Tax Credit Incentives

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To view the Tax Credit Incentives page, click Tax Credit Incentives in the main windows navigation menu.
ico-minus-16x16Overview

The Tax Credit Incentives page allows you to define the parameters of investment tax credits (ITC) or production tax credits (PTC) provided by either the federal government, a state government, or both. For each tax credit that you define, you can specify whether the tax credit amounts are taxable, and how the tax credits affect the depreciation basis.

A tax credit is an amount that is deducted from the project's income tax. Solar Advisor displays tax credits and income tax payments in the project cash flow and in results graphs and tables.

For a description of tax credits and 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 tax credits:

1.For each tax credit that applies to the project, check the federal and state options that apply.
2.For each checked tax credit, enter values for parameters describing the tax credit, including the amount, term, limits, and escalation rate as applicable.

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

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3.Check the tax implication options that apply to each tax credit. If you are unsure of a credit's tax implication, use the default options from an appropriate project template.

Note. The tax credit variables and options are designed to be as flexible as possible to accommodate the wide variety of existing credit programs available to renewable energy projects in the U.S. and worldwide, and to allow for modeling of theoretical tax credit structures. It is possible to define combinations of tax credits and options that may be unrealistic, such as making a federal tax credit payment subject to federal income tax.
ico-minus-16x16Input Variable Reference

Investment Tax Credit (ITC)

An investment tax credit reduces the project's annual tax liability in year one of the project cash flow. Solar Advisor allows the ITC 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 ITC  that applies to the project, check an option and enter values to specify the credit amount and limit. If you specify a federal or state tax credit as both a fixed amount and a percentage of the total installed cost, Solar Advisor includes both amounts in the total tax credit amount.

Amount ($)

The fixed dollar amount of the tax credit.

Percentage (%)

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

Maximum ($)

The upper limit of the tax credit in dollars. For tax credits with no limits, type the value 1e+099.

Production Tax Credit (PTC)

A production tax credit 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 PTC is a dollar amount per kilowatt-hour of annual electric output. If you specify an escalation rate, Solar Advisor increases the annual tax credit amount in years 2 and later in the cash flow by a percentage of the previous year's payment.

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

Amount ($/kWh)

The amount of the production tax credit 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 1 on the project cash flow, that the tax credit applies. For example, a credit with a 10-year term would apply to years 1 through 10 of the project cash flow.

Escalation (%/year)

The annual escalation rate that applies to the tax credit. Solar Advisor applies the escalation rate to years 2 and later in the cash flow. For example, for a tax credit with a ten year term and two percent escalation rate, the tax credit in year 2 would be 2% greater than in year 1, and in year 3, 2% greater than in year 2, and so on.

Tax Implications

The tax implication options determine how Solar Advisor treats income from tax credits. None of the tax credits are taxable or reduce the basis used to calculate the investment tax credit, so those options are disabled. For commercial and utility projects (which are eligible for depreciation), the ITC may reduce the basis used to calculate the depreciation amount. The "reduces depreciation basis" options are only enabled for projects with commercial or utility financing.

Taxable Incentive

Determines whether the tax credit is subject to federal or state income tax. Not relevant for tax credit incentives.

Reduces ITC Basis

Applies only to projects that benefit from an investment tax credit. Determines whether the basis used to calculate the investment tax credit from the federal or state government should be reduced by the present value of the tax credit payments made over the analysis period defined on the Financing page. Not relevant for tax credit incentives.

Reduces Depreciation Basis

Applies only to commercial and utility projects when one of the depreciation options is active on the Financing page. Determines whether the basis used to calculate federal depreciation, state depreciation, or both should be reduced by the tax credit payment amount. Solar Advisor reduces the depreciable base by 50% of the present value of the tax credits over the analysis period defined on the Financing page. Not relevant for the production tax credit.
ico-minus-16x16Using Annual Schedules to Specify Incentives

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:

1.Note the blue "Value" label on the blue and gray button next to the input variable indicating that the single value mode is active for the variable.

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2.Click the button to change the mode to schedule and activate the Edit button. The button will show "Sched" in blue indicated that the schedule mode is active for the variable.

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3.Click Edit.
4.In the Edit Schedule window, type values for each year in the analysis period. Use the horizontal scroll bar to move through the years.

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.

5.When you have finished editing the schedule, click Accept.
ico-minus-16x16Tax Credit Calculations

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

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

Table 5. Summary of tax credits.

tax Credit Name

Type

Tax Credit Calculation

Applies in year

Investment tax credit, ITC

Amount

Amount ($)

1

Percentage

Total Installed Cost ($)

× Percentage (%)

Up to Maximum value

1

Production tax credit, PTC

Amount

Amount ($/kWh)

× Annual Energy in Year n (kWh)

× [1 + Escalation (%)] ^ Year n

All, or

Year 1 thru term
ico-minus-16x16Viewing Tax Credits in Results

The options you select on the Tax Credit 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 tax credit amounts and their impact on income tax and depreciation in graphs and in the project cash flow.

To display tax credit amounts in a graph:

1.After running simulations, click the Graph button.
2.On the Graphing tab, click Add.
3.Choose the simulation for which you want to see tax credit amounts.
4.For X Value, choose Single Value.
5.For Y1 Values, check the name of each tax credit you want to display in the graph.
6.Clear the LCOE check boxes.

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

7.Click Accept to return to return to the main window.

To display tax credit amounts in the project cash flow:

1.After running simulations, click the Graph button.
2.Click Base Case Pro-Forma to display the cash flow in a table.
3.Either drag the graph area border up or scroll down until the tax credits are visible in the table.

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