When the budget crunch hit the state Legislature this year, a lot of bills that came with price tags dropped away from anyone’s to-do list—tax breaks for oil and gas companies fell away, alongside legislation that would have extended existing tax credits for renewable energy.
The thing is, one of those industries is growing and has massive potential to expand, to become the new leading export for the state as it adds jobs and tax revenue, and the other has been limping along. So why are we dragging our feet getting on board with renewable energy instead of leaning on oil and gas?
Since New Mexico’s first utility-scale wind power plant was installed in 2003 near the small northeastern town of House, the state’s installations have grown to 1,080 megawatts of wind power, according to the American Wind Energy Association. The state also has 365 MW of solar power online, according to the Solar Energy Industries Association, adding 8 MW of residential power, 5 MW of commercial and 28 MW of utility-scale solar power just in 2015.
The state has the renewable resources to potentially provide 1,000 times more clean energy than Public Service Company of New Mexico’s current demand, according to the state Energy Conservation and Management Division. Yet lawmakers are on a path to let this potential economic driver lose traction on tax credits that have kept it rolling.
Legislators didn’t act this year to extend and expand the state tax credits that encourage energy companies to build in New Mexico, and they’re allowing a residential solar tax credit program to expire at the end of the year.
There’s still time to resuscitate these tax credits. But the roof-top solar tax credit would require a retroactive measure to catch people who might move forward with solar installations between when the bill expires at the end of 2016 and the next planned Legislative session, when lawmakers can renew the credit in early 2017. With a cap on how many of those credits are issued, those who want to get in line before the end of the year might find they are already out of luck.
Industrial-level installations are already slowed in a backlog of projects waiting to take advantage of the production tax credit, which is set to expire Jan. 1, 2018.
Bills for both credits died in legislative committees during the lawmaking session that wrapped up in February, nipped like so many other expenditures as the state struggles to fit a $6.2 billion budget rather than the anticipated $6.5 billion.
Energy is also the reason that New Mexico’s bottom line is taking a hit, suffering from a drop in the price of oil and gas. Oil production has declined as companies face break-even costs that start at $40 to $52 per barrel, while oil prices stubbornly hover at the mid- to low $30s per barrel. Rig count was down by half in 2015 from its 2014 peak of 100.
“We have a huge dependence on oil and gas severance taxes to keep our budget alive, and with the low market prices—we saw what happens when you don’t have diversification, when you’re very dependent on one source,” says Daniel Lorimier, with the Rio Grande chapter of the Sierra Club. “Because gas and oil prices are so low that our taxes are dwindling from that source, we end up really, really hurting ourselves. All I can say is that I’m glad that none of the tax break bills for oil and gas passed either.”
At this point, without an increase in oil and gas prices, the tax credits for renewable projects are unlikely to come back, Lorimier says. That’s too bad, he adds, because tax credits are relatively low risk, requiring that companies generate the business before the incentive money comes out of state coffers.
“We’ve got the sun, we’ve got the wind, we’ve even got geothermal. New Mexico needs to look to the future, and while, as I say, we felt incapable of that this year, we need to get out of that single-source funding bind that we find ourselves in, and we need to start thinking about how we leverage our tax dollars,” Lorimier says. “Our commercial solar industry is one of the few bright spots economically in New Mexico, so it’s really kind of painful not to be able to stimulate an industry that has all of this—not only the physical potential here in New Mexico, but it also has the economic potential to relieve us of this single-source funding problem that we’re facing.”
“If there is one place that we could best spend our scarce and dwindling tax resources, it’s in encouraging renewable energy development in New Mexico. It’s the best opportunity, it’s the best place to make that small investment,” Lorimier says. “It’s not going to come from oil and gas forever.”
Lawmakers adopted the Solar Market Development Tax Credit in 2006 to help businesses and homeowners invest in clean energy by covering up to 10 percent, or $9,000, of the cost of a solar photovoltaic or solar thermal system. Between 2009 and 2014, residential solar installations each year increased by 2,050 percent, from 318 kW to 6,544 kW. Santa Fe County ranks near the top in the state for making use of this credit.
The production tax credit’s effects have been even more tangible, but industry leaders say those benefits are already slipping away. As the House Energy, Environment and Natural Resources Committee considered the bill to extend the credit, renewable energy companies pointed to millions in benefits and jobs, all of which will go away without this tax credit.
“If you don’t have the production tax credit, that makes a difference between whether projects build here or elsewhere,” a representative from NextEra Energy Resources told committee members.
NextEra Energy Resources owns the 204 MW New Mexico Wind Energy Center near House that spans Quay and De Baca counties (enough power for 61,000 homes), the 102.4 MW Red Mesa Wind Energy Center in Cibola County (25,000 homes), and the 5 MW Hatch Solar Energy Center in Doña Ana County. The wind projects brought a combined investment of $400 million, and NextEra pays $2.3 million annually on landowner leases and property taxes. The company is building two projects in Chaves County that are expected to employ more than 300 workers and send $660,000 in annual property tax payments to the county, 40 percent of which will go to local schools.
