November 11, 2022

State’s largest electric utility seeks new generation sources amid energy transition

As New Mexico works to transition to clean energy, the largest electric utility in the state issued a new request for proposals, or RFP. This RFP asks developers to propose projects that could help the Public Service Company of New Mexico meet increasing demands for energy. 

Nicholas Philips, PNM’s director of integrated resource planning, spoke with NM Political Report about the RFP on Monday.

PNM will evaluate various factors in the RFP and the utility is looking for projects that can come online in 2026, 2027 or 2028.

Philips said PNM’s economic development department is inundated with requests from businesses that have either not operated within PNM’s service territory or have not operated in New Mexico and are now exploring expanding their operations and opening locations within the PNM service territory.

Another factor is the possibility that PNM could stop receiving power from the Four Corners Power Plant. 

Last year, state regulators denied PNM’s application to transfer its ownership shares of the coal-fired Four Corners Power Plant to Navajo Transitional Energy Company. The utility appealed the decision to the state Supreme Court and is still waiting for a ruling in the court case.

Should PNM prevail, the utility would no longer receive any electricity from coal-fired sources starting in 2024. Opponents of the transfer argued that it would allow the power plant to operate longer as NTEC would likely object to plans to close it sooner than 2031.

“Another piece of [the RFP] is just overall looking at our transition and trying to make sure that we always have enough resources to meet the reliability and resiliency requirements of our system,” Philips said. “As we add more resources, we’re going to make sure that we’re bringing on the right combination of resources and we want to make sure that we can continue providing a safe and reliable service for our customers.”

The Energy Transition Act requires state regulated electric utilities to increase the amount of clean energy resources with the goal of being carbon free by 2050.

PNM boasts that it has surpassed the 50 percent renewable energy goal.

While solar, wind and battery storage will be a focus going forward in order to meet ETA goals, Philips said PNM expects to receive bids for natural gas resources.

“We do not think natural gas is off of the table in terms of our resource portfolio going forward,” he said.

However, new natural gas resources will not play the same role on PNM’s system as past projects have played.

Philips said new natural gas projects will be used for reliability and PNM will favor projects that could be converted later on into a clean, non-emitting resource. That could mean converting a natural gas plant to hydrogen.

Hydrogen has gained increasing attention over the past couple of years, although some environmental groups view it as continuing the reliance on fossil fuels. Hydrogen derived from natural gas can also mean continued emissions, including at well sites.

Philips said PNM is looking for bids both for power purchase agreements—which are projects owned by a third party that PNM has a contract with to buy power from—and projects that PNM could own and operate.

PNM is especially interested in projects that would be located on the Navajo Nation, which Philips said is important to ensuring an equitable transition from fossil fuels.

While the Navajo Nation is outside of PNM’s service territory, historically Navajo workers have played an important role in ensuring people throughout the state received reliable power. Additionally, the Four Corners Power Plant is located on Navajo Nation lands. 

“We need to make sure we’re still working with those communities and helping them transition,” Philips said.

As PNM looked to transfer its ownership to NTEC or find other ways to end its use of the Four Corners Power Plant, it committed to setting aside a shortlist of projects that could be developed on Navajo Nation, Philips said.

The RFP also comes as the national conversation surrounding transitioning from fossil fuels has included methods like hydrogen generation and geothermal energy, however Philips said he anticipates this RFP will mainly lead to more wind, solar, battery storage and natural gas.

He said PNM has issued requests for information about projects that could come online between 2028 and 2033 as well as emerging technologies.

“We did see in those responses things such as geothermal plants such as hydrogen, such as other forms of storage—pumped hydro storage, compressed air energy storage, concentrating solar storage, and a number of other different types,” he said.

But, in the near term, Philips said PNM will be looking at resources that are “tried and true” and that can be brought on in 2026, 2027 and 2028.

He said federal tax incentives may make hydrogen a more cost effective resource in the future, but historically it has been viewed as a way to reach the final 10 percent of decarbonization goals.

“We’re looking at this as a transition and trying to make sure that we’re keeping everything, all the options on the table, and showing a way to transition the system over time to meet these carbon free goals. It’s not something that has to be done instantaneously, overnight,” he said.

The RFP also comes as PNM is facing potential resource shortages next summer due to delay in solar and energy storage projects that were intended to replace the power the utility received from the San Juan Generating Station.

Because of that, PNM is requiring developers to show firm proof that their projects can be operational when they are needed.

Philips said PNM is offering multiple timeframes for developers to meet. 

Bids for projects that will come online by May 1, 2026 are due by Jan. 5 while bids for projects that can come online by May 1, 2027 or May 1, 2028 are due by Feb. 1.

The New Mexico Public Regulation Commission must approve any project that PNM pursues.

The PRC is about to transition from an elected to an appointed body. While Philips said it is still unclear how the new commissioners will view projects, the rules remain the same.

The current elected PRC body backed a 100-percent renewable portfolio for replacing the electricity from the coal-fired San Juan Generating Station rather than going with PNM’s initial proposal, which included natural gas.