel has indicated that future wind energy contracts are more expensive than previous ones and holding the line on 2 cents/kWh will be harder since the average cost of the Windsource portfolio may go up. Wind turbine prices have gone up over the last year due to high global demand, cost of steel, and the foreign exchange rate.

What’s also interesting is comparing whether buying Windsource is the cheapest way to reduce your carbon dioxide emissions. Should you offset your carbon emissions from Xcel or from someone like Terrapass.com, who offers a 14,000 lb annual offset for $70 ($0.005/pound)? Terrapass says there are 1.84 lbs carbon/kWh (which sounds close enough), so some quick math shows that they are charging 0.92 cents/kWh to reduce your carbon. Quite coincidentally, this was the same price Xcel Windsource was in September 2006. However since June 2005, the average price of Xcel Windsource after the FCA was 1.16 cents/kWh (not weighted by use per month, since your bill usually goes up in summer when the FCA is higher). So Terrapass is marginally cheaper than Xcel.