Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR Padilla
LAST UPDATED
ORIGINAL DATE 02/21/25
SHORT TITLE Qualified Microgrid Tax Credit
BILL
NUMBER Senate Bill 418
ANALYST Graeser
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected
Microgrid Credit
($500.0) ($500.0) ($500.0) Recurring General Fund
GRT
$8,870.0 $8,870.0 $8,87 0.0 $8,870.0 Recurring General Fund
GRT
$8,190.0 $8,190.0 $8,19 0.0 $8,190.0 Recurring Local Governments
Property Tax
$30.0 $80.0 $120.0 Recurring GOBs
Property Tax
$960.0 $2,350.0 $3,650.0 Recu rring Local Governments
Parentheses ( ) indicate revenue decreases.
*Amounts reflect most recent analysis of this legislation.
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
(dollars in thousands)
Agency/Program
FY25 FY26 FY27
3 Year
Total Cost
Recurring or
Nonrecurring
Fund
Affected
TRD
No fiscal
impact
Indeterminate
but minimal
Indeterminate
but minimal
Recurring General Fund
EMNRD
No fiscal
impact
Indeterminate
but minimal
Indeterminate
but minimal
Recurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
Sources of Information
LFC Files
Agency Analysis Received From
Because of the short timeframe between the introduction of this bill and its first hearing, LFC has yet to receive analysis from state agencies. This analysis will be updated if that analysis is
received.
SUMMARY
Synopsis of Senate Bill 418
Senate Bill 418 (SB418) authorizes a new energy production modality known as a “microgrid” in
Chapter 62 (Electric, Gas and Water Utilities) NMSA 1978. This new section of Chapter 62
allows power production and distribution outside of the authority of the Public Regulation
Commission (PRC) and is based on self-sourced power. A microgrid is defined as a self-sourced Senate Bill 418 – Page 2
power generation facility, not limited to renewable energy, capable of operating independently of
the grid, but able to be connected to the grid to dispose of surplus power. Since the microgrid is
not limited to renewable energy, it could provide power at night or when wind energy is not
sufficient. A microgrid must be at least 20 megawatts. Microgrids would service otherwise
underserviced and lower-income areas. The bill allows public utilities and cooperatives regulated
by PRC to acquire microgrids and to adjust rates to consider the public interest and need,
reliability, and affordability. The bill explicitly declares that the owner/operator of a microgrid is
not a public utility or a cooperative.
The bill creates the “qualified microgrid income tax credit,” equal to 100 percent of the costs of
constructing and installing a qualified microgrid with a cap of $100 thousand per microgrid
constructed and installed, as an incentive to build microgrids in underserved areas. Any amount
of tax credit that exceeds the taxpayer’s income tax liability can be carried forward for twenty
years until the credit is exhausted. Although this is not a refundable credit, the credit may be
transferred. The credit is allowed for installation in an underserved area with median income at
or near the federal poverty level. This is not a corporate income tax credit and can only be
claimed by developers organized as Subchapter S corporations or as limited liability partnerships
(LLPs) or corporations (LLCs) that file as pass-through entities.
This bill does not contain an effective date and, as a result, would go into effect 90 days after the
Legislature adjourns, or June 20, 2025, if enacted. The provisions of the tax credit are applicable
to tax years beginning January 1, 2025. There is no sunset date for the basic authority, but
microgrids eligible for the tax credit must be installed prior to January 1, 2031. Tax credits
generated prior to the sunset date can roll over for twenty years.
FISCAL IMPLICATIONS
Each microgrid constructed and installed in an underserved area generates a tax credit of 100
percent of the cost of construction and installation, limited to $100,000 per installation. These
microgrids do not require a certificate of convenience and necessity from PRC. They do require
zoning approval of the local jurisdiction and a building permit. A 2018 estimate by the National
Renewable Energy Laboratory (NREL) indicated that typical installation cost for solar renewable
including battery capacity is in the range of $2 to $5 per watt -- $2 million to $5 million per
megawatt.
The $100 thousand tax credit for a 20-megawatt facility represents about 2 percent to 5 percent
of the cost of the facility. If the facility is primarily renewable, it would be eligible for federal
renewable investment credits of up to 30 percent. A 5-megawatt natural gas turbine generator,
when installed, typically costs between $3 million and $5 million depending on the specific
model, location, and installation complexity, with an average cost around $1,000 per kilowatt of
capacity.
1
This analysis assumes that five microgrids would be constructed each year and tax advantage of
the tax credit. In the absence of an industrial revenue bond negotiated with a local government,
the facility would generate gross receipts or compensating taxes on the initial construction costs
and property taxes for the life of the project – estimated at 30 years. This analysis assumes that
1
https://www.eia.gov/electricity/generatorcosts/ Senate Bill 418 – Page 3
15 megawatts of the 20-megawatt microgrid are solar, 5-megawatts are silicon battery energy
storage, and 5-megawatts of natural gas backup for a total tax basis of $42.5 million and property
tax basis of $14.2 million. A 20-megawatt microgrid
2
is sufficient to power 7,800 homes, 200 to
300 retail establishments, 50 supermarkets, 50 to 60 health clinics, 30 to 40 schools or 15
hospitals.
