Part 2: Brass Tacks:  How the Recent PRC Ruling Will Affect Your New Mexico Solar Energy Project

As we discussed in our previous blog posted here on Dec 5, the New Mexico Public Regulation Commission issued an Order on November 20, 2013, which changed Rule 572 as discussed in the previous blog.

The question that often comes up is how this ruling might affect current owners of solar electric systems, as well as those considering an investment in solar energy.

As a preliminary procedural point, this decision appears likely headed for what could be several months or even a year or more of litigation.  We believe, as do many clean energy advocates, that the PRC exceeded its statutory authority when it arbitrarily chose different weightings for different forms of renewable energy.  There was no evidence in the record to support the weightings nor any authorization in the Renewable Energy Act that would allow the Commission to simply pick and choose such weightings.  This was not a decision that was within the scope of the original notice.  Nevertheless, it remains to be seen whether the Rule as it was just amended will even go into effect.  That is an important part of this analysis as well.

In order to assess how this ruling will be transmitted to everyday utility customers and owners of solar projects, one must understand how the process works.  Each year, the investor‑owned utilities are required to submit to the PRC a filing which lays out their current portfolio of renewable energy generation and the costs of that generation, as well as their plans for future projects aimed at future compliance.  They must also include the cost calculations associated with the existing and future projects.

Looking specifically at PNM’s programs, its solar programs for solar projects that are not owned by PNM helped it achieve the requirements of the Rule in a few important ways.  First, those projects, by definition are considered “distributed generation” projects, meaning that the RECs generated by those projects can be used to meet Rule 572’s requirement for distributed generation.  Assuming those projects are also solar projects, those same RECs also allow the utility to meet Rule 572’s requirement that a certain percentage of renewable energy come from solar specifically.  By diluting those requirements and including a 2:1 weighting for any distributed generation solar project, it means that an investor‑owned utility like PNM might be less likely to continue a program that extends the availability of RECs for customer‑owned solar projects beyond 2015.  In fairness, those programs were slated to essentially “go away” at about that point in time anyway.

How big a deal is a REC?

Currently, for small‑scale solar projects less than 10 kilowatts (most residential systems) and slightly larger projects typically carried out by small business owners, the value of those RECs is 4¢ and 5¢, respectively.  That means, for every kilowatt‑hour generated by a customer‑owned system, that customer receives the kilowatt‑hour of energy, thereby reducing the amount of energy they need to buy from the utility, but it also comes with the added benefit of a payment of 4¢ (or 5¢) for that same kilowatt‑hour.  While these amounts aren’t large, they can add up and almost always result in moderately favorable economics for customer‑owned solar.  Using 2013 prices for solar equipment, if the RECs were removed immediately, most projects would be financially a little less than “break even” propositions without the RECs.

The good news is that these changes unlikely to be implemented immediately, although the New Mexico Industrial Energy Consumers, and anti-renewables group active at the PRC, is clamoring for the change to be implemented immediately for the 2014 plan which is currently before the Commission for decision soon (in the next 30 days).  After that, the next filing for the utilities will be due in the summer of 2014.  No changes were requested by the utility to the current four‑year plan in the PNM service territory.  In other words, the 4¢ RECs will be available until they are fully depleted (as of this writing, there was approximately 1,000 kW of capacity remaining).  Once that amount is adopted, the REC price will step down one‑half cent to 3.5¢ per REC. Rumor has it that PNM does not plan to take utility-scale solar out of their plans for 2015 and beyond.

The important thing for you to remember with respect to your project is that once your project is commissioned, you will have the benefit of the eight‑year contract with the utility.  While the future of such programs is in question, if you have seriously considered a project, then now is the time to contract the system if you desire to lock down REC payments.  As long as your system is contracted and installed in 2014, it is unlikely that this ruling would affect your solar project in any way.