Minnesota is often hailed by environmentalists, government leaders and utility executives for its commitment to renewable energy—and for good reason: Among states with at least 4 million residents, Minnesota ranks No. 1 per capita in the generation and consumption of wind, solar and biomass energy.

The state’s lead in switching to cleaner electrical production also is well timed, given President Barack Obama’s recently issued plan for the nation’s coal-fired power plants to reduce greenhouse gas emissions 30 percent by 2030. Minnesota touts one of the toughest “renewable portfolio standards” in the country and recently set a new, first-in-the-nation mandate to increase its use of solar power.

But will that progress pay off for Minnesota’s economy as well as its air quality? Investing in new technologies is expensive, and new methods of producing power still generate far less output than a traditional natural gas or coal-fired power plant. As such, could it be that the state’s focus on clean energy will inadvertently lock in higher electricity prices than those businesses can find elsewhere?

Clean energy is already leading to rate hikes in Minnesota. The state’s largest electric utility, Xcel Energy, is seeking a $291 million, 10.4 percent rate over a two-year period ($192.7 million in 2014 and $98.5 million in 2015)—the largest percentage rate increase ever requested by the utility. If approved, it would be Xcel’s sixth rate increase in eight years. More than 25 percent of this rate hike’s second-year “step increase,” or about $27.5 million, would go to offset the capital costs of a major acquisition of wind farms in Minnesota and North Dakota meant to help the utility meet its state-mandated goal of deriving at least 30 percent of its revenue from renewables by 2020.

While business leaders remain skeptical about the “true costs” of adding wind power capacity, Xcel (which already is the country’s No. 1 wind-power producer) says the rate hike is a necessary capital investment in clean energy that will produce lower rates over time. The utility notes the costs of producing wind power have plummeted in comparison with those of fossil fuels, making for substantial fuel cost savings estimated at $225 million over 20 years, and allowing it to integrate a huge 750-megawatt wind-power addition while actually reducing base rates over the long haul.

Such savings appear to be fairly small, however. Xcel says that because of the added wind resources, average base rates would decrease a bit each year and by 2024 would be nearly 1.5-tenths of a cent per kilowatt-hour lower than today. Thus, 10 years from now an energy-intensive business such as a data center that consumes 870,000 kilowatt-hours of electricity in a year at an average of 6 cents per kWh (about $52,200 annually) would pay about $1,300 less per year. In the meantime, well over 2,200 gigawatt-hours of electricity produced from fossil fuel plants would be displaced, the utility says.

The long-term benefits to the state and its business community are real, clean energy advocates assert: In addition to reducing greenhouse gases, wind and solar energy serve as a hedge against the rising regulatory costs of coal and the price volatility of natural gas. The changes in the state’s power generation techniques are no doubt costly; the goal, however, is to make such changes—required by regulations, laws and the need to decommission two nuclear power plants—as affordable as possible and in the end, keep electricity affordable.

Top 10 states with population over 4 million

0814-AltEnergy_S01.jpg

Minnesota’s lead

Obama’s June announcement of his goal to cut greenhouse gas emissions from coal-fired power plants 30 percent by 2030 was met with predictions of economic shock, staggering job losses and higher power costs from some coal-dependent states.

Minnesota likewise is no stranger to coal-fired electricity: Some 46 percent of the state’s supply comes from coal shipped in from Wyoming and Montana, much of which is burned at Xcel’s enormous 2,400-megawatt Sherco plant in Becker. If the U.S. Environmental Protection Agency’s “Clean Power Plan” ultimately is adopted, Minnesota could be required to reduce its carbon emissions by a hefty 40 percent over the next 16 years, certainly no small task.

Yet far from provoking the panic or outrage seen in some states, the president’s bid to grapple with climate change was met with relative calm here. In fact, it is translating into the latest opportunity for state leaders and utilities to tout their clean energy advantages over competitors, as the center of gravity on energy issues shifts from a politically gridlocked Washington to state capitols.

Making that point, the Clean Power Plan itself prominently cites Minnesota’s Emissions Reduction Rider, a law that allows utilities to recover the costs of cleaning up or replacing existing coal-fired plants through incentives, as an example of how states can work with power producers to meet the new standards.

