Micro-utility owners get 20 years
of income & major tax credits.
The Greenzu Micro-Utility revenues and significant tax incentives are shown in the following example:
Initial Cash Outlay:
Investment Tax Credit and Rebates
As the owner of the micro-utility, you are entitled to two key incentives:
Federal Investment Tax Credit (ITC):
As the owner, you receive a tax credit from the federal government equal to 30% of the total system cost. This effectively lowers the amount of taxes you owe in the year the system was placed in service.
California offers customers a CSI Rebate based on the size of the solar system they install, which varies depending on which utility services the location. Currently customers in PG&E territory are entitled to a $350 per kW of solar they install. After taxes are deducted, this equals to $220 per kW, which in this example, totals $6,852.
Timing: Currently the CSI rebates are on hold. Therefore, they are not reflected in the projections above.
50% Bonus Depreciation
For solar systems installed in 2013, system owners are entitled to deduct 50% of the system cost as Bonus Depreciation (minus 50% of the ITC credit) in the first year of ownership. By offering this 50% “bonus depreciation” to system owners, the federal government helps accelerate the simple payback period.
In addition to the Bonus Depreciation, system owners may use (MACRS) Accelerated Depreciation to deduct the remaining system cost from their federal income taxes over the next 5 years. Normally an asset like solar with a useful life of 20 years would require the depreciation deductions be spread evenly over 20 years.
As opposed to the tax credit, the depreciation deduction works like other typical deductions. That means it is not a dollar for dollar reduction of your tax bill. Instead, you reduce your taxable income by the deduction amount. Ultimately your taxes owing will be less as your taxable income drops. To figure out the actual size of your depreciation deduction, multiply the depreciation deduction amount by your tax rate. The example above shows this result in the “After Tax Value Of Deduction,” assuming the investor’s tax rate is 35%.
Timing: The investor can claim the solar depreciation deduction on the first tax return he files after the system in installed. His tax bill will then decrease by the amount in the “After Tax Value of Deduction” column.
This is pure incoming cash flow from the host customer for your micro-utility. The host customer signs a PPA that obligates him to buy your solar electricity at a pre-determined rate. These energy payments from the customer are your primary project revenue. In this example, that rate plan starts by discounting the customer’s current price for energy by 25%, and then it raises that price by 2.5% each year.
Solar is truly low maintenance, yet preventative maintenance insures high performance. The maintenance program includes simple cleaning, system check-up, and minor electrical repairs once or twice a year. In addition, system owners should carry insurance covering the solar array against property damage.
The equipment and installer warranties cover almost all major repair scenarios. The one exception is that some point after the solar power inverter 10-year warranty expires, the inverter will need to be replaced. We budget $15,000 for this replacement, and include it as a cost here in year 2021.
Net Revenue (Before Tax Benefits):
This column represents the net revenue the investor receives each year. It equals the Electricity Payment A Year minus the O&M Cost A Year. This column does not include the value of the tax incentives the investor receives.
Net Returns (With Tax Benefits):
This column reflects the tax incentives' reduction of Gross Cost, by adding the Investment Tax Credit and after tax value of Bonus Depreciation to Net Revenue.
Breakdown of Solar ReturnsIn a Greenzu PPA, there are four main streams of income that fall throughout the PPA term.
Solar Energy Payments
To begin, the micro-utility system begins collecting energy payments from the host customer as soon as it goes live.
The rebate is paid as soon as the system is connected to the utility grid.
Federal Tax Credit:
You take the 30% federal Investment Tax Credit on the first tax return you file following the system installation.
The accelerated depreciation is deducted from your tax return for five years following the system installation.
Solar System Sale
As a final source of revenue, you as the solar system owner can either sell the solar panels to the building owner or on the used panel market at the end of the PPA term.
A Simple Solution for Great Returns
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