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Xcel Energy Inc.'s (XEL - Analyst Report) operating division, Southwestern Public Service Company, in an effort to boost its renewable portfolio is seeking approval from the New Mexico regulators to procure 700 megawatts (MW) of wind capacity via three power-purchase agreements.

The agreement with NextEra Energy Inc. (NEE - Analyst Report) entails wind energy purchases from separate facilities in Oklahoma, Texas and New Mexico, which will increase Xcel Energy’s wind capacity by 14%. The deal includes buying 199 MW from NextEra Energy’s Mammoth Plains Wind Energy Center in Dewey and Blaine counties, Okla., 249 MW from the Palo Duro Wind Energy Center in Hansford and Ochiltree counties, Texas and 250 MW from Infinity Wind Resources/Roosevelt Wind Ranch in Roosevelt County, N.M.

These purchases will reduce fuel costs for customers in Texas and New Mexico. Xcel Energy estimates the deal will lead to savings of $590.4 million over 20 years. The additional contracts are expected to double its wind asset base and will bring the total Texas-New Mexico wind capacity in excess of 2,200 MW.

The latest initiative comes on the heels of the extension of the wind production tax credits, which prompted Xcel Energy to make such a move. The company stated that the price per megawatt-hour of energy produced by wind generation is lower than that of natural gas.

Xcel Energy already has a lofty wind energy capacity of 1,500 MW in its asset basket which is linked to its Texas-New Mexico transmission and distribution network. It procures over 600 MW through contracts from the network, which stretches across the Panhandle and South Plains provinces of Texas, six eastern and southeastern counties in New Mexico and parts of Oklahoma and Kansas.

Of late, Xcel Energy has been on a wind power procurement spree as is evident from its May 2013 plans for adding roughly 550 MW of wind capacity in Colorado in the period 2013 to 2016. The latest bid will help the company achieve the renewable generation goal of 30% by 2020.

With increasing preference for clean energy and government legislation to increase renewable generation, we believe alternative resources will continue to put pressure on fossil fuel based power generation. Currently, Xcel Energy carries a Zacks Rank #3 (Hold).

Other industry players well positioned in the market are Zacks Ranked #2 (Buy) Entergy Corp. (ETR - Analyst Report) and Calpine Corp. (CPN - Snapshot Report).
 

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