A settlement has been reached in a lawsuit over millions of dollars in tax credits that were sought by developers of a proposed biomass power plant in central New Mexico that was once touted as part of the state’s push for more renewable energy.
Officials with Western Water and Power Production LLC and the New Mexico Energy, Minerals and Natural Resources Department confirmed this week that an agreement was reached at the end of March and the case was dismissed.
Details of the settlement are confidential, but Western Water and Power has been allowed to reapply for the credits. If the proposed plant is operational by the end of 2013, the company will be eligible to receive the credits beginning in 2016.
The company sued last year over the state’s decision to rescind $27 million in credits because of delays that pushed back construction of the plant.
David Cohen, co-owner of Western Water and Power, said he’s encouraged that the settlement will clear the way for the company to attract financing for the $125 million project.
“Financing has been a big burden because of the overall meltdown in the credit markets. We’re starting to see that easing now,” he told The Associated Press in a phone interview.
The company has a letter of intent from interested investors and is working on completing its due diligence. If the investors sign on, Cohen said construction could begin as early as this summer.
It’s been a long road for the proposed 35 megawatt plant.
Western Water and Power had made economic, political and regulatory headway after unveiling the project planned south of Estancia in October 2003. Former Gov. Bill Richardson’s administration even included the plant on a list showing progress in developing alternative energy projects.
But the company ran into trouble while trying to obtain an air permit and the tax credits from the state, and some residents and environmentalists voiced concerns about the project’s potential impact on air quality and New Mexico’s forests. The proposed plant would be fueled by wood and forest byproducts.
With the settlement approved, permitting in place and financing on the horizon, those concerns have been renewed.
Edgewood Mayor Bob Stearley said the idea of renewable energy sounds attractive, but state officials need to do a better job of establishing what qualifies as a renewable energy project.
“This ought to be defined in writing rather than leaving decisions on projects subject to just politics,” he said. “You take wind and solar, they clearly meet all three criteria for renewable, sustainable and clean. I just don’t believe that burning pinon and juniper meets any of those criteria.”
Critics also questioned how long the plant would be able to operate given the limited number of trees and other forest products in the area.
Western Water and Power argues that harvesting would be done responsibly and that the plant’s emissions would meet state and federal standards.
“This is a good clean project. There’s no two ways about it,” Cohen said, adding that his company has signed an agreement to sell the power to Southern California Edison.
California laws prevent utilities from investing in power plants with high emissions, but Cohen said the Estancia Basin Biomass Project has been pre-certified by California regulators.
Western Water and Power had initially planned to sell its electricity to New Mexico’s largest utility, Public Service Company of New Mexico. PNM backed out of a 20-year power purchase agreement in 2008 due to the plant’s permitting and financing delays.
New Mexico is among nearly three dozen states that have developed renewable energy portfolio standards requiring electric utilities to get as much as 25 percent of their power from renewable sources within the next decade. In New Mexico, this year’s standard for investor-owned utilities is 10 percent. That will increase to 20 percent by 2020.
“The delays affected us much greater than we expected and it did cost us a lot of money and it cost the ratepayers of New Mexico,” Cohen said.
Biomass electricity generation has potential, said Steve Michel, chief counsel of Western Resource Advocates’ energy program. However, he suggested that state and federal officials be cautious about awarding tax credits and other subsidies to projects labeled as renewable.
“You’ve got a limited amount of tax benefits that are available and you want to make sure they go to the most beneficial projects,” he said.
Cohen maintains that the Estancia Basin project would help the state meet its goal of encouraging renewable energy as well as create jobs in rural areas.
New Mexico’s renewable energy tax credits are capped at $20 million per year, and the next round of credits will not be made available for another five years.
Fernando Martinez, director of the state’s energy and conservation division, said several wind and solar projects are taking advantage of the current credits, and four projects are already waiting in line for the next round.
“There hasn’t been any legislation at all that has proposed raising the cap, and given the economic situation, that’s not going to change,” he said.