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Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
Final Report
New Mexico Energy, Minerals & Natural Resources
Department
February 2015
State of New MexicoEnergy, Minerals and Natural Resources Department
N E W M E X I C 0Susana MartinezGovernor
F. David MartinCabinet Secretary
Brett F. Woods, Ph.D.Deputy Cabinet Secretary
February 20, 2015
The opportunity presented by renewable energy is a significant component of New Mexico’seffort to diversify our state’s energy portfolio. For over a decade, New Mexicans have continuedto incentivize the development of renewable energy opportunities through tax credits. Theattached report is the first-of-its-kind effort to examine if those incentives are producing theresults that help New Mexicans generate jobs and a century energy infrastructure forrenewable energy.
From working with New Mexico’s energy stakeholders, the Energy, Minerals, and NaturalResources Department (EMNRD) issued a request for proposals for a comprehensive analysis ofthe state’s Renewable Energy Production Tax Credit (REPTC). EMNRD chose the firm HDREngineering to complete the study.
Few states have attempted to comprehensively quantify the costs and benefits of energy taxsubsidies and policies. One of the reasons for this absence of cost/benefit studies may be thatthere are many factors that contribute to project development, and these are difficult, if notimpossible, to disentangle. For example, when deciding where to site a project, renewable energyproject developers consider resource location, policies such as renewable portfolio standards,permitting requirements, federal and state financial incentives, power sales opportunities, andother critical elements such as access to transmission. As you will read, these challenges alsoexist as we examine New Mexico’s REPTC.
The REPTC study completed clearly shows that renewable energy projects bring economicbenefits to the State of New Mexico in the form of revenue, employment, and emissionsreductions. What the study does not—and cannot—show, however, is how many of thesebenefits are directly due to the REPTC; in other words, it does not answer the question of howmany of these projects would have been built in absence of New Mexico’s renewable energycredit.
The existence of New Mexico’s Renewable Portfolio Standard (RPS), which requires investor-owned utilities to produce 20% of electricity from renewable energy sources by 2020 (and ruralelectric cooperative utilities to produce 10% of electricity from renewable sources in the sametimeframe), suggests that a number of the renewable energy projects in the state that are claimingthe credit, or are on the credit waitlist, would have been built or planned in the absence of thecredit. It is therefore misleading to ascribe the economic and environmental benefits of theseprojects solely to the credit, as HDR points out in its analysis.
IEnergy, Minerals and Natural Resources Department
1220 South St. Francis Drive• Santa Fe, New Mexico 87505Phone (505) 476-3355• Fax (505) 476-3361 • www.nmparks.com
When contemplating the future of this credit, which will expire January 1, 2018, it is alsoimportant to consider how the costs for wind and solar technologies have decreased since thestate credit levels were established in 2002 and 2007, respectively. According to data from theU.S. Department of Energy and Lawrence Berkeley National Laboratory, the cost for utilities topurchase wind energy has declined by more than half over the last five years, and wind energypower purchase prices are reaching parity with fossil-fuel generated electricity sources. Solarenergy’s costs have decreased dramatically in the same timeframe, and solar project costs inNew Mexico alone have decreased 50% between 2011 and 2015. Regardless of the level of thebenefits renewable energy projects may bring to the state, it is time to revisit the credit rates tobetter align them with current market realities for wind and solar technologies.
In sum, the HDR study presents a retrospective analysis of the REPTC that illuminates someinteresting insights and affirms that renewable energy development makes tangible contributionsto New Mexico’s energy economy. However, the caveats that HDR presents with their analysisare important to keep in mind when interpreting the results.
Cj’
David MartinCabinet SecretaryEnergy, Minerals and Natural Resources DepartmentState of New Mexico
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Contents Introduction.................................................................................................................................................... 1
Data Collection .............................................................................................................................................. 5
Analysis of REPTC Tax Expenditures .......................................................................................................... 7
Economic Analysis Approach...................................................................................................................... 12
Estimation of Economic Impacts ............................................................................................................. 12
Key Concepts in Economic Impact Analysis ....................................................................................... 13
Economic Impacts Estimated in this Study .......................................................................................... 14
General Approach to Economic Impact Analysis ................................................................................ 14
Results – Generalized Multipliers of Economic Impacts ......................................................................... 15
Estimation of Pollution Impacts, Volumes and Monetary Value .............................................................. 17
Economic Analysis Results ......................................................................................................................... 19
Results Interpretation: Limitations ........................................................................................................... 19
Survey Results Summary ........................................................................................................................ 19
Economic Impact Results Summary ....................................................................................................... 21
Pollution Impacts Summary ..................................................................................................................... 24
Economic Analysis Summary .................................................................................................................. 26
Conclusions ................................................................................................................................................. 28
Appendix A
Appendix B
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Introduction The State of New Mexico’s Renewable Energy Production Tax Credit (REPTC) was first enacted in March
2002 and became effective July 1, 2002. While the New Mexico Taxation and Revenue Department
(TRD) tracks some of the costs in its annual tax credit review, little research has been done to quantify
the benefits the credit accrues to the State of New Mexico and how those compare to the costs in
foregone state revenue. In response to feedback received during listening sessions held for the purpose
of updating the State’s Energy Plan, the New Mexico Energy, Minerals and Natural Resources
Department (EMNRD) requested economic analysis of the costs and benefits of the REPTC, including the
extent of the economic activity it generates. In support of this request, HDR was contracted to undertake
an economic analysis of the REPTC.1 The analysis that follows provides a useful summary of the
macroeconomic and pollution reduction effects of renewable facilities that are certified under the REPTC.
However, it does not isolate the extent to which these effects are due to the REPTC itself.
The REPTC provides credit against corporate and personal income tax. The statutory basis of the
corporate income tax credit is contained in NMSA 1978, § 7-2A-19 and further explained in regulations
contained in 3-13-19.1 through 3.13.19.15 NMAC. The personal income tax credit is established in NMSA
1978, § 7-2-18.18. An important statutory change to the credit was legislation in 2007, which amended
the law to include refund provisions. Prior to that, the REPTC was a non-refundable credit.
REPTC Structure
For wind and biomass generators, the credit is $0.01 per kilowatt-hour (kWh) applicable to the first
400,000 megawatt-hours (MWh) of electricity in each of 10 consecutive taxable years. For solar, the
credit gradually increases from 1.5¢/KWh in the first year of production to 4¢/KWh in the sixth year of
production, and then gradually phases down again until the tenth year of production, after which no credit
is available. Solar credits extend to the first 200,000 MWh of electricity generated in each taxable year.
To qualify for the income tax credit, an energy generator must have a capacity of at least 1 megawatt and
produce electricity before January 1, 2018.
Total generation from both the corporate and personal tax credit programs combined must not exceed 2
million MWh of production from wind and biomass-generated power annually, or $20 million per year. The
statute also provides for an additional 500,000 MWh produced by solar energy, or $7.5–$20 million per
year for solar credits (an average of $13.5 million per year), depending on the level at which solar projects
are claiming the credit.
The statewide REPTC generation caps have been met for a number of years, which has led to a process
where applications awaiting certification are put in line, or on a waitlist, for when credits become available.
This process was put in place to ensure that the state does not exceed its intended total “budget” of
foregone tax liability for this credit. The certification process is outlined in EMRND rules, 3.13.19.1-15
NMAC.
REPTC tax credit claims for production from facilities certified before October 1, 2007 are not refundable;
i.e. if a taxpayer has more credits than tax liability, the excess credits must be carried forward for up to
five years and applied to tax liability in a future year. Thus, for some taxpayers, there is a period where
1 Direct citation from the Request For Proposals For Professional Services To Perform A Comprehensive Economic
Analysis Of The State Renewable Energy Production Tax Credit Issued By The Energy, Minerals & Natural Resources Department.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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tax credits may accrue and, if not used, may be lost. The statute was amended in 2007 to make the tax
credit refundable for those “qualifying projects commencing operations after October 1, 2007.”
