Financial Analysis - Depreciation

Depreciation Calculation Overview

Depreciation refers to how the value of your solar system or its components reduces over time. This is important for financial modeling, especially when accounting for tax offsets or determining system value over the project's lifetime.

We support two common depreciation methods:

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1. Straight-Line Depreciation

This method assumes the asset loses the same amount of value each year over a fixed number of years.

How it works:

• The total depreciable value is divided evenly over the asset's useful life.

• A set value or percentage is applied in Year 1 (this can be a fixed amount or a percentage).

• The same percentage is used for each subsequent year, until the end of the depreciation period (e.g., 20 years).

• Tax deductions are calculated each year based on this scheduled depreciation.

Example:

If your system costs $10,000 and the annual depreciation rate is 5%, then:

• Year 1: $500

• Year 2: $500

• … and so on, up to the designated number of years (e.g., 20 years).

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2. Diminishing Value Depreciation (Declining Balance Method)

This method applies a fixed percentage to the remaining value of the asset each year — meaning the annual depreciation amount reduces over time.

How it works:

• A higher percentage is usually applied in Year 1 (e.g., 15%), followed by a lower percentage (e.g., 30%) in following years.

• Each year, the depreciation amount is calculated from the asset’s remaining value, not the original value.

• This results in faster depreciation upfront and smaller deductions in later years.

• This method may better reflect the declining efficiency or usage benefit of an asset over time.

Example:

If your system starts at $10,000:

• Year 1: $1,500 (15% of $10,000)

• Year 2: $2,550 (30% of $8,500)

• Year 3: $1,785 (30% of $5,950)

• … and so on, until the asset is fully depreciated.

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Tax Offset Considerations

The depreciation value is often multiplied by your business tax rate to estimate the annual tax offset. This gives you a clearer view of the real savings or benefits from depreciation.

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Depreciation Settings in the Platform

Your depreciation method, first-year settings, and subsequent-year rates can all be adjusted under System Financial Settings. These settings influence how projections are calculated in cash flow and ROI reports.

If you're unsure which method to use, we recommend consulting with your accountant or financial advisor.