After tax cashflow with depreciation

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chinfano
After tax cashflow with depreciation

I am studying the cashflow of a CSP plant. My financing structure is based on a PPA plus a 100% depreciation for the first year on the project. When I have a look at the cashflow SAM is calculating, I don’t understand how the depreciation is treated. I agree with all the calculations SAM does, but just at the end in the way tax savings are applied. Imagine a case in which due to the 100% depreciation in the first year, the total tax savings are 70 million $. If the first operating year my project should pay 5 million $ in tax, then I use the 70 million $ in tax savings and I still have 65 million $ in tax saving left that are carried along the following years until they go down to 0. This is the structure I have usually since in renewable energy project finance. However, what SAM does is different, and it considers that the 70 million $ tax savings are a type of "income" adding in the cashflow making it positive. (I understand this as if the government pays you 70 million). Therefore the cashflow for the first year shows a huge positive figure (something like +60 million $). As a consequence the IRR of the project is higher than what would be if the tax saving are carried to the following years until they become 0.
Can anybody explain this financing calculation?

Paul Gilman

Your description of SAM's calculation is correct: SAM does not carry tax savings forward.

SAM's financial models are intended for general analysis rather than as a tool for project-specific financial analysis. SAM should reasonably represent different financial structures and system designs for early-stage comparison of different options for a potential project or for studying different incentive structures for policy design.

This is just one example of the many simplifications in the financial model to strike a balance between ease of use and flexibility.

That said, your feedback is very helpful, and we will consider your and other comments like this as we make improvements to future versions.

Best regards,
Paul.

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