New Mexico Solar – Everything You Need to Know
New Mexico solar incentives will definitely save you a buck!
New Mexico is famous for its beautiful, arid environment. Beyond the stunning scenery, the state’s hot sun and cloudless days also make it the perfect place for going solar. Take a look below for information on New Mexico solar policy, incentives, and estimates of financial savings by going solar in the state.
Although there aren’t as many rebates and incentives as in other states, the strong solar policy and the federal tax credit mean you can save quite a bit by installing solar in New Mexico!
#1 Are Solar Panels Worth it in New Mexico?
* Note that these are estimated values for informational purposes only, and do not take into account the full complexity of all financial projections. They also only apply to cash purchases, which means your numbers will be different if you lease your system or pay for it with a loan (factoring in interest). Also note that we are not financial advisors, so this information should not be construed as financial advice.
Although New Mexico sees fairly average electricity rates and offers no solar rebates, the state’s strong sunlight means solar installations produce much more electricity than in other states, leading to higher savings and a faster return on your investment.
The state of New Mexico has also passed solar access laws, a Renewable Portfolio Standard with a solar carve out, and gives property and sales tax exemptions for solar, leading us to give the state a reasonable C for solar.
#2 Options for Buying Solar Panels in New Mexico
With New Mexico’s blindingly strong sunlight, solar installations pour out a huge chunk of electricity, meaning you save more!
Buying solar outright in cash is always going to be the best bang for your buck. You aren’t locked into any contract, you pay minimal fees, and avoid all the interest and escalators that can eat away at your profits. As the owner of the installation, you also get to take advantage of all the financial incentives available, including the federal tax credit and all state tax exemptions.
Of course, along with all these benefits, you have to foot that initial bill, which for an average-sized 5kW installation in New Mexico works out to around $18,933 before incentives, and $13,253 after applying the 30% federal tax credit (see section below for more info).
That’s certainly a lot of money, but with that 5kW installation, you can see savings of $19,652 over 25 years (the estimated lifespan of most solar panels), with a return on your investment in 11 years. This accounts for the average utility rate increase in New Mexico of 2.2% each year as well as your solar panel’s production decreasing 0.08% each year (due to weather and general wear and tear).
Solar leases are just like car leases. Little to no money is required upfront, you pay monthly payments, and you never actually own the solar installation. This means you miss out on all the perks of ownership, most notably the federal tax credit that drops your total cost so much.
Technically, New Mexico allows solar companies to offer power purchase agreements (PPAs), not leases. As a customer, there isn’t much difference between the two: you pay monthly payments over the life of your agreement, typically 20 years. The real difference is that, with leases, you are ‘renting’ the equipment on your roof while with PPAs you are purchasing the electricity produced by the installation.
Whether you choose a PPA or lease is really a matter of state regulations. Some states don’t allow leases and others don’t allow PPAs.
More: Solar Leases
Loans allow you to take advantage of all the benefits of solar ownership – higher savings and tax breaks – without that steep initial investment. You’re not going to save as much as with a cash purchase, but you also don’t have to put any money down either.
Banks, credit unions, and solar loan companies all offer solar loans, so reach out to a few organizations (including your installer, as many already have preferred lenders they’ve worked with before) to see what they offer.
How much can you save going solar with a loan? Well, it all depends on your interest rate, term, and fees, as well as your utility rates and installation costs like we mentioned before.
Using the same scenario as in the section above (5kW installation costing $18,933 before incentives), but financing with a 15-year loan with 5% interest, you’re adding an additional $8,017 in interest to your total investment and your savings drop to $11,635.
More: Solar Loans
#3 New Mexico Solar Policy Information
Like many western states, New Mexico has adopted strong solar policies to both encourage and protect the growth of solar.
Renewable Portfolio Standard
States that want to curb their emissions often pass RPS goals, which simply state that a certain amount of electricity sold in the state must come from renewable sources like solar or wind. 29 states currently have adopted RPS goals. Hawaii, which imports all their fuel for producing electricity and sees the highest electricity prices in the country, has the most aggressive RPS goals: 100% renewable by 2045.
