Public Service of New Mexico says new gas capacity beats out new renewables

Public Service Co. of New Mexico (PNM) told the New Mexico Public Regulation Commission in a June 13 report that new renewable energy capacity does not compete well with a new, 80-MW, gas-fired project that it wants to build at its coal-fired San Juan Generating Station.

PNM on April 26 applied with the commission for Certificate of Public Convenience and Necessity (CCN) to construct, own and operate an 80-MW, natural gas-fired peaking facility to be located near the San Juan Generating Station (SJGS) in Waterflow, New Mexico. PNM said it must add the 80-MW plant to comply with reliability requirements on PNM’s system. In addition, the plant will allow PNM to respond to supply and demand imbalances resulting from increased amounts of variable energy generation on the system and will provide capacity to partially replace then coal-fired SJGS Units 2 and 3 after their retirement. The 80-MW plant has been selected as the optimal resource addition at this time as the result of a competitive procurement process. To maintain system reliability, the 80-MW plant must be in service in June 2018 so that it will be an available resource during the 2018 summer peak season.

SJGS is one of the resources PNM’s system currently relies upon to provide required operating reserves. However, two of SJGS’s units will be retired in 2017, resulting in the loss of the operating reserves provided by those units and creating a need for additional reserve capacity prior to the summer of 2018.

PNM is requesting that the commission grant the CCN by Dec. 1, 2016. If the commission issues an order approving the CCN by Dec. 1, 2016, PNM said General Electric (NYSE: GE) the manufacturer of the two aeroderivative gas turbines for the plant, will reduce the price of the units by $500,000. This will result in a Certificated Estimated Cost of $86.3 million for the 80-MW plant.

The plant will be located on the site of SJGS, adjacent to an existing PNM switching station and transmission facilities, and near two major interstate natural gas pipelines.

PNM filed an application for a CCN to construct and operate a 187-MW combustion turbine plant at the same site, in a prior case. PNM filed a motion to withdraw that application on Feb. 12, 2016, based, in part, on changes in PNM’s load forecast and the impending loss of a wholesale customer, Navopache Electric Cooperative. Even though PNM’s load forecast is now lower, the factors that require PNM to add additional generating capacity by the summer of 2018, including system reliability requirements, remain. The current application differs from the dropped application in two respects:

  • the capacity of the proposed plant has been reduced from 187 MW to 80 MW; and
  • the proposed plant, although also gas-fired, will use aeroderivative turbines rather than a heavy frame generator.

The GE aeroderivative gas turbines that will be used in the 80-MW plant offer several advantages, including quick-start and remote operational capability with minimal staffing requirements. The plant will be air cooled to minimize water usage and will be equipped with air emissions control equipment, including a selective catalytic reduction unit to reduce nitrous oxides and a carbon oxidation catalyst to reduce carbon monoxide. The 80-MW plant will be able to cost-effectively operate at a set point as low as 20 MW.

Very low natural gas prices put renewables out of the money

In the June 13 report filed with the commission in this case, PNM said that on Jan. 13 of this year it issued a Request for Proposals (RFP) for 50 MW of renewable energy resources. Twenty firms submitted thirty-one bids for wind, solar or geothermal energy on Feb. 25. PNM analyzed the bids and conducted interviews with four firms that submitted bids. PNM has analyzed the top bids for 2017 resource additions to determine their potential cost effectiveness as system resources over twenty years and presented the results of the analysis in this report. “This compliance report presents PNM’s conclusion that none of the renewable energy resources identified in the RFP are cost effective as system additions in 2017,” the utility said.

PNM performed a system optimization with all of the best bids identified in Phase 1 available as new resource additions. This optimization assumed the current resource portfolio with the abandonments and additions approved in a prior case and PNM’s proposed 80-MW gas peaking plant at SJGS. None of the top bids from the RFP issued on Jan. 13 were selected in the least cost portfolio in this optimization.

To further test the conclusion of the portfolio optimization process, PNM also performed system optimizations with the top 2017 bids “forced in.” This means the resources represented by each of the top bids will be selected in all of the thousands of portfolios built in each Strategist computer optimization. The results of each of those tests has a higher net present value than the result of the optimization where none of the potential new renewable resources are selected.

Since the 80-MW SJGS gas peaking capacity is not an approved resource yet, PNM tested the conclusion that none of the renewable RFP bids are cost effective as system resources added in 2017 by performing a system optimization that did not include the 80 MW gas peaking capacity. The results of that optimization confirm that even if the 80 MW of gas peaking capacity is not approved, adding renewable energy in 2017 as a system resource would not be cost-effective.

The cost for the best solar bid from the 2016 RFP is lower than the cost of the solar facilities PNM installed in 2015 as a system resource. To understand why a solar resource was not selected in 2016 despite the decline in cost, PNM ran a system optimization using the natural gas price forecast PNM used in 2014 when the 40 MW of solar added in 2015 was identified as a cost-effective system resource. PNM’s gas price forecast in 2014 results in significantly higher portfolio costs than the current gas price forecast. A higher gas cost forecast increases the value of a new solar addition to PNM’s portfolio because it increases the gas generation cost that will be avoided by displacing gas generation with solar. If the current gas price forecast were as high as the forecast used in 2014, the best solar bid available for inclusion as a system resource in 2017 would be cost effective based on a Strategist optimization.

Said the PNM report: “Based on the system optimization analysis utilizing current resource and operational costs, no renewable resource bid received in the RFP was cost-effective as a system resource in 2017.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.