Tax Credit Incentives |  |  |  |

| To view the Tax Credit Incentives page, click Tax Credit Incentives in the main windows navigation menu. 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 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.

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.

Input 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.
Variable | Description | Units
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 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.
Variable | Description | Units
Amount | 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. | $/kWh
Term | 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. | years
Escalation | 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. | %/year

Tax Implications The tax implication options determine how Solar Advisor treats the income from tax credits. 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 tax credit.
Option | Description
Taxable Incentive | Determines whether the tax credit 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 tax credit 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 tax credit payment amount.

Tax 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 9. 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 Output in Year n (kWh) × [1 + Escalation (%)] ^ Year n | All, or Year 1 thru term

Impact of Tax Credit on Taxes

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 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.

Viewing 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.