The Payment Incentives page allows you to define the parameters of investment based incentives (IBI), capacity based incentives (CBI), or production based incentives (PBI) provided by either the federal or state government, an electric utility, or other institution.

An incentive payment is an amount paid to the project that contribute's to the projects annual income in one or more years of the cash flow. Solar Advisor displays payment incentives in the project cash flow and in graphs.

For each payment incentive that you define, you can specify whether the incentive payments are taxable, and how the payments affect the depreciation basis.

For a description of incentives available to solar and other renewable energy projects in the United States, see the Database of State Incentives for Renewables and Efficiency at http://www.dsireusa.org.

To define a project's payment incentives:

Solar Advisor only applies incentives that are checked, regardless of the values assigned to each incentive. For example, the image below shows incentive options for a project that benefits from a 30% federal incentive, and does not benefit from the 10% state incentive.

Note. The payment incentives variables and options are designed to be as flexible as possible to accommodate the wide variety of existing incentive programs available to renewable energy projects in the U.S. and worldwide, and to allow for modeling of theoretical incentive structures. It is possible to define combinations of incentives and options that may be unrealistic, such as making a federal payment incentive subject to federal income tax.

Investment Based Incentive (IBI)

An investment-based incentive reduces the project's annual expenditures in year one of the project cash flow. Solar Advisor allows the IBI to be expressed either as a fixed amount or as a percentage of the project's total installed cost with a maximum limit.

For each IBI that applies to the project, check an option and enter values to specify the credit amount and limit. Note that if you specify two incentives from the same source (federal, state, utility, other) as both a fixed amount and a percentage of the total installed cost, Solar Advisor includes both amounts in the total incentive amount.

Amount ($)

The fixed dollar amount of the incentive.

Percentage (%)

The amount of the investment tax credit expressed as a percentage of the total installed cost displayed on the system costs page.

Maximum ($)

The upper limit of the incentive in dollars. For incentives with no limits, type the value 1e+099.

Capacity Based Incentive (CBI)

A capacity-based incentive reduces the project's annual expenditures in year one of the project cash flow. Solar Advisor allows the CBI to be expressed as a function of the system's rated capacity in watts. The system's rated capacity depends on the technology:

Check an option for each capacity based incentive that applies to the project, and enter values to specify the credit amount, percentage, term, and annual escalation rate as applicable.

Amount ($/W)

The amount of the incentive as a function of the system's nameplate electric capacity expressed in dollars per watt.

Maximum ($)

The upper limit of the incentive in dollars. For incentives with no limits, type the value 1e+099.

Production Based Incentive (PBI)

A production-based incentive reduces the project's annual tax liability in year one of the cash flow and subsequent years up to and including the year specified in the term variable. The PBI is a dollar amount per kilowatt-hour of annual electric output. If you specify an escalation rate, Solar Advisor increases the annual incentive payment amount in years two and later in the cash flow by a percentage of the previous year's payment.

Check an option for each production based incentive that applies to the project, and enter values to specify the credit amount, term, and annual escalation rate.

Amount ($/kWh)

The amount of the incentive as a function of the system's total electrical output in the first year expressed in dollars per kilowatt-hour of AC output.

Term (years)

The number of years, beginning with year one of the project cash flow, that the incentive applies. For example, an incentive with a 10-year term would apply to years one through 10 of the project cash flow.

Escalation (%/year)

The annual escalation rate that applies to the incentive. Solar Advisor applies the escalation rate to years two and later in the cash flow. For example, for an incentive with a ten year term and two percent escalation rate, the incentive in year two would be two percent greater than in year one, and in year three, two percent greater than in year two, and so on.

Tax Implications

The tax implication options determine how Solar Advisor treats the income from tax  incentive payments. You can choose to make the payments taxable, reduce the basis used to calculate the investment tax credit, or reduce the basis used to calculate depreciation.

Check one or more options for each incentive.

Taxable Incentive

Determines whether the incentive payment is subject to federal or state income tax.

Reduces ITC Basis

Applies only to projects that benefit from an investment tax credit. Check an option if the basis used to calculate the investment tax credit from the federal or state government should be reduced by the amount of the incentive payment.

Reduces Depreciation Basis

Applies only to commercial and utility projects with one of the depreciation options active on the Financing page. Check an option if the basis used to calculate federal depreciation, state depreciation, or both should be reduced by the incentive payment amount.

You can specify each incentive as either a single value (amount or percentage) that applies to all years in the analysis period defined on the Financing page, or you can assign a different value to each year in the analysis period using an annual schedule.

To specify an incentive using an annual schedule:

Solar Advisor will ignore any values for years after the end of the analysis period. You can change the value in Number of values to a number less than or equal to the analysis period to shorten the length of the table.

To delete a value, select it and press the Delete key on your keyboard.

You can use the Copy and Paste buttons to copy values from the table to your clipboard, or paste them into the table from the clipboard.

Note. You must type a value for each year. If you delete a value, Solar Advisor will clear the cell, and you must type a number in the cell or Solar Advisor will consider the schedule to be invalid.

Tax credits may or may not be taxable by either the federal or state government. Solar Advisor allows you to control which tax credits, if any, are taxable.

Taxable Incentive: When you check a "Taxable Incentive" option for a tax credit, Solar Advisor applies a tax at either the federal or state tax rate to each annual tax credit payment. Solar Advisor multiplies the applicable tax rate by the tax credit amount and adds it to the income tax amount the applicable years of the project cash flow. The state and federal tax rates are inputs on the Financing page.

Reduces ITC Basis: This option applies only to projects with one or more checked ITC options. When  you check a "Reduces ITC Basis" option for a tax credit, Solar Advisor subtracts the amount of the tax credit payment from the total installed cost shown on the system costs page before calculating the ITC amount. The total installed costs is shown on the system costs page.

Reduces Depreciation Basis: This option applies only to projects with commercial or utility financing with one or more depreciation option selected on the financials page. When you check a "Reduces Depreciation Basis" option for a tax credit, Solar Advisor subtracts 50 percent of the tax credit amount from the depreciation basis in each applicable year of the project life.

Solar Advisor provides three options for entering the incentive amounts: As a fixed amount, percentage of the total installed cost shown on the system costs page for investment-based incentives, cost per unit of installed capacity for capacity-based incentives, or as a cost per unit of the system's electricity output calculated by the performance model for production-based incentives.

The table below shows how Solar Advisor calculates the incentive amount for each option, and the cash flow year to which the incentive applies.

Table 6. Summary of incentive calculations.

Note. The CBI is calculated based on the array's rated capacity in DC watts for photovoltaic systems, and on the power block's rated capacity in AC watts for concentrating solar power and generic fossil systems.
 
The PBI is calculated based on the system's annual energy output in AC kilowatt-hours.

The options you select on the Payment Incentives page affect the financial metrics displayed in the results, including the levelized cost of energy, net present value, and payback.

You can see the incentive amounts and their impact on income tax and depreciation in graphs and in the project cash flow.

To display incentive amounts in a graph:

Solar Advisor displays the graph as you choose graphing options. You can adjust the properties of the graph as needed.

To display incentive amounts in the project cash flow:

You can also export the base case cash flow to a csv file or to Excel by clicking the Export button.