This is an extract from an article, “Facebook’s green energy goals are speeding the transition of New Mexico’s electricity sector” by Karl Cates, IEEFA Transition Policy Analyst; Seth Feaster, IEEFA Data Analyst; and Dennis Wamsted, IEEFA Editor and Analyst
In October 2016, Facebook Inc. broke ground on a 300-acre data-storage site in Los Lunas, N.M., creating a near-overnight boom in the community of 15,000. The project already has delivered remarkable local fiscal and payroll gains, and the 3 million square foot complex is still not completely built out. The data center has been a sudden force, as well, in the reshaping of how electricity is now generated in New Mexico—pushing the state to embrace a much-higher percentage of renewable energy much sooner than previously projected.
The particulars of the project’s many impacts are striking:
- The Los Lunas data center has supported upward of 1,000 construction jobs day in and day out, most of which have gone to local subcontractors.
- The center will require a staff of 200 to operate beyond 2023, along with a host of supporting vendors.
- Los Lunas’ gross receipt tax (GRT) revenues, the main source of municipal funding in the state, have increased by 85%, and dozens of new businesses and developments have come to town as a project byproduct.
- The data center in and of itself is driving a rapid shift toward renewable energy by Public Service Company of New Mexico (PNM), which is projected now to get 43% of its power generation from wind and solar by 2023, up from 9.7% in 2013.
- Coal, once the mainstay of PNM, will account for less than 7% of PNM’s power needs within two years.
- It could serve as a model for other communities seeking fiscal and payroll stability built on economic diversification and sustainable energy.
While the state of New Mexico gave Facebook ample taxpayer-supported incentives to build at Los Lunas, such incentives are not uncommon, and they do not always work. What sets the Los Lunas example apart is its clearly beneficial local economic impacts and its market-moving renewable-energy requirements.
“For us, it’s about honoring your land and your natural resources by powering our data center with 100 percent renewable energy,” the executive in charge of Facebook infrastructure public policy said when the expansion of the Los Lunas data center—from 970,000 to 3 million square feet—was announced in late 2017. This is not the full story, of course, and in fact is probably more spin than substance.
Facebook is a for-profit company whose shareholders—among the biggest of which include household-name institutional investors like Vanguard Group Inc., BlackRock Inc., and T. Rowe Price—expect a return on investment. The company’s mission is to make money. That said, its marketing and branding is built around the green-energy mantra that has become part and parcel of many companies’ reputational pitch today—especially across the technology sector. Intentions and actions don’t always intersect, but companies that combine market heft with progressive renewable-energy policies—companies like Facebook—can affect electricity-generation markets, and Los Lunas is a prime example. The data center is a game changer in how regional electricity markets are supplied. One condition of the company coming to New Mexico was that it would have ample access to renewable power, and regulators have greenlit PPAs for PNM to allow that to happen.
While it cannot be said that the Los Lunas data center is 100% electrified by renewables, its presence has made—and continues to make—PNM less dependent on conventional fossil-fuel-fired electricity than it has been historically. It isn’t possible to trace the origin of electrons on a power-distribution system, but the proportion by source can be known. The chart here shows how that proportion has changed in the past few years at PNM, and how it will likely continue to change.
The Facebook data center has been a major force in the trend shown in the chart, and PRC has approved several PPAs between the company and PNM. This excerpt from an approval order by the commission gets at the gist of the industry impact:
“PNM asks that the Commission approve purchased power agreements (“PPAs”) with: Casa Mesa Wind, LLC for 50 MW of rated capacity and associated wind energy and one MW of battery storage over a twenty-five year term (the “Casa Mesa PPA”), (2) Avangrid Renewables, LLC for 166 MW of rated capacity and associated wind energy over a twenty-year term (the “La Joya PPA”), and (3) Route 66 Solar Energy Center, LLC for 50 MW of rated capacity and associated solar energy over a twenty-five year term (“Route 66 PPA”).”
Those three PPAs alone total 267 MW of capacity, but still account for only about 60% of what Facebook requires from PNM.
The projection to 2023 showing PNM getting more than 40% of its generation from renewables is based in part on proposals for how the utility will replace the power that will be lost from the closure of the San Juan Generating Station in Farmington. That plant is part of an aging and increasingly uncompetitive fleet of coal-powered generators across the U.S. that continue to lose market share to cheaper gas- and renewable-powered generation.
While San Juan, scheduled to close in 2022, is being promoted as a model project for an expensive carbon-capture retrofit, that project stands little if any chance of success. And although New Mexico regulators have sometimes appeared bent on resisting the Energy Transition Act by, for instance, recently delaying action on approval of PNM’s San Juan replacement plan, utility-scale renewable expansion across PNM’s service territory will go forward in one fashion or another.
Market forces support it, and—bolstered by the Los Lunas example—political momentum favors it. Industrial-scale muscle is at play as well, as power companies and consultants recognize and act on advantages of geography and place. Two publicly traded energy giants, NextEra Energy Inc. and Avangrid Inc., own wind and solar farms supplying Los Lunas.
The chart below shows how important the data center has been—and remains—to the buildout of renewable energy in New Mexico.
The Village of Los Lunas, through a combination of luck, open-mindedness, and geographic happenstance, is in many ways the envy of any number of communities seeking fiscal and payroll stability built on economic diversification and sustainable energy models. One point of note on the PPAs in New Mexico: They include protections that prevent PNM from shifting costs for supplying Facebook onto other ratepayers, language that was recently put to the test and that the PRC ruled PNM must honor.
A potential model for other communities
Many small cities and towns across the Southwest are natural site choices for future data center projects. One logical candidate is Farmington, N.M., of special note because it is the community that will be most directly affected by the retirement of San Juan Generating Station. That plant’s closure will have serious public fiscal impacts and it will affect a sizable, skilled workforce. The Farmington area—like Los Lunas—is well-connected to transmission lines and is in one of the most solar-rich regions in the country.
Data-center development can be seen regionally also as a powerful argument for investing in full broadband Internet infrastructure for places that don’t yet have it— places that include LeChee, Ariz., near where Navajo Generating Station (NGS) closed last year with harsh local economic effects; Kayenta, Ariz., where the shutdown of the NGS coal source mine, owned by Peabody Energy Corp., had similar consequences, and the Tuba City, Ariz., area, where tribal governments would very likely embrace such investment.
A key consideration in data-center development is that it requires large tracts of land. Data centers are located in rural, small-town or semi-suburban areas for a reason: The Los Lunases, Kayentas, Farmingtons and LeChees of the world have acreage in abundance (including brownfields), and most have underdeveloped renewable resources in spades, too.
Of course, the Los Lunas model need not be restricted to the sunniest states of the country. In Wyoming and Montana, where Powder River Basin coalfield communities are being hammered by the collapse of the coal industry, solar and wind, especially, remain rich and underdeveloped resources. The same can be said of the Midwest, the Southeast and parts of coalfield Appalachia.
Tech giants that will require more and more data-center capacity tied to renewables can find skilled workforces, inexpensive land, and extensive transmission infrastructure in all these locales.
The Los Lunas project serves also as a scaled-up model of economic diversification in a state that—like many states—has long been overly reliant on the fossil-fuel sector, a situation that in recent months has laid bare the peril in depending too much on high-risk boom-and-bust businesses like gas and oil.
The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. www.ieefa.org