DER VET User Guide/Model Details/Benefit Cost Analysis

The Benefit-Cost Analysis capabilities of DER-VET represent the tool's ability to originate optimization years and perform post-optimization calculations to calculate the value and costs of a mix of DERs with different lifetimes, degradation profiles, etc. based on a different user perspectives and analysis frameworks.

A basic form of the benefit-cost analysis module appears in any [DER_VET_User_Guide/Model_Details/Size_Optimization | size optimization] problem, where yearly costs and benefits are scaled to lifetime net present value (NPV) based on growth rates, the discount rate, and lifetime of the technology being sized.

How to End the Analysis Window

The "analysis window" refers to the period of time starting with the first cash flow (usually a capital cost paid before the start of operation), and ending with the last year any costs/benefits will be considered in the benefit-cost analysis. Selecting the last year of the analysis window is often not easy, owing to DERs with different lifetimes. As an example, when would you end an analysis of a solar + storage system, where the solar has a life of 25 years and the storage has a life of 10 years, but can be replaced? Do you end the analysis at 20 years and disregard the last 5 years of the solar system's life? Do you end the analysis at 25 years and disregard 5 years of storage? Some combination of the above?

DER-VET, through the [DER_VET_User_Guide/Inputs#Analysis_Horizon_Mode | analysis horizon mode] input, gives the user options for ending the analysis. Either the user can specify the last year of the analysis, have DER-VET choose the lifetime of the longest-lived technology as the analysis window, or have DER-VET choose the lifetime of the shortest-lived technology as the analysis window. No cash flows before or after the analysis window will be considered, though provision exists to apply costs and benefits to the last year of the analysis window that are meant to represent any remaining costs/benefits.

Salvage Value inputs for each technology option can be used to apply a benefit at the end of the analysis if the technology is not beyond its end of life. This input lets the user choose between "sunk cost", meaning that there is no end of analysis value (salvage value = 0), "linear salvage value" which will calculate salvage value by multiplying the technology's capital cost by (remaining life/total life), or to simply input a $ value to specify the salvage value of the technology.

Decommissioning Cost inputs for each technology option can be used to add a cost when a non-replaceable piece of equipment reaches its end of life or a (either replaceable or non-replaceable) piece of equipment survives to the end of the analysis window. Negative values are allowed to handle recycling value.

Taxes

Taxes are calculated with the three inputs [DER_VET_User_Guide/Inputs#Federal_Tax_Rate| Federal Tax Rate], [DER_VET_User_Guide/Inputs#State_Tax_Rate| State Tax Rate], and [DER_VET_User_Guide/Inputs#Property_Tax_Rate| Property Tax Rate]. These are considered constant over the analysis window.

Depreciation follows the USA modified accelerated cost recovery system (MACRS) and is counted as a loss in the years defined in the MACRS schedule (https://en.wikipedia.org/wiki/MACRS#MACRS_applicable_percentage_for_property_class) for state and federal tax purposes. DER-VET multiplies a technology's capital cost by the appropriate percentage from the MACRS table and subtracts this value from the net profit calculated for the DER mix in that year for the purposes of calculating federal and state taxes.