The State of New Mexico now has a total renewable generation capacity that is over 1 million kilowatts. This huge milestone for renewable energy in New Mexico would have not been realized so soon without the NM Renewable Energy Production Tax Credit (REPTC). The REPTC is not just a credit on taxes owed, it is a refundable credit and can be allocated at any time to a new owner of renewable electric generation. The program supports utility-scale wind, biomass, and solar projects by providing a refundable corporate income tax credit for companies that generate electricity from renewable energy resources.

For wind and biomass, the credit is applicable on the first 400,000 MWh of electricity in each of 10 consecutive taxable years. There is a 1 cent per kilowatt-hour (kWh) credit for wind or biomass, and between 1.5–4 cents per kWh for solar generation. For solar, the credit is applicable only to the first 200,000 MWh of electricity in each taxable year. To qualify, an energy generator must have a capacity of at least 1 MW and be installed before January 2018.

This innovative program involved collaboration between utilities, industry, and state government. It has resulted in long-term economic and societal benefits, leveraged private investment, and increased renewable energy deployment.

Making a Change to Renewables Easier

The Energy Conservation and Management Division (ECMD) of the State of New Mexico’s Energy, Minerals and Natural Resources Department develops and implements effective clean energy programs—renewable energy, energy efficiency, alternative fuels, and safe transportation of radioactive waste—to promote environmental and economic sustainability and to protect public health and safety for New Mexico’s citizens. In 2003, ECMD began implementing the REPTC with several distinct initiatives and a long-term strategy.

Quantifying the potential for renewable energy: The ECMD began this effort by developing “investment grade” wind maps for the state using an international firm whose reputation was acceptable to investment bankers. With this data, wind developers and investors became more comfortable in developing projects. Projects were advanced by at least three years because developers had reliable data at an early stage with which to base decisions.

The additional New Mexico 10-year production tax credit made wind and solar attractive investments. Since the inception of REPTC, 10 wind and 21 solar projects have been completed, leading to 2,246,000 MWh in annual energy production. There are now 794 MW of wind and 232 MW of solar operating in New Mexico. These projects created approximately $2 billion in construction activity over the past ten years. A waiting list for the tax credit includes another 677 MW of wind and 65.5 MW of solar.

Helping Utilities to Meet the RPS: The existence of REPTC has also made it easier for electric utilities in the state to cost-effectively meet the targets in the state’s Renewable Portfolio Standard (RPS). Senate Bill 418 was signed into law in March 2007 and added new requirements to the states RPS. Under the new law, regulated electric utilities must have renewables meet 15 percent of the electricity needs by 2015, and 20 percent by 2020. Rural cooperatives must have renewable energy account for 5 percent of their electricity needs by 2015, increasing to 10 percent by 2020. Renewable energy can come from new hydropower facilitates, from fuel cells that are not fossil-fueled, and from biomass, solar, wind, and geothermal resources. The REPTC has assisted utilities in meeting this standard by providing a fiscal incentive. Since October 2007, the REPTC has been a refundable tax credit and can be allocated at any time to a new owner of the renewable energy generation project.

Revenue generated by land leases: Utility-scale renewable energy projects have become a steady source of revenue for the State Land Office. The New Mexico State Land Trust receives direct revenue from leasing public lands to wind, solar, and geothermal power plants. The projects qualify for the tax credit for ten years, but continue to produce renewable energy far beyond the 10-year incentive, as state land leases are commonly up to 30 years in length. Projected lease revenue for the next 38 years from renewable energy and transmission projects is projected to be $574 million.

Renewable energy projects are also leasing private land. This has become an important supplemental income source for a number of ranchers. Land leases, construction jobs and permanent maintenance positions are additional ways that renewable energy farms are supporting rural communities. A wind turbine typically generates about $20,000 in annual income to farmers and ranchers. PV systems also generate income to the land owners.

A Net Economic Benefit

For wind and biomass, the credit is $0.01 per kilowatt hour (kWh) and applies to up to 400,000 MWh for each certified generator in each of ten consecutive tax years. The statewide cap of the credit for wind and biomass is 2,000,000 MWh of production per year. For solar, the credit ranges between $0.015 and $0.04 per kWh (an average of $0.027/kWh) and applies to the first 200,000 MWh for each certified generator in ten consecutive tax years. The statewide cap of the credit for solar is 500,000 MWh.

Maximum tax liability for the state each year for the wind/biomass and solar tax credits combined is $33,500,000. In contrast, as noted above, the revenue for the next 38 years from renewable energy and transmission projects for state-owned land leases is projected to be $574 million, which spread relatively equally over that time frame will be $15 million per year, and will continue for an estimated 28 years beyond the 10-year tax incentive.

Without this tax incentive New Mexico would possibly have a small amount of wind energy, but it would in no way been able to create the substantial land lease revenue it has now with many, large-scale wind farms throughout the state. Creating the REPTC was New Mexico’s planned approach to make the state RPS acceptable to all stakeholders. In turn, this tax incentive leveraged private investment to benefit New Mexico. Since the REPTC was instated in 2003, several other states have examined the NM REPTC as a model for creating their own programs.

Highlights

• The Renewable Energy Production Tax Credit Program has brought wind and solar developers to invest in New Mexico, leveraging state investments. Interest has grown to the point that the state now has a project waiting list and legislators are considering increasing the cap on the annual energy production available for this credit.
• As a result of the program, 794 MW of wind capacity and 232 MW of solar capacity have been installed, representing just the beginning of clean energy development in New Mexico.
• The long-term benefits of the incentive program far outweigh the costs of the ten-year incentive program, resulting in continued economic benefits from and investments in renewable energy in the state.

Learn More about this Program

The New Mexico Renewable Energy Tax Credit Program was one of eight recipients of the 2014 State Leadership in Clean Energy Awards, an initiative of the Clean Energy States Alliance (CESA) to highlight exemplary state and municipal programs that advance clean energy markets. (See my previous blog from November 24, 2014.) CESA will be hosting a webinar featuring this program on December 8^th. The webinar is free to attend, but registration is required. You can learn more and register here.