LCOE = lifetime costs / lifetime electricity produced, https://en.wikipedia.org/wiki/Cost_of_electricity_by_source#Levelized_cost_of_electricity. This enables you to dispatch power while you are not home and will help you save money right away. The Energy Information Administration provides historical electricity price data broken down by state and end user type. Power Purchase Agreement: In a Power Purchase Agreement (PPA), entities enter into an agreement to purchase electricity from a third party investor who owns and operates the solar installation. For example, your utility may compensate you a wholesale rate (~2-3 cents/kWh) or a value of solar rate, which is usually in-between the full retail rate and the wholesale rate, and in some cases, you may not be credited at all for this excess energy production. For solar installations, certain lenders offer long duration debt ranging up to 20 years, especially if you go through a green bank or similar program. For more information, explore this IRS information on the ITC. The information, data, or work presented herein was funded in part by the Office of Energy Efficiency and Renewable Energy (EERE), U.S. Department of Energy, Sunshot Initiative. Changes to facilities can require a solar project to be moved. The simplest (and most financially beneficial) case is full retail net metering, where every kilowatt-hour (kWh) produced from the solar installation offsets a kWh from the utility bill at the full retail rate. Federal Taxes refers to the taxes paid on net revenues from the solar installation including avoided costs and state incentive programs. A solar PPA buyout is an option for the offtaker to purchase the solar project before the PPA ends. This aggregates the economic benefits of solar from a cash-flow perspective (as opposed to net income which is an accounting measure). Explore this guide for a high-level overview of each states policies, as of 2021. Depending on the level of coverage, the cost of O&M is usually in the $10-$25/kW/year range. The default is 2%. Operations and Maintenance (O&M) encompasses all of the activities that will ensure maximum generation from the system throughout its life, including routine maintenance, minor part replacement, and emergency repairs. For additional information on solar financing, explore SEIAs Third Party Financing Overview or the Clean Energy States Alliance Financing Overview. This refers to the percentage of the total system cost that can be depreciated after taking into account the basis reduction due to the ITC. IRR is used mainly because it accounts for the varying levels of revenues, incentives, and expenses from year to year and provides an effective annualized rate. For example, if the ITC is 30% of the system cost, then the depreciation basis will be reduced by half of the ITC amount (15%) for a final basis of 85%. For example, a 25 year PPA contract may specify that the customer can purchase the system from the investor in years 7, 15, and 20, allowing them to convert to a direct ownership model early. If the PPA has buyout provisions it will also specify that the system can be purchased at those times for the greater of a specified amount or fair market value (FMV). You wont own the system. 20 year end or term no cost to buy it out. Operating expenses refers to all of the expenses required for the solar installation to function to specification. This is an incentive which allows a taxpayer to make an additional deduction of the cost of qualifying property in the year in which it is put into service. Are you ready to start your solar power journey? Often coverage for your solar can be added into existing insurance policies for little or no cost. Please indicate the taxable status of your entity. LCOE stands for Levelized Cost of Energy and is a metric that represents the lifetime average cost of electricity produced by a solar installation, taking into account all revenues and costs. There are two core components of revenue: power prices and production. Additionally, you can reach directly out to your electric utility provider and ask how they credit you for excess energy produced by your solar system. Current tax rules state that this reduction is 50%. For these projects, SAM calculates: Levelized cost of energy PPA price (electricity sales price) Internal rate of return The difference is really that will generally have a shorter contract than a PPA (this varies of course). A solar PPA, or power purchase agreement, is typically an off-balance sheet financial arrangement through which an energy consumer (commonly referred to as an off-taker) allows a third-party developer to develop, construct, operate and maintain a photovoltaic (PV) system on its property, at no upfront cost. Solar panel efficiency decreases over time and this is referred to as degradation. Like a PPA, you will not get the benefit of tax depreciation, the investment tax credit or any applicable energy rebates. PPA Payments is the total amount paid for the electricity purchased from the solar system under the power purchase agreement. This allows the price of electricity from the solar installation to increase over time in a predefined schedule. This is an estimate of the inflation at which the electricity rate will increase. This allows the price of electricity from the solar installation to increase over time in a predefined schedule. Although buyout provisions are common in PPA agreements, buyout terms years available and associated costs/system valuation vary widely. Many solar contractors use an escalator of 2-4% in their modeling. Please enter the length of the debt agreement in number of years. Learn more. The rate at which each kWh of solar offsets grid purchased electricity can vary from a simple one-to-one ratio to more complicated mechanisms depending on tariff structure and local regulations. Contracts can be implemented for durations ranging from a single year up to the expected life of the system. How to Use the Free Solar Return on Investment Calculator in Excel Explore this guide for a high-level. Current use basically equals generation -- will be home less after COVID but will drive the electric car more. Solar Renewable Energy Credits (SRECs) are a performance-based solar incentive based on the solar electricity generation of your system. The Debt Interest Payment is the interest only portion of the debt payment and is used to offset the federal taxes of the solar installation. Net Income is a line item which shows the accounting profit/loss for a given year. PPA term is the length of the PPA contract. You will likely have a lower capacity factor, which