Change Replacements Treatment

CHANGELOG.md

@@ -23,6 +23,16 @@ Classify the change according to the following categories:
     ### Deprecated
     ### Removed
 
+## Develop - 2023-05-01
+### Changed 
+- Changed tax treatment of replacement costs for technologies with replacement_year inputs (currently, Generator and ElectricStorage). Previously, replacement costs were treated as tax deductible (similar to O&M costs). Accordingly, neither ITC nor MACRS were applied to these costs. Now, we are treating replacement costs are depreciable and are applying the ITC and MACRS to these costs. Updates are mostly captured in the `effective_cost()` calculation. 
+
+### Added 
+- The following new inputs have been added to `ElectricStorage` and `Generator`:
+-- `replace_macrs_option_years`
+-- `replace_macrs_bonus_fraction`
+-- `replace_total_itc_fraction` 
+- *Note* For Generators, by default we assume no ITC or MACRS incentives for the upfront cost nor replacements. For ElectricStorage replacements, we assume that the MACRS bonus depreciation has phased out, that storage qualifies for 5-year depreciation (2025 and onward), and that the ITC remains at 30%. 
 ## Develop 12-13-2023
 ### Fixed
 - Fixed issue with running Wind on Windows: add execute permission for ssc.dll

docs/src/developer/concept.md

@@ -15,7 +15,7 @@ The REopt Model is built via the [build_reopt!](@ref) method. However, the [run_
 The `max_kw` input value for any technology is considered to be the maximum _additional_ capacity that may be installed beyond the `existing_kw`. Note also that the `Site` space constraints (`roof_squarefeet` and `land_acres`) for `PV` technologies can be less than the provided `max_kw` value.
 
 ### Lower size limits
-The `min_kw` input value for any technology sets the lower bound on the capacity. If `min_kw` is non-zero then the model will be forced to choose at least that system size. The `min_kw` value is set equal to the `existing_kw` value in the Business As Usual scenario.
+The `min_kw` input value for any technology sets the lower bound on the _additional_ capacity that may be installed beyond the `existing_kw`. If `min_kw` is non-zero then the model will be forced to choose at least that system size. The `min_kw` value is set equal to the `existing_kw` value in the Business As Usual scenario.
 
 # Business As Usual Scenario
 In order to calculate the Net Present Value of the optimal solution, as well as other baseline metrics, one can optionally run the Business As Usual (BAU) scenario. When an array of `JuMP.Model`s is provided to `run_reopt` the BAU scenario is also run. For example:

src/core/cost_curve.jl

@@ -316,43 +316,48 @@ function cost_curve(tech::AbstractTech, financial::Financial)
             itc_unit_basis = (cap_cost_slope[s] + rebate_federal) / (1 - itc)
         end
 
