Innovation rarely occurs within institutions such as electrical utilities without government incentives. As the wind industry began to mature nationwide—wind farms were proving to be reliable, productive and economical—the state studied and monitored New Mexico’s wind potential, then made those maps and data available to developers.
Then in 2002, the state created a renewable energy production tax credit for wind and solar—offering developers a 1 cent per kilowatt hour tax credit. And in 2004, the Legislature passed the renewable portfolio standard, which created the requirement that utilities use alternative energy. (That law was also amended in 2007.)
But while nearby Colorado—whose wind farms are also concentrated east of the Rockies—has doubled its wind capacity in the past five years, New Mexico’s growth hasn’t been as dramatic, according to Craig Cox, executive director of the trade association Interwest Energy Alliance.
Again, the problem of transmission arises. And it’s a “chicken or the egg” problem: It’s difficult to build new wind farms without existing transmission lines, but it’s also hard to fund new transmission lines without new generating plants in the works.
“The most important issue is making sure stakeholders understand the importance of proactively developing new transmission capacity so we can build these resources for the future,” Cox says. “Once the economy revives, demand is going to grow again [for electricity] and we need to be ready.”
Cox notes that during a recession, demand for electricity tends to slack off; there’s simply not as much growth and demand, particularly in Sunbelt cities.
“With a strengthened economy and population growth, as well as international obligations [to cut carbon emissions], we’re going to need a lot more clean energy,” he says. “Wind energy is ready: We just need the proper infrastructure.”
That’s where the New Mexico Renewable Energy Transmission Authority comes in. Created by the Legislature in 2007 at the urging of Gov. Bill Richardson, RETA is tasked with helping to finance and plan electrical transmission and storage projects in the state.
With three staff members and a volunteer board of directors, the authority can issue revenue bonds that finance renewable energy transmission projects—though only 30 percent of the electricity being transmitted must be from renewable sources.
The transition from coal to renewable energy sources requires not only a shift in capital—but a change in business approaches. That’s according to a March 2010 report from Natural Capital Solutions (natcapsolutions.org), a nonprofit research firm specializing in sustainable business strategies.
According to the report, many utilities are making substantial commitments to procure electricity from renewable sources. But compared with what is possible, most of those commitments are “token”—they meet the minimum quota required by law rather than representing what is technologically and economically possible. In other words, utilities skate by in order to abide by state laws.
But certain factors will increase the economic attractiveness of renewable sources, such as wind. These include proposed federal taxes on plants that emit sulfur, nitrogen and carbon dioxide; regulation by the US Environmental Protection Agency of carbon dioxide as a pollutant; and export requirements imposed by European and other markets.
Increases in the value of water—a great concern in the arid Southwest—will also make coal-fired power plants, which use water for cooling and slurry lines, less feasible in the future.
RETA is one of seven transmission authorities in the United States, and it’s the only one with a renewable mandate, Jeremy Turner, the authority’s executive director, says.
Before being named the authority’s second executive director, Turner spent almost nine years at the New Mexico Finance Authority, the only other state entity structured similarly to RETA.
Although RETA is held accountable by the Legislature’s Financial Oversight Committee, both authorities were established by statute and, rather than reporting directly to the executive branch, they answer to—and have their budgets and bonds approved by—a board of directors.
“I do think New Mexico is well-poised, with our resources, to become an exporter of renewable power—we have probably 15 times the capacity in the state than we would ever use,” Turner says. “What that does is create an export market for us and, if we can do that, we can help stimulate development and help improve the economy in the state.”
But almost three years after its creation, RETA is still working on its first bond issue. With big green eyes that blink to punctuate a slow Wyoming drawl, Turner knocks softly on the conference table as he talks about the High Lonesome Mesa Wind Ranch.
That’s a 100-megawatt wind development in the central part of the state. The 40-turbine wind farm came online last summer, and the project’s parent company, Edison Mission Energy, is upgrading an existing transmission line from Willard to Belen. It already has a contract—or “power purchase agreement”—with Arizona Public Service to provide wind energy that will help that utility meet Arizona’s own renewable portfolio standard.
“The plant is already in operation, and it’s already generating electricity; upgrades on the line are already taking place and are expected to be finished by April,” Turner says. “Some future upgrades won’t be completed until 2013—but this is different from other projects in that it’s already there, and they’re already using an existing line that just needs to be upgraded.”
And if all goes according to plan, RETA will be financing the project with a $60 million bond.
RETA’s bonds are different from municipal bonds, Turner explains, because they are not funded by state or municipal taxpayers. Instead, the authority uses the project’s power purchase agreement—the legal and financial document between the wind farm and the buyer—to evaluate the plant’s planned revenues. Then RETA issues a bond on the public trading market.
Turner admits that while support for RETA was widespread, most people are watching this first bond issue closely—to see if the authority can actually pull it off.
“And we think we can, we’re getting close to that,” he says. Turner had hoped the final terms of the bond would be approved at the March 24 board meeting, but that’s not going to happen. However, he says, it will be wrapped up soon.
And once that first bond closes, he says, the authority will have a better idea of what kind of impact it can have on development in the state. It also won’t have to rely on cash from the general fund. If the High Lonesome Mesa bond goes through, RETA will stay afloat through June 2012.
Again, Turner taps the table. Softly. “Knock on wood.”