Refundable tax credits are paid out in the form of a refund in the event they exceed the taxpayer’s total
tax liability. This program is first-come, first-served, and those who came first did so while the credit was
non-refundable. Therefore, some of the currently certified wind projects may still have non-refundable
credits pending.2 Because companies have 10 years from the date of first production to claim the credit,
only after this period expires will new companies be certified and receive the refundable credit.3
REPTC Projects
At the time analysis for this report was conducted, there were 9 certified wind energy facilities with annual
eligible production of 1,892,515 MWh and 4 wind energy facilities on the waitlist and 18 certified solar
energy facilities with annual eligible production of 500,000 MWh and 15 on the waitlist. These specific
facilities are outlined in Tables 1 and 2 and a map of the facilities is included in Appendix A.
Table 1: REPTC Wind/Biomass Facility Queue, October 15, 2014
Name of Energy Generator Facility Capacity (MW) Annual Production Eligibility (MWh)
Certificate of Eligibility Date
POST-ELIGIBLE
New Mexico Wind Energy Center 204.0 400,000 9-Nov-04
Certified (1,892,515 MWh of annual production eligibility)
Caprock Wind Ranch 80.0 316,600 15-Sep-05
San Juan Mesa Wind Project 120.0 400,000 20-Sep-06
Aragonne Wind Facility 90.0 275,861 13-Apr-07
High Lonesome Mesa Wind Ranch 100.0 309,976 4-Nov-09
Red Mesa Wind Energy Center 102.4 297,009 24-Feb-12
Macho Springs I Wind Power 50.4 124,016 1-Sep-13
Wildcat Wind, LLC 27.3 93,798 19-May-14
Broadview Energy Prime 9.9 37,820 19-May-14
Broadview Energy Prime II 9.9 37,435 19-May-14
Waitlist (1,247,733 MWh of annual production eligibility)
Anderson Wind Project 15.0 52,560 --
Guadalupe Mountains 134.3 395,173 --
El Cabo - Iberdrola Renewables 278.0 400,000 --
Roosevelt Wind Ranch 250.0 400,000 --
2 The solar portion of the REPTC was added in 2007 and the first solar project began claiming credits in 2010;
therefore all solar REPTC credits are refundable. 3 2013 New Mexico Tax Expenditure Report, Taxation and Revenue Department
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Table 2: REPTC Solar Facility Queue, October 15, 2014
Name of Energy Generator Facility Capacity (MW) Annual Production Eligibility (MWh)
Certificate of Eligibility Date
Certified (500,000 MWh of annual production eligibility)
First Solar Cimarron I 30.0 70,541 27-Jan-11
Santa Fe Wastewater 1.1 2,493 3-May-11
Hatch Solar Energy Center I 5.0 13,918 18-Oct-11
Solar Roadrunner 20.0 52,980 28-Dec-11
Albuquerque Academy 1.1 2,059 10-Mar-11
SunE SPS 1 10.9 22,589 30-Jan-12
SunE SPS 2 10.9 22,589 30-Jan-12
SunE SPS 3 10.9 22,589 19-Apr-12
SunE SPS 4 10.9 22,589 19-Apr-12
SunE SPS 5 10.9 22,527 30-Jan-12
Questa 1.0 2,329 --
SunE EPE2, LLC 12.0 30,768 21-Jun-12
SunE EPE1, LLC 11.3 26,751 26-Nov-12
Macho Springs II Solar Farm 48.5 149,592 16-May-14
Amalia Solar 1.5 2,897 27-Sep-13
Los Lunas Solar Energy Center 5.0 11,388 20-Feb-12
Deming Solar Energy Center 5.0 11,388 20-Feb-12
Alamogordo Solar Energy Center 5.0 10,013 20-Feb-12
Waitlist (155,134 MWh of annual production eligibility)
Alamogordo Solar Energy Center -- 1,375 --
Las Vegas Solar Energy Center 5.0 11,388 --
Albuquerque Solar Energy Center 2.0 4,555 --
Sunrise 2.9 4,988 --
Sunrise NM phase 2 2.5 4,250 --
Taos Solar Energy Facility 1.5 3,383 --
Deming Solar Energy Center Expansion 4.0 9,209 --
Los Lunas Solar Energy Center Expansion 2.0 4,539 --
Manzano Solar Energy Center 8.0 18,157 --
Otero County Solar Energy Center 7.5 17,269 --
New Mexico Green Initiatives 2.9 5,145 --
Green States Energy, Inc. 2.5 4,363 --
Meadow Lake Solar 9.1 25,914 --
Sandoval County Solar 6.1 16,830 --
Emcore Solar New Mexico 2.0 2,451 --
Cibola County Solar 7.6 21,318 --
Overview of Methodology To attempt to evaluate the costs and benefits associated with the REPTC, we need to consider how well
it aligns with the principles of good tax policy as set out by the State of New Mexico’s Taxation and
Revenue Department.
Two fundamental questions need to be addressed empirically to assess whether there is evidence that
the REPTC achieves these tax policy principles:
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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1. Economic Development – Do the specific economic gains to taxpayers in the form of increases in
real income or wages through economic development that may have been stimulated by the REPTC
outweigh the REPTC tax expenditures?4 Using Economic Input-Output techniques, we empirically
assess whether the total economic impact of the REPTC projects, including multiplier effects, are in
excess of the tax expenditures. We examine the investments the REPTC has helped facilitate and
assess the economic impacts including jobs supported, wages and salaries, value added, and taxes.
We measure whether the stimulated economic activities exceed the government costs to incentivize
this behavior.
2. Benefits from Reduced Pollution – Does the REPTC encourage behaviors in support of other
policy goals, in particular the goal of reducing pollution from traditional electric power generation? We
assess to what degree the REPTC projects have the effect of reducing the levels of pollution in the
State of New Mexico and if this reduction is commensurate with the tax expenditure or cost to the
state. We use elements of HDR’s Sustainable Return on Investment (SROI) methodology to
empirically assess whether the monetary value of the pollution reduction (e.g., greenhouse gases and
criteria air contaminants) exceeds REPTC tax expenditures. We measure whether the public benefits
exceed the government costs to incentivize this behavior.
The economic analysis of the REPTC in this report is conducted at the State level for wind and solar
facilities to ensure the confidentiality of any facility-level information.
This report summarizes the economic analysis of the REPTC. The report is organized as follows. The
next section outlines data collection in support of the study. Section 3 provides an analysis of historical
REPTC tax expenditures. Section 4 provides an overview of our approach to estimating economic effects:
(i) economic impacts and (ii) quantification and monetization of pollution impacts. Section 5 provides the
economic analysis of the REPTC. The final section provides our overall conclusions. Supporting
information is provided in appendices.
4 Tax expenditures are the claimed tax credits under the REPTC; both refundable and non-refundable.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Data Collection To undertake an economic analysis of the REPTC requires significant data collection efforts across a
diverse range of topics. We outline some of the core data utilized in this analysis and their respective
sources.
REPTC-specific information: Information on the actual current REPTC credit claims and payments,
the number and size of projects in the waitlist, facility contacts, legislative statutes and rules, REPTC
application and tax claim forms, and certified facility-level production schedules were provided by
representatives of Energy, Minerals and Natural Resources Department (EMNRD). This information
was not independently audited by HDR. For the purposes of this study it was accepted as is after
review and discussion with State officials.
REPTC tax expenditure data was provided by the Taxation and Revenue Department (TRD). The
actual facility names in the data file were suppressed to ensure facility-level confidentiality. The tax
data outlined annual tax expenditures disaggregated by refundable/non-refundable, personal and
corporate income tax, and for each of wind and solar facilities. The tax expenditure dataset contained
information for 2005 through 2012, as 2013 data was not available at the time of this study. The final
version of this information was not independently audited by HDR. For the purposes of this study it
was accepted as is after review and discussion with State officials.
