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SunZia’s $2B dream still a gamble

A00_jd_21jun_Power-lines2Copyright © 2015 Albuquerque Journal

After seven years of trying, the SunZia transmission project finally received government approval this year to run parts of its planned 515-mile clean energy line across federal lands in New Mexico and Arizona, but whether the $2.2 billion project will ever get built remains an open question.

Its future hinges on whether developers can find utilities in other western states – primarily California – to buy the 3,000 megawatts of renewable energy the project would transport from wind farms and other clean generation sources in central New Mexico and elsewhere.

Without first signing “power purchase agreements” that commit utilities to buy the electricity, lenders will never approve the funding needed for energy developers to build the wind farms needed to provide power, much less for SunZia’s promoters to actually build the transmission line itself.

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SunZia Project Manager Tom Wray says California’s ambitious renewable energy and carbon reduction goals – which could soon include meeting 50 percent of electric demand with clean generation and reducing greenhouse gas emissions to 40 percent below 1990 levels by 2030 – will force utilities there to procure huge amounts of renewable generation from suppliers in New Mexico and elsewhere. Some of those suppliers would then, in turn, become SunZia customers seeking to transport their electricity to California.

“It’s reasonable to expect there will be power purchase agreements in place with utility customers somewhere in the early part of next year to put transmission agreements in place for us to get the financing to start construction,” Wray told the Journal.

“It’s a chicken and egg situation. Our customers have to consummate power purchase agreements with their customers for us to consummate agreements with them, but I believe those agreements will be in place by next year.”

Such optimism runs counter to what key California renewable energy officials and industry experts say about evolving renewable markets in the short to medium term.

And it seems particularly optimistic given that SunZia will potentially compete for business with other clean line transmission developers in New Mexico that, taken together, are proposing to build a total of nearly 10,000 MW of capacity to export wind power to California and other western markets.

“To put that in perspective, we have 21,000 MW of renewable energy in California now,” said Kevin Barker, chief of staff for the chairman of the California Energy Commission. “So, 10,000 MW of wind – that’s a lot of generation.”

Pictured are renewable energy components used by SunZia. (Courtesy of SunZia)

Pictured are renewable energy components used by SunZia. (Courtesy of SunZia)

The competition

SunZia and New Mexico’s other developers will also be competing against other states that want to sell renewable energy to California, Barker said. Those include Wyoming and Montana, which have even more abundant wind resources than New Mexico.

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In general, transmission and wind developers want to cash in on New Mexico’s gusty central and eastern plains, where a 2008 study by the Western Governors Association identified more than 11,000 MW of developable wind resources.

For that energy to be tapped, New Mexico needs transmission capacity to transport electricity to western markets, since the state’s wind potential represents about 75 times more wind-generated electricity than New Mexico alone can consume, according to the National Renewable Energy Laboratory in Colorado.

Apart from SunZia, local and national developers are proposing other big transmission projects. They include the 240-mile “Southline” through southern New Mexico and Arizona, the 900-mile Centennial West Clean Line through central New Mexico and Arizona, the 200-mile Western Spirit Clean Line to carry electricity from central New Mexico to the Four Corners transmission hub, and the 130-mile Lucky Corridor line from northern New Mexico to the Four Corners.

SunZia and the other projects combined would require more than $6 billion to build, plus about $20 billion more to develop all the wind farms needed to fill transmission capacity, said Jeff Mechenbier, Public Service Company of New Mexico’s director of transmission and distribution planning and contracts.

“Will all that get built? Probably not,” Mechenbier said. “All these folks would need to have some type of signed agreements with electric customers in place to borrow money to go forward.”

All the developers are pursuing federal and state permits, and negotiating rights of way with private land owners. SunZia is the furthest along, having received U.S. Bureau of Land Management approval in January for its line to cross federal lands.

It’s also the best known, in large part because of high-profile disputes with the U.S. Department of Defense over sections of line just north of White Sands Missile Range that the military feared would interfere with missile tests. That conflict ended when the Pentagon signed off on an agreement that required SunZia to bury some sections.

