PNM Sees Future with More Solar, Gas and Nuclear Generation

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Like other electric utilities in the Southwest, Public Service Company of New Mexico (PNM) (Albuquerque, New Mexico), a unit of PNM Resources Incorporated (NYSE:PNM) (Albuquerque), is reducing its reliance on coal-fired generation. Like its brethren around the country, PNM also is making plans to add gas-fired and renewable generation. What's a bit unusual about the utility's strategic resource plan is its preliminary finding that its future should include more nuclear power.

PNM does not want to build a new nuclear plant. Rather, it wants to increase its ownership of the existing Palo Verde Nuclear Power Station, located about 50 miles west of Phoenix. PNM will lose about 340 MW of coal-fired generation when it closes two units of the San Juan Generating Station by 2018. Increased ownership of Palo Verde emerged as a surprise winner in the utility's integrated resource.

"We need to strike a balance between cost to our customers, reliability and the environment," PNM spokesperson Susan Sponar told Industrial Info in an interview. "Palo Verde is a cost-effective resource because it doesn't emit carbon dioxide, and the plant is cooled by treated wastewater, not fresh water. Water use in the desert Southwest is an important consideration when assessing cost effectiveness."

The utility's integrated resource plan, which is updated every three years, identified Palo Verde as a cost-effective resource, partly because the plan contained several assumptions about future requirements to reduce greenhouse gas emissions from power plants. The model runs more than 1,000 simulations using various values for different resource options, customer demand scenarios, reliability, fuel costs and other inputs. The New Mexico Public Regulation Commission (Albuquerque) plans to vote on the utility's integrated resource plan next summer.

President Obama has instructed the U.S. Environmental Protection Agency (EPA) (Washington, D.C.) to issue a draft rule to reduce greenhouse gas emissions from existing fossil-fueled power plants by mid-2015. For more on that issue, see June 27, 2013, article - President Obama Unveils Ambitious Climate Action Plan. But PNM was working on its IRP long before the president unveiled his climate action plan this past June.

PNM has agreed to close units 2 and 3 at its San Juan Generating Station near Farmington, New Mexico, by 2018. That will remove about 884 MW of generation from the market. PNM's share of that lost generation is about 340 MW. In addition, PNM has agreed to install selective non-catalytic reduction (SNRC) equipment to lower emissions of oxides of nitrogen at San Juan units 1 and 4 by 2016. PNM will pay something less than $50 million to install equipment to reduce NOx emissions from units 1 and 4, which total about 897 MW of generating capacity. New Mexico utility regulators approved PNM's plan for San Juan in September.

PNM has long owned a 10.2% stake in Palo Verde, a three-unit plant with 3,810 MW of generating capacity. But that ownership stake does not include the energy PNM has been buying from Unit 3 on an as-needed basis. Now, PNM wants to acquire a 134-MW ownership stake in Unit 3. If approved by New Mexico utility regulators, PNM's overall ownership of Palo Verde would increase from 10.2% to about 15%. Roughly 20% of PNM's electricity comes from Palo Verde, but if it increases its ownership in the nuclear plant, about 30% of the utility's electricity will come from atoms.

The preliminary results of the modeling conducted by PNM indicated that gas-fired and solar resources also were cost-effective generation resources. Additionally, it would be cost-effective for the utility to add about 177 MW of gas-fired generation by 2018 and an additional 40 MW of solar photovoltaic (PV) by 2016.

"This is the first time that our models have selected solar to be part of the resource mix," Sponar said. "We were a little surprised by that. But the PV market has changed a lot in recent years--costs have declined and efficiencies have increased. The single-axis PV recommended by the model is more efficient than the stationary PV we have now."

PNM currently has about 22.5 MW of PV on its system. It is in the process of adding another 21.5 MW of PV this year. Separate from the recent resource modeling, the utility has sought approval from its state utility regulator to add another 23 MW of solar in 2014. "We have made a $180 million investment in current and planned solar PV," she added.

PNM's interest in building 40 MW of solar generation was welcomed by renewable energy supporters. The Santa Fe New Mexican newspaper quoted Tom Singer, an attorney with the Western Environmental Law Center: "Solar has passed a milestone with PNM because it made it into this portfolio strictly on costs. Solar was picked before natural gas."

The utility also is adding wind and geothermal generation to its resource portfolio. "There's been increased focus on the environment" since PNM's last integrated resource plan was finalized two years ago, PNM spokesperson Sponar said. "We're trying to get the balance right. We've been systematically reviewing our options as energy markets have evolved." In recent years, she added, low natural gas prices, falling prices for PV generation, and increased environmental control of coal-fired generation have shifted the utility's cost-effectiveness calculations.

Those cost-effectiveness calculations also have been shaped by other utilities' decisions to close coal-fired generators in the Southwest. Plant owners have closed, or have announced commitments to close, more than 3,500 MW of coal-fired capacity in the region by 2020. Nearly 1,600 MW of generating capacity at Mohave already has been closed. Besides PNM's San Juan plant closure, operators of the Four Corners, Navajo and Reid Gardner stations have announced their commitment to close more than 1,900 MW of generation at those units over the 2013-20 timeframe. Beyond 2020, additional coal-fired unit closures in the region are expected. For more on that issue, see October 18, 2013, article - Navajo Generating Station Looks for Favorable EPA Rule on Emissions Reductions.

"The North American Power market has been extremely dynamic, driven by low natural gas costs, plant closure decisions, announcements of new capacity, and decisions to install pollution-control equipment," said Brock Ramey, Industrial Info's manager of research for North American Power. "New-build coal generation is basically off the table, and we won't know for a few years what it will cost to retrofit the nation's existing coal generation fleet to meet carbon dioxide (CO2) emissions standards that will be proposed by the EPA. Palo Verde has long been a top-performing nuclear plant. Although there are a lot of uncertainties about disposal of spent nuclear fuel, if the price was right, why wouldn't you want to increase your ownership of Palo Verde?"

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