Time is almost up to capitalise on Temporary Full Expensing of solar projects

By Jeff Sykes on

In response to the COVID-19 pandemic the Australian government introduced an incentive to promote business activity which greatly improves the ROI for solar projects.

Essentially solar projects can be expensed in year 1, meaning you can claim the entire project against your FY22/23 tax bill. Traditionally the ATO ruling on solar projects is that they should be depreciated over 20 years – closer to the expected lifetime of the asset.

To take advantage of this incentive the solar system must be installed and commissioned by June 30 2023. That means for projects up to 1MW the time to look at making a decision and contracting these systems is right now.

To give an example of the cash flows see below:

100kW Solar Project before incentive introduced (20-year straight-line depreciation)

100kW Solar Project cash flows with 20 year straigh line depreciation

100kW Solar Project using incentive (Fully Expensed)

100kW solar project cash flows with Temporary Full Expensing

The temporary full expensing incentive shaves almost 2 years of the payback period for the project.

 

Energy prices are increasing to record levels

With upcoming scheduled closure of the 2GW Liddell Coal Power Station in April and the extraordinary gas prices resulting from the boycott of Russian gas, the wholesale energy price in Australia soared in 2022. The Australian treasury is forecasting a 20% increase this year and a 30% increase next year. This hasn’t yet been felt on many energy bills as many companies have locked in contracts which fixed their pricing for a period of time.

Wholesale Electricity Prices history - AER

Source: Australian Energy Regulator – wholesale electricity market prices

 

As a result of the above 2 factors in the Australian market – it is looking very likely that there is a 6 month window in which you can install solar with a significantly improved return on investment.

 

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Since 2008 Solar Choice has consulted with over 3,000 businesses around Australia and helped develop over 800MW solar commercial and solar farm projects.

 

Jeff Sykes
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