Dive Brief:

• New Mexico regulators on Wednesday unanimously approved a plan to add renewable energy and storage to replace a portion of the San Juan Generating Station's capacity owned by Public Service Company of New Mexico (PNM).

• The portfolio includes 650 MW of new solar resources and 300 MW of battery storage, totaling over $1 billion in investments within the districts impacted by the San Juan plant closure. PNM, the state's largest utility and majority owner of the San Juan plant, had recommended a "hybrid" replacement scenario that would have allowed the utility to add 280 MW of gas-fired power alongside wind, solar and battery storage to replace its 497 MW retail share of the plant.

• Regulators' decision to choose the all-renewables portfolio was "basically unavoidable," Public Regulation Commissioner Cynthia Hall told Utility Dive. A 100% renewables portfolio was the only replacement option that fully satisfied the state's Energy Transition Act (ETA), passed last year, which requires the state to make an economically just transition to 100% carbon-free energy by 2045, she said.

Dive Insight:

A key question for New Mexico regulators in implementing the ETA has revolved around how to retire the San Juan plant while minimizing harm to local districts that have benefited for years from the facility's tax benefits and jobs.

The all-renewables option proved to be a "tremendous boon to the economic recovery for the area and the statute required economic values to be acknowledged," said Hall. On the ratio of capital costs to fuel costs and environmental attributes, the solar-plus-storage option beats out gas additions as well, making it the "superior choice" all around, she said.

The decision is estimated to bring 1,200 construction jobs to the area along with around $500 million each to two school districts that now receive benefits from the San Juan station. Independent developers will build out and own the solar and storage resources, while PNM will provide transmission and distribution services for the facilities.

PNM is still "reviewing all options to implement this decision while maintaining reliable power for our more than 530,000 customers," spokesperson Raymond Sandoval said in an email. "PNM is focused on strengthening our infrastructure to support the company's transformation to a 100 percent clean energy portfolio. We are continuing to examine all options to optimize our future energy mix and invest in our infrastructure to ensure the reliability of new energy resources we integrate into our grid."

Environmentalists across the state applauded the PRC's decision. Utilities, regulators and other stakeholders across the country are grappling with increasingly rapid coal plant retirements and whether to replace that capacity with centralized natural gas plants or distributed energy resources such as solar, wind and battery storage. Clean energy advocates say this decision marks a win for the latter option.

"The price of renewable energy has dropped to where it competes with gas," but the debate over replacement capacity in New Mexico "was really about reliability," Pat O'Connell, senior clean energy policy analyst at Western Resources Advocates, told Utility Dive. "And so this is a step in the transition towards a grid that doesn't rely on fossil fuels for reliability."

Hall agreed that the decision was a win for the reliability attributes of renewable energy and storage — "a first ... for our state."

Wednesday's ruling does not guarantee the retirement of the San Juan plant, however, just the replacement capacity for PNM's service territory. Carbon capture company Enchant Energy and the city of Farmington, New Mexico, are in negotiations with PNM and the plant's other owners to purchase the plant and retrofit it with carbon capture technology to prolong its life. San Juan was slated by PNM to retire in 2022. 

Enchant Chief Operating Officer Peter Mandelstam said the decision should not hurt the carbon capture project's viability — a sentiment echoed by intervenors in the case.

"Today’s PRC decision was very good and thoughtful public policy," said Mandelstam. "We at Enchant are very grateful that after this thoughtful public process the commission has decided that renewables and baseload carbon-free power is the way to go."

New Mexico's ETA requires the state to reach 80% renewable energy by 2040 and 50% by 2030, and leaves the door open for technologies like carbon capture and advanced nuclear to make up the additional 20%. The next step, said Hall, is reaching that renewable portfolio standard (RPS), and this decision has been "eye-opening" in terms of utilities' ability to make the transition from baseload power to renewables.

"Companies are welcome to exceed those [RPS] requirements and I would like to strongly encourage them to," she said.