by Emma Foehringer Merchant
August 17, 2020

A few weeks ago, utility regulators in New Mexico unanimously approved a plan for the state’s largest electricity provider, Public Service Company of New Mexico, to eliminate coal power produced at the San Juan Generating Station from its energy mix.

New Mexico's 2019 Energy Transition Act requires carbon-free electricity by 2045. The utility, owned by PNM Resources, has pledged to reach that target a little earlier, in 2040. Under the law, PNM will also have to reach 80 percent renewables by that year.

Abandoning San Juan is a big step toward meeting those plans; the coal plant is the single-largest source of PNM’s generation. Per the decision from regulators last month, all that coal power will be replaced with entirely clean resources, with not one new gas plant in sight.

Instead, PNM will rely on 650 megawatts of new solar installations and 300 megawatts of battery storage developed by Hecate Energy, Centaurus Renewable Energy and others, which will come online before it eliminates the San Juan coal at the end of June 2022.

That will shift PNM’s mix to nearly 40 percent renewable by 2023, with just one coal plant — a 200-megawatt share of the Four Corners Generating Station — left on its books.

New Mexico's big new solar and storage projects

The portfolio New Mexico regulators approved included a 300-megawatt solar and 150-megawatt storage project developed by Centaurus Renewable Energy, a company that once worked in partnership with Clenera, and a 50-megawatt solar and 20-megawatt storage project developed by Hecate.

The portfolio, proposed by local advocacy group the Coalition for Clean Affordable Energy (CCAE), also includes an additional 300 megawatts of solar and 130 megawatts of storage from unnamed bidders. PNM is still negotiating with those developers.

For Centaurus, which is based in Idaho and has largely worked on projects in the Western U.S. alongside Clenera, it’s the company's first project in New Mexico and its first-ever storage project. Chicago-based Hecate has several storage projects in the works in Canada and California, but the project in New Mexico is its largest.

PNM had also proposed two standalone storage projects from Tesla and a partner, Albuquerque-based Affordable Solar Installation. Commissioners did not include those projects among those selected.

The portfolio approved by regulators is slightly more expensive than PNM’s preferred portfolio, which included 280 megawatts of natural gas alongside solar and storage. The approved portfolio will mean about 56 cents more per month for the average residential customer, though CCAE said ratepayers will see savings between $6 and $7 per month over current resources.

Regulators determined that the portfolio from CCAE was the most environmentally friendly of the portfolio options, while also meeting reliability standards.

The social costs of carbon dioxide pollution that will be avoided with the CCAE portfolio may also outweigh its additional costs, according to testimony in the case. And PNM’s proposal would have also required additional fuel costs, whereas CCAE’s renewables-centric plan does not.

The CCAE plan also prioritizes investment in the San Juan area, a priority of the Energy Transition Act.

“There's…legal justification for why the hearing examiner's picked something that was a little bit more expensive, and that was the crucial need to provide economic assistance to the community that will be most affected when the coal plant shuts down,” said Pat O’Connell, senior clean energy policy analyst at Western Resource Advocates. O’Connell previously worked as director of planning and resources at PNM.

All told, advocates expect the portfolio to bring $1 billion in investment to the Four Corners region.

PNM's reluctance on storage

Though PNM’s preferred portfolio included 130 megawatts of storage, the utility remains wary of a portfolio so reliant on that technology. PNM told Greentech Media that the chosen portfolio is “more costly and presents greater operational challenges than what PNM proposed.”

In testimony before regulators, Steven Maestas, the director of PNM’s wholesale power marketing group, said utility-scale storage is not wholly new to the utility. It has one storage project online so far, the 250-kilowatt Prosperity Energy Storage Project, which went into operation in 2011.

The resources proposed by CCAE are on a whole new level, however. During the process of making a decision on the portfolio, PNM argued it didn’t have the expertise to take full advantage of the higher levels of storage capacity and was more interested in taking a slow-and-steady approach that allowed prices to fall further.

But ultimately, the commissioners didn’t buy it. PNM’s hesitation on batteries, according to the decision, “is a cautious approach that a utility might reasonably follow in the abstract, but it is also an approach that is unnecessarily conservative.”

Other utilities, such as nearby NV Energy and Arizona Public Service, have already committed to storage targets at a much greater scale.

In addition to the renewable resources, the chosen portfolio requires PNM to incorporate 24 megawatts of demand response to meet load requirements, which the group suggested the utility do by adding to an existing program that now only has about 8 percent of total residential customers enrolled.

Regulators gave PNM 30 days after the filing of their late July decision to come to agreements on the remaining renewables contracts and file a demand response plan.

Building a just energy transition in New Mexico

Along with requiring that New Mexico transition its electricity sector, the Energy Transition Act mandated that the state provide new opportunities and investment in communities harmed by the shift from coal to renewables.  

Because of those requirements, regulators had to consider not only reliability, the renewable portfolio standard and cost in assessing the proper replacement resources for San Juan but also possible benefits to impacted communities.

Retiring the still-operating coal units at San Juan will cause the Central Consolidated School District, where the plant is located, to lose $3.5 million per year in property tax funding. That equates to nearly half the school district’s property tax revenues and about 4 percent of its total yearly revenues. The siting of projects in the approved portfolio would bring $447 million in investment to the district, among the highest of any of the proposed portfolios, according to analysis from regulators.

The jobs piece is a bit stickier. For decades, the San Juan Generating Station has been a significant source of employment for San Juan County and the nearby Navajo Nation. The importance of leaving those residents with new jobs and investment as PNM exits the plant has become only more acute amid the coronavirus pandemic — which has hit sovereign Tribal Nations, and particularly the Navajo Nation, especially hard.

The Energy Transition Act set aside millions of dollars to retrain those who lose their jobs as both the San Juan and Four Corners plants close (although the former may stay open). Beginning in 2026, a quarter of the employees working on building new electricity generation must also come from apprenticeship programs the state will create.

Over the three years of construction, the CCAE portfolio projects are expected to bring 1,200 jobs to the counties where they will be built. But large-scale renewables generally require fewer workers than do coal plants and mines, and those jobs tend to pay lower wages. “None of the resources is estimated to provide more than 10 long-term jobs,” wrote hearing examiners in their recommendation to the commission.

Environmental and clean-energy groups argue that the region's reliance on precarious coal-related jobs helps justify economic and energy diversification. The Energy Transition Act aims to help communities formerly intertwined with fossil fuels broaden local economic opportunities. That could include tourism and plant decommissioning, along with renewables development.  

Despite New Mexico having committed to transitioning away from coal, some still don’t want to see the San Juan plant shutter. The city of Farmington, located in San Juan County, has proposed partnering with Enchant Energy Corp. to outfit the plant with carbon capture and storage technology to allow it to continue operating under the new law.

That could mean 450 jobs sticking around, but also a fair amount of CO2 emissions.