means the facility rarely is producing power. Please enter the PPA escalator if applicable. This is an incentive which allows a taxpayer to make an additional deduction of the cost of qualifying property in the year in which it is put into service. Please enter the standard inflationassumption. The simplest (and most financially beneficial) case is full retail, Policies on this compensation vary widely by state and sometimes electric utility. Panels in moderate climates such as the northern United States had degradation rates as low as 0.2% per year. Please enter the total amount of those costs here if applicable. The simplest (and most financially beneficial) case is full retail net metering, where every kilowatt-hour (kWh) produced from the solar installation offsets a kWh from the utility bill at the full retail rate. If youre a commercial customer considering a solar PPA buyout, Sage can provide independent oversight and expertise to help manage project risk and maximize the lifetime savings of your project. SREC programs are typically for a 10-15 year period. EVALUATING THE BENEFITS, COSTS, AND RISKS OF A BUYOUT. Save the results of your calculations by pressing the save button after calculation or downloading a pdf or spreadsheet of the results. In fact, the rain and snow tend to help keep the modules fairly clean. Currently the bonus depreciation is scheduled as: 2017: 50%; 2018: 40%; 2019: 30%, 2020 and beyond: 0%.Under 50% bonus depreciation, in the first year of service, institutions could elect to depreciate 50% of the basis while the remaining 50% is depreciated under the normal MACRS schedule. This process results in some losses. Please enter the Investment Tax Credit (ITC) basis. Typically, the capacity of your solar energy system to produce electricity is described in terms of Direct Current (DC), but you may also see it listed in Alternating Current (AC). PPA agreement buyouts are typically not offered before Year 7 of the contract due to restrictions on the federal tax incentives utilized by the PPA financing entities. Wed love to hear from you. Operating expenses refers to all of the expenses required for the solar installation to function to specification. Currently, the solar ITC is 26% of the basis that is invested in solar project construction but it subject to change with potential new federal legislation. Buyout cost: 26,271.06 + tax = 28,438.42 Current PG&E electric rates: E-1 at $0.24/kWh; under NEM1 rules. A cash purchase is where you really need to do your math upfront. First off, input your system size in the project details section of the inputs tab. Please enter the SREC schedule in $/MWh for up to 20 years in the table. The 6 week class involves working a project from beginning to end with expert guidance including legal contracts, financial modeling, and development timelines. This provides a benchmark to compare against when analyzing the economic benefits of solar vs other sources of electricity. How do you calculate a buyout price for your host customer if they want to purchase the system in Year 7 or Year 5? SolarEdge inverter just got replaced in August under the lease and warranty. Please enter the current Federal ITC rate. But the rate could be as high as 1% in more extreme climates. Typically, the higher the IRR value is indicates a more favorable project for investment. EBT stands for Earnings Before Taxes and is an accounting subtotal line. Please enter the MACRS depreciation schedule. This calculator is able to simulate the following financing types: Direct ownership: Institutions, municipalities, foundations, endowments, and non-profits, and commercial enterprise can purchase their solar systems using cash. SREC programs are typically for a 10-15 year period. Solar companies should be able to provide an all-in cost for all items that will be required to get the solar installation to full functionality. For example, Wisconsin offers solar cash incentives through the states Focus on Energy program. Please enter the amount of capital that is borrowed (either publicly or privately) to fund the installation of the solar system. 0 Share Powered by the Midwest Renewable Energy Association 7558 Deer Road, Custer, WI 54423 | 715-592-6595 | info@midwestrenew.org We'll help you decide which option is best for you. SRECs trade on the open market and their value fluctuates over time. A solar inverter converts DC current from solar PV panels to AC current that can be used by a local electrical network. Most markets in the national have levelized PPA rates of $50 per MWh or less, while rates of over $100 per MWh were common in 2010 and prior. There are sometimes additional incentives like solar renewable energy credits, but lets disregard those for now. In order to determine your return on investment and payback, you need to know what you are paying up front to install a project. The year by year benefit of the system taking into account all revenues and expenses, The cumulative economic benefit of the system over its lifetime, The yearly avoided cost due to the electricity produced by the solar installation, A comparison of the avoided rate of grid electricity vs the levelized cost of solar energy, A comparison of the avoided electricity rate vs the PPA rate, Remember me? Okay, the first two items were revenue and operating expenses, which are all income statement and cash flow related. These can come in the form of upfront cash incentives, production based payments, or solar renewable energy credits. Explore this guide for a high-level overview of each states policies, as of 2021. All solar projects will require insurance and typically cover general liability insurance and property insurance, environmental risk insurance, business interruption insurance and so forth. For more detail, explore NRELs Model of Operations-and-Maintenance Costs for Photovoltaic Systems. These are all different in financing structures and payback methods. Usually, the PPA rate paid by the customer is less than the current electricity cost ($/kWh). Closing costs are fees and expenses you may have to pay when you close on loan. This information is usually provided to you by the solar developer or installer by using industry standard modeling tools. Please enter the net present value (NPV) discount rate. Please enter the total amount of any debt-related transaction and closing costs. PPAs will often have an escalator which applies to the Year 1 PPA rate. Most inverters come with a life-expectancy of approximately 10 years, which is much shorter than the life of the panels themselves (25-30 years). 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