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New Mexico energy transition proposed

Copyright © 2019 Albuquerque Journal

New Mexico is considering a foundational change in the way it generates and consumes electricity.

It’s an issue that’s been building for years and is now reaching its climax at the state Legislature, where a massive bill, known as the Energy Transition Act, proposes to completely replace all of New Mexico’s carbon-emitting generation with clean-energy resources over the next 25 years.

That means an end to all of Public Service Co. of New Mexico’s coal-fired generation, a steady phaseout of most natural gas plants, and the construction of utility-scale solar and wind farms, possibly accompanied by other renewable resources like geothermal power.

If the Legislature passes Senate Bill 489, which will be heard in the Senate Corporations & Transportation Committee today, it would make New Mexico a national leader among states pursuing clean energy grids.

It’s priority legislation for the governor, who campaigned on a clean energy economy, and for many of the legislators in the Democratic majority that controls both the House and Senate. And it’s supported by most mainstream environmental groups and by the state’s largest utility, PNM.

But there are questions and concerns about the impact on New Mexico’s economy, and in particular, the costs to utility ratepayers. While rates can be expected to increase over the years regardless of the change, PNM says they will increase less under this plan.

Apart from affordability, opponents question whether 100 percent carbon-free generation is even obtainable in 25 years, since solar and wind farms need a lot of backup power for when the sun isn’t shining and the wind isn’t blowing. Today, that backup is provided largely by fossil fuels like natural gas.

The bill includes a cost cap that limits new generation to $60 per megawatt hour of electricity generated. Wind and solar are already well below that cap, but if future technologies rise above it, utilities would be given flexibility in meeting clean-energy goals to keep electricity affordable for consumers.

Still, there would be significant costs for the Four Corners region, especially in San Juan County and on the Navajo Nation, which have relied for decades on the coal-fired San Juan Generating Station, the nearby Four Corners Power Plant, and coal mines connected to those plants to provide thousands of high-paying jobs and property tax income.

Local officials want the plants to continue operating, and the city of Farmington is pursuing an agreement with a New York-based investor to take over San Juan after PNM and most other co-owners abandon the plant in 2022.

But PNM and other bill supporters say the clean energy route is hands-down a cheaper alternative to fossil fuels that will save consumers money immediately, and over the long term, while reaping the benefits of a noncarbon electric economy that helps mitigate pollution and improves health and quality of life for New Mexico communities.

Coal expenses

Continuing to operate coal plants would drive utility costs up, said PNM Chairman, President and CEO Pat Vincent-Collawn.

“Overall costs for renewable energy are dropping, and we need to get in on that cost curve,” Vincent-Collawn told the Journal’s editorial board. “… It’s cheaper to go this direction than to keep the coal plants going.”

The costs for utility-scale solar and wind facilities have plummeted by 80 percent to 90 percent over the last decade and are now even cheaper than natural gas in many, if not most cases, said Natural Resources Defense Council Senior Attorney Noah Long, a key advocate for SB 489. And those trends are expected to continue into the future, making the transition to a clean energy grid more cost-effective going forward, Long added.

In contrast, coal is already far more expensive than solar and wind, and the investments needed to keep PNM’s aging plants operating will grow significantly over the years, said PNM Vice President of Generation Thomas Fallgren. That’s because of ongoing operation and maintenance costs to keep large, centralized facilities running, plus the high costs for the coal itself.

“It costs $66 million per year just for the fuel for San Juan,” Fallgren said. “And coal is a complicated business with high operating costs that’s manually labor intensive and equipment labor intensive.”

As an industry rule of thumb, utilities could save between $10 and $15 for each megawatt hour of electricity generated by switching now from coal to solar, wind or natural gas generation, Fallgren said.

Capital costs

There will be large capital costs to build new renewable plants, plus investments to modernize aging transmission and distribution systems while adding new grid-related infrastructure when needed.

PNM expects to spend nearly $500 million just for the 450 megawatts of replacement power needed once San Juan shuts down.

All of those investments will drive up utility rates for customers.

How much bills rise will depend on the actual resources PNM adds to the grid, particularly the backup power it chooses to fill electricity gaps caused by the intermittency of solar and wind generation.

PNM’s 2017 Integrated Resource Plan called for a lot more natural gas plants to replace coal going forward. That would add much more expense to the transition out of coal, and it would impede goals for 100 percent carbon-free generation by 2045, Long said.

But that plan was based on the state’s current Renewable Portfolio Standard, which requires public utilities to derive 20 percent of their electricity from renewables by 2020, with no mandates for non-carbon resources.

Under the standards outlined in SB 489, PNM says it would add very little natural gas to the system over the next 25 years, relying instead on existing gas plants through 2040, and increasingly on battery storage systems as backup for renewable intermittency.

It could add some “peaking” gas plants that are fired up only when electricity demand outpaces renewable generation, something the utility calls “flexible gas.”

“There’s potential for a limited amount of flexible, transitional gas resources to maintain grid reliability following the San Juan shutdown,” Fallgren said. “But we anticipate very little, if any, natural gas additions. We see battery storage very rapidly entering the picture.”

Battery storage systems are already available for short-term backup, and the technology is rapidly advancing for longer-term storage at cheaper prices.

Battery backup has fallen in price from about $1,000 per kilowatt hour in 2010 to $196 in 2018, and it’s projected to reach $70 per kilowatt hour by 2030, according to Bloomberg NEF and Barclays Investment Bank Research.

The current technology will help PNM achieve 50 percent renewables by 2030, but it will need more advanced battery technology to reach the long-term goal of 80 percent by 2040 and 100 percent carbon-free by 2045.

“That technology is not fully developed yet, but we expect it to be developed over the next 20 years,” Fallgren said.

Other factors

Other energy-related measures will help to keep transition costs down, said Noah Long. That includes new energy efficiency programs and updated building codes to lower electricity consumption or stem growth in demand, plus participation in the emerging Western Energy Imbalance Market, which allows participating utilities to purchase low-cost electricity when needed or sell excess generation to other states and use the income to lower customer bills.

Use of existing natural gas plants can also be re-scheduled to better coincide with the ebb and flow of electricity from renewables being added to the system, Long said.

To reach 100 percent carbon-free generation, SB 489 allows PNM and El Paso Electric Co. in southern New Mexico to continue using electricity from the Palo Verde Nuclear Generating Station in Arizona, at least through 2045, when that plant’s licenses begin to expire. At that point, PNM could draw on newer technologies under development, such as gas plants with carbon capture.

Perhaps most important, the entire 25-year clean energy timeline reflects the progressive decommissioning of PNM’s existing coal and natural gas plants, allowing the utility to simultaneously replace those resources with renewable, or non-carbon, generation.

Apart from the shutdown of San Juan in 2022 and Four Corners in 2031, all of PNM’s current gas plants are scheduled to close by 2040, with the first one shutting down in 2028.

In that sense, the renewable and clean energy build-out generally represents a replacement plan that transforms the grid, rather than a massive addition to it, Fallgren said.

“We think of it as energy transition, not energy addition,” he said. “It transitions the entire system over 20 years coinciding with the times when other resources need to be replaced anyway.”