Peering Over the 2017 Horizon for Solar, Part 2: Beyond the ITC

Peering Over the 2017 Horizon for Solar, Part 2: Beyond the ITC : Greentech Media

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.

via Peering Over the 2017 Horizon for Solar, Part 2: Beyond the ITC : Greentech Media.

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