January 27, 2025

Future of Electricity Costs in Colorado  

Introduction

Colorado’s electricity sector is on the brink of rapid transformation. Driven by policy and propelled by new technologies and innovations, a large expansion to electricity generation is set to significantly reshape how much electricity Coloradans use, where their power comes from and, ultimately, how much they pay.

A recent report from the Colorado Energy Office (CEO), titled Pathways to Deep Decarbonization in Colorado’s Electric Sector by 2040 (referred to as the Pathways Report), estimates that achieving the state’s emission reduction goals will cost $108 billion through 2050. This figure reflects the investment required to more than triple Colorado’s electric generation and storage capacity—from 21,816 megawatts to 67,256 megawatts. Meeting these capacity goals will require adding 55,068 megawatts of new generation capacity (45% in storage and 41% in wind and solar) and retiring 8,669 megawatts of existing capacity (49% in natural gas and 48% in coal). The Pathways Report also explores six alternative scenarios aimed at achieving 100% carbon emission reduction. These scenarios carry additional costs, ranging from 20% to 42% above the baseline estimates, varying based upon the type of electricity resources being prioritized. Importantly, the report’s cost estimates do not include those of additional investments needed to expand transmission and distribution infrastructure.

Colorado’s long-term economic competitiveness will depend heavily on the cost and reliability of its power supply. Ultimately, electricity consumers, both households and businesses, will bear the costs of future power sector investments. This raises a critical question for policymakers and consumers alike: How will future changes to the electric power sector impact electricity prices?

Using publicly available reports and models, this analysis seeks to answer that question. It uses the key findings of the Pathways Report and integrates them with modeling tools developed by the electric regulatory agency, the Public Utilities Commission, to quantify the impact of future electric sector investments on electricity rates. While the results do not reflect the specific plans or modeling of any individual utility, they leverage the latest tools shared by the State of Colorado to inform policy discussions. This report does not address the feasibility of emerging technologies nor the reasonableness of assumptions underlying the results in the Pathways Report. 

Given the high cost of living in Colorado and the bipartisan interest in making Colorado more affordable, it is critical that energy policy discussions account for anticipated costs to consumers and compares those costs to anticipated benefits, such as emission reductions. Colorado leaders, businesses and residents share an interest in ensuring that cumulative impacts of policy decisions do not drive electricity prices to levels that strain households and businesses nor undermine Colorado’s economic competitiveness.

Key Findings: 

•  Driven by state policy mandates to reduce greenhouse gas emissions, electricity prices are projected to grow at more than three times the rate of inflation and nearly 13 times the growth rate from 2010 to 2020.
  •  By 2030 –
    • The average household will be spending $390 to $504 more annually due to rates outpacing inflation and historic trends.
    • All households combined will spend between $970 million and $1.25 billion more.
    • The average electricity rate will grow by 56%, from 12 cents/kWh to 18.4 cents/kWh. Rates would grow just 16% at a 2.5% rate of inflation and only 4% at the growth rate seen between 2010 and 2020.
  • Between now and 2040, electricity rates that outpace inflation and historical trends will have large costs for consumers.
    • Cost of $16 billion to $23 billion or between $6,400 and $9,280 more per household.
    • Cost of $16.3 billion to $23.5 billion or between $41,700 and $60,200 more per commercial business consumer.
    • Cost of $11.6 billion to $16.8 billion or between $770,000 and $1.1 million more per industrial consumer.
    • Though electricity prices have no reason to grow at the full rate of inflation, this comparison point is used because the Pathways Report does not offer a scenario driven solely by the most cost-effective technology.
    • Electric rate estimates are conservative as they do not include the costs of large new transmission and distribution needed to support the capacity buildout.
  • Higher electricity prices cause economic ripple effects. Though new spending on electric generation capacity will have isolated and temporary regional benefits, elevated electricity prices will have broad inflationary impacts on Colorado’s economy as demonstrated by dynamic economic impact modeling.
    • Economic impact in 2030 –
      • GDP slowdown of $2.6 billion
      • 25,000 fewer jobs
      • $1,380 decrease in real disposable income for a family of four
• Electricity prices surge because of large investments in new wind and solar, not because of natural gas prices. The Pathways Report indicates that electric power generation capacity per capita will double by 2040, growing from 3.4 kilowatts per Coloradan to 6.9 kilowatts. Larger levels of capacity are needed to meet current laws to 1) replace early retirements of coal and natural gas power generation, 2) add additional generation to account for lower capacity factors of renewables and 3) increase storage to accommodate the intermittency of renewables. 
• There remain important technical questions about the full cost and feasibility of the projected power sources needed to comply with state policy. The Pathways Report estimates that wind and solar will provide over 70% of Colorado’s electricity. However, that level of renewables relies on the assumption that remaining gas power plants will only need to run “a few hours each year.” It is unclear what the costs, operational challenges, and related emissions of such limited use might be. 

Modeling Consumer Electricity Prices 

Electric rate payers and consumers ultimately bear the cost of electricity investments. Most electricity markets, including Colorado’s, are regulated by a state Public Utilities Commission (PUC). Each electric utility must submit plans for how they will meet electricity demand and reliability standards while complying with state law. Once these plans are approved, the PUC authorizes electricity rate increases necessary for the utility company to cover costs and provide returns to investors. 

Although each utility submits its own plans and has a unique portfolio of investments impacting its rates, a recent state report sheds light on the trajectory of investments and prices in aggregate. The Colorado Energy Office’s 2024 report, titled Pathways to Deep Decarbonization in Colorado’s Electric Sector by 2040: An Analysis of Colorado’s Energy System in Meeting the State’s Clean Energy Goals (referred to as the Pathways Report), estimates the annual aggregate costs associated with investments in new electric generation capacity as well as the operation and maintenance costs of the overall system. The modeling of future costs was conducted in partnership with Ascend Analytics, using their proprietary model of the state’s electricity system.

While the Pathways Report provides a comprehensive evaluation of the electric generation resources needed to meet state policy goals and their costs, it does not estimate how the aggregate investments and operational expenses will translate into electricity prices.

Separately, the PUC commissioned an electricity rate forecasting model, termed the 30-Year Rate Model, which is publicly available for download on their website. This model was developed in partnership with Concentric Energy Advisors. The investment and operational cost projections from the Pathways Report were integrated into the 30-Year Rate Model by CSI to estimate the impact on electricity prices over the next 15 years.

Accurate and comprehensive electricity price and cost estimates are critical for transparency with ratepayers and voters. 

Integrated Modeling Framework – Electricity Price Projections