This bill creates or expands a tax expenditure. Estimating the cost of tax expenditures is difficult.
Confidentiality requirements surrounding certain taxpayer information create uncertainty, and
analysts must frequently interpret third-party data sources. For this microgrid tax credit, the
timing is of equal interest to the number of microgrids. It should be assumed that the microgrid
developer will negotiate an industrial revenue bond with a negotiated amount of payment in lieu
of taxes.
SIGNIFICANT ISSUES
As shown by Table 1, the qualified microgrid income tax credit may not be of sufficient size to
incentivize microgrid construction.
Table 1: Cost and Tax Liability of a 20-Megawatt Microgrid
Cost/
Megawatt Total Cost
Property Tax
Basis
5 MW natural gas turbine $1,000,000 $5,000,000
15 MW solar $2,500,000 $37,500,000
7.5 MW BESS
Total Tax Basis $42,500,000 $14,166,667
Total GRT $3,410,630
5-Year Property Tax $1,409,959
Income Tax Credit -$100,000
Federal Renewable Investment Credit -$11,250,000
SB418 potentially represents a major change in New Mexico’s energy policy. Traditionally,
there have been two models: (1) investor-owned utilities (IOUs) with generation, distribution and
pricing heavily regulated by PRC; and (2) cooperatives, also regulated by PRC, but with more
incentive to maximize capacity, transition to renewables and moderate costs. SB418 offers the
potential for a third model: microgrids outside the authority of PRC. A microgrid is based on a
self-sourced generation of a minimum of 20 Megawatts (MW). A graphic from the federal
Department of Energy (See footnote 1) illustrates the idea. The microgrid is capable of being
independent of the grid but can also sell surplus power to the grid. Note that microgrids can have
substantial renewable generation and battery storage but also have conventional generation such
as natural gas turbines.
2
chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.energy.gov/sites/default/files/2024-
02/46060_DOE_GDO_Microgrid_Overview_Fact_Sheet_RELEASE_508.pdf Senate Bill 418 – Page 4
As a third model, microgrids may not be subject to the renewables mandate of the energy
transition act.
PERFORMANCE IMPLICATIONS
The LFC tax policy of accountability may be met with the bill’s requirement to include the $100
thousand per facility tax credit in the annual Tax Expenditure Report required by 7-1-84 NMSA
1978. However, the more relevant tax expenditure is whether the facility negotiates an IRB and
the amount of gross receipts tax abated and amount of PILT paid.
ADMINISTRATIVE IMPLICATIONS
Microgrids will not be regulated by PRC. The additional administrative burden on EMNRD will
be modest because a typical investment will be in the range of $40+ million. At most, five
facilities a year qualifying for the tax credit will be constructed and installed. TRD will have
costs involved with expanding the number of tax credits. This analysis assumes costs for both
agencies are minimal; this estimate could be updated if agency analysis is provided.
OTHER SUBSTANT IVE ISSUES
In assessing all tax legislation, LFC staff considers whether the proposal is aligned with
committee-adopted tax policy principles. Those five principles:
Adequacy: Revenue should be adequate to fund needed government services.
Efficiency: Tax base should be as broad as possible and avoid excess reliance on one tax.
Equity: Different taxpayers should be treated fairly.
Simplicity: Collection should be simple and easily understood.
Accountability: Preferences should be easy to monitor and evaluate
Senate Bill 418 – Page 5
In addition, staff reviews whether the bill meets principles specific to tax expenditures. Those
policies and how this bill addresses those issues:
Tax Expenditure Policy Principle Met? Comments
Vetted: The proposed new or expanded tax expenditure was vetted
through interim legislative committees, such as LFC and the Revenue
Stabilization and Tax Policy Committee, to review fiscal, legal, and
general policy parameters.
?
Microgrids have
been discussed in
the press for some
time, but probably
not specifically
been presented to
an interim
committee for
debate.
Targeted: The tax expenditure has a clearly stated purpose, long-term
goals, and measurable annual targets designed to mark progress toward
the goals.
The purpose is to
create an
alternative, future-
looking paradigm for
the provision of
electric power. Clearly stated purpose ?
Long-term goals ?
Measurable targets X
Transparent: The tax expenditure requires at least annual reporting by
the recipients, the Taxation and Revenue Department, and other relevant
agencies.
?
Lack of
transparency if IRBs
are negotiated.
Accountable: The required reporting allows for analysis by members of
the public to determine progress toward annual targets and determination
of effectiveness and efficiency. The tax expenditure is set to expire unless
legislative action is taken to review the tax expenditure and extend the
expiration date.
20-Year potential
rollover.
Public analysis
Expiration date X
Effective: The tax expenditure fulfills the stated purpose. If the tax
expenditure is designed to alter behavior – for example, economic
development incentives intended to increase economic growth – there are
indicators the recipients would not have performed the desired actions
“but for” the existence of the tax expenditure.
The tax credit is
insignificant
compared to costs.
Fulfills stated purpose
Passes “but for” test X
Efficient: The tax expenditure is the most cost-effective way to achieve
the desired results.
The main purpose
of the bill is not
fiscal.
Key: Met Not Met ? Unclear
POSSIBLE QUESTIONS
Would these microgrids be subject to the renewables provision of the state’s energy transition
act?
LG/hj/SL2