Solar project delays create hurdles for New Mexico utility

ALBUQUERQUE, N.M. (AP) — A utility in sun-drenched New Mexico is struggling to get enough solar-generated electricity as it prepares to shut down a coal-fired power plant amid supply chain disruptions, one of the problems threatening to delay or cancel projects around the world as pressure mounts to reduce carbon emissions and tackle climate change.

New Mexico law requires publicly owned utilities and cooperatives to roll into their portfolios more renewable sources and eliminate carbon emissions over the next two decades.

As part of that push, the San Juan Generating Station — a coal-fired power plant that has produced electricity for millions of customers in the Southwest for decades — was slated to close in June.

Public Service Co. of New Mexico initially proposed replacing the lost capacity with a mix of natural gas, solar and battery storage. The Public Regulation Commission instead opted for solar and storage to make up some of the difference after environmentalists pushed back on gas.

But utility executives have acknowledged bumps in the renewable energy road, citing a perfect storm of regulatory challenges, lengthier periods of unseasonably hot weather that affect demand and the supply chain issues.

Soaring material and shipping costs are being felt across a wide range of industries. When it comes to worldwide utility-scale solar projects planned for 2022, analysts with the independent research company Rystad Energy predicted in the fall that 56% of projects risked delay or cancelation due to the factors.

In New Mexico, utility executives on Thursday submitted a plan to state regulators aimed at ensuring adequate supplies to avoid rolling blackouts during peak demands this summer. One unit of the coal-fired plant would keep running through September.

The utility says state regulators would need to sign off within weeks to have enough coal to feed the plant for an extra three months.

After that? The ability to fill the gap left by taking more around-the-clock generation offline before renewable sources are ready remains uncertain.

Even if inflation eases, the Washington, D.C.-based Solar Energy Industries Association has said longer term solutions are needed. That would include diversifying the supply chain by expanding domestic manufacturing.

The New Mexico utility also is on the hook for finding enough renewable power to replace what will be lost starting in 2023 and again in 2024 when its leases for electricity from the Palo Verde nuclear plant in Arizona expire. Regulators have approved more solar and storage in that case as well.

PNM President and CEO Pat Vincent-Collawn said in a statement to The Associated Press that the utility has a responsibility to balance reliability, cost and the environment.

"This solution may impact the timing of our plans to close the San Juan plant, but it does not change our direction and goals for delivering clean energy to New Mexicans, and it keeps our commitments to provide a financially backed just transition,” she said.

Bringing more renewable energy projects online fast is the immediate challenge in New Mexico and other states, including California, where officials who run the state's main power grid have urged regulators to order utilities to significantly boost capacity over the next few years to ensure there's enough electricity to meet demands.

Blackouts in August 2020 were the first in nearly 20 years because of an energy shortage, putting California’s quest to have 100% of its energy come from renewable sources under more scrutiny. The electrical grid has seen some storage and transmission upgrades since then, but officials were still forced to call for voluntary energy conservation last summer.

In New Mexico, concerns first were raised in 2021 when it became clear that developers working on the solar and battery projects meant to replace the San Juan plant were defaulting. PNM said it analyzed numerous options and spent months securing firm electricity supplies from other utilities to help meet summer demands.

The other key is the continued operation of one unit at San Juan. Utility executives say the one-time temporary extension will keep the system reliable and helps control customer costs.

Without that option, PNM would have a negative 3.4% reserve margin. The historical reserve margin is 13%.

Having a healthy reserve is more important now with demands fluctuating amid extreme weather from climate change, the utility said.

Environmentalists also are acknowledging that keeping San Juan running through September may be necessary, but they stressed that the long-term solution needs to be ending the state’s reliance on coal and gas plants and passing more legislation to address climate change.

Tom Fallgren, PNM vice president of generation, said New Mexico's energy transition law adopted in 2019 made for good policy and provided a clear direction for the state. However, he said reliability and cost issues arise when people try to push too fast.

“That has the opportunity to derail the whole path to carbon-free,” he said. “Our caution when that bill was passed was 'Yes, we're all moving in the same direction, but let's do it responsibly so we all stay moving in the same direction.' And again, that voice has not been heard.”