Colorado, Coal, and the Stranded Assets Problem

Brief Overview

  • While coal’s share of generation has declined nationally, coal still dominates Colorado’s electricity sector, accounting for over 60% of the state’s electricity generation.
  • While Colorado’s overreliance on coal poses a threat to our state’s stable, livable climate, geologic constraints mean that coal is increasingly unaffordable and uneconomic to obtain.
  • Between 2004 and 2014, delivered coal costs in Colorado have increased 98% as productivity in the nation’s largest coal producing region has declined.
  • Coal is increasingly unable to compete with new wind and solar: while the cost of renewable energy falls, the nation’s formerly second and third largest coal companies are in bankruptcy.
  • Economic shifts and policy changes may result in coal reserves and coal-fired power plants becoming stranded assets, nonperforming assets that rapidly lose value or become liabilities.
  • Clean Energy Action is working with partners to provide financing strategies and regulatory options for Colorado so that it can avoid the stranded assets problem and transition to clean energy.

Coal Still Dominates Colorado

Colorado remains heavily reliant on coal for electricity. According to the U.S. Energy Information Administration‘s latest Power Plant Operations Report,

60.4% of electricity generated in Colorado comes from burning coal.

If you’re an Xcel Energy customer in Colorado, things are only slightly better:

More than half of Xcel’s electricity – 52.7% – comes from burning coal.

According to the state of Colorado’s most recent greenhouse gas inventory, electricity consumption accounts for 30.6% – nearly one third – of Colorado’s carbon dioxide emissions. Colorado’s emissions from electricity consumption mirror national statistics:

U.S. Greenhouse gas emissions by sector
Both nationally and in Colorado electricity accounts for roughly 1/3 of greenhouse gas emissions (U.S. Energy Information Administration)

In both cases, electricity is the largest single source of greenhouse gas emissions, with coal playing an outsized role.

Burning coal to generate electricity accounts for over a quarter (26.3%) of Colorado’s carbon dioxide emissions.

A Dangerous Overreliance

If Colorado proceeds with business as usual, by 2030 the state’s own Climate Plan predict that greenhouse gas emissions will rise 77% from 1990 levels.  Per capita emissions would only decrease a mere 12%, setting Colorado on course for a projected 6 degree Fahrenheit increase in average temperatures by 2050 and a 100 degree increase by 2100.

The corresponding changes to Colorado’s climate are likely to be dramatic, with state forecasters predicting that Denver’s seasonal temperatures will most closely resemble those of Albuquerque today. But beyond climate change, Colorado’s overreliance on coal is dangerous because coal is increasingly unaffordable and uneconomical to obtain, and unable to compete with new wind and solar.


Coal is an increasingly unaffordable for the Colorado consumers who have to foot the bill when coal prices increase. According to the EIA, the average cost of coal delivered for electricity in Colorado continues to rise. In the decade between 2004 and 2014, the average cost of delivered coal per MMBTU in Colorado rose from 97 cents to $1.93.

Over the 10 year span from 2004 to 2014, the average cost of coal delivered for electricity in Colorado nearly doubled, rising 98%.


Will this trend continue? Although some might blame the rising cost of coal on environmental regulations, the underlying reason for coal’s increasing cost is geologic.

In any mine, the coal that is easiest to access is mined first. Once this coal is removed, the next layer of coal is more difficult to mine. In the Powder River Basin strip mining that dominates U.S. coal production, as miners dig deeper along a coal seam increasing amounts of overburden, the layer of rocks and soil above the coal, must be removed. Due to these and other geologic constraints, production costs have continued and will continue to increase.

Powder River Basin labor productivity 2002 to 2013
As productivity falls, coal production costs increase. Productivity has fallen ~25% since 2002.

Nationally, coal’s share of the electricity market has fallen in recent years in part because the falling prices of competing natural gas, wind and solar. But it’s not just that competing sources of energy got cheaper. At the same time, due to these geologic constraints, coal itself has become more expensive to produce.

Together, cheap competition and rising costs have proven financially unsustainable for the coal industry. Two of the nation’s four largest coal producers, Arch Coal and Alpha Natural Resources, have filed for bankruptcy. Both Arch and Alpha Natural have relied on controversial “self-bonding” policies, to finance their mine reclamation costs. After passing financial stress tests, Arch and Alpha Natural were allowed to simply promise to complete reclamation without requiring financial assurance upfront.

In Colorado, $100 million in clean up costs, or 58% of reclamation costs, are self-bonded. Although the state has insisted that it is “moving away” from self-bonding, state regulators haven’t detailed how quickly they intend to move. What is clear is that as states do shift away from allowing coal companies to “self-bond”, costs for coal companies should increase. Rather than simply passing a stress test, coal companies will be forced to pay reclamation obligations upfront or pay insurance premiums on policies that cover the costs of reclamation.

