On 18 August 2022, the Government of the Republic of Croatia announced the possibility of changing the existing VAT rate on photovoltaic panels from 25% at 0%. Quite naturally, citizens and experts dealing with such plants asked whether this measure applies exclusively to photovoltaic panels or the entire plant. The photovoltaic panels themselves represent a smaller part of the purchase value of the entire plant.
We asked ourselves the question: how the effects of the operation (return rate, payback period and electricity unit price) would be affected by three options: (i) the entire installation is subject to VAT at the rate of 25%, (ii) photovoltaic panels are taxed at the rate of 0%, and other components of the plant at the rate of 25% and (iii) all components of the plant are taxed at a VAT rate of 0%.
Simulation
The simulation was prepared on one average rooftop photovoltaic power plant with the following characteristics:
- 18 photovoltaic panels per 0.38 kW with a total power of 6.84 kW;
- the turnkey price of the plant is €1 100/kW including VAT;
- the share of the price of photovoltaic panels in the total plant price is 40%;
- the share of the inverter price in the total plant price is 10%;
- the insolation is 1 100 kWh/kWp;
- average annual energy production 7 148 kWh;
- the lifetime of the installation is 25 years;
- reduction of end-of-life production 15%
- the average number of days of unavailability of a power plant in a year is 2 days;
- average weighted price of electricity from the grid 0.118 €/kWh;
- the average annual energy consumption of the household of 10 000 kWh;
- average annual inflation rate 3%;
- average annual rate of increase of the price of grid electricity 3%;
- average annual insurance costs of €17;
- average other annual costs and risks €15;
- replacement of inverters in the 15th year;
- the investment is financed entirely from own resources.
The simulation results are shown in Table 1 and Graphs 1 and 2:
Instead of a conclusion
If only PV panels were exempted from VAT, the payback period would be shortened by 0.83 years or 6.61%, the average annual rate of return (profitability of the investment) would increase 15.96% and the unit price of energy decreased by 7.14%.
If VAT on all components of the plant were to be abolished, the return on investment period would be shortened by 3.12 years i.e. for 24.86%, the profitability of investments increased by 46.24% and the unit price of electricity decreased by 17.86%.
Detailed analysis of the impact of VAT on the construction of photovoltaic power plants We analyzed already at the beginning of the summer…
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