-        macrs_schedule = [0.0]
-        macrs_bonus_fraction = 0.0
-        macrs_itc_reduction = 0.0
-
-        if tech.macrs_option_years != 0
-            macrs_bonus_fraction = tech.macrs_bonus_fraction
-            macrs_itc_reduction = tech.macrs_itc_reduction
-        end
-        if tech.macrs_option_years == 5
-            macrs_schedule = financial.macrs_five_year
-        end
-        if tech.macrs_option_years == 7
-            macrs_schedule = financial.macrs_seven_year
-        end
-
         replacement_cost = 0.0
         replacement_year = financial.analysis_years
-        if nameof(T) in [:Generator]  # Generator is currently only Tech with replacement year and cost
-            if tech.replacement_year >= financial.analysis_years # assume no replacement in final year of project
+        replace_macrs_schedule = [0.0]
+        replace_macrs_bonus_fraction = 0.0
+        replace_itc = 0.0
+
+        if nameof(T) in [:Generator]  # Generator is currently only Tech with replacement year and cost (battery is not a tech)
+            if tech.replacement_year >= financial.analysis_years # assume no replacement in final year of project or later
                 replacement_cost = 0.0
             else
                 replacement_cost = tech.replace_cost_per_kw
+                if tech.replace_macrs_option_years != 0
+                    replace_macrs_bonus_fraction = tech.replace_macrs_bonus_fraction
+                end
+                if tech.replace_macrs_option_years == 5
+                    replace_macrs_schedule = financial.macrs_five_year
+                end
+                if tech.replace_macrs_option_years == 7
+                    replace_macrs_schedule = financial.macrs_seven_year
+                end
             end
             replacement_year = tech.replacement_year
+            replace_itc = tech.replace_federal_itc_fraction
         end
+
         updated_slope = effective_cost(;
             itc_basis = itc_unit_basis,  # input tech cost with incentives, but no ITC
             replacement_cost = replacement_cost,
             replacement_year = replacement_year,
             discount_rate = financial.owner_discount_rate_fraction,
             tax_rate = financial.owner_tax_rate_fraction,
             itc = itc,
-            macrs_schedule = macrs_schedule,
-            macrs_bonus_fraction = macrs_bonus_fraction,
-            macrs_itc_reduction = macrs_itc_reduction,
-            rebate_per_kw = rebate_federal
+            macrs_schedule = tech.macrs_option_years == 5 ? financial.macrs_five_year : tech.macrs_option_years == 7 ? financial.macrs_seven_year : [0.0],
+            macrs_bonus_fraction = tech.macrs_option_years != 0 ? tech.macrs_bonus_fraction : 0.0,
+            macrs_itc_reduction = tech.macrs_option_years != 0 ? tech.macrs_itc_reduction : 0.0,
+            rebate_per_kw = rebate_federal,
+            replace_macrs_schedule = replace_macrs_schedule,
+            replace_macrs_bonus_fraction = replace_macrs_bonus_fraction,
+            replace_itc = replace_itc
         )
+        print("\n\nTech in cost_curve fn:", T)
+        print("\nupdated_slope: ", updated_slope, "\n")
         # The way REopt incentives currently work, the federal rebate is the only incentive that doesn't reduce ITC basis
         push!(updated_cap_cost_slope, updated_slope)
     end

src/core/electric_utility.jl

@@ -5,7 +5,7 @@
     net_metering_limit_kw::Real = 0,
     interconnection_limit_kw::Real = 1.0e9, # Limit on total electric system capacity size that can be interconnected to the grid 
     outage_start_time_step::Int=0,  # for modeling a single outage, with critical load spliced into the baseline load ...
-    outage_end_time_step::Int=0,  # ... utiltity production_factor = 0 during the outage
+    outage_end_time_step::Int=0,  # ... utility production_factor = 0 during the outage
     allow_simultaneous_export_import::Bool = true,  # if true the site has two meters (in effect)
     # next 5 variables below used for minimax the expected outage cost,
     # with max taken over outage start time, expectation taken over outage duration
@@ -74,7 +74,7 @@ struct ElectricUtility
     emissions_factor_SO2_decrease_fraction::Real
     emissions_factor_PM25_decrease_fraction::Real
     outage_start_time_step::Int  # for modeling a single outage, with critical load spliced into the baseline load ...
-    outage_end_time_step::Int  # ... utiltity production_factor = 0 during the outage
+    outage_end_time_step::Int  # ... utility production_factor = 0 during the outage
     allow_simultaneous_export_import::Bool  # if true the site has two meters (in effect)
     # next 5 variables below used for minimax the expected outage cost,
     # with max taken over outage start time, expectation taken over outage duration
@@ -95,7 +95,7 @@ struct ElectricUtility
         net_metering_limit_kw::Real = 0,
         interconnection_limit_kw::Real = 1.0e9,
         outage_start_time_step::Int=0,  # for modeling a single outage, with critical load spliced into the baseline load ...
-        outage_end_time_step::Int=0,  # ... utiltity production_factor = 0 during the outage
+        outage_end_time_step::Int=0,  # ... utility production_factor = 0 during the outage
         allow_simultaneous_export_import::Bool=true,  # if true the site has two meters (in effect)
         # next 5 variables below used for minimax the expected outage cost,
         # with max taken over outage start time, expectation taken over outage duration