Unable to Compete

As coal costs have risen, the costs of new wind and solar energy have plummeted. Lawrence Berkeley National Lab’s most recent annual report on wind energy shows an average power purchase agreement price of $.025 per kWh in Colorado’s region (the Interior Region). Solar power purchase agreements nearby in Texas are now dropping below $.04 per kWh. With the recent extension of tax credits for wind and solar, costs for wind and solar should continue to decline.

It is no surprise then that wind and solar play an important role in new generation capacity: in 2015,  wind and solar represented 61% of new generation capacity. More interestingly, at these prices, Colorado would do well to begin replacing old coal plants with wind and solar. The cost of new renewable generation should be less than the operating costs alone – without taking the price of coal into consideration – of continuing to run old coal plants.

Xcel’s Colorado Coal Fleet

Unfortunately for Coloradans, instead of taking old coal plants offline, the state has spent hundreds of millions of dollars them old with pollution control equipment. The 2010 Clean Air Clean Jobs Act approved a $380 million investment in nitrogen, sulfur, and mercury pollution control equipment for the Pawnee and Hayden power plants, while allowing the same plants to continue emitting the carbon pollution that causes climate change.

In addition, in the last decade Colorado has invested in Comanche 3, new coal plant and Colorado’s largest at that. The Colorado Public Utilities Commission gave Xcel approval to spend $1 billion on the 750 MW coal unit in Pueblo and to increase rates multiple times to pay for it. Clean Energy Action projects that Comanche will emit 250 Megatons of carbon – or more than half of what Colorado can emit if it is to meet the International Energy Agency’s 2 Degrees Celsius carbon budget.

Stranded Assets

Given the economic factors reviewed above and the urgent need for action to mitigate climate change, it is highly likely that Colorado’s coal plants – in particular the recent investments in pollution controls and Comanche 3 – will become stranded assets.

What are stranded assets? According to Oxford’s Smith School of Enterprise and the Environment stranded assets are “assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities.” In other words, when assets become obsolete prior to the end of their useful lives, they either rapidly lose their value or become liabilities. Assets can cease to perform or become obsolete for a number of reasons, including market shifts or policy changes.

If we are to limit the increase in global average temperature to 1.5 degrees Celsius or a more modest goal of 2 degrees Celsius, considerable amounts of fossil fuels must remain in the ground. According to Carbon Tracker,  “60-80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C.” A change in public policy that bars the extraction of these reserves would cause the reserves to become stranded assets on their owners’ balance sheets.

The same concept extends to the assets of utilities that are heavily reliant on fossil fuels. If utilities invest in coal and natural gas-fired power plants, they may be forced to shut down these plants early as states switch to renewable sources of energy. In this manner, these power plants can rapidly lose value, damage utilities’ financial performance, and spell higher rates for consumers. Proactively tackling this problem with financing strategies and regulatory changes has the potential to lessen the impact of poor investments in fossil-fueled power plants on ratepayers, climate change, and utilities’ own financial performance.

A 2016 study from the Smith School examines “environmental-related risk factors facing thermal coal assets” held by the 100 largest utilities by coal capacity. Xcel Energy ranks number 45. With its considerable recent investments in coal and natural gas plants, how can Colorado avoid being left with costly stranded assets?

The Path to Decarbonization

What will the pathway from carbon-intensive to clean electricity look like for Colorado and other Western states, and how will they finance it?

Working together with two former Colorado Public Utilities Commission Chairmen and clean finance experts from the Climate Policy Initiative and CREST Renewable Energy, Clean Energy Action is helping to develop an aggressive yet financially realistic pathway to decarbonization for Colorado.

The Project

Using Xcel Public Service of Colorado as a case study, this project will seek to:

  • Demonstrate how to most cost-effectively ramp up renewable resources and phase out fossil power plants by simulating how changes to Xcel’s system operations impact its business model
  • Identify financing strategies and regulatory options that achieve a meaningful transition to clean energy while balancing the interests of ratepayers, taxpayers and utility shareholders
  • Combine viable financial and regulatory options into an actionable toolkit that can influence energy planning decisions in Colorado and across the Western United States

The project’s findings should have broad relevance to investor-owned utilities, municipal utilities and other Western states as they seek to cost-effectively comply with the Clean Power Plan and deal with the problem of “stranded assets.”

Additional Resources on Stranded Assets

Kepler Cheuvreux Report: Stranded assets, fossilised reveues, $28 trillion of fossil-fuel revenues at risk in a 450-ppm world

Stranded Assets and Thermal Coal, An Analysis of Environmental-Related Risk Exposure, Smith School of Enterprise and the Environment, University of Oxford

Accelerating the transition from fossil fuels to a clean energy economy