Xcel Energy 2015 Annual Report Download - page 32
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Natural gas — The NSP System uses both firm and interruptible natural gas supply and standby oil in combustion turbines and certain
boilers. Natural gas supplies, transportation and storage services for power plants are procured under contracts to provide an adequate
supply of fuel. However, as natural gas primarily serves intermediate and peak demand, remaining forecasted requirements are able to
be procured through a liquid spot market. Generally, natural gas supply contracts have variable pricing that is tied to various natural
gas indices. Most transportation contract pricing is based on FERC approved transportation tariff rates. Certain natural gas supply and
transportation agreements include obligations for the purchase and/or delivery of specified volumes of natural gas or to make
payments in lieu of delivery. At Dec. 31, 2015 and 2014, the NSP System did not have any commitments related to gas supply
contracts; however commitments related to gas transportation and storage contracts were approximately $310 million and $349
million, respectively. Commitments related to gas transportation and storage contracts expire in various years from 2016 to 2028.
The NSP System also has limited on-site fuel oil storage facilities and primarily relies on the spot market for incremental supplies.
Renewable Energy Sources
The NSP System’s renewable energy portfolio includes wind, hydroelectric, biomass and solar power from both owned generating
facilities and PPAs. As of Dec. 31, 2015, the NSP System was in compliance with mandated RPS, which require generation from
renewable resources of 18 percent and 12.9 percent of NSP-Minnesota and NSP-Wisconsin electric retail sales, respectively.
• Renewable energy comprised 23.3 percent and 24.2 percent of the NSP System’s total energy for 2015 and 2014,
respectively;
• Wind energy comprised 13.6 percent and 13.7 percent of the total energy for 2015 and 2014, respectively;
• Hydroelectric energy comprised 7.3 percent and 7.8 percent of the total energy for 2015 and 2014, respectively; and
• Biomass and solar power comprised approximately 2.4 percent and 2.7 percent of the total energy for 2015 and 2014,
respectively.
The NSP System also offers customer-focused renewable energy initiatives. Windsource allows customers in Minnesota, Wisconsin,
and Michigan to purchase a portion or all of their electricity from renewable sources. In 2015, the number of customers utilizing
Windsource increased to approximately 50,000 from 43,000 in 2014.
Additionally, to encourage the growth of solar energy on the system, customers are offered incentives to install solar panels on their
homes and businesses under the Solar*Rewards program. Over 1,458 PV systems with approximately 18.3 MW of aggregate capacity
and over 915 PV systems with approximately 11.1 MW of aggregate capacity have been installed in Minnesota under this program as
of Dec. 31, 2015 and 2014, respectively.
Wind — The NSP System acquires the majority of its wind energy from PPAs with wind farm owners. Currently, the NSP System has
more than 120 of these agreements in place, with facilities ranging in size from under one MW to more than 200 MW. The NSP
System owns and operates four wind farms which have the capacity to generate 652 MWs.
• Collectively, the NSP System had approximately 2,210 and 1,860 MWs of wind energy on its system at the end of 2015 and
2014, respectively. In addition to receiving purchased wind energy under these agreements, the NSP System also typically
receives wind RECs, which are used to meet state renewable resource requirements.
• The average cost per MWh of wind energy under the existing contracts was approximately $42 and $41 for 2015 and 2014,
respectively. The cost per MWh of wind energy varies by contract and may be influenced by a number of factors including
regulation, state-specific renewable resource requirements, and the year of contract execution. Generally, contracts executed
in 2015 continued to benefit from improvements in technology, excess capacity among manufacturers, and motivation to
commence new construction prior to the anticipated expiration of the Federal PTCs. In December 2015, the Federal PTCs
were extended through 2019 with a phase down beginning in 2017.
Hydroelectric — The NSP System acquires its hydroelectric energy from both owned generation and PPAs. The NSP System owns 20
hydroelectric plants throughout Wisconsin and Minnesota which provide 277.5 MW of capacity. For 2015, PPAs provided
approximately 34 MW of hydroelectric capacity. Additionally, the NSP System purchases approximately 725 MW of generation from
Manitoba Hydro which is sourced primarily from its fleet of hydroelectric facilities.
Wholesale and Commodity Marketing Operations
NSP-Minnesota conducts various wholesale marketing operations, including the purchase and sale of electric capacity, energy,
ancillary services and energy-related products. NSP-Minnesota uses physical and financial instruments to minimize commodity price
and credit risk and hedge sales and purchases. NSP-Minnesota does not serve any wholesale requirements customers at cost-based
regulated rates. See Item 7 for further discussion.