To illustrate the importance of the post-2017 investment tax credit (ITC), we have provided the following tables to compare certain electricity offtake prices for solar with the cost of capital and required all-in installation prices without the federal ITC and with a 10 percent ITC. This table is certainly not perfect, but it provides a framework and tool set via which to examine many of the questions in this article.
So, for example, at an effective cost of capital of 7 percent and a power purchase agreement (PPA) price of $0.11 without the federal ITC, a developer would have to build a system at $1.35 per watt to break even.
The table assumes a twenty-year PPA with a 1 percent annual escalator, a California tax rate, degradation of .5 percent annually, no ITC, no additional incentives, and a production capacity ratio of 1500 kilowatt-hours annually. Importantly, there is no consideration for potential solar renewable energy credits (SRECs) or feed-in tariff income, and we do not take into account a potential step-up in basis.
Comparing this to the same chart below that factors in a 10 percent ITC, you can see that with the same cost of capital and the same offtake price, projects can still break even with a decent differential in the required all-in price. With the 10 percent ITC, for example, developers can build the same project for around 19 cents more per watt and still break even.