The Red Horse 2 plant near Willcox, was one of the first combined wind and solar projects in the country when it came online in 2015.

Tucson Electric Power is building its biggest renewable-energy project yet — a massive wind farm in southeastern New Mexico that will help the company more than double its generation of renewable energy by 2021.

The planned Oso Grande Wind Project will generate up to 247 megawatts of power, enough to power nearly 100,000 homes, TEP said. Currently, the biggest renewable-energy project TEP owns or buys energy from is the 72-MW Red Horse wind and solar project near Willcox.

Combined with other existing and planned wind and solar projects, Oso Grande will give TEP enough clean energy to power more than two-thirds of Tucson homes. The company has about 425,000 customers.

TEP — which just five years ago generated about 80 percent of its power from coal — will continue to add renewable-energy generation as it makes sense, said David Hutchens, TEP president and CEO.

“We are in the process of a drastic transformation and diversification of our fleet to much more efficient natural-gas plants, shutting down a lot of coal capacity and putting in renewables and energy-efficiency (programs), and that’s the balance that we see going forward,” Hutchens said.

San Diego-based EDF Renewables North America will develop the system for TEP, but the utility will end up owning the project through a “build and transfer agreement” at a cost of about $370 million, TEP said.

When the project is complete, TEP’s renewable energy production is expected to top 28 percent of its retail sales, more than double the state requirement for 2021 and approaching the 30 percent goal TEP has planned to achieve by 2030.

TEP originally issued a request for proposals for a wind farm with a capacity of up to 150 megawatts, but the larger project EDF proposed was too attractive to pass up, Hutchens said, noting that the developer already had studied the property for a wind project.

“Wind projects get much cheaper the bigger they get — they really reflect economies of scale, where with solar once you get past 10 or 15 megawatts its all the same,” Hutchens said.

“We’re basically being opportunistic here,” said Hutchens, adding that TEP is now looking to aim higher with its renewable-energy goals.

Another factor that added urgency to the deal, Hutchens said, was the scheduled phaseout of a lucrative federal production tax credit for renewables in the next few years.

As owner of Oso Grande — which means “big bear” in Spanish — TEP figures it will be eligible to reap about $250 million in tax credits, allowing the utility to recoup more than two-thirds of its cost over its first 10 years of operation.

Those savings will be passed along to TEP’s customers, though federal taxpayers will be footing much of the bill.

“This will be a big cost reduction, to bring this to our customers now,” Hutchens said.

No Arizona regulatory approvals are needed because TEP and other utilities have the authority to enter into agreements for generating facilities, Hutchens said, adding that TEP will have to show the wind farm was a prudent investment to recover its costs through future rates.

TEP referred questions about the status of the permit process for the new wind farm to EDF, whose officials couldn’t be reached for comment on Thursday.

TEP estimates that energy from Oso Grande will cost the company less than 3 cents per kilowatt hour delivered to its transmission system. By comparison, coal-generated power costs TEP about 6 cents per kWh.

Generation costs are just one component of rates customers pay, which also cover transmission, distribution and operating costs.

TEP’s system operations chief said the wind farm will help provide renewable power when the sun goes down and solar farms stop producing.

“This new wind farm will complement our many solar arrays, producing some of its strongest output during the morning and evening hours when we have little or no solar production,” said Erik Bakken, TEP vice president of system operations and environmental.

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The Oso Grande project will include 61 wind turbines installed on 24,000 acres southeast of Roswell, New Mexico. Construction is expected to begin later this year and the system should be online by the end of 2020.

The system’s output will be delivered to Tucson through existing transmission lines that connect to TEP’s transmission system in eastern Arizona.

TEP’s renewable energy portfolio currently includes 277 MW of community-scale solar resources and 80 MW of wind systems, complemented by 232 MW of rooftop solar arrays installed by customers.

Those resources produced energy equivalent to about 13 percent of TEP’s retail sales in 2018 — enough to power more than 117,000 homes for a year, the company said.

Over the next two years, two other large new projects are expected to come online, the 99-MW Borderlands Wind Project in western New Mexico and the Wilmot Energy Center in southeast Tucson, which will include a 100-MW solar array and a 30-MW battery storage system. Both projects are being developed through power purchase agreements with NextEra, which will own the plants.

TEP stopped burning coal at its H. Wilson Sundt Generating Station in Tucson in 2015, and in 2017, an old coal-fired unit at the San Juan Generating Station in New Mexico was shut down.

The Navajo Generating Station is slated to shut down at the end of 2019. TEP plans to exit another San Juan unit as its operations are expected to end by mid-2022.

TEP is installing a bank of high-efficiency natural-gas combustion engines at the Sundt plant to provide peak-demand power and has agreed to buy a gas-fired unit at the Gila Bend Generating Station from the Salt River Project, Hutchens noted. But environmental groups, including the Sierra Club, have pushed for TEP to move faster to cut fossil-fuel generation — including gas-fired generators.

Sandy Bahr, director of the Sierra Club Grand Canyon Chapter, said the new wind farm is a step in the right direction, and though she hadn’t reviewed the site plans, the use of existing transmission lines is preferable to building a new major power line.

“We’re glad to see TEP pursuing more clean energy ... to see them looking at something that doesn’t burn fossil fuel,” Bahr said.

And the Arizona Corporation Commission recently slapped a moratorium on the construction of new gas plants as it considers increasing the state’s current mandate that utilities get 15 percent of their energy from renewables by 2025.

Contact senior reporter David Wichner at dwichner@tucson.com or 573-4181. On Twitter: @dwichner. On Facebook: Facebook.com/DailyStarBiz

Reporter

David joined the Star in 1997, after working as a consumer and business reporter in Phoenix for more than a decade. A graduate of Ohio University, he has covered most business beats focusing on technology, defense and utilities. He has won several awards.