PNM purchases the power from the two wind projects, El Paso Electric buys the solar power from the solar center near Hatch and Xcel-owned Southwestern Public Service Co., which powers part of New Mexico and Texas, will be the customer for the two solar projects under construction in Chaves County.
The company’s regional director of government affairs told the committee there’s already a backlog of projects waiting for this credit, which lowers the cost of diversifying the state’s energy mix and creates jobs in rural counties.
The production tax credit offsets a portion of a corporation’s income taxes over a 10-year period for wind projects. The amount of power it applies to has an annual cap, however, and the waiting list of projects exceeds what’s already been put into production, with more than 1.9 million MWh of wind projects and 2.2 million MWh of solar projects in line.
The prospect of future projects will start to fade out this year, said Beth O’Brien, community relations manager for Pattern Development, when she advocated at the Roundhouse for the production tax credit. The queue, she says, is “oversubscribed, creating a delay of up to two to four years before a new wind project begins receiving credits. The backlog, combined with the program cap and expiration, dampens momentum in the growth of the wind energy industry in the state.”
What would send a welcome signal to investors while accounting for the falling costs of renewable energy, O’Brien claims, is extending the credit and increasing the program’s cap while mapping out a plan for phasing the credit out, with a final sunset date for claiming the credit in 2032.
Pattern Development is building three wind projects in Curry County, the Broadview Wind Projects, which will add 463 MW to the installed wind capacity in the state, increasing the total by 50 percent, according to O’Brien. Over the next 30 years, the project is expected to pay $600 million in transmission service payments, $68 million in landowner royalties, $35 million in construction expenses and $27 million for local employment.
While these tax credits cost the state revenue—likely in the annual range of $1 million to $4.5 million until fiscal year 2027, and potentially $11 million for the four years to follow that, according to legislative analysts—Pattern commissioned an economic analysis that estimated their projects would return to the overall state’s economy as much as $8 for every $1 in lost revenue.
“Whether the price of a barrel of oil is $20 or $200, these are impacts you can count on,” O’Brien says.
Since its enactment, that tax credit has brought more than 800 MW of new wind power facilities, and another 1,000 MW is expected to come online by the end of next year. The production tax credit helps makes all those projects financially viable.
“These projects and others like them help the state of New Mexico attain greater economic diversification and resilience to market fluctuations in other areas of the economy,” O’Brien says.
Renewables could become the state’s new export crop. While New Mexico’s renewable portfolio standard aims for 20 percent renewables by 2020, California is aiming for 50 percent by 2030.
“That’s a tall order, and it is projects like ours and policies like New Mexico’s that are poised to take advantage of such market opportunities,” O’Brien states. “New Mexico has an opportunity to harness its renewable energy resources, export energy to surrounding markets, and directly benefit from the resulting tax revenue, jobs and economic ripple effect.”
The state is situated at the southern tip of the Midwestern wind belt—which Texas has used to convert into 17,713 MW of wind power, according to the American Wind Energy Association. Also a recipient of plentiful sunshine, New Mexico’s ranked second in the nation for renewables potential, and that means a huge opportunity for economic growth.
“This is something that we should be exporting. New Mexico should be selling clean energy to the rest of the country, because we can generate it so much more easily,” says Ben Shelton, political and legislative director for Conservation Voters New Mexico.
Much of the renewable power produced in New Mexico is already shipped to other states to meet more demanding renewable portfolio standards there. Pattern’s new wind farms, for example, are all dedicated to help California meet its goal of 50 percent renewable power statewide.
“These large, interstate exchanges and connections, their job is to make sure that electricity, no matter where it’s generated or consumed, gets from A to B efficiently, so if New Mexico power producers get a better rate selling electricity during peak hours to Los Angeles, that’s best for New Mexico,” Shelton says. “It’s better for us to generate clean power here and sell it somewhere else in the form of renewable energy credits. The fact that the state’s renewable potential can translate into the national multistate market is one of the great reasons to do it.”
In addition to an economic boost, switching to renewable sources for power here could separate ratepayers from the volatile market for fossil fuels.
“The states that have the most renewables in their portfolio already get hurt the least when fuel rates go up. That’s all for the fairly self-explanatory reason that the fuel source that renewables run on is free,” Shelton says. “When you install more solar, even rooftop solar, the power bill for everybody tends to go down, and that also insulates the entire ratepayer base from fluctuations in fuel prices.”