Detailed databases providing the capital costs, operating and maintenance (O&M) costs and
emissions for wind energy and solar energy facilities were developed by HDR. These databases
allow the development of an economic costing model that provides independent estimates of the one-
time capital costs, annual O&M costs and annual emissions for each of the REPTC-certified facilities.
These databases leveraged detailed data from a meta-analysis of annual cost factors from the
Department of Energy (DOE), the Energy Information Administration, National Renewable Energy
Laboratory, Intergovernmental Panel on Climate Change, as well as data from other literature
compiled by the DOE in the Transparent Cost Database.
Internet-based searches were also conducted to uncover facility-level cost estimates from publicly
available sources such as press releases and news stories.
A survey was developed and distributed by email to each of the facilities in the REPTC Queue—both
those that are certified and those on the waitlist. The survey was designed to collect capital cost,
O&M and the degree of importance that the availability of the REPTC and other factors played in
getting these facilities developed.5 The survey process included a formal letter to certified facility
owners from EMNRD Cabinet Secretary F. David Martin introducing the survey, telephone calls from
HDR representatives to survey recipients, development of the survey instrument, distribution of the
survey instrument, several follow-up emails and calls to survey recipients, and analysis of the survey
responses.
The combination of the survey data, the economic costing model and the internet-based searches
provide a multiple lines of evidence approach to ensuring that the facility-level expenditure
information developed in this study are reasonable. In fact, the results of the survey and the
independent costing models are quite comparable.
5 The full survey is provided in Appendix B.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Input-output multiplier information and models were acquired through the purchase of an IMPLAN®
license at the state level for New Mexico. IMPLAN (IMpact analysis for PLANning) is an economic
impact modeling tool for forecasting the effect on a local, regional or national economy of a given
economic change or event in the economy's activity. Examples of events that can be modelled with
IMPLAN include the opening or closure of a manufacturing plant or other industrial operations,
infrastructure construction or renovation, and other projects involving new spending in the economy
(or reduction in spending). IMPLAN is based on classic input-output modeling approaches combined
with social accounting matrices and multipliers, and estimates standard metrics of economic impacts
(output, employment, value added, employment income, and government tax revenue in terms of
direct, indirect and induced effects). It consists of a software package with external data sets for a
wide selection of geographic areas at various levels of geography (all of US/average national, state,
etc.), which are loaded into the tool depending on project location and scope/focus of the analysis.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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16%
84%
Tax Credits (2003-2012)
Refundable Non-refundable
67%
33%
Tax Credits (2012)
Refundable Non-refundable
Analysis of REPTC Tax Expenditures The New Mexico Taxation and Revenue Department (TRD)
provided actual tax expenditure data for years 2003 through 2012
inclusive. The tax expenditure data reflects REPTC credits actually
claimed in each of these tax years. As shown in Table 3, no credits
were realized in the first two years of the REPTC (i.e., 2003 and
2004) and tax expenditures were only $0.1 million in 2005. Annual
tax expenditures ranged between $3.3 million and $16.8 million in
the 2006 through 2012 period. Over the entire period, tax
expenditures have amounted to $61.6 million. All figures are cited
in year of expenditure dollars.
Of the $61.6 million, 84% of the tax expenditures relate to non-
refundable tax credits for facilities certified prior to the 2007
legislation that included refund provisions. Similarly, 88% of the tax
expenditures through 2012 relate to wind facilities, but that
proportion is now declining as more solar facilities come online.
While the tax credits can be realized by corporate or personal
income taxpayers, more than 99% of the expenditures to date
have been realized by corporations.
88%
12%
Tax Credits (2003-2012)
Wind Solar
56%
44%
Tax Credits (2012)
Wind Solar
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Table 3: Historical REPTC Tax Expenditures, Personal and Corporate, $Millions
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
Wind Refundable $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $2.8 $2.8
Non-refundable
$0.0 $0.0 $0.1 $5.2 $9.9 $9.2 $16.8 $3.2 $3.2 $3.9 $51.4
Total $0.0 $0.0 $0.1 $5.2 $9.9 $9.2 $16.8 $3.2 $3.2 $6.7 $54.2
Solar Refundable $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.2 $1.9 $5.2 $7.4
Non-refundable
$0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.2 $1.9 $5.2 $7.4
Total Refundable $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.2 $1.9 $8.0 $10.1
Non-refundable
$0.0 $0.0 $0.1 $5.2 $9.9 $9.2 $16.8 $3.2 $3.2 $3.9 $51.4
Total $0.0 $0.0 $0.1 $5.2 $9.9 $9.2 $16.8 $3.3 $5.1 $12.0 $61.6
To further analyze and assess the level of volatility in annual tax expenditures, we estimate the potential
REPTC credits that in theory could be claimed in any given year. To derive the potential credits, we apply
the tax credit amount to production volumes (in MWh) of each certified facility’s actual generation up to
their eligible power generation cap. We further assume that all non-refundable credits can indeed be
applied to personal and corporate income tax payable and that tax credits are actually claimed in each
and every year of eligibility. The potential REPTC tax expenditure is a proxy for the maximum annual tax
liability for the State under the REPTC.
The potential REPTC tax expenditures are more stable over time and grow as the number of certified
facilities and the cumulative eligible production under the REPTC increase. In 2013, potential tax
expenditures reach $27.5 million, with approximately 50% refundable.
Table 4: Potential REPTC Tax Expenditures, Personal and Corporate, $Millions6
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Wind Refundable $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.9 $2.6 $3.0 $4.9 $5.3
Non-refundable
$0.0 $4.0 $6.7 $10.5 $13.2 $13.9 $12.9 $13.7 $13.4 $13.8 $13.6
Total $0.0 $4.0 $6.7 $10.5 $13.2 $13.9 $13.9 $16.4 $16.4 $18.7 $19.0
Solar Refundable $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $1.8 $6.1 $8.5
Non-refundable
$0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $1.8 $6.1 $8.5
Total Refundable $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.9 $2.6 $4.8 $11.1 $13.9
Non-refundable
$0.0 $4.0 $6.7 $10.5 $13.2 $13.9 $12.9 $13.7 $13.4 $13.8 $13.6
Total $0.0 $4.0 $6.7 $10.5 $13.2 $13.9 $13.9 $16.4 $18.2 $24.9 $27.5
If we compare actual REPTC tax credits to potential tax credits, we find that in the first 10 years (e.g.,
between 2003 and 2012), only 51% of potential tax credits have been claimed. While 93% of solar tax
credits have been claimed, only 48% of wind tax credits have. This is at least in part due to the fact that
6 Potential tax expenditures were based on the EMNRD production schedule with adjustments to account for
individual facility certified production caps.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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the majority of the eligible wind energy generation is non-refundable while all of the solar energy
generation is refundable.
This is a somewhat surprising outcome, but there are possible reasons for this result:
1. Non-refundable tax credits may not be claimed as the corporate (or person) entity may not have
sufficient tax liability to offset all of the credit in that particular year. Claims for production from
facilities certified before October 1, 2007 may be carried forward for a period of up to five years
against corporate and personal income tax. There is a period where tax credits may accrue and,
if not used, may be lost7.
2. Eligible facilities may not be claiming all of their potential credits, or at least may not have claimed
the credits up to this point in time, but may in the future.
One result of the suspension and carry-forward of non-refundable credits is that actual credits paid out in
a year can exceed the apparent annual cap on total credits in the statute. Credits carried forward from a
prior year, when added to credits earned and claimed in the current year, can exceed the maximum
implied by the annual limits on eligible production.
Table 5: Actual Tax Expenditures as a Percentage of Potential Tax Expenditures
2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
Wind Refundable - - - - - 0% 0% 0% 57% 24%
Non-refundable
0% 2% 49% 75% 66% 130% 23% 24% 29% 50%
Total 0% 2% 49% 75% 66% 121% 19% 19% 36% 48%
Solar Refundable - - - - - - - 109% 85% 93%
Non-refundable
- - - - - - - - - -
Total - - - - - - - 109% 85% 93%
Total Refundable - - - - - 0% 6% 41% 73% 52%
Non-refundable
0% 2% 49% 75% 66% 130% 23% 24% 29% 50%
Total 0% 2% 49% 75% 66% 121% 20% 28% 48% 51% Note: In 2009 for wind facilities and 2011 for solar facilities, more tax credits were claimed than were defined as potential in that
year. After investigation, this relates to the timing of tax credit claims (e.g., the excess related to a different tax year).
7 New Mexico Tax Expenditure Report, 2013, Taxation and Revenue Department.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Figure 1: Historical Potential and Actual Tax Expenditures
Note: In 2009 for wind facilities and 2011 for solar facilities, more tax credits were claimed than were defined as potential in that
year. After investigation, this relates to the timing of tax credit claims (e.g., the excess related to a different tax year).
Cumulatively from 2004 through 2012, the excess of potential tax expenditures over actual tax
expenditures is $60.0 million, with $59.4 million related to wind energy facilities. Of that, $50.7 million are
non-refundable tax credits. Some or all of these non-claimed credits may be claimed in the future to offset
income tax liabilities.
Table 6: Potential Tax Expenditures less Actual Tax Expenditures, $Millions
2004 2005 2006 2007 2008 2009 2010 2011 2012 Total
Wind Refundable $0.0 $0.0 $0.0 $0.0 $0.0 $0.9 $2.6 $3.0 $2.1 $8.7
Non-refundable
$4.0 $6.6 $5.3 $3.3 $4.7 -$3.9 $10.5 $10.3 $9.9 $50.7
Total $4.0 $6.6 $5.3 $3.3 $4.7 -$2.9 $13.2 $13.3 $12.0 $59.4
Solar Refundable $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 -$0.2 -$0.2 $0.9 $0.6
Non-refundable
$0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0
Total $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 -$0.2 -$0.2 $0.9 $0.6
Total Refundable $0.0 $0.0 $0.0 $0.0 $0.0 $0.9 $2.5 $2.8 $3.0 $9.3
Non-refundable
$4.0 $6.6 $5.3 $3.3 $4.7 -$3.9 $10.5 $10.3 $9.9 $50.7
Total $4.0 $6.6 $5.3 $3.3 $4.7 -$2.9 $13.0 $13.1 $12.9 $60.0 Note: In 2009 for wind facilities and 2011 for solar facilities, more tax credits were claimed than were defined as potential in that
year. After investigation, this relates to the timing of tax credit claims (e.g., the excess related to a different tax year).
$0
$5
$10
$15
$20
$25
$30$
Mill
ion
s
Potential Tax Credits Actual Credits Claimed
Wind & Solar
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
11
To summarize, based on tax credit data from the Taxation and Revenue Department, the “realized” tax
expenditures associated with the REPTC from 2003-2012 was $61.6 million. Potential tax expenditures,
derived based on production schedules from certified facilities and their respective caps, are $121.6
million through 2012. This can be considered as the maximum potential tax liability throughout that time
period. We have no way of determining how much of the $60 million excess will be claimed in the future.
Examining the annual level of potential tax credits, the most recent year of 2013 is $27.5 million.
Figure 2: Historical Certified Production Volumes and Potential Tax Expenditures
0
500
1,000
1,500
2,000
2,500
$0
$5
$10
$15
$20
$25
$30
Ce
rtif
ied
Pro
du
ctio
n (
GW
h)
- A
rea
$ M
illio
ns
Certified Production - Wind Certified Production - Solar
Potential Tax Credits - Wind Potential Tax Credits - Solar
Wind & Solar
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Economic Analysis Approach The economic analysis of the REPTC has two distinct components: (i) the macroeconomic impact of the
REPTC facility expenditures through increases in wages, taxes, value-add, etc.; and (ii) the impact of
renewable energy power generation of the REPTC facilities on State pollution levels. We describe the
quantification approach for each of these two effects in the following section.
Estimation of Economic Impacts Figure 3 provides a high-level overview of how the economic impact of the REPTC is derived. The
starting point is the list of certified REPTC facilities, certification dates, eligible generation and facility type
(e.g., wind / solar). We augment that list with the nameplate generation capacity for each facility.
The next step of the process is to develop estimates of the capital and O&M costs for the facility by year.
We develop this based on direct survey input from the facility owners, external press releases and
independent cost estimation by HDR derived from industry averages for that nameplate capacity. Where
we have facility-specific input, we leverage that. In general, the independent cost estimation aligns very
well with the survey input for the facilities that provided it. We used this comparison as a validation step in
the analysis to ensure that the independent cost estimation approach is reasonable.
We aggregate the facility-level estimates of capital and O&M cost estimates by year into a data series
representing total costs by year for each of wind and solar facilities at the state level. We then apply
economic multipliers that represent the State of New Mexico economy estimated with the IMPLAN model
to each of these annual cash flows. Essentially, applying multipliers to these cash flows provides
estimates of the direct, indirect and induced wages, taxes and value-add effects of these expenditures by
year. These estimates are provided at the State level.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Figure 3: Economic Impact Estimation Approach
Key Concepts in Economic Impact Analysis
Economic impact analysis is the study of the effect of a change in the demand for goods and services –
such as additional investment expenditures to develop a wind or a solar facility – on the level of
macroeconomic activity in a given geographic area. This effect is typically measured by business output
(sales), value added (gross regional product), labor income (earnings), employment (number of jobs), and
tax revenues.
Traditionally, economic impact analysis involves the estimation of three distinct types of activities and
effects, commonly referred to as “direct effects,” “indirect effects,” and “induced effects.” These can be
characterized as follows:
Direct impacts are the impacts directly attributable to the expenditures required to implement or run
the project and business activity being analyzed, either in the form of an initial investment for
construction and installation and/or expenditures required for subsequent normal operations. These
REPTC Certified and Waitlist Facilities
REPTC Facility Generating Capacities, Production
Schedules
Survey Input on Project Development Costs, O&M
Costs
HDR Independent Cost Estimation by Industry
Averages
Facility Level Capital and O&M Cost Estimates by Year
IMPLAN Model and Multipliers
Total Capital and O&M Cost Estimates by Year
Economic Impact by Year (wages, value added, taxes)
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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are the immediate economic outcomes occurring as the result of these expenditures including the
jobs, income, etc. that they are directly supporting.
Indirect impacts are the results of the spillover effects in the markets for intermediate goods required
for the direct activity in question, or economic activities that result from purchases of production
goods and services throughout the production and distribution chain. These purchases allow for
production activities and employment at the supplier firms generating further rounds of economic
activity down the production chain.
Induced impacts are the effects of spending and re-spending of dollars earned by individuals who
become employed as a result of the direct and indirect impacts. Re-spending of employment wages
and salaries on consumer goods and services results in further economic impacts throughout the
economy.
The total economic impact is the sum of the direct, indirect and induced effects for the project being evaluated.
Indirect and induced impacts are often referred to as “multiplier effects”. This concept expresses the idea
that the original expenditure initiates subsequent rounds of spending which combined increase the overall
economic impact above that stemming from the original expenditure only.
Multipliers typically are expressed in terms of output, jobs, or employment income per $1 million of the
initial investment (or expenditure) in the given economy. For example, an output multiplier is the increase
in business output for all industries per $1 million of initial expenditure. An employment multiplier is the
increase in the number of jobs per $1 million of initial expenditure. As an example, an output multiplier of
1.5 means that business output increases by $1.5 million for each $1 million of initial expenditures. An
employment multiplier of 5.5 indicates that employment increases by 5.5 jobs for each $1 million of initial
expenditures.
Economic Impacts Estimated in this Study
This study estimates the economic impacts of investments in the development of wind and solar power generation facilities. These investments create two sets of impacts:
(1) Impacts of the investments themselves due to construction works, purchase of equipment, purchase of related professional services, and
(2) Impacts of the incremental operation and maintenance of the facilities after construction is completed.
The first set of impacts is a “one-time” impact during the construction period only. The second set of impacts is an annual ongoing effect.
General Approach to Economic Impact Analysis
The economic impacts of a project or activity can be quantified using specialized commercial software
such as IMPLAN, an input-output economic impact assessment tool. The tool uses external data files for
the economy where the projects or activity takes place (state, county, zip code area, etc.) and internally
coded economic relationships to derive the impacts to the economy in the form of incremental economic
activity across the entire economy resulting from an initial expenditure. All impacts are estimated using
the 2012 IMPLAN data for the State of New Mexico.
The impacts are simulated on the basis of expenditure data related to the development of wind and solar
power generation facilities and their operating expenditures. The portion of expenditures that takes place
outside of the state was not included in the simulations. Expenditures made outside of the state or
analysis area are in general excluded in this type of analysis as they generate little if any economic
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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impacts in the analysis area. The survey demonstrated that between 90% and 99% of equipment was
purchased out of state8. Consequently, this share of expenditures was subtracted from the total
expenditures on equipment. On the other hand, expenditures related to construction, engineering and
planning, and operation and maintenance were assumed to take place locally in the State of New Mexico.
All expenditures were classified into one of the industrial sectors that underlie the IMPLAN model. The
classification into industry sectors was done based on the nature of the various expenditures, best
matching NAICS (North American Industrial Classification System) classification and the best matching
IMPLAN sector as defined by the NAICS codes. Labor costs – specified as a distinct expenditure in
operating costs in addition to other operating costs – form a distinct type of cost treated separately in
IMPLAN. However, for most types of expenditures, including general construction activities and
engineering and management cost categories, labor costs are assumed to be included in total cost
estimate.
The survey expenditure data was summed across all responses by industrial sector to form total
expenditures for all projects combined (for which data was available). Development expenditures taking
place before 2013 were inflated to 2013 prices using the general inflation rate from the US Bureau of
Labor Statistics.
The impacts of expenditures were then simulated in four groupings corresponding to project development
(construction) and operations to develop generalized multipliers for determining economic impacts, i.e.:
(1) Development of wind facilities, (2) Operations of wind-facilities, (3) Development of solar facilities, and
(4) Operations of solar facilities. The impacts were estimated in terms of the key metrics used to present
economic impacts: number of jobs, employment income, output, value added, and local/state tax
revenues. All impacts are estimated within the state of New Mexico.
Results – Generalized Multipliers of Economic Impacts We applied the IMPLAN economic impact model to the expenditures provided in the survey responses.
The total economic impacts of project development and operations were then divided by the total amount
of expenditures on development and operations, respectively, of each wind and solar power technology
as reported in the survey. This produced implied multipliers expressing each category of effects per $1
million of total project expenditures (in state and out of state). These multipliers are then used to forecast
or extrapolate economic impacts for all REPTC facilities. These are summarized in Tables 7, 8, 9, and 10.
8 For non-IRB funded projects, out of state purchases of goods (that are not subject to sales tax in the other state)
may have the State of New Mexico’s 5.125% compensating tax apply to the to these expenditures. The potential scale of this has not been estimated due to lack of precision on the detailed expenditures.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Table 7: Multipliers of Economic Impacts of Wind Facility Development, per $1 Million Total Project Expenditures within the State of New Mexico
Impact Type Employment
(Jobs) per $1M
Labor Income,
$000
Value Added,
$000 Output, $000
Gross Receipts Tax, $000
9
Direct 7.2 $387.9 $504.0 $1,000.0 $5.47
Indirect 2.2 $100.2 $147.1 $290.4 $6.83
Induced 2.8 $103.2 $186.4 $319.3 $11.16
Total 12.1 $591.4 $837.5 $1,609.7 $23.45
Table 8: Multipliers of Economic Impacts of Wind Facility Operations, per $1 Million of Operating Expenditures
Impact Type Employment
(Jobs) Labor Income,
$000 Value
Added, $000 Output,
$000
Gross Receipts Tax, $000
Direct 5.9 $444.7 $488.1 $738.8 $11.2
Indirect 1.4 $56.3 $88.7 $160.1 $3.9
Induced 2.8 $105.9 $191.4 $328.3 $11.3
Total 10.1 $606.9 $768.2 $1,227.2 $26.4
Table 9: Multipliers of Economic Impacts of Solar Facility Development, per $1 Million Total Project Expenditures within the State of New Mexico
Impact Type Employment
(Jobs)
Labor Income,
$000
Value Added,
$000 Output, $000
Gross Receipts Tax, $000
Direct 6.5 $386.4 $513.3 $1,000.0 $4.88
Indirect 2.1 $97.4 $146.4 $274.9 $7.07
Induced 2.7 $102.4 $185.1 $317.0 $11.08
Total 11.4 $586.2 $844.7 $1,591.9 $23.03
Table 10: Multipliers of Economic Impacts of Solar Facility Operations, per $1 Million of Operating Expenditures
Impact Type Employment
(Jobs) Labor Income,
$000 Value
Added, $000 Output,
$000
Gross Receipts Tax, $000
Direct 4.6 $318.5 $388.3 $590.5 $8.1
Indirect 1.2 $46.3 $72.5 $130.3 $3.0
Induced 2.0 $77.1 $139.3 $239.0 $8.2
Total 7.8 $441.9 $600.2 $959.8 $19.3
9 IMPLAN simulations of economic impacts also provide estimates of various federal, state and local taxes, for
example social insurance taxes, corporate profits, personal income, property, etc. One component of the tax impacts is the business sales tax. This tax was interpreted as most closely corresponding to New Mexico gross receipts tax and assumed as such for this study. The amount of tax revenues generated with each type of impact (i.e. direct, indirect, induced, and total) were then divided by total capital costs to derive the tax multiplier in terms of dollar amount of tax generated per $1 million of capital expenditures.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Estimation of Pollution Impacts, Volumes and Monetary Value The derivation of the pollution impacts is very similar in process to that of the economic impacts (see
Figure 4). We consider both greenhouse gas and criteria air contaminants (e.g. mono-nitrogen oxides and
sulfur dioxide) emissions.
Using total production volumes per year certified under the REPTC, we obtain renewable electricity
generation volumes that offset fossil fuel generation in New Mexico, which has historically been primarily
coal-based and is composed of approximately 72% coal and 28% natural gas as of October 2014
according to the US Energy Information Administration (EIA) New Mexico State Profile. Using the EPA
Emissions & Generation Resource Integrated Database (eGRID), we estimated emissions offset by new
renewable generation across state counties and allocated criteria air contaminant emissions by rural and
urban regions.
We then monetized, or put in dollar terms, the emissions benefit from REPTC projects to allow direct
comparison to the REPTC tax expenditure estimates. For the analysis contained in this report, we use a
value of $12.19 per ton for greenhouse gases based on the December 1, 2014 California Carbon
Allowance Futures market price10
. For criteria air contaminants, we use social values ranging from $1,277
to $6,465 per ton for mono-nitrogen oxides and from $2,136 to $33,178 per ton for sulfur dioxide11
. The
values reflect monetary costs of damage to human health and vegetation, among others, and higher
values are applied to emissions in more dense urban regions.12
10
We note that there is a wide array of carbon or greenhouse gas evaluation studies in the economic literature and that the valuations vary greatly in magnitude; some are much higher than the $12.19 used in this study. The EPA and other US federal agency’s average valuation of the Social Cost of Carbon for 2015 ranges between $12 and $61 per ton (in 2011 dollars) http://www.epa.gov/climatechange/EPAactivities/economics/scc.html. 11
Source: US Department of Transportation TIGER Benefit-Cost Analysis Resource Guide (2014). 12
Allocation of urban and rural emission values in New Mexico was based on individual county emissions from the US EPA Emissions & Generation Resource Integrated Database and the Census Bureau’s 2010 percentage of the total population of each county in New Mexico, represented by urban and rural population.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Figure 4: Pollution Estimation Approach
REPTC Certified and
Waitlist Facilities
REPTC Facility Generating Capacities, Production Schedules
Difference in Emissions by Year for Wind, Solar
Facilities (tons)
Emissions Estimation for Generation from State
Non-renewable Sources
Monetary Value of Emissions ($/ton)
Monetary Value of Emissions ($)
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Economic Analysis Results This section summarizes the results of the economic analysis in terms of the macroeconomic impacts of
the REPTC facility investments and annual maintenance and the pollution reduction effects. We compare
these economic effects to the REPTC tax expenditures historically. The section is comprised of three
parts: a review of the core findings in the survey analysis; the macroeconomic impact; and, the pollution-
related effects.
Results Interpretation: Limitations The analysis that follows provides a historical comparison of both the (i) macroeconomic impacts of
REPTC facility investments and (ii) pollution reduction effects of operational REPTC facilities to the tax
expenditures incurred by the State of New Mexico. It may seem reasonable to conclude that if the
REPTC-certified project benefits (in terms of either economic or pollution effects) exceed the REPTC tax
expenditures, then the REPTC provides positive net benefits to the State and therefore represents sound
tax policy. However, drawing such a conclusion based solely on these results overlooks two key
limitations and is unfortunately inaccurate. These limitations stem from (i) incrementality and (ii) project
lifecycles:
Incrementality: Factors other than the availability of the REPTC lead to the development of wind
and solar facilities and therefore not all of these economic and pollution reduction effects are
directly attributable to the REPTC. The State Renewable Portfolio Standard, federal tax credits
and other factors also impact the decision to develop these facilities. Ideally, an economic
analysis would compare only the economic benefits from renewable energy projects or portion of
renewable energy projects that were directly attributable to the REPTC to the costs incurred to
the state. However, the amount of the renewable facility developments directly caused by the
REPTC or any other factor(s) is impossible to discern and therefore not estimated in this study.
Project Lifecycle: The analysis examines the costs and benefits of REPTC facilities over a fixed
historical time period of 2003 through 2012. As such, all of the economic stimulus associated with
new facility developments are captured in this timeframe but all of the tax expenditures are not as
they will accrue over the 10-year period of eligibility. For example, a new facility completed in
2012 and operating in 2013 would have all of the economic impacts of project development
captured in this historical period. However, none of the tax expenditures would be captured
historically.
The analysis that follows provides a useful summary of the macroeconomic and pollution reduction
effects of renewable facilities that are certified under the REPTC. However, it does not isolate the extent
to which these effects are due to the REPTC itself.
Survey Results Summary The survey results themselves are used primarily for developing capital and O&M cost estimates. These
responses are kept confidential and are only used to develop the overall cash flow profile of the
investments in REPTC-certified facilities and their maintenance over time. In total, 45 surveys were
distributed to facility contacts and 22 responses were received, or a 49% response rate. Of the completed
surveys, 7 were for wind facilities and 13 were for solar facilities. In general, the survey responses did
provide good information on the gross capital and operating cost of the facility. However, in terms of a
detailed breakdown of these costs, comprehensive data was not provided.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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In general, 76% of the capital cost of the project related to equipment and anywhere between 90% and
99% of project equipment was acquired outside of the state. This implies that - for at least the major
upfront project development costs - most relates to goods from outside the State and therefore will
diminish the State of New Mexico economic impact and the tax effects. For those facilities that did report
paying Gross Receipts Tax, it represented only 2% of overall project expenditures.
Annual operations and maintenance costs, as a percentage of the cost to build the facility, averaged 2.5%
across all survey respondents. Generally, the O&M activities are not labor intensive and have relatively
low employment impacts.
Table 11: Survey Responses
#
REPTC Facilities with Contact Data 45
Actual Survey Responses Received 20
Respondent directed us to publicly available cost data 2
Adjusted responses received 22
Non-responsive 23
Table 12 provides some additional survey response details. In most instances, the survey respondents
indicated that the project was at least partially financed with an Industrial Revenue Bond.
Table 12: Summary of Survey Responses
%
Project land was:
Acquired for project. 40%
Leased from the state. 20%
Leased from a private landowner(s). 40%
Already owned by the company. 15%
Project was financed with an industrial revenue bond 55%
The IRB provided a Gross Receipts Tax Exemption 70%
Survey respondents were also asked to identify those factors that were most influential in getting their
facility developed. The Federal Renewable Energy Tax Credit was the factor cited as the first or second
rated factor by all respondents. The State Renewable Portfolio standard, which requires or encourages
electricity producers to supply a certain minimum share of their electricity from designated renewable
resources, was the next highest rated factor. The REPTC itself was rated as the third or fourth most
important factor in 16 of the 18 unique responses. Other factors such as Industrial Revenue Bond
financing and accelerated depreciation were also deemed integral to facility development decisions. The
State Renewable Portfolio Standard was in general very influential for solar facilities and not as influential
for wind facilities.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Table 13: Importance of the REPTC and other factors: Rank these factors in order of how influential for the development of the facility
Rank Order 1 2 3 4 5 All N/R
State Renewable Portfolio Standard 9 2 0 0 7 2 0
Federal Renewable Energy Tax Credits 8 10 0 0 0 2 0
Industrial Revenue Bond Financing 1 2 2 2 0 2 9
REPTC 0 2 12 4 0 2 0
Accelerated depreciation 4 2 2 0 0 2 10
Other 0 0 0 1 0 2 17
N/R: not ranked as an important factor.
Economic Impact Results Summary The total expenditures related to the capital and O&M costs of REPTC-approved facilities between 2003
and 201213
are approximately $2.1 billion (see Table 14). Of this, $1,914 million relates to capital costs
both in and out of state, and the remainder to O&M. Over the 10-year period since the REPTC was
introduced, this represents about $397 million in annual expenditures for project development or
operations and maintenance. These expenditures are not presented on an annual basis to maintain the
confidentiality of survey responses.
Table 14: Capital and O&M Costs from REPTC Facilities, 2003-2012, $Millions
Total Annual Average
Capital O&M Total Capital O&M Total
Wind $1,139.5 $208.6 $1,348.1 $113.9 $20.9 $134.8
Solar $774.9 $12.8 $787.7 $77.5 $1.3 $78.8
Total $1,914.4 $221.4 $2,135.8 $191.4 $22.1 $213.6 Note: This includes capital costs and fixed O&M for projects certified or on the waitlist for the REPTC. Variable O&M costs are
attributed to eligible production volumes only.
We apply the economic multipliers derived from the IMPLAN model to estimate the macroeconomic
impacts in terms of wages, value added, output and employment over the 2003 through 2012 period for
all REPTC-certified facilities. These results are depicted in Tables 15 through 17 and reflect the combined
direct, indirect and induced effects.
The labor income associated with the construction and operation of the REPTC facilities is $434 million
over the evaluation period, or $43 million per year on average. Economic value added is estimated to be
approximately $597 million over the same period. The employment impact is over 9,000 jobs or about 900
per year on average. More than 80% of these impacts through 2012 relate to wind facilities as more wind
projects than solar came online and got certified.
13
We will use 2003 through 2012 as the period to be consistent with the period in which tax expenditure information is available.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Table 15: Economic Impacts from Capital Expenditures, 2003-2012
Total Annual Average
Wind
Labor Income ($M) $230.2 $23.0
Value Added ($M) $326.2 $32.6
Output ($M) $626.8 $62.7
Employment (FTE Jobs) 5,392 539
Solar
Labor Income ($M) $71.6 $7.2
Value Added ($M) $103.4 $10.3
Output ($M) $194.8 $19.5
Employment (FTE Jobs) 1,445 144
Total Wind and Solar
Labor Income ($M) $301.9 $30.2
Value Added ($M) $429.4 $42.9
Output ($M) $821.4 $82.1
Employment (FTE Jobs) 6,837 684
Table 16: Economic Impacts from Operations and Maintenance Expenditures, 2003-2012
Total Annual Average
Wind
Labor Income ($M) $126.4 $12.6
Value Added ($M) $160.3 $16.0
Output ($M) $256.1 $25.6
Employment (FTE Jobs) 2,270 227
Solar
Labor Income ($M) $5.7 $0.6
Value Added ($M) $7.7 $0.8
Output ($M) $12.3 $1.2
Employment (FTE Jobs) 102 10
Total Wind and Solar
Labor Income ($M) $132.1 $13.2
Value Added ($M) $168.0 $16.8
Output ($M) $268.3 $26.8
Employment (FTE Jobs) 2,372 237
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Table 17: Summary of Economic Impact Results, 2003-2012
Total Annual Average
Wind
Labor Income ($M) $356.8 $35.7
Value Added ($M) $486.3 $48.6
Output ($M) $882.7 $88.3
Employment (FTE Jobs) 7,662 766
Solar
Labor Income ($M) $77.4 $7.7
Value Added ($M) $110.9 $11.1
Output ($M) $207.0 $20.7
Employment (FTE Jobs) 1,547 155
Total Wind and Solar
Labor Income ($M) $434.1 $43.4
Value Added ($M) $597.2 $59.7
Output ($M) $1,089.7 $109.0
Employment (FTE Jobs) 9,209 921
We compare the economic impact results associated with the REPTC facilities to the tax expenditures
over the same analysis period of 2003-2012. We focus on the labor income effects to assess whether in
aggregate the wages associated with this economic development exceeds the REPTC tax expenditures.
We also consider the State’s maximum tax liability to reflect the possibility that the non-claimed credits
associated with generation in prior years are realized (claimed) at some point in the future. We find that in
the 2003-2012 period that actual tax expenditures are 14% of the total labor income impact associated
with REPTC-certified facility development and operations. If we consider the maximum tax liability,
assuming all certified generation receives the tax credit, the liability is 28% of the total labor income
impact over the evaluation period.
The tax expenditure to labor income ratio is much higher for wind facilities than solar. The maximum tax
liability to labor income ratio is 31.8% for wind compared to 10.2% for solar projects, which means that
historically it took three times more expenditures on wind tax credits to generate the same gain in labor
income as solar. One important caveat to this observation is the fact that all solar projects captured in the
2003-2012 time frame were in the first years of claims where the solar credits are much lower (e.g.
$0.015/kWh in first year) than they would be in subsequent years (e.g. $0.04/kWh in year 6). Moreover,
the difference is primarily driven by the fact that on average, solar projects had cost roughly three times
more than wind on a per MW basis.
Table 18: REPTC Tax Expenditures versus REPTC Facility Labor Income Effects, 2003-2012
Tax Expenditures
($M)
Maximum Tax Liability ($M)
Labor Income
($M)
Tax Expenditure / Labor Income
Maximum Tax Liability / Labor
Income
Wind $54.2 $113.6 $356.8 15.2% 31.8%
Solar $7.4 $7.9 $77.4 9.6% 10.2%
Wind & Solar $61.6 $121.6 $434.2 14.2% 28.0%
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Figure 5: Historical REPTC Potential Tax Expenditures and REPTC Economic Impacts
Note: Variability in economic impacts is driven by capital expenditures in wind facilities at the beginning of the period and solar
facilities in 2010 to 2012.
The survey response data did not provide a great deal of specification with respect to the cost
expenditure breakdown. However, based on the information provided from surveys we estimate that over
the 2003-2012 period, the REPTC facilities would have also made payments of approximately $35 million
in relation to land leasing costs, $25 million in property taxes and payments in lieu of taxes and $20
million in gross receipts tax14
. These benefits primarily accrue to the local communities in which the
projects are located. Given the limited number of responses that these estimates are based on, we
consider these estimates to be less precise than the other economic impact estimates.
Pollution Impacts Summary We also quantify the pollution impacts of power generation through REPTC-certified facilities (in
comparison to the overall state generation mix) as described in the analysis approach section above. The
reduction in emissions of greenhouses gases as measured in CO2 equivalents and Criteria Air
Contaminants (CACs) are estimated in the volume of each pollutant and in terms of a monetized
valuation.
Over the evaluation period, generation from REPTC-certified facilities yielded pollution reductions of more
than 11 million tons of CO2 equivalent and about 30,000 tons of Criteria Air Contaminants. The
conversion of these volume reductions to monetary terms implies pollution reduction effects valued at
about $400 million. Almost all (about 97%) of these effects are associated with wind facilities.
14
The IMPLAN model also provides estimates of the gross receipts tax (see tables 7 through 10).
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Emp
loym
en
t (F
TE J
ob
s)
$ M
illio
ns
Potential Tax Credits - Wind Potential Tax Credits - Solar
Labor Income Employment (Right Axis)
Wind & Solar
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Table 19: Pollution Reduction Impact of REPTC Facilities, 2003-2012
Tons of Reduced Pollution Monetized Value of Reduced Pollution ($M)
CO2 CACs CO2 CACs Total
Wind 10,902,875 28,784 $132.9 $259.1 $392.0
Solar 373,051 879 $4.5 $7.4 $12.0
Wind & Solar 11,275,926 29,664 $137.5 $266.5 $403.9
In Table 20, we have normalized the tax effects (actual tax expenditures and maximum potential liability)
to the pollution effects to determine a breakeven value for these effects. For example, we have
determined that over the evaluation period the tax expenditure per ton of greenhouse gas emission
reductions is $5.5 per ton. Depending on how or if one values reduction in greenhouse gases, one can
use this table to gauge whether pollution effect is more valuable than the tax expenditure provided to the
facilities to generate it. In this instance, if one values greenhouse gas emissions at more than $5.5 per ton
then the pollution reduction effect exceeds historical tax expenditures in monetary terms.
Table 20: REPTC Tax Expenditures per REPTC Facility Pollution Effects, 2003-2012
Tax Expenditure / CO2 Tons Avoided
Maximum Tax Liability / CO2
Tons Avoided
Tax Expenditure / CAC Tons Avoided
Maximum Tax Liability / CAC Tons
Avoided
Wind $5.0 $10.4 $1,883.0 $3,947.3
Solar $19.8 $21.2 $8,418.7 $8,987.5
Wind & Solar $5.5 $10.8 $2,076.6 $4,097.7
Using the fixed monetary values for each of the pollutants as previously discussed, we estimate the
monetary value of pollution reduction to be $403.9 million over the evaluation period. The tax expenditure
to monetized pollution effects ratios are again well below 1. Overall, the tax expenditure ratio is about
15%, and if we consider the maximum potential liability, it is about 30%, which means that historically for
every $0.30 in tax expenditures, REPTC projects have generated $1 worth of monetized reduction in
pollution. Quite coincidentally, these ratios are about the same magnitude as those derived relative to the
labor income effects15
.
Table 21: REPTC Tax Expenditures versus REPTC Monetized Pollution Effects, 2003-2012
Tax Expenditure
($M)
Maximum Tax
Liability ($M)
Monetized Pollution
Effects ($M)
Tax Expenditure / Monetized
Pollution Effects
Maximum Tax Liability /
Monetized Pollution Effects
Wind $54.2 $113.6 $392.0 13.8% 29.0%
Solar $7.4 $7.9 $12.0 61.7% 65.8%
Wind & Solar $61.6 $121.6 $403.9 15.3% 30.1%
15
For labor, the tax expenditure ratio was 14% (vs. 15% for pollution) and the maximum tax liability effect was 28% (vs. 30% for pollution).
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Figure 6: Historical REPTC Tax Expenditures and the Value of Avoided Emissions
Figure 7: Historical Credits and Associated CO2 Emissions Avoided
Economic Analysis Summary The economic analysis of the REPTC over the 2003 through 2012 evaluation period indicates that the
macroeconomic impacts16
associated with the REPTC-certified facilities are quite significant and are far
in excess of the REPTC tax expenditures. If one wants to consider the pollution reduction effects of the
REPTC-certified facilities in monetary terms, similar conclusions can be drawn. Even if one considers the
maximum possible tax liability of the REPTC over the same period, each of the macroeconomic impacts
and pollution reduction effects are well in excess of this liability.
