SAM's financial models calculate a project's cash flow over an analysis period that you specify. The cash flow captures the value of electricity generated by the system and incentives, and the cost of installation, operation and maintenance, taxes, and debt.

Note. SAM is designed to calculate the value of electricity generated by a system. The economic metrics it reports are based on units of electrical energy rather than thermal energy. The solar water heating model calculates the value of electricity saved by the system, assuming that heat from the system displaces heat that would be generated by a conventional electric water heater without the solar system.

The financial models can represent two main types of projects:

•Residential and commercial projects that buy and sell electricity at retail rates and displace purchases of power from the grid.

•PPA projects that sell electricity at a wholesale rate to meet internal rate of return requirements.

Residential and Commercial Owner

In SAM, residential and commercial projects buy and sell power at retail rates. They may be financed through either a loan or cash payment (0% debt percent). These projects recover investment costs by selling electricity at rates established by the electricity service provider. SAM calculates metrics for these projects at the project level, assuming that a single entity develops, owns, and operates the project.

For residential and commercial projects, SAM calculates the project's levelized cost of energy (LCOE), which represents the cost of installing and operating the system, including debt and tax costs, and accounting for incentives. The model also calculates the net present value (NPV) of the after tax cash flow, and a payback period representing the number of years required for the cumulative after tax cash flow to cover the initial equity investment in the project.

Commercial projects may qualify for tax deductions under the Modified Accelerated Depreciation Schedule (MACRS) described in the United States tax code. SAM provides options for specifying custom depreciation schedules in addition to the MACRS mid-quarter and half-year schedules on the Depreciation page.

Residential and commercial projects are typically smaller than 500 kW, although SAM does not restrict system sizes, so it is possible to model any size system using either the residential or commercial financial model.

SAM's Electricity Rates page provides a range of options for specifying the retail electricity rate structure for a project. The rate structure may include any of the following:

•Flat buy and sell rates (with or without net metering)

•Time-of-use energy charges

•Monthly demand charges (either fixed or time-of-use)

•Tiered rates

•Fixed monthly charges

For projects with demand charges and tiered rates, SAM requires electric load data, which is specified on the Electric Load page.

Third Party Ownership

In a third party ownership project, a photovoltaic system is installed on a residential or commercial property. The property owner, or customer, makes an agreement with a third party who installs, operates, and owns the system. The system reduces the customer's electricity bill, and the customer makes payments to the third party owner for the system, either through a lease agreement or a power purchase agreement.

The Host model is from the host perspective, and allows you to compare a lease agreement with a power purchase agreement.

The Host / Developer model is from the developer perspective to determine a power price that covers the developer's costs.

Community Solar

A community solar project earns revenue from payments made to the system owner by subscribers to the project. The project owner builds, owns, and operates the power system, and has sufficient tax liability to fully utilize all tax benefits.

Power Purchase Agreement (PPA)

PPA projects sell all of the electricity generated by the power system at a price negotiated through a power purchase agreement (PPA) to meet a set of equity returns requirements. A PPA project may involve one or two parties.

SAM provides options for calculating a power purchase price given a target internal rate of return, or for calculating the rate of return given a power purchase price.

The power price can be made to vary annually over the analysis period using either a fixed annual escalation rate, or by assigning a separate price to each year. The price can be made to vary diurnally using time-of-delivery (TOD) factors defined either using hour-by-month schedules or hourly (or subhourly) time series factors.

Single Owner

In the Single Owner model, the project owner builds, owns, and operates the power system and has sufficient tax liability to fully utilize all tax benefits. The owner may be either the original developer or a third-party tax investor that purchases the project from the developer.

Partnership Flip with and without Debt

The partnership flip with debt (Leveraged Partnership Flip) and partnership flip without debt (All Equity Partnership Flip) models are for two-party projects that involve equity investments by a project developer and a third party tax investor.

The investor has sufficient tax liability from its other business operations to fully utilize tax credits and depreciation deductions in the years in which the project generates the benefits. The project sets up a limited liability entity, and once the project begins generating and selling electricity, all of the project’s net cash flows and tax benefits are passed through this entity to its owners.

The project allocates a majority of the cash and tax benefits to the investor when the project begins operation and until the "flip year" when tax investor receives a pre-negotiated after-tax internal rate of return or "target IRR." Once the target IRR is reached, a majority of the cash and any remaining tax benefits are allocated to the developer.

Sale Leaseback

The Sale Leaseback model is another two-party structure that involves a tax investor purchasing 100% of the project from the developer and then leasing it back to the developer. This structure differs from the partnership flip structures in that the tax investor and the developer do not share the project cash and tax benefits (or liability). Instead, each party has its own separate cash flow and taxable income.

The purchase price paid by the tax investor is equal to the total project cost, less a lease payment and the value of working capital reserve accounts. The developer typically funds the reserve accounts to ensure it has some financial exposure. The tax investor receives lease payments from the developer and any ownership-related incentives such as the tax credits, incentive payments, and the depreciation tax deductions. The developer operates the project and keeps any excess cash flow from operations, after payment of all operating expenses and the lease payments. This provides the developer with an incentive to operate the project as efficiently as possible.

Note. SAM assumes that the tax investor receives the ITC in the sale leaseback structure. SAM does not model alternative lease structures that treat the ITC differently.

 

Below is a table summarizing the five structures.

Merchant Plant

The Merchant Plant model is similar to the Single Owner model described above, except that power generated by the system is sold at market prices that can vary on an hourly (or subhourly), daily, or monthly basis over the project life. Revenue can be from energy production, ancillary services and capacity payments, or a combination of the three.

LCOE Calculator

The LCOE calculator uses a simple method to calculate the project's levelized cost of energy (LCOE). You provide the installation cost, operating costs, and a fixed charge rate as input, and the model calculates the LCOE based on the annual energy generated by the system. The calculator can also calculate the fixed charge rate when you provide basic financial parameters.