by Brian Cassutt

Good policy attempts to fairly weigh the legitimate concerns of various stakeholders. Such are the challenges of setting the environmental goals of New Mexico’s electrical infrastructure. How do you balance the growth of the budding renewable energy industry with the need for utilities to stay financially healthy, while keeping energy affordable and reducing carbon emissions? This was the basic question asked throughout recent policy talks regarding PNM’s renewable portfolio and new solar incentive structure.


The talks resulted in a stipulated agreement that will be examined by the NM Public Regulation Commission over the coming months. The plan maintains heavy renewable portfolio investment in central wind, calls for PNM to invest in 45MW AC of central solar, contains an additional 10 MW AC of PNM financed solar distributed generation (DG), and provides for an incentive program to accommodate up to 24 MW AC (30 MW DC) of solar customer-financed DG. The Solar Performance Program, as it is called, provides a performance-based incentive to DG owners who sell their production in to PNM’s electrical system. The program will last for three years and will provide much needed stability for an industry that requires more certainty in order to continue to reduce the price of solar energy.

The incentive program is designed to decline steadily as investment is furthered and prices come down. The end goal for solar DG in NM is grid parity, the point where a kilowatt hour of electricity produced by a clean energy resource less the value of the environmental attributes costs the same as a kilowatt hour produced by traditional fuel resources plus the cost of pollution. Grid parity relies on the ability to bring down the price of solar along with the successful establishment of a price on pollution emitted into the atmosphere.

The plan shifts customer financed project incentives from a net-metering structure to a fixed incentive for each kilowatt a solar system produces. This allows DG owners to be mini power plants that provide energy that can be used closer to its origin. Solar DG owners will be able to provide this service by entering into a 15-20 year contract with PNM for all produced energy. The contract will offer a solar DG provider a reasonable return on invested capital in a well-constructed and maintained solar system. As the incentive is based on production, should a solar system not perform, the owner will cease to be paid. By paying the customer who has invested capital in a solar system over time, PNM is able to minimize the costs of clean energy to today’s ratepayers.

The agreement is a big step in setting the right policies and building the physical infrastructure for a successful solar industry and an affordable and clean electrical system in PNM territory. The importance of continued cooperation between the different stakeholders cannot be underestimated. In the quest to greatly reduce the amount of carbon produced by our electrical consumption, it is essential that the owners of the existing infrastructure (in this case PNM) remain financially stable and maintain the ability to improve the electrical system.

In order to do this, PNM must be able to attract investment, a cause helped by a secure regulatory environment and a safe return of capital. The stockholders of PNM are providing services to New Mexicans by paying for all the things that keep the power on 24 hours a day. In the future, it is important that those services begin to morph to accommodate high penetration of distributed resources as solar energy moves to grid-parity.

Many challenges still lie ahead. An incentive structure for DG systems is only half of the equation in DG development. The most daunting obstacle in renewable energy procurement continues to be the high front-end costs of the equipment. Many solar systems are warranted for more than 25 years, and will continue to operate at for much longer. Yet most solar system owners must come up with the cash up-front in order to make energy for years to come. The situation is equivalent to being forced to purchase 20 years of cell phone service upon the purchase of the phone itself. If this were the case, not so many of us would be carrying around iPhones.

Further development of financing techniques that spread out the costs of renewable energy systems over time is crucial. The recent creation of a Renewable Energy Finance District by Santa Fe County is a step in the right direction (see page…). Other counties and municipalities should explore forming districts as well.

Success will ultimately depend on developing solutions that work for electricity in NM. A system heavily reliant on fossil fuels is subject to world demand for commodities and the price fluctuations of world markets. NM has some of the best sun in the US for producing clean energy, and by beginning to develop a new electrical infrastructure today, we set our state for success in tomorrow’s world.

Brian Cassutt is the president of the Renewable Energy Industries Association. He holds an M.B.A from the Anderson School of Management. He can be contacted via e-mail at bcassutt@gmail.com.

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