There is also, of course, the question of public health. Taking coal-fired plants off line, in particular, reduces carbon dioxide, nitrogen oxide, sulfur dioxide and particulate emissions, improving air quality and public health. Research released earlier this year at the American Association for the Advancement of Science annual meeting reported that more than 5.5 million people die prematurely each year from outdoor and household air pollution, almost half of them in the developing nations of China and India.
Last year was a record-setting year for installation of solar photovoltaics, according to the Solar Energy Industries Association, which reported 7,286 MW of power installed. California, North Carolina, Nevada, Massachusetts and New York led the way in that effort. New Mexico ranked 17th for 2015, dropping from 10th in 2014. With solar providing 29.5 percent of new capacity, for the first time, it beat natural gas capacity additions.
“The things that drive states include, of course, having a good renewable resource, which New Mexico has a great one, but it also typically includes good policies,” says Sean Gallagher, vice president of state affairs for SEIA. “Utilities are used to doing business in the way they’ve always done it, and in order to get utilities to do business differently takes a little nudge. One of the primary things is having a renewable energy standard.”
New Mexico does have one, but it’s modest—20 percent by 2020.
A tax policy to encourage the competitiveness of renewables also helps encourage utilities to bring more renewable power online, as does the federal renewable tax credit, a 30 percent solar investment tax credit that was extended late in 2015 for the next five years.
But the market is also reaching a tipping point at which experience, technological improvements and scale make renewable energy ever more cost effective.
“What we’re seeing more and more of today is solar power and wind power, too, frankly, have declined in cost so much that we’re seeing utilities go out and buy renewable power simply because it now makes economic sense,” Gallagher says.
The US Energy Information Administration reports the coming year will see new utility-scale solar capacity outpace any other new electricity generation brought online nationally, including wind and natural gas. Solar is expected to see an additional 9.5 GW come online, compared to 8 GW for natural gas and 6.8 GW for wind. That doesn’t account for residential solar installations, which are also expected to continue to grow.
Some states have even included with their renewable portfolio standard a provision that encourages building projects in poorer counties. In North Carolina, for example, farmers who used to grow tobacco, another commodity that’s seen falling prices, can convert their land to use for a solar project.
“It gives the farmers essentially another crop,” Gallagher says. “They can turn that land into a new revenue stream.”
Last year alone, more than $80 million was invested in solar installations in New Mexico, he says.
“That kind of money can make a real difference in rural counties,” he says.
But if the production tax credit evaporates, at some point, developers will start looking elsewhere to spend those dollars.
Gov. Susana Martinez released an energy plan late last year that calls for an “all of the above” approach to energy policy—but names many specific measures for attracting petrochemical companies for natural gas development and projects, streamlining the permitting process, and adding infrastructure to reduce bottlenecks perceived as slowing oil and gas development.
For solar, her plan recommends a “state-led effort” to “reduce soft costs for solar photovoltaic installation, such as permitting and right of way procedures,” a significant expense for residential photovoltaic systems, after labor and materials.
A “low carbon portfolio standard” is “one possible way to move forward for the energy providers in the state,” says Beth Wojahn, communications director for the Energy, Minerals and Natural Resources Department, responding to questions by email. Wojahn wouldn’t agree to schedule an interview with the solar or wind program managers.
New Mexico, as the governor’s report states, boasts “some of the best wind resources in the country” and “the third highest state resource potential in the nation” for solar, yet renewables provide just 9.3 percent of the state’s power.
Per the 2015 requirement, PNM has capacity for 15 percent renewable energy on the grid. But it doesn’t actually put those electrons on the grid—it puts much less, because the requirement per the clean energy plan dictates capacity, not actual power provided.
The installed “nameplate” capacity is 67 MW of solar, or 2.6 percent of PNM’s total capacity for power, and 204 MW, or 7.8 percent of its total capacity, of wind power, which comes from the New Mexico Wind Energy Center. But actual generation that comes from those facilities in 2014 was 0.7 percent for solar and 4.5 percent for wind.
PNM has continued to bring additional solar and wind projects online, working toward the renewable portfolio standard of 20 percent by 2020.
“The crux of the problem with adoption of more renewables in the state is the economics,” Wojahn writes. “New Mexico has some of the cheapest electricity rates in the nation, and because of these rates, the cost of energy generated by renewables in the past has exceeded the energy price from the established utilities.”
She referred SFR to a website, however, that actually reports the average commercial and residential electricity rate in New Mexico is above the national average—and Santa Fe’s is yet again above the state average. Only for industrial rates does the rate in Santa Fe come in below the national average.
At this point, Wojahn writes, the costs of renewable energy is now competitive with coal and natural gas, and the question comes down to “increased efforts to prioritize and integrate these clean resources.”
New Mexico is a net exporter of electrical energy, according to the US Energy Information Administration, but as Wojahn points out, “Demand for electric power has remained relatively flat for the last few years, so to add significant more amounts of wind, solar and geothermal energy will mean cutting back on existing resources.”