While tax grants and tax credits get all the attention, is the value of the accelerated tax depreciation worth more than either a federal tax grant or credit? This is an interesting question, but one really should look at the combined benefits. Tax depreciation in effect has a great value to the wind, solar, fuel cell, and other renewable projects. Almost twice the actual value of tax grants or credits.
Take a $1 million dollar investment in a renewable project that qualifies for the tax advantages, say a solar or wind project. The tax grant through the end of this year or tax credits thereafter would be worth about $300,000. For tax depreciation, the depreciation is a five-year schedule even though the asset may last for 20 or more years. The tax deprecitation value is about $331,500 (depending on the tax rate). The total tax benefit on the $1 million investment is then about $631,500. The real story here is the combined value of the tax grant/credits and depreciation. Certain projects may be able to take the depreciaton in the first year for a limited time, making depreciation even more valuable.
Various structures may be used to pass these tax benefits on to investors or lenders in for example sale/leaseback arrangements.
So keep depreciation in mind when modeling the economics of projects and developing financing strategies.
