Page 173 - Sustainable Cities and Communities Design Handbook

Life Cycle Analysis Versus Cost Benefit of Renewable Energy Chapter j 8 149

All of the above analyses should be conducted to determine the feasibility
of renewable energy central plants. This chapter focuses in detail on the
financial analysis procedures involved with a life cycle analysis of a PV
system.

LIFE CYCLE ANALYSIS OF A PV SYSTEM FROM A
FINANCIAL PERSPECTIVE

The life cycle analysis must encompass all cash flows during the life of a PV
system. Considerations important to this analysis include:
1. The need for any upfront capital investment.
2. Applications for all available incentives.
3. In the case with a nonprofit municipality, consideration of the structure of a
power purchase agreement (“PPA”) with a third party who will design,
build, and maintain the system for the life of the PPA.
4. Current energy costs and a future escalation factor as the baseline for
savings.
5. Plans for financing the PV system.
Furthermore, some characteristics of a PV system that affect financial
analyses include the maintenance costs of a PV system, which are typically
minimal, the fact that PV panels are usually guaranteed for at least 20 years,
and that a PV system could operate for as many as 25e40 years. The following
is a cost and incentives analysis of the City’s proposed 150-kW PV system for
the City Hall Solar Project (Table 8.1):
As noted earlier, the costs of PV Panels and Structures and Installation
compose a majority of the total cost.

Available Incentives

Monetary incentives, which reduce the cost of PV systems, are available from
both state and federal programs. There are two primary federal incentives.
First, there is an income tax deduction of up to 30% of the equipment costs for
commercial solar systems, referred to as the investment tax credit (“ITC”).
This ITC was set to expire by the end of 2016; however, it has been extended
as follows: ITC remains at 30% through the end of 2019; it then declines to
26% in 2020, 22% in 2021, and 10% from 2022 onward. Second, there are
depreciation expense deductions under the internal revenue service Modified
Accelerated Cost Recovery System (“MACRS”). Under MACRS, 5-year
depreciation-based deductions allow recovery of up to 26% of system costs
on a present value basis. The economic life of such PV systems usually ranges
from 25 to 40 years, so this incentive allows for a relatively rapid recovery of
investments compared with the expected economic life of the property
installed.