src/core/energy_storage/electric_storage.jl

@@ -158,13 +158,21 @@ end
     total_itc_fraction::Float64 = 0.3
     total_rebate_per_kw::Real = 0.0
     total_rebate_per_kwh::Real = 0.0
+    replace_macrs_option_years::Int = 5 # Batteries will qualify for 5-year MACRS starting in 2025
+    replace_macrs_bonus_fraction::Float64 = 0.0 # MACRS bonus assumed to be 0% in 2027 onward
+    replace_total_itc_fraction::Float64 = 0.3 # ITC assumed not to phase out
     charge_efficiency::Float64 = rectifier_efficiency_fraction * internal_efficiency_fraction^0.5
     discharge_efficiency::Float64 = inverter_efficiency_fraction * internal_efficiency_fraction^0.5
     grid_charge_efficiency::Float64 = can_grid_charge ? charge_efficiency : 0.0
     model_degradation::Bool = false
     degradation::Dict = Dict()
     minimum_avg_soc_fraction::Float64 = 0.0
 ```
+
+!!! note "Replacement costs" 
+    The Investment Tax Credit (ITC) is applied to replacement costs at `replace_federal_itc_fraction`. 
+    MACRS is applied to replacement costs with a first year bonus depreciation of `replace_macrs_bonus_fraction` and a schedule of `replace_macrs_option_years`. 
+
 """
 Base.@kwdef struct ElectricStorageDefaults
     off_grid_flag::Bool = false
@@ -190,6 +198,9 @@ Base.@kwdef struct ElectricStorageDefaults
     total_itc_fraction::Float64 = 0.3
     total_rebate_per_kw::Real = 0.0
     total_rebate_per_kwh::Real = 0.0
+    replace_macrs_option_years::Int = 5 # Batteries will qualify for 5-year MACRS starting in 2025
+    replace_macrs_bonus_fraction::Float64 = 0.0 # MACRS bonus assumed to be 0% in 2027 onward
+    replace_total_itc_fraction::Float64 = 0.3 # ITC assumed not to phase out
     charge_efficiency::Float64 = rectifier_efficiency_fraction * internal_efficiency_fraction^0.5
     discharge_efficiency::Float64 = inverter_efficiency_fraction * internal_efficiency_fraction^0.5
     grid_charge_efficiency::Float64 = can_grid_charge ? charge_efficiency : 0.0
@@ -228,11 +239,16 @@ struct ElectricStorage <: AbstractElectricStorage
     total_itc_fraction::Float64
     total_rebate_per_kw::Real
     total_rebate_per_kwh::Real
+    replace_macrs_option_years::Int
+    replace_macrs_bonus_fraction::Float64
+    replace_total_itc_fraction::Float64 
     charge_efficiency::Float64
     discharge_efficiency::Float64
     grid_charge_efficiency::Float64
     net_present_cost_per_kw::Real
     net_present_cost_per_kwh::Real
+    net_present_replace_cost_per_kw::Real
+    net_present_replace_cost_per_kwh::Real
     model_degradation::Bool
     degradation::Degradation
     minimum_avg_soc_fraction::Float64
@@ -247,18 +263,21 @@ struct ElectricStorage <: AbstractElectricStorage
         if s.battery_replacement_year >= f.analysis_years
             @warn "Battery replacement costs (per_kwh) will not be considered because battery_replacement_year >= analysis_years."
         end
-
+        
         net_present_cost_per_kw = effective_cost(;
             itc_basis = s.installed_cost_per_kw,
             replacement_cost = s.inverter_replacement_year >= f.analysis_years ? 0.0 : s.replace_cost_per_kw,
             replacement_year = s.inverter_replacement_year,
             discount_rate = f.owner_discount_rate_fraction,
             tax_rate = f.owner_tax_rate_fraction,
             itc = s.total_itc_fraction,
-            macrs_schedule = s.macrs_option_years == 7 ? f.macrs_seven_year : f.macrs_five_year,
+            macrs_schedule = s.macrs_option_years == 7 ? f.macrs_seven_year : s.macrs_option_years == 5 ? f.macrs_five_year : [0.0],
             macrs_bonus_fraction = s.macrs_bonus_fraction,
             macrs_itc_reduction = s.macrs_itc_reduction,
-            rebate_per_kw = s.total_rebate_per_kw
+            rebate_per_kw = s.total_rebate_per_kw,
+            replace_macrs_schedule = s.replace_macrs_option_years == 7 ? f.macrs_seven_year : s.replace_macrs_option_years == 5 ? f.macrs_five_year : [0.0],
+            replace_macrs_bonus_fraction = s.replace_macrs_bonus_fraction,
+            replace_itc = s.replace_total_itc_fraction
         )
         net_present_cost_per_kwh = effective_cost(;
             itc_basis = s.installed_cost_per_kwh,
@@ -267,13 +286,38 @@ struct ElectricStorage <: AbstractElectricStorage
             discount_rate = f.owner_discount_rate_fraction,
             tax_rate = f.owner_tax_rate_fraction,
             itc = s.total_itc_fraction,
-            macrs_schedule = s.macrs_option_years == 7 ? f.macrs_seven_year : f.macrs_five_year,
+            macrs_schedule = s.macrs_option_years == 7 ? f.macrs_seven_year : s.macrs_option_years == 5 ? f.macrs_five_year : [0.0],
             macrs_bonus_fraction = s.macrs_bonus_fraction,
-            macrs_itc_reduction = s.macrs_itc_reduction
+            macrs_itc_reduction = s.macrs_itc_reduction,
+            replace_macrs_schedule = s.replace_macrs_option_years == 7 ? f.macrs_seven_year : s.replace_macrs_option_years == 5 ? f.macrs_five_year : [0.0],
+            replace_macrs_bonus_fraction = s.replace_macrs_bonus_fraction,
+            replace_itc = s.replace_total_itc_fraction
         )
 
         net_present_cost_per_kwh -= s.total_rebate_per_kwh
 
+        net_present_replace_cost_per_kw = replacement_effective_cost(; # gets used in results/financial.jl
+            replacement_cost =  s.inverter_replacement_year >= f.analysis_years ? 0.0 : s.replace_cost_per_kw,
+            replacement_year = s.inverter_replacement_year,
+            discount_rate = f.owner_discount_rate_fraction,
+            tax_rate = f.owner_tax_rate_fraction,
+            macrs_itc_reduction = s.macrs_itc_reduction,
+            replace_macrs_schedule = s.replace_macrs_option_years == 7 ? f.macrs_seven_year : s.replace_macrs_option_years == 5 ? f.macrs_five_year : [0.0],
+            replace_macrs_bonus_fraction = s.replace_macrs_bonus_fraction,
+            replace_itc = s.replace_total_itc_fraction
+        )
+
+        net_present_replace_cost_per_kwh = replacement_effective_cost(; # gets used in results/financial.jl
+            replacement_cost =  s.battery_replacement_year >= f.analysis_years ? 0.0 : s.replace_cost_per_kwh,
+            replacement_year = s.battery_replacement_year,
+            discount_rate = f.owner_discount_rate_fraction,
+            tax_rate = f.owner_tax_rate_fraction,
+            macrs_itc_reduction = s.macrs_itc_reduction,
+            replace_macrs_schedule = s.replace_macrs_option_years == 7 ? f.macrs_seven_year : s.replace_macrs_option_years == 5 ? f.macrs_five_year : [0.0],
+            replace_macrs_bonus_fraction = s.replace_macrs_bonus_fraction,
+            replace_itc = s.replace_total_itc_fraction
+        )
+
         if haskey(d, :degradation)
             degr = Degradation(;dictkeys_tosymbols(d[:degradation])...)
         else
@@ -288,10 +332,15 @@ struct ElectricStorage <: AbstractElectricStorage
                 haskey(d, :replace_cost_per_kwh) && d[:replace_cost_per_kwh] != 0.0
                 @warn "Setting ElectricStorage replacement costs to zero. Using degradