STEEL FOR FUEL: OPPORTUNITIES FOR INVESTORS AND CUSTOMERS

This policy brief outlines the "steel for fuel" investment strategy, where utilities replace uneconomic fossil fuel plants with renewable energy assets. By shifting from variable fuel expenses (which earn no return) to capital investments in wind and solar (which earn regulated returns), utilities can increase shareholder earnings while reducing costs for consumers. Using Xcel Energy as a primary example, the brief discusses the role of competitive bidding, the difference between utility-owned assets and Power Purchase Agreements, and the regulatory environment in the United States.

• The "steel for fuel" strategy involves utilities shifting capital from uneconomic fossil fuel plants that require expensive fuel inputs to renewable energy plants, such as wind and solar, which utilize free fuel. This transition can increase equity earnings for shareholders and provide substantial cost savings for consumers by replacing fuel expenses with capital investments in "steel" (infrastructure).
• From a shareholder perspective, the strategy is attractive because fuel costs are typically "pass-through" expenses that do not earn a return. By substituting these expenses with capital investments in renewable energy, utilities can earn regulated returns on investment, which can improve earnings per share and share price values.
• Xcel Energy is cited as a pioneer of the "steel for fuel" approach, integrating wind and solar projects into its owned portfolio while retiring coal plants. The document notes that Xcel's investment in the Rush Creek Wind Farm and related transmission totaled approximately $1.2 billion, which exceeded the undepreciated investments remaining in its retired coal plants. Additionally, its plan to retire two coal plants at Pueblo included clean energy investments of about $2.5 billion.
• While many utilities use Power Purchase Agreements (PPAs) to acquire renewable energy from independent power producers (IPPs), this method results in utility expenses rather than investments. Consequently, regulators typically do not allow utilities to earn returns on PPA payments, and some debt rating agencies treat these payments as debt equivalence, affecting the utility's debt-to-equity ratio.
• The document emphasizes that competitive bidding is essential for ensuring the lowest-cost projects are selected. It warns that because utilities are often the sole buyer in these markets (a monopsony), regulators must manage these incentives to maintain competitive pressure and protect public and consumer interests.
• The transition to renewable energy is supported by policy mandates, with 29 U.S. states, Washington D.C., and three U.S. territories having adopted minimum renewable energy standards.

APA

Lehr, R., & O’Boyle, M. (2018). STEEL FOR FUEL: OPPORTUNITIES FOR INVESTORS AND CUSTOMERS. Energy Innovation. https://energyinnovation.org/wp-content/uploads/Steel-for-Fuel-Brief_12.3.18-2.pdf

Chicago

Lehr, Ron, and Mike O’Boyle. STEEL FOR FUEL: OPPORTUNITIES FOR INVESTORS AND CUSTOMERS. Energy Innovation, 2018. https://energyinnovation.org/wp-content/uploads/Steel-for-Fuel-Brief_12.3.18-2.pdf.

Wikipedia

{{cite report |last1=Lehr |first1=Ron |last2=O’Boyle |first2=Mike |title=STEEL FOR FUEL: OPPORTUNITIES FOR INVESTORS AND CUSTOMERS |publisher=Energy Innovation |date=December 2018 |url=https://energyinnovation.org/wp-content/uploads/Steel-for-Fuel-Brief_12.3.18-2.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{lehr2018steel, author = {Lehr, Ron and O’Boyle, Mike}, title = {{STEEL FOR FUEL: OPPORTUNITIES FOR INVESTORS AND CUSTOMERS}}, institution = {Energy Innovation}, year = {2018}, month = dec, url = {https://energyinnovation.org/wp-content/uploads/Steel-for-Fuel-Brief_12.3.18-2.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }