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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

i

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


1

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.


2

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


3

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:


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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.


5

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.


6

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.


7

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


8

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.


9

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.


10

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


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


$0

$5

$10

$15

$20

$25

$30$

Mill

ion

s

Potential Tax Credits Actual Credits Claimed

Wind & Solar


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

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Certified Production - Wind Certified Production - Solar

Potential Tax Credits - Wind Potential Tax Credits - Solar

Wind & Solar


12

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.


13

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)


14

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


15

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.


16

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


(Jobs) Labor Income,

$000 Value

Added, $000 Output,

$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


(Jobs)

Labor Income,

$000

Value Added,

$000 Output, $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


(Jobs) Labor Income,

$000 Value

Added, $000 Output,

$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.


17

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.


18

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 ($)


19

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.


20

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.


21

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.


22

Table 15: Economic Impacts from Capital Expenditures, 2003-2012


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


Value Added ($M) $103.4 $10.3

Output ($M) $194.8 $19.5


Total Wind and Solar


Value Added ($M) $429.4 $42.9

Output ($M) $821.4 $82.1


Table 16: Economic Impacts from Operations and Maintenance Expenditures, 2003-2012


Wind


Value Added ($M) $160.3 $16.0

Output ($M) $256.1 $25.6


Solar


Value Added ($M) $7.7 $0.8

Output ($M) $12.3 $1.2

Employment (FTE Jobs) 102 10



Value Added ($M) $168.0 $16.8

Output ($M) $268.3 $26.8



23

Table 17: Summary of Economic Impact Results, 2003-2012


Wind


Value Added ($M) $486.3 $48.6

Output ($M) $882.7 $88.3


Solar


Value Added ($M) $110.9 $11.1

Output ($M) $207.0 $20.7




Value Added ($M) $597.2 $59.7

Output ($M) $1,089.7 $109.0


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%


24

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


25

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).


26

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


27

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.

http://emp.lbl.gov/sites/all/files/2013_Wind_Technologies_Market_Report_Final3.pdf


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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.


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Appendix A

Facility Map


30


31

Appendix B

Survey


32

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


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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

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