Commercial PV - Taxation on revenue question SAM 2014.1.14

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mark.norman
Topic Author

27 Nov 2014 16:28 #2729 by mark.norman

Commercial PV - Taxation on revenue question SAM 2014.1.14 was created by mark.norman

Hi

When we connect commercial systems to the Grid in Australia, the inverters are connected to the customer side of the single import/export power meter. Revenue is received at the sell rate when exporting. Exporting only occurs when PV power > customer loads. Taxation is only payable on this excess energy feed back to the grid. We general design systems for minimum export as feed in rates are ~1/3 of buy rates.

I believe SAM calculates "Energy Value ($)" as the sum of the electricity sold to grid (export kWh * sell rate) + the electric saved (PV electricity consumed by the customer kWh * buy rate). In the excel spreadsheet (send to excel with equations) this is line 16.

When calculating "after tax cash flow" (line 103 in the excel spreadsheet) this equation is used =IF(ISNUMBER(outYear),+D102+D16*(1-outEffectiveTaxRate),"")

Therefore, it seems to me, as D16 ("Energy Value ($)") is reduced by effective tax rate, tax is assumed to be paid on the total energy value, both exported PV energy and energy consumed by the customer internally.

I assume I'm missing something and was hoping you could explain why the total energy value is subject to tax in the US or what am I missing?

Best regards
Mark

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Paul Gilman

01 Dec 2014 22:42 #2730 by Paul Gilman

Replied by Paul Gilman on topic Commercial PV - Taxation on revenue question SAM 2014.1.14

Hi Mark,
For the residential and commercial financial models, SAM assumes that the value of the electricity generated by the system is in the savings from avoided electricity purchases. It does not consider electricity sales to be taxable revenue.
For both models, the project's only taxable income is from taxable incentives. If a project has no taxable incentives, it owes no taxes.
Deductible operating expenses, interest payments (residential mortgage and commercial only), and depreciation (commercial only) are tax deductions, so generally, the project has a tax benefit rather than liability.
The effective tax rate term in the after-tax cash flow equation is based on the assumption that without the renewable energy system, the commercial entity (owner) would have treated the electricity purchases it did not make because of the renewable energy system to be a tax-deductible operating expense. With the system, the owner must pay tax on the portion of its income that it would have deducted.
Best regards,

Paul.

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