Back in 2004, New Mexico mandated that 20% of all electricity sold by investor-owned utilities must come from renewable sources by 2020, with a 10% requirement for electric cooperatives. Of that 20%, 30% must come from wind and 20% from solar, with distributed energy (ie residential solar) accounting for 3% (which is actually quite a bit).
This whole RPS thing seems pretty simple, right? All the utilities need to do now is to install solar and wind farms and encourage their customers to install solar as well, right?
That’s almost the whole picture. Here’s the confusing bit: Once a kilowatt-hour is created and put into the electricity grid, it’s impossible to tell where it came from. It could be from a coal-fired power plant, it could be from a wind turbine, it could be from a solar panel. After it’s created, all electricity looks the same – there’s no distinguishing mark to say “This kilowatt-hour is renewable!”
To fix this problem, the utility industry created the idea of Renewable Energy Credits (RECs). For each megawatt-hour that is produced from a renewable energy source, a REC is created. With RECs, the environmental benefits of the renewably-sourced electricity are essentially broken off from the electricity itself and this environmental benefit, ie the REC, can be bought and sold.
You might be wondering why anyone would buy RECs, and this brings us back to our original topic of New Mexico’s Renewable Portfolio Standards. To prove how much renewable energy they’ve produced each year, utilities in New Mexico must show state regulators their collection of RECs.
Since RPS goals are all about reducing emissions in the state, utilities can even buy RECs from other individuals or companies and count them towards their 20% renewable goals.
Now you’re probably wondering, how does all this affect you? Well, depending on your utility, they might just offer to pay you for the RECs your solar installation produces. Read the section below on incentives for more info!
When calculating financial savings by going solar, electricity prices play a huge role in your overall savings, since the higher your electricity prices are, the more you can save by going solar and avoiding them.
New Mexico’s average electricity price of $0.125 per kWh is right in line with the national average of $0.127 as well as the average price of neighbors Arizona and Colorado.
Obviously, we can’t complain about low electricity prices, but that does mean it’s going to take longer to see a return on your investment than in states with high electricity prices, like California’s $0.17 per kWh or New York’s $0.185.
New Mexico Net Metering
New Mexico requires all utilities operating in the state to offer net metering to solar customers. This means that, at the end of the month, if your installation has produced more electricity then you’ve taken from the grid, your utility will reimburse you.
How exactly they reimburse is up to the utility, but they have two choices:
- Give you a bill credit or pay you for your excess electricity at the utility’s avoided cost, which is basically what it costs them to generate electricity – typically around $0.02 per kilowatt-hour. So, if you produced an extra 100kWh last month and your utility’s avoided cost really is $0.02 per kWh, you’d get paid $2.
- Credit your account for the kilowatt-hours you produced. So, if you produced an extra 100 kWh last month, you’d have a 100 kWh credit on your bill that you can use the following month. This is typically the better deal for customers, as you avoid that fairly low-paying avoided cost credit structure.
Unlike in other states with net metering, you don’t automatically hand over your RECs when you join a net metering program. This means they are yours to keep (and sell at profit!). Read over the section on Renewable Portfolio Standards for more info!
More: Net Metering
The process to connect your solar installation to the utility grid is standardized across the state. Requirements vary by the size of the installation:
- Systems under 10kW are eligible for the simplified interconnection process, which is an application without any fuss. Most homeowners fall into this first category.
- Systems between 10kW and 2MW are eligible for the Fast Track Process, which can include additional reviews of the system. If your installation is on the larger side, you’ll fall into this category.
Your installer will know the ends and outs of the interconnection process and will most likely fill out and submit the application on your behalf, so you really don’t even need to worry about this.
Solar Access Rights and Homeowners Associations
Since the 1970s, New Mexico has adopted very clear, strong pro-solar regulations protecting both homeowners’ right to install solar on their roof as well as the right to solar access.
In 1978, the state passed the Solar Rights Act (NM 47-3-1), which allows property owners to create an easement to protect the path of sunlight to their solar panels. With an easement in place, your neighbors can’t build any new structures or plant new trees that would block your solar installation’s access to sunlight.
