Incorporating Risk in Analysis of Tax Policies for Solar Power Investments

Thomas R. Harris

Abstract


Often changes in federal and state tax policies for solar investments are made with little if any concern of risk or variabilities in input or output prices. Tax policy analysis such as the Investment Tax Credit are often analyzed as single data point not as a range of possible net returns.  Tax policy analysis for solar investments must analyze impacts of potential federal or state tax credits that not only have the highest positive net returns under average conditions but also yield highest net returns under unfavorable conditions. This article discusses incorporation of risk for tax policy analysis and the use of Monte Carlo simulation to complete a tax policy analysis and provide a range of potential outcome from alternative policies.

Keywords: Solar Energy, Solar Tax Credits, Monte Carlo Simulation

JEL Classification: H25


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