Rules to determine depreciation allocation

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Kenny Dinh
Rules to determine depreciation allocation

I'm using SAM application version 2017-9-5-r4.
I created a project that has Photovoltaic (detailed) with PPA partnership flip with debt (utility). The project was populated with default values.

Principal: $28,365,982.00
Interest: $283,659.81
Financing Cost: $567,319.63, etc.

In the "Depreciation" page, it is not clear where/how values for allocation percentage for each depreciation class were calculated? For example, the default values were 89% for 5-yr MACRS, 1.5% for 15-yr MACRS, 3% for 15-yr SL, 3.5% for 20-yr SL, and 3% Non-depreciable assets. Where does those default values come from? The 89% value seems to be hard coded, because I tried manipulating values on System Costs and Financial Parameters but it did not affect values on the Depreciation page. Is this something that I would need to involve a tax expert? I would appreciate any help to get me in the right direction.

Thanks!

Paul Gilman

Dear Kenny,

You can change the percentage of the total installed cost allocated to each depreciation class on the Depreciation input page.

Those values are reasonable values to use as a starting point for a photovoltaic project, but you should conduct your own research to determine values appropriate for your analysis.

Best regards,
Paul.

Kenny Dinh

Paul, Thank you for your reply.
Below is what I found.

From the help file, there is a formula for depriable basis

Depreciable Basis = Total Installed Cost + Total Construction Financing Cost - ( Total ITC × 0.5 + Total IBI + Total CBI + Total PBI

However, Total Installed Cost is a sum of Cost of Equipments(Panel + Inverter + etc) + Land Cost + Income Tax + yearly operating cost + etc.

Some cost can use the 5yr, or 15 MACRS, some can use 5, 15 or 20 yrs SL. To get an accurate percentage of each depreciation type, it would require carefully going IRS Publication 946 and other related documentations to identify applicable depreciation type for each type of cost.

SAM has default values that are rough estimate for these depreciation types. I was wondering if SAM has readily available formulas that it uses to generate these default values.

~KennyD

Paul Gilman

Dear Kenny,

The default allocation percentages on the Depreciation input page are based on reasonable values for a utility-scale photovoltaic project in 2011. The default values are static values: SAM does not recalculate them for different cases.

Best regards,
Paul.

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