The solar homeowner must apply for this easement and give their neighbors a heads-up beforehand so they can contest the easement if they feel it is necessary. This easement remains in effect even if the house is sold. The homeowner can sell the easement separately from the property, so a neighbor can purchase the easement if she would like to cancel it.
In 2007, the state went a step further, passing regulations (NM 3-18-32) that no municipal or local government, covenant, or other restriction can block your solar installation. This means that, no matter how cranky your HOA is, they can’t block your solar installation!
#4 Financial Incentives, Rebates, and Tax Credits
Rebates and incentives are where New Mexico is somewhat lacking in the solar department, so be sure to take advantage of everything you can to lower your solar cost as much as possible!
Federal Tax Credit
The 30% federal tax credit is open to any homeowner who purchases and installs a solar installation in the US. It’s an actual tax credit – not a deduction – so it’s a dollar-for-dollar 30% discount on your total cost to go solar. So for example, if you spent $15,000 going solar, you’d get back $4,500 at tax time.
Originally set to expire in 2016, federal lawmakers extended the credit to 2019, at which point it drops to 26% until 2021, then 22% until 2022 when it finally dies away.
You’ll file for this credit yourself the same year you install your installation, though of course, it will be after you install your system – so keep that in mind when calculating your savings estimates.
More: Solar Federal Tax Credit
State Tax Credit
Until 2016, the state of New Mexico offered a 10% tax credit, known as the Solar Market Development Tax Credit, for any solar installations built in the state. Unfortunately, this credit expired on December 31st, 2016.
Utility-Sponsored REC Programs
Each of New Mexico’s three investor-owned electric utilities – El Paso Electric, PNM, and Xcel – will buy your Renewable Energy Certificates (RECs) that your solar installation produces.
RECs are simply documents stating that the electricity your installation produces is from a renewable source. Utilities across the country can buy these RECs to meet their RPS mandates. In most states, when a customer signs up for net metering, they give away their rights to their RECs to the utility; in New Mexico, though, this is not the case. See the section on Renewable Portfolio Standards for background on RECs.
For example, through their REC Program, El Paso Electric will pay residential solar customers who are enrolled in their net metering program $0.02 per kWh of electricity their installation produces. Both PNM and Xcel offer similar incentives.
Property Tax Exemption
Typically, when home improvements are made, it increases the value of the home, which in turn increases property taxes. Solar is certainly a home improvement and adds serious value to your home, but under state law, solar installations don’t count as home improvements and therefore are exempt from property tax.
Many states have these property tax exemptions for solar installations, and they typically add up to about $100 savings in the first year. Although it’s certainly not much, every little bit counts!
Sales Tax Exemption
With the Solar Gross Receipts Tax Exemption, retailers aren’t required to pay sales tax on any solar equipment they sell or the actual installation. While you the homeowner don’t directly benefit from this incentive, your retailer should be passing on this discount to you through lower prices.
General Increase in Home Value
If you purchase your installation in cash or with a loan, solar adds a lot of value to your home. The National Renewable Energy Lab studied solar home values in several states and found that, on average, homeowner-owned solar adds an additional $4.51 per watt to the value of the home! This means that a 5kW installation can add over $20k in value to your home.
However, if you finance your installation through a lease or PPA, you aren’t going to see that same increase in value. A study by Lawrence Berkeley National Lab found that leased solar doesn’t add – or subtract – value from your home; nor does it affect your home’s time on the market or sway buyers’ opinions on the home.
For more information on how solar affects home value, check out our article What Do I Need to Know When Buying a House with Solar Panels? as well as Buyers Will Pay More for Solar Homes.
If you’d like to dig even more into local incentives and rebates, check out the DSIRE database.
What to Do Next?
Is going solar a good idea in New Mexico? Definitely! Great solar policies and sunny skies mean dramatic savings over the life of the installation. Be sure to receive quotes from a few different companies and study up on the different financing options before deciding. After that, you’ll be ready to enjoy clean, renewable, and cheap electricity!