The Future of Colorado’s Energy Industry

Among oil and gas, coal, wind, solar and other related businesses, Colorado boasts roughly 4,500 energy companies – a sizable part of our state’s economy.  The annual economic impact of our energy sector is roughly $17 billion, employing more than 250,000 workers. 

One reason for the strength of Colorado’s energy sector has been its breadth; in addition to the abundant fossil fuels found and processed in our state, we have also been a leader in renewable energy. But the balance has been changing, with solar and wind power gaining an increasing share of the market and fossil fuels being phased out, largely for environmental reasons. How will this shift affect Colorado’s economy over the next few decades?

Colorado was the fifth-largest crude oil-producing state and the seventh-largest natural gas-producing state in 2021, but every indicator points away from fossil fuels in the state’s future. Colorado's renewable electricity net generation accounted for 35% of the state's total generation as of 2021, and it continues to go higher.

Colorado leads the nation in wind energy generation, with wind power producing 27.9% of all electricity in the state. Wind power has gone from producing just over 100 megawatts in 2007 to more than 5000 megawatts in 2021. Solar, meanwhile, produced 39 gigawatts of power in February of 2015, and 381 gigawatts in May of 2022 – a tenfold increase in just over seven years. 

The Roadmap for Change

In May 2019, Governor Jared Polis unveiled his administration’s “Roadmap to 100% Renewable Energy by 2040 and Bold Climate Action.” Polis’ initiative highlights an important distinction to remember in discussing Colorado’s energy industry. His plans do not focus on the fulfillment of the state’s energy needs, but rather the need to “harness the consumer savings and economic benefits of leading the transition to a clean energy economy.”

Similarly, the Climate Action Plan to Reduce Pollution, passed by the Colorado legislature in 2019, states that Colorado should reduce 2025 greenhouse gas emissions by at least 26%, 2030 greenhouse gas emissions by at least 50%, and 2050 greenhouse gas emissions by at least 90% of the levels of statewide greenhouse gas emissions that existed in 2005. While these are admirable goals, they are more of an environmental policy than an energy policy.

The two are related, but they are not the same thing. In March 2023, the Colorado Department of Transportation released a report calling for more than 2 million electric vehicles on Colorado’s highways by 2035. The plan also calls for 1,700 public fast-charging ports and almost 6,000 level-2 chargers to be installed around the state. “By 2050, very high levels of electrification of vehicles will be needed,” the 2019 roadmap says, “with nearly 100% of all cars on the road being electric and a 100% market share for zero emissions trucks among new sales.” Electric cars have zero emissions and are thus generally considered better for the environment than gas-burning engines.

However, even though those cars don’t run directly on fossil fuels, that doesn’t make them carbon-neutral vehicles. The electricity for those vehicles still needs to be generated, and Colorado’s chief source of electricity remains coal. There are six coal-fired electrical power generating plants that remain in operation in Colorado. Almost two-thirds of the coal mined in Colorado is used for power generation within the state, which is why it remains a key driver of energy here.

The full breakdown for Colorado’s electricity sources in 2020:

• Coal (41.6%)
• Wind (26.5%)
• Natural Gas (25.5%)
• Solar (3.1%)
• Hydroelectric (2.9%)
• Biomass (0.3%)

Fossil fuels aren’t going away any time soon, if ever. While renewables have become more cost-effective, production of oil & gas products has as well. New drilling and extraction techniques have drastically increased the amount of oil and gas we can tap into. In the U.S. alone, oil reserves grew 59% from 2000 to 2014, while natural gas reserves nearly doubled. In addition to fracking, which has made natural gas much more accessible, the recognition of oil tar sands as an oil source has greatly increased the sources of fossil fuels in the past 20 years. Fossil fuels are obviously a more mature industry, but for every improvement in the efficiency of renewable energy, there may be similar efficiencies on the other side of the equation.

For this and other reasons, many observers also feel that it will be impossible to cease the production and use of fossil fuel by 2040, if ever. Colorado receives roughly $1 billion in annual oil and gas production tax revenue each year. Since much of the renewable energy is produced with state subsidies and tax breaks, the shift to renewables would require a rethinking of the state’s tax strategy as well.

Support for Renewables

Still, there are many factors affecting the growing presence of renewable energy. For one thing, there have been reports that green energy is now cheaper than fossil fuels. According to a June 2022 articles in Bloomberg BusinessWeek, “New onshore wind now costs about $46 per megawatt-hour, while large-scale solar plants cost $45 per megawatt-hour. In comparison, new coal-fired plants cost $74 per MWh, while gas plants are $81 per MWh.” The state government has provided many incentives for green energy, including offering qualified homeowners a tax credit of up to 30% against the cost of a home solar energy system. 

The state has set the goal of delivering 55% renewable energy to the state’s power grid by 2026, with a goal of 100% renewable energy by 2050. Xcel, the state’s largest electric utility, has announced its support for this goal.

But until at least 2050, we can expect to subsist on a mixture of fossil and green energy. There will be a need for both forms of energy well into the state’s future. Until the state delivers a plan for providing Colorado’s citizens with the energy they need, as opposed to simply managing the environmental side of the equation, market forces will likely continue the need for both forms of power.

One prime example of the mix of old and new is the Bighorn Solar 300-MW photovoltaic solar farm in Pueblo, which powers the EVRAZ Rocky Mountain steel mill. Bighorn is the largest onsite solar power plant for a U.S. industrial facility. It’s the first onsite solar power plant to be dedicated to a steel mill – the ultimate marriage of classic heavy industry and our green energy future. Perhaps they will be forced to coexist for some time to come.