16
As measured by labor income.
$0
$10
$20
$30
$40
$50
$60
$70
$ M
illio
ns
Monetized Value of Reduced Emissions Based on Eligible Production; $12.19 Cost of CO₂
CO₂ CACs Potential Tax Credits Actual Credits Claimed
Wind & Solar
0
500
1,000
1,500
2,000
2,500
$0
$5
$10
$15
$20
$25
$30
Ton
s o
f C
O₂
(th
ou
san
ds)
$ M
illio
ns
Tons of CO₂ Emissions Avoided Based on Eligible Production
Tons of CO₂ Avoided Potential Tax Credits Actual Credits Claimed
Wind & Solar
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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From a policy perspective, to truly determine whether the REPTC provided a net benefit to the State of
New Mexico, one must know how many of these REPTC-certified facilities would have been developed in
the absence of the REPTC; or put another way, how many facilities did the availability of the REPTC tax
credit truly incentivize to be developed? A number of solar facilities began production while on the waitlist
for REPTC certification, which may imply that there are other factors that may have contributed to facility
development.
While we do not specifically know how many REPTC-certified projects were built in direct response to the
credit, we can use the tax expenditure ratios to help put the question in perspective. Based on actual tax
expenditures only, the availability of the REPTC would have had to incentivize more than 14.2% of
certified facilities to have been developed for the macroeconomic benefits to outweigh the State’s tax
expenditures over the evaluation period. If we consider unclaimed credits, or the maximum liability, that
number increases to 28%.
Survey respondents did indicate that the REPTC was one of the important considerations in their
development of the facility; albeit generally ranked lower in priority than the State Renewable Portfolio
Standard and the Federal Renewable Energy Tax Credit. The expiration of the federal wind energy tax
credit in 2013 likely makes the REPTC more important in the future. With the expiration of this federal tax
credit, new installed wind capacity in the U.S. plummeted in 201317
.
In reality there are many factors, in addition to the REPTC, that drive the development of wind or solar
facilities. Decoupling the various factors to ascertain their degree of importance is not feasible. Other
considerations are:
The New Mexico Renewable Portfolio Standard is an important driver for the development of wind
and solar facilities, which has a State target of 20% of electricity generation by renewable energy
in 2020 for investor-owned utilities (and 10% by 2020 for rural electric cooperative utilities) with
interim milestones. However, there are no penalties in place for utilities failing to meet these
targets.
Electricity demand growth is an important factor. The greater the annual demand growth the more
new electricity capacity is needed to satisfy that demand, creating more opportunities for
renewable electricity projects. Also, large annual demand growth can result in a larger base of
electricity to which RPS policies are applied.18
However, in the majority of New Mexico, electricity
demand is flat or declining, with increasing summertime peaks, creating fewer opportunities for
renewable energy installations to meet state electricity demand.19
Low natural gas prices reduce the competitiveness of renewable generation while high natural
gas prices can create opportunities for renewables.
As the economic analysis demonstrates, if the REPTC incentivizes the development of a renewable
energy facility then it does provide (i) economic development benefits with labor income effects in excess
of the REPTC tax expenditures; and (ii) pollution reduction benefits. If a REPTC-eligible facility would
have been developed anyway (e.g., in the absence of the REPTC), the REPTC tax credits benefits
accrue to the owners of the renewable facilities through higher profits and/or electricity users through
lower rates.
17
US Department of Energy, 2013 Wind Technologies Market Report. http://emp.lbl.gov/sites/all/files/2013_Wind_Technologies_Market_Report_Final3.pdf 18
U.S. Renewable Electricity: How Does the Production Tax Credit (PTC) Impact Wind Markets? Congressional Research Service, June 20, 2012. 19
Public Service Company of New Mexico, 2014, Integrated Resource Plan.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Conclusions This economic analysis conducted through this study process provides the State of New Mexico with
empirical data on the Renewable Energy Production Tax Credit (REPTC). This data and analysis
demonstrates how the benefits of the REPTC facilities compare to the costs or tax expenditures from an
economic development and pollution perspective.
Over the 2003 through 2012 evaluation period for which tax expenditure data is available from the
Taxation and Revenue Department, REPTC tax expenditures totaled $61.6 million, with another $60
million in potential tax liability over that time period from unclaimed tax credits. The macroeconomic
impact of the construction and operation of REPTC-certified facilities over the 2003 through 2012
evaluation period is significant. The total labor income impact on the State of New Mexico economy is
over $400 million. The employment impact is over 9,000 jobs over the same period.
As compared to fossil fuel–based energy generation, REPTC facilities produce 11 million tons less
greenhouse gas emissions and 30,000 tons less criteria air contaminants over the evaluation period. If
one considers the monetization of this reduction in pollution, the value of emissions avoided is just over
$400 million based on the assumptions employed in this study.
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Appendix A
Facility Map
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Appendix B
Survey
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
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Analysis of the State of New Mexico Renewable Energy Production Tax Credit
Information Request by HDR
Project Name: Click here to enter project name Contact: Click here to enter contact number
1. Is the project located on land (note: check all that apply): a. acquired for the project. ☐
b. being leased from the state. ☐
c. being leased from a private landowner(s). ☐
d. already owned by the company. ☐
2. What is the total one time cost to develop the project? $ Click here to enter value
a. Please provide a detailed cost breakdown: i. Equipment $ Click here to enter value ii. Construction $ Click here to enter value iii. Engineering, Planning, Design $ Click here to enter value iv. Land Purchase $ Click here to enter value v. Gross Receipts Tax $ Click here to enter value vi. Other (Please Specify) $ Click here to enter value vii. Other (Please Specify) $ Click here to enter value
b. Please indicate what type(s) of equipment was purchased? Click here to enter the type(s) of equipment c. What percentage of the total equipment purchase value was sourced from out of State? Click here to enter percentage % d. How many full time equivalent jobs were created during construction (if known)?
Click here to enter value FTE
3. Was the project financed with an Industrial Revenue Bond (IRB)? Yes ☐ No ☐
a. If yes, what is the total value of the IRB? $ Click here to enter value b. What is the term of the IRB? Click here to enter value years c. What is the effective date of the IRB? MM/DD /YYYY d. Does the IRB provide an exemption from Gross Receipts
Tax? Yes ☐ No ☐
e. What are the annual Payments in Lieu of Taxes defined as part of the IRB agreement?
$ Click here to enter value
f. Please note the specific term of the PILOT agreement. Click here to enter the specific term
4. What is the annual operating and maintenance costs associated with the facility? $ Click here to enter value a. If possible, please provide:
i. Total wages and employee benefits $ Click here to enter value ii. Total non-wage expenditures: $ Click here to enter value
1) Land Leasing Costs $ Click here to enter value 2) Property Taxes $ Click here to enter value 3) Payments in Lieu of Taxes $ Click here to enter value 4) Landowner Payments $ Click here to enter value 5) Other (Please Specify) $ Click here to enter value 6) Other (Please Specify) $ Click here to enter value
New Mexico Energy, Minerals & Natural Resources Department Economic Analysis of the New Mexico Renewable Energy Production Tax Credit
33
5. How many employees are involved in the operations and maintenance of the facility?
Click here to enter value
6. Rank these factors in order of how influential they were to having this renewable energy facility developed. Please indicate “1” if this was most influential, “2” if second most influential, etc. Number The State Renewable Portfolio Standard Number Federal Renewable Energy Tax Credits Number Industrial Revenue Bond Financing Number The New Mexico Renewable Energy Production Tax Credit Number Accelerated Depreciation Number Other (Please Specify) Number Other (Please Specify)
End of Questionnaire