Minnesota has long envisioned a future with reduced coal-fired electricity generation. It already has one of the most aggressive “renewable portfolio standards” in the country—back in 2007, the Legislature mandated that Xcel Energy derive at least 30 percent of its sales from renewables by 2020, while other investor-owned utilities must meet a 25 percent standard by 2025. Xcel says it’s on target not only to meet but exceed the standard.

The state has reason for optimism that it can tap wind, solar and biomass for a significant part of its power needs in a future with a reduced role for coal and the eventual retirement of its two nuclear power stations at Prairie Island and Monticello, whose licenses expire in the 2030s. According to the National Renewable Energy Laboratory, Minnesota has the 12th-best wind resource in the United States, with the potential to produce more than 489,000 megawatts at a height of 80 meters. By last year, the state was deriving 15.7 percent of its electricity from wind, the fourth-best in the country. Its 2,987 megawatts of installed capacity—enough to power 840,000 homes—ranks seventh nationally.

But perhaps most impressively, Twin Cities Business research shows that Minnesota is unique in its combination of large population and renewable energy use. Besides the state’s top ranking in per-capita generation and consumption, Minnesota was the leader in generation, at 203.2 kilowatt-hours per capita as measured in November, easily outpacing second-place Colorado at 131.4 kilowatt-hours per capita.

By the per-capita measure, small-population states with significant installed wind resources, such as North Dakota (at 909.2 kilowatt-hours per capita) and Wyoming (821.4) are the national leaders. But nearly all of North Dakota’s wind generation capacity is shipped to Minnesota, so if counted as part of Minnesota’s totals, the state tops out at a whopping 314.5 kilowatt-hours of generation per capita.

Minnesota is also a healthy leader among big-population states in per-capita consumption of power generated from wind, solar and biomass, at 41.9 million Btu in 2012. If North Dakota’s generation is added to the total, it bumps Minnesota’s level up to 56.3 million Btu per capita, easily topping second-place Alabama’s 36.9 million.

2,400

The number of 1-megawatt solar arrays over 12,000 acres needed to replace the coal-fired Sherco power plant.

1000

The number of 2.4-megawatt wind turbines (over more than 800 acres) that would be necessary to replace the coal-fired Sherco power plant.

Wind power changes the landscape

Although the first state laws encouraging alternative energy and energy efficiency came way back the 1980s, most Minnesotans first noticed the march into alternative energy after 2007, when Gov. Tim Pawlenty signed into law what was then the country’s strongest renewable energy standard, along with a commitment to reduce greenhouse gas emissions to 80 percent of 2005 levels by 2050. Some 5,000 megawatts of renewable energy will be needed to meet that standard.

Soon thereafter, electric utilities such as Xcel, Great River Energy and Minnesota Power began generating much higher levels of electricity from the wind turbine farms that are now so eye-catching, especially in southwestern Minnesota, where the 450-turbine Buffalo Ridge Wind Farm can generate up to 300 megawatts of power.

The quick ramp-up is indicative of a consensus about renewable energy in the state, according to Joe Sullivan, a regional policy manager for Wind on the Wires, a St. Paul-based wind power advocate for the construction of transmission lines to deliver the new energy to cities.

“Minnesota, in terms of the acceptance of renewable energy by the business community, utilities, regulators and political leaders, is very, very good,” says Sullivan, a former lobbyist on power issues for rural Minnesota cities. “You see pockets of opposition here and there, but mostly everyone has internalized that renewables, while still a niche player, are a critical part of the overall energy system. Xcel, for instance, sees wind as a valuable part of its resource mix. They’ve internalized it into their culture.”

Indeed, after initially resisting calls to diversify from coal and nuclear power in the 1980s, Minneapolis-based Northern States Power Co., now a subsidiary of Xcel, changed tack and sailed into renewable waters. Now it touts its status as the No. 1 wind-power producer in the county. Dave Sparby, president and CEO of Xcel’s NSP subsidiary, says the utility’s roots in renewable energy go all the way back to its Wisconsin hydroelectric dams built at the turn of the 20th century.

“Providing clean energy is part of the mission of the company,” he says. “Plus, we’ve just got the fact that Minnesota, together with some of the surrounding states, provides us with this great wind resource.”

Like what you just read? To receive business news directly in your inbox each Tuesday and Thursday, sign up for our free e-newsletter, Briefcase, and be sure to join the conversation by commenting below.