SunZia says its project would create thousands of construction and hundreds of permanent jobs while generating new state revenue through wage and property taxes. But for such promises to become reality, potential wind developers must first sign up utility customers in California and elsewhere, and that may prove difficult.

Trends feed optimism

Renewable energy developers are counting on forthcoming federal carbon regulations, and renewable portfolio standards in California and other western states to generate huge demand for clean energy in coming years.

Indeed, many coal-fired power plants are now curtailing operations in New Mexico, Arizona and elsewhere to meet environmental regulations, and many are expected to shut down in the near future.

“As coal plants close, it creates opportunities for New Mexico exports,” Wray said. “My belief is New Mexico’s wind resources are so good and reliable that it will replace a lot of lost generation.”

SunZia and others are considering the Arizona market, which has historically relied heavily on coal. But California is the primary target, given that state’s mammoth demand and its aggressive renewable goals.

California’s drought, which has severely reduced hydroelectric production, plus a new trend by huge industrial companies, such as Apple, to seek renewable electricity independent of utilities, are also feeding optimism about that market, said Sen. Martin Heinrich, D-N.M., who aggressively advocates renewable development at the federal level and is a strong supporter of SunZia and other transmission projects.

“There’s a large growth market in the renewable space with enormous potential,” Heinrich said. “Making sure we can get our wind resources to market can open up a lot of opportunities. And this is private investment coming into New Mexico, so it adds real value to the state.”

California take

Kevin Barker of the California Energy Commission said more opportunities are on the horizon for renewable suppliers. Efforts, for example, to convert much of California’s transportation system to electric vehicles to lower carbon emissions could become a “game changer,” he said.

But those are long-term trends that remain highly uncertain for now. And, in the short to medium term, California generally has enough renewable energy to meet both its current renewable portfolio standard of 33 percent by 2020 and its carbon-reduction goals into the early 2020s.

In addition, although California Gov. Jerry Brown has proposed raising the portfolio standard to 50 percent by 2030, that change must yet be approved by the state legislature.

“We feel we have enough renewables contracted now for investor-owned utilities to meet or exceed the 33 percent goal,” Barker said. “There’s potential for more demand in the long term, but with long-term scenarios there are a lot of uncertainties. … It’s difficult to see the future 15 years out.”

Moreover, even as new demand appears, California laws require its utilities to procure 75 percent of their renewables from in-state sources. And New Mexico producers face intense competition from renewable suppliers in other states.

“Hundreds and hundreds of projects that are already on the table in neighboring states are just sitting there because California doesn’t need the power right now,” said Norm Meader, a geologist with the Cascabel Working Group in Arizona, which opposes SunZia because of the project’s potential environmental impacts. “In 2011 alone, California utilities received 1,000 bids for renewable energy projects totaling 91,000 MW of capacity. Even Arizona developers who are right next door have only been able to sell two solar projects to California utilities for 440 MW.”

Other markets

The Arizona market could offer some demand for New Mexico wind and transmission services, but not nearly enough to fill SunZia’s 3,000 MW lines, much less the combined capacity offered by New Mexico’s other transmission projects.

Carmine Tilghman, director of renewable resources and programs at Tucson Electric Power – which is a minority participant in the SunZia project – said his utility would likely procure some New Mexico wind energy if it became available. But the future of SunZia and other New Mexico transmission projects depends on the California market, he said.

“We’re not big enough in Arizona to justify those lines, even with all of Arizona’s renewable energy needs combined,” Tilghman said.

SunZia and New Mexico’s other developers are betting on long-term growth in demand. But the short-term crunch could be a problem for SunZia, which aims to begin construction in 2018 and launch commercial operations by 2020 or 2021.

As New Mexico’s projects inch forward, it remains to be seen which will emerge as winners or losers. Lucky Corridor CEO Lynn Greene believes her project, which will cost only $320 million and sell into 11 different western states through the already developed Four Corners transmission hub, has a competitive advantage over SunZia and others.

“The folks who can deliver product to market at the lowest cost are the ones who will be bought first,” Greene said. “It will be very difficult to sell 3,000 MW with SunZia. With us, we’re only marketing 800 MW and we’re selling into a lot more states.”


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