Summary:

 Senate Bill 418 (SB 418) establishes a legal framework for self-sourced power generation and the operation of qualified microgrids in New Mexico. The bill allows individuals and entities to generate and distribute electricity through a microgrid that may also connect to public utility infrastructure under electric service agreements. It also creates the Qualified Microgrid Income Tax Credit, which provides up to $100,000 per microgrid installation for taxpayers who construct and install microgrids in underserved communities before January 1, 2031. The tax credit is transferable, may be carried forward for twenty years, and is subject to certification by the Energy, Minerals and Natural Resources Department (EMNRD). SB 418 applies to taxable years beginning on or after January 1, 2025.
 

Legislation Overview:

 Senate Bill 418 (SB 418) creates a regulatory structure for self-sourced power generation and allows the development of qualified microgrids to serve individual users, businesses, or communities. Under the bill, self-sourced power generation enables entities to generate their own electricity using a microgrid, which may deliver electricity to public utilities or remain independent of the main power grid.

A qualified microgrid is defined as a permanent or temporary electrical system that:
	• Uses a microgrid controller to regulate power distribution.
	• Includes a self-source generation resource capable of producing at least 20 megawatts of electricity.
	• Can function independently from the main grid when necessary.

The bill allows microgrid operators to enter into electric service agreements with public utilities, enabling them to sell excess energy or integrate into the broader electrical network. It also ensures that self-source energy sales from microgrids will not be classified as retail sales, meaning they will not be subject to certain regulatory restrictions under state energy laws. Additionally, entities that provide electricity only through self-source generation will not be classified as public utilities, exempting them from certain state utility regulations.

To encourage the expansion of microgrid technology, SB 418 introduces the Qualified Microgrid Income Tax Credit, available to taxpayers who construct and install microgrids in underserved communities before January 1, 2031. The credit is equal to the cost of microgrid installation, up to $100,000 per system.

Taxpayers must apply for certification through the Energy, Minerals and Natural Resources Department (EMNRD) within 12 months of installation, and the credit is issued upon approval. The tax credit:
	• May be carried forward for twenty years if not fully used in the first year.
	• Can be sold, exchanged, or transferred to another taxpayer.
	• May be allocated among multiple owners if the microgrid is owned by a business partnership or limited liability company.

SB 418 requires EMNRD to report on the total annual cost of the tax credit, which will be included in the Tax Expenditure Budget for legislative review. The bill applies to taxable years beginning on or after January 1, 2025.

Implications

SB 418 supports energy independence, grid resilience, and renewable energy development in New Mexico by enabling individuals and businesses to operate self-sourced power generation systems. By allowing qualified microgrids to function autonomously or as part of the utility grid, the bill promotes localized energy production, which could enhance grid stability, reduce reliance on fossil fuels, and lower electricity costs in rural or underserved communities.

The Qualified Microgrid Income Tax Credit serves as a financial incentive for taxpayers to invest in energy infrastructure, particularly in areas where access to reliable power is limited. The transferability of the credit increases its flexibility, allowing entities that do not have immediate tax liability to sell the credit to other taxpayers. However, the long-term fiscal impact of the tax credit will depend on participation rates and total claims, which could affect state revenue if large-scale adoption occurs.

Public utilities and distribution cooperatives may face challenges integrating microgrid-generated power into existing infrastructure. While the bill requires electric service agreements for utility interconnections, the lack of regulatory oversight on microgrid energy sales could create potential pricing or market fairness concerns between independent producers and traditional utility companies.

The bill also raises questions about equity and access, as the minimum 20-megawatt generation requirement may favor larger corporate or industrial microgrid installations, potentially limiting participation among small-scale community energy projects. Additionally, the bill does not specify whether the tax credit applies to renewable energy microgrids exclusively, leaving open the possibility that fossil-fuel-based microgrids could qualify. 

Current Law:

 New Mexico does not currently regulate self-sourced power generation or explicitly define microgrids in statute. Under existing law, public utilities control most of the power generation and distribution infrastructure, and microgrids must comply with state energy regulations unless specifically exempted.