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Xcel Plans to Add Wind Assets

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Xcel Energy Inc. (XEL) announced positive results for its Request for Proposals (“RPF”) for expanding renewable generation assets in the state of Colorado. In response to the successful bid results, the company sought a proposal to supplement wind generation by 500 megawatts (MW) or by 25% in the period 2013 to 2016, subject to the approval of the Colorado Public Utilities Commission (“CPUC”).

Although Xcel Energy fulfilled the necessary renewable standards required in the state, it believes the addition of greater wind assets will prove to be economically beneficial for its customers. Also, this will bring the total resource portfolio to 2,700 MW in Colorado.

The major driving force behind the proposed wind asset additions is the extension of the Production Tax Credits (:PTC) by the government. The company is laying much emphasis on its renewable endeavors. In Mar 2013, Xcel Energy issued an RPF for its 2013 All-Resource Solicitation to promote fossil fuel as well as renewable generation and is aggressively pursuing the CPUC for swift evaluation of the new wind proposals.

On receiving the green signal, the company would start negotiations on Power Purchase Agreements in Jun 2013 and expects a final regulatory approval to come from CPUC sometime in October. This will give Xcel Energy ample time to advance its projects and reap the advantages of PTC.

However, the review processes are arduous and the developers might face a time constraint. The extra 550 MW is projected to curb carbon dioxide (CO2) emissions by 1.4 million tons each year. Already achieving a 16% reduction, the current programs will place Xcel Energy on track to attain the 35% CO2 reduction mark by 2020 from the 2005 level.

Besides Colorado, the company has issued RPF’s in the Upper Midwest, New Mexico and Texas territories. We believe Xcel Energy will stand to gain from these multiple ventures given the currently favorable renewable market. In addition, it will allow the company to offer clean power at reasonable prices which will attract customer attention.

Xcel recently attained record production capacity of 1 billion kilowatt-hours of wind energy. The company has $30 million in its Renewable Development Fund to further invest in renewable projects. This will certainly help Xcel to increase its green power generation.

Nonetheless, abundance of coal and relatively cheaper natural gas will continue to provide stiff competition to renewables. Currently, Xcel Energy carries a Zacks Rank #3 (Hold).

Utilities like ALLETE, Inc. (ALE), DTE Energy Company (DTE) and American Electric Power Company, Inc. (AEP) are presently well placed with each holding a Zacks Rank #2 (Buy).

Minneapolis-based Xcel Energy is a U.S. electricity and natural gas company, with operations in eight Western and Midwestern states.

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