Depreciation powers up renewable energy investment
Tax benefits for hydro, wind and solar operations
The global community is becoming more aware of the environmental impacts of fossil fuels, as conversation surrounding climate change continues. As part of this discussion, several commentators have cited Australia’s relatively untapped renewable energy industry and our potential to produce mass energy from sources like hydro, solar and wind.
While non-renewables generate the vast majority of Australia’s power, the latest Australian Energy Statistics report, published by the Department of the Environment and Energy, indicates renewable fuels account for a larger portion of supply year-on-year, while non-renewables are slowly declining. The South Australian Government has even set an ambitious target of net 100 per cent renewables by 2030.
Substantial growth for renewable energy investment
In the last few years, BMT Tax Depreciation has seen a considerable increase in the requests for depreciation schedules for renewable energy operations. With substantial growth predicted for the sector, it’s more important than ever for renewable energy providers to remain competitive and manage their cash flow wisely. Depreciation is one aspect of taxation that can help boost cash flow and facilitate greater renewable energy investment in future projects.
We’ve assessed a range of renewable energy operations and uncovered millions of dollars in depreciation. Let’s look at some real results of how depreciation can benefit owners of renewable operations.
|Renewable type||First year depreciation||Cumulative five year depreciation||Lifetime depreciation|
|Hydropower - NSW||$10,324,260||$47,405,042||$212,177,690|
|Solar farm - SA||$11,841,499||$49,150,632||$144,182,094|
|Wind farm - WA||$15,980,093||$72,086,430||$315,817,690|
*The depreciation deductions have been calculated using the diminishing value method.
Hydropower is currently the largest source of renewable energy in Australia, accounting for around 40 per cent of the nation’s renewable energy (Australian Renewable Energy Agency). The owner of a hydropower plant can claim depreciation for assets such as hydro turbines, control and monitoring systems, emergency power supply items including batteries, and generator transformers.
In the table, you can see the owner is eligible to claim more than $10.3 million in depreciation in the first financial year. Over the lifetime of the property, the owner can claim more than $212 million in depreciation. The additional cash flow created through depreciation can be used to fund future projects, complete repairs and maintenance or to reinvest in the operation.
While hydropower is the largest renewable energy source, solar power accounts for just 0.3 per cent of our power generation (Australian Bureau of Statistics), despite Australia having some of the best conditions in the world for producing solar energy. Solar assets like photovoltaic electricity generating system, power transformers, fire indicator panels and security systems all hold significant depreciable value.
The table shows the results of a facility BMT recently completed a depreciation schedule for in South Australia. The owner is entitled to claim more than $11.8 million in depreciation in the first full financial year. Over the lifetime of the property, their depreciation claims will amount to more than $144 million.
According to the Clean Energy Council, wind power is currently the cheapest source of large-scale renewable energy. In 2018, wind farms produced 33.5 per cent of Australia’s clean energy and 7.1 per cent of the total electricity generated.
BMT’s calculations show that wind farms hold considerable depreciable value for investors. The owner of a wind farm can claim depreciation for assets such as wind turbines, generator transformers and unit transformers.
As seen in the table, the owner can claim almost $16 million in the first financial year. In the cumulative first five years, this figure increases to $72 million. Over the lifetime, the owner is entitled to claim almost $316 million.
Depreciation schedules for commercial properties require an expert to ensure deductions are correctly claimed according to their particular industry.
As both owners and tenants can claim depreciation, BMT Tax Depreciation can offer a split report for multiple entities or tenants controlling different assets.