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Evaluation of tax incentives on the financial viability of microgrids

Author

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  • García-García, Jersson
  • Sarmiento-Ariza, Yennifer
  • Campos-Rodríguez, Lizeth
  • Rey-López, Juan
  • Osma-Pinto, German

Abstract

In recent years, the interest in the study and implementation of distributed generation systems and microgrids has increased. Seeking to promote the expansion of renewable generation, several countries have established specific tax policies and incentives. These strategies can have different impacts on the financial viability of the projects; therefore, decision-makers may find some policies more effective than others. This paper aims to compare and analyze the impact of some of the most common tax incentives on microgrid projects’ financial feasibility. Four tax incentives are considered in the study: income tax deduction (ITD), accelerated depreciation (AD), vat exemption VATE), and customs duty exemption (CDE). Such analysis is based on obtaining the cash flows and comparing financial indicators. The case study considers two locations in Colombia with both stand-alone and grid-tied MGs, for four MGs in total, whose sizing is obtained by HOMER Pro and HOMER Grid. A sensitivity analysis is performed to generalize the findings to microgrid projects around the world, which considers variations of the four tax incentives, purchase and sell-back prices, renewable installed capacity, and specific year for starting the application of AD and ITD.

Suggested Citation

  • García-García, Jersson & Sarmiento-Ariza, Yennifer & Campos-Rodríguez, Lizeth & Rey-López, Juan & Osma-Pinto, German, 2023. "Evaluation of tax incentives on the financial viability of microgrids," Applied Energy, Elsevier, vol. 329(C).
    • Handle: RePEc:eee:appene:v:329:y:2023:i:c:s0306261922015501
    DOI: 10.1016/j.apenergy.2022.120293
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