Renewable energy tax credit pays dividends to state

robinson-avila_kevin_sigALBUQUERQUE, N.M. — New Mexico’s 13-year-old renewable energy production tax credit has generated a lot of bang for the buck in terms of economic impact and local development of wind and solar generation, but the incentive is set to expire next year.

Bipartisan legislation to extend it to 2023 is under consideration in both the Senate and House. But with this year’s session ending Saturday, the bills dealing with extension (SB 432 and HB 440) will face an uphill battle to reach Gov. Susana Martinez’s desk. And even if they do, it’s unclear if the governor supports them, given the state’s budget challenges.

Supporters point to a new study, released this month, that shows huge dividends since 2003, when the tax credit took effect. The state forewent, or reimbursed, about $120 million in revenue to companies qualifying for the incentives as of 2016.

But those companies, in turn, generated nearly 12,000 jobs, $600 million in new labor income and $1.6 billion in economic activity from spending on the wind and solar projects covered by the tax credit. In addition, $74.6 million in state and local tax revenue came back to the government.

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For every $1 in state expenditure, the tax-certified renewable projects generated over $5 in new labor income, according to the study, prepared by Kelly O’Donnell, an economist and research professor at the University of New Mexico’s Institute for Policy, Evaluation and Applied Research.

“There are a lot of economic benefits related to the startup of these renewable facilities, especially in the early years as capital investment flows in to get them up and running,” O’Donnell said. “That’s when the stimulus really comes into play. It’s front-end loaded in terms of the benefits, so there are rapid returns for the state.”

O’Donnell, who did the study through her firm O’Donnell Economics and Strategy, worked under former Gov. Bill Richardson as director of state tax policy and deputy cabinet secretary for economic development. The Washington, D.C.-based firm Family Businesses for Affordable Energy, which supports policies that lower energy prices for family businesses, contracted O’Donnell.

The organization wanted to show the policy’s benefits to New Mexicans and potentially influence state programs elsewhere, said Executive Director Alex Ayers.

“We knew the policy was coming up on expiration, so we wanted to look at how it’s benefitted the state and help to keep the credits in place,” Ayers told the Journal.

Another study released in 2015 by the state Energy, Minerals and Natural Resources Department reached similar conclusions about the positive impacts. That study, done by HDR Engineering, reported 9,000 jobs were created by tax-certified renewable projects from 2003-12, producing $1 dollar in labor income for every 14 cents spent by the state. It called the macroeconomic impacts from tax-certified renewable projects “significant” and “far in excess” of state expenditures.

Neither study, however, could pinpoint the state’s tax policy as the deciding factor by companies to purse projects in New Mexico, since many other considerations influence decisions. That includes the state’s renewable portfolio standard, which requires public utilities to derive 20 percent of their electricity from renewable sources by 2020, plus availability of federal renewable production tax credits.

The state tax credits, however, have clearly contributed to renewable development in the state.

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Since 2003, New Mexico has gained 13 wind farms with 1.1 gigawatts of generating capacity, or enough to supply electricity for about 350,000 homes every year, according to the American Wind Energy Association. Another 1.3 GW of wind is now either under construction or planned.

On the solar front, 46 plants with 452 megawatts of generating capacity have come online in New Mexico. At least $1.5 billion more in solar investments are planned.

But many planned solar and wind projects may not be completed if the state tax credit expires next year.

Today, nine wind facilities and 18 solar plants are receiving annual tax credits, which last ten years. Seven more wind facilities and 37 solar ones are on a waiting list to receive them.

The backlog reflects an annual cap on payouts, which limits total wind electricity tax credits to a maximum of 2 million megawatt hours for all companies and 200,000 megawatt hours for solar. Applicants must wait for companies currently receiving benefits to max out before new ones receive benefits.

Under the current statute, projects must produce electricity by January 2018 to become eligible for credits, making today’s decisions on planned projects more difficult.

SB 432 and HB 440 would extend that sunset to 2023, while increasing annual payout caps to 2.5 million megawatt hours for wind. The solar cap would climb to 1 million megawatt hours over five years.

The Legislative Finance Committee says most wind projects now in the pipeline would likely not be completed without the tax credit extension.

Rep. George Dodge Jr., D-Santa Rosa, who introduced HB 440 with Rep. Randal S. Crowder, R-Clovis, cites bipartisan support for the bill.

“In terms of job creation, these are some of the best projects the state has going today,” Dodge said.

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