This month, energy nerds are very excited about a utility bid solicitation.

Wait, hear me out. It really is exciting!

Usually, when we talk about how renewable energy will evolve in the next five years, we rely on analysts and projections. This is different.

When a utility puts out a request for proposals (RFP) — asking developers to bid in for the chance to build new energy resources — the developers who respond aren’t guessing, or boasting. They are laying down a marker that might get called. They are promising only what they are confident they can deliver.

That makes the responses to an RFP a clear snapshot of the state of the industry, relatively unembellished by ideology or public relations spin. This particular snapshot reveals that, on the ground, renewable energy costs are falling faster than even the most optimistic analyst had projected.

(Let’s face it: In most areas of life, when you look past the hype at the real numbers, it’s depressing. Renewable energy is one area where that typical dynamic is inverted. The closer you look, the better the news gets!)

Colorado’s biggest utility seeks lots of new renewables

First, a brief bit of backstory.

The utility in question is Xcel Energy, Colorado’s biggest, which serves 3.3 million electricity customers in the upper Midwest, Colorado, and New Mexico.

In 2016, Xcel released its Colorado Energy Proposal, which was news in itself. [1/18/18: see clarification at bottom of post.] The proposal would shut down two coal plants in the state and replace their output with roughly 700 MW of solar, 1 GW of wind, and 700 MW of natural gas by 2023. That would put Xcel’s Colorado energy mix at roughly 55 percent renewables. (Xcel’s reasons for ramping up renewable energy are complex — part price, part taking advantage of federal tax credits, part public sentiment.)

Based on that plan, in 2017 the Xcel subsidiary Public Service Company of Colorado issued an “all-source solicitation,” which amounts to the utility saying to private developers: “Here’s how much new power by 2023 we need. Whatcha got?”

At the very tail end of last year, while everyone was busy with the holidays, the company quietly issued a report on the results.

They were mind-blowing. An unprecedented number of developers came forward, eager to build renewable energy and eager to couple it with energy storage, all at unprecedented prices. It seems the people building this stuff are more confident than the analysts writing reports on it.

In Colorado, new renewables are cheap as hell, even with storage

Here’s a high-level overview of the bids and projects received in response to the RFP:

This is about as striking as spreadsheets get.

First, the scale!

Xcel says that its 2013 all-source solicitation yielded 55 bids. The 2017 equivalent received 430 individual bids, for 238 separate projects. (Sometimes developers bid multiple times on a single project, with different combinations of financing, timeline, etc.)

A total of 350 of the bids involve renewable energy (134 for solar alone), representing more than 100 GW of capacity. Developers are chomping at the bit to build this stuff — partly to claim expiring federal tax credits, partly to claim market share in a booming sector, and partly just because they are human beings and excited about clean energy.

Second, the storage!

The big knock against wind and solar power is that they are variable — they come and go with the weather; they are not “dispatchable.” Critics say their low prices are misleading, because they must be backed up by “firm” capacity that can be turned on and off at will.

One way to make wind and solar more firm (ahem) is to attach storage, which can store excess production during the day when it’s cheap and sell it into the system at night when it’s more valuable. Storage extends the range of hours a renewable energy project is able to operate.

The problem is that adding storage adds considerable cost. But the Xcel bids show that is changing.

The median bid for a wind project was $18.10/MWh; the median for wind+storage was $21, just three dollars higher. The median bid for a solar PV project was $29.50/MWh; the median bid for solar+storage was $36, just seven dollars higher. (Keep in mind what median means: Half the projects bid cheaper than this.)

Wind+storage in Australia — and, soon, Colorado.

Here are a few comparisons to help put those numbers in perspective:

According to Carbon Tracker, based on these bids, new wind+storage energy in Colorado is cheaper than energy from the state’s existing coal plants; solar+storage energy is cheaper than 75 percent of the state’s coal energy. This is worth repeating, because it’s a significant milestone: In Colorado, getting energy from new renewable energy projects with storage is cheaper than getting it from existing coal plants. Coal is dead.

The cheapest previously known solar+storage price in the US was $45/MWh, in a PPA signed by Tucson Electric last year. The median Xcel bid for solar+storage beats that by $9.

For the Tucson project, storage added about $15/MWh to the cost of the solar. Compare that to the $3 to $7 added by storage in the Xcel bids. Storage prices are plunging, and as they do, renewables become more competitive.

The financial advisory firm Lazard issues a much-watched analysis each year of the “levelized cost of energy (LCOE),” a measure that purports to directly compare energy sources based on total costs. Its 2017 analysis estimated that solar+batteries has an LCOE of $82/MWh. You might notice that the median Xcel bid for solar+storage is less than half that. (Important caveats: The Lazard LCOE is for solar with 10 hours of storage, but we do not yet know how much storage is involved in the Xcel bids; Lazard estimates unsubsidized costs, while Xcel projects will benefit from federal tax credits; Lazard’s estimate is for 2017, while developers are effectively bidding 2023 costs. Direct comparisons are difficult. Point is, the number is vaulting down.)

Renewables just keep outpacing expectations

Colorado has excellent solar and wind resources, but it isn’t the only place where real-world bids are racing ahead of official estimates like Lazard’s. Saudi Arabia recently saw bids for utility-scale solar at under $20/MWh, which is less than half Lazard’s lowest estimate for the range of solar LCOE ($46/MWh).

At an auction in Chile last year, a solar+storage project won at $34.40/MWh, which is a third lower than the lowest Lazard LCOE estimates for solar alone.

A company called ViZn Energy Systems, which uses flow batteries rather than lithium-ion, is promising $27/MWh solar+storage by 2023, when the Xcel projects are scheduled to be online. By comparison, Bloomberg New Energy Finance projects an average LCOE of a little higher than that for solar alone in 2030.

What broad averages like LCOE can obscure is that the value of renewable energy (and storage) varies widely from place to place and market to market. In places with competitive procurement of energy (still a minority of energy markets in the world) and good renewable resources, renewables are crushing fossil fuels, even natural gas. Every market like that is a leading wedge, allowing the industry to scale up faster and drive down costs in other markets. This drives a self-reinforcing cycle that analysts looking at averages miss.

That helps explain why reports that focus on real-world projects (“bottom up” reports) tend to be so bullish on renewables. For instance, the latest report on renewable energy costs from the International Renewable Energy Agency (IRENA), drawing on 15,000 data points from projects around the globe, concludes that by 2020, “all the renewable power generation technologies that are now in commercial use are expected to fall within the fossil fuel-fired cost range.” That’s only two years away!

The Xcel RFP in Colorado is a relatively small signal, but it is one of many sending the same message: renewable energy is not “alternative” any more. Costs are dropping so fast it’s difficult to keep track. It is the cheapest power available in more and more places, and by the time children born today enter college, it is likely to be the cheapest everywhere. That’s a different world.

Clarification, 1/18/18: I simplified this, perhaps to the point where it is misleading.

As part of its Electric Resource Plan (ERP) proceeding, Xcel developed two portfolios for bidding, based on two potential future capacity needs. Then, in August 2017, after extensive negotiation, Xcel and some 15 parties to the ERP entered into a “stipulation” that asked the PUC to let Xcel develop a third portfolio for bidding — the Colorado Energy Plan Portfolio (CEP), which is the subject of this post.

If the PUC approves the request (which it probably will), then Xcel will pursue the CEP, unless one of the other portfolios can shown to be materially less expensive (which it probably won’t).

Long story short: Xcel is probably going to pursue the CEP, but it’s not yet a sure thing.