Can a Renewable Goose Lay a Golden Egg in New Mexico?

The renewable goose refers to energy generated by wind, solar and batteries, but also hydrogen and ammonia production and carbon capture and storage (CCS). The golden egg would be funds paid to the state from revenues from wind turbine leases on public lands and taxes on renewable energy production in New Mexico. But to be the golden egg in the fairy tale, there would have to be a windfall from these sources.

There’s a windfall of money, but it’s coming from a different goose—the oil and gas industry—which contributed $15.2 billion to New Mexico’s revenue in fiscal year 23. That golden egg came from land leases and various taxes on oil and gas production, both state and federal. If oil starts to decline in 2025, when sales of electric cars and trucks are expected to boom, oil and gas revenues will start to fall. The big question is: Will new revenue from renewable energy sources fill the gap?

New Mexico is known as the Wonderland. But in terms of oil and gas, it is also the land of prosperity. The Delaware Basin, which lies in the southeast corner of the state, as well as western Texas, is one of the largest oil producers in the United States and one of the leading oil basins in the world. It has elevated New Mexico to second place after Texas and produces close to 2 MMbopd (million barrels of oil per day), which is 14% of total U.S. oil production.

But New Mexico’s desert geography also provides plenty of wind and sun. Because it’s largely desert, nine million surface acres (11.5%) and eleven million subsurface acres (14.1%) of the state’s 78 million acres were long ago designated for the state. That’s a major reason for the unexpected rise in oil prices, but it’s also a potential reason for the unexpected rise in wind and solar prices. Let’s look at the numbers.

How many wind and solar projects

According to a recent report, there are nine wind projects in the state. The largest is Avangrid’s El Cabo Wind, which is located on 40,000 acres and produces nearly 200 MW (megawatts) of energy. It could power 40,000 homes.

There are 20 other wind projects underway, many of which will take 3-5 years to come online. The largest wind project will be Pattern Energy’s SunZia project, which will generate 1,000 MW of power, enough to power 200,000 homes.

The combined total of current and future wind projects in New Mexico is 2,100 MW, clearly showing that SunZia is the dominant project. In contrast, solar projects, both operational and planned, total 400 MW—only about one-fifth of wind projects. Eight are operational and five are still in development.

It’s worth noting that the San Juan Generating Station, a coal-fired plant that was recently demolished, operated at 850 MW at its peak. And the Four Corners Generating Station, which produces 1,540 MW, is scheduled to close in 2031. So new wind and solar plants could replace both of those coal-fired plants, at least in terms of capacity. But they’re not direct replacements, since the SunZia wind project plans to send most of its power to Arizona and California.

New transmission lines

It’s one thing to build a solar farm or a wind turbine plantation, but it’s quite another to capture and transmit electricity to where it’s needed. To facilitate this transmission, New Mexico has an authority known as the Renewable Energy Transmission Authority (RETA). RETA oversees two projects in operation and four under construction. One is SunZia, which is building a line from the center of the state to the southwest corner, from where it will transmit 525 kilovolts (kV) of electricity to Arizona and California.

According to RETA, the transmission line will span 550 miles in New Mexico and be capable of transmitting 3,000 megawatts of power, which could power more than half a million homes. Interestingly, all of that power, while produced in the state, will be used in markets in Arizona and California when the project is completed in 2025 or 2026. So what’s in it for New Mexico, we wonder?

Revenues for New Mexico

In fiscal year 2023, the Legislative Finance Committee reported $15.2 billion in revenue for New Mexico from the extractive industry, primarily oil and gas. It is typically divided into land income, which generated $8.6 billion, and taxes, which generated $6.6 billion. The $8.6 billion portion of the land income allows for a comparison between oil and gas and renewable energy. The largest portion of the latter, about $6 billion, comes from federal royalties, rents, and premiums. The rest, about $2.6 billion, comes from state royalties, rents, and premiums.

The New Mexico State Land Office administers $2.6 billion in nonfederal oil and gas funds from the state. It also receives funds from renewable energy sources, wind and solar, but in fiscal year 2023, that figure was just $4.4 million. That $4.4 million was split between $3.85 million from wind projects and $550,000 from solar projects. The disparity is stark: 97% of the land office’s revenue came from oil and gas, while a paltry 0.16% came from renewable energy sources, and a whopping $6 billion in federal royalties, rents and bonuses makes that disparity much worse. There is no golden egg from the renewable energy hen in New Mexico.

Can renewable energy ever replace revenues from oil and gas?

A new study from January 2024 looks at 79 counties (not state counties) that produce significant amounts of energy in ten U.S. states. The data is based on local (not state) property tax revenues from fossil fuels versus renewables. For the counties studied, 82% of that revenue came from oil and gas, 8% from coal, and 2% from wind and solar renewables.

The main takeaway is that renewable revenues will not replace the loss of fossil fuel revenues due to the rise of electric vehicles and the like. This is partly due to the lack of available land for wind and solar farms. This can create a serious dilemma, since the primary funding for essential services like public schools, health care, and infrastructure often comes from fossil fuel revenues. In New Mexico, the legacy of fossil fuels is primarily oil and gas.

The study found that counties dependent on fossil fuels often receive $1,000 in government revenue per person per year, sometimes as much as $10,000. That’s why, with oil and coal production set to decline over the next decade, strong oil and gas counties will need to diversify their economies—finding new tax bases to maintain essential services as well as compensate for job losses.

How an Oil-Rich Nation Can Make a Viable Energy Transition

That’s the key question facing New Mexico lawmakers. Here are the key takeaways for the decision: First, global oil demand will start to decline by 2030, according to analyses by BP and others, detailed elsewhere. A key reason is the growing sales of electric vehicles, or EVs.

Second, New Mexico cannot rely on commercial expansions of solar and wind. While those are already happening, a dollar-for-dollar transition from oil and gas to renewable energy is impossible for New Mexico.

Third, lawmakers need to develop a broad catalog of potential diversification industries. Some examples, with companies already in the field, include IT or AI (Intel), new solar cell manufacturing (Maxeon and Ebon Solar), hydrogen production (BayoTech and Star Scientific), carbon capture and storage in numerous old oil or gas fields, and technology spinoffs from prominent state labs like Sandia and Los Alamos.

Fourth, a massive $479 billion in funding from the Infrastructure Act and Inflation Reduction Act has been made available by the U.S. federal government for new, clean energy and climate projects. States are already bidding on and winning massive contracts that will focus on addressing climate change, spawn new businesses, and create many new jobs.

Why Oil and Gas Companies Won’t Just Switch to Renewable Energy Production

The reason is simple. The internal rate of return is 20-50% for an oil and gas company when oil is $75-85 a barrel. That return dwarfs the 5-10% you can get from investing in wind or solar. While many investors are happy with a steady, risk-free return of 5-10%, that’s a pittance for large oil and gas companies that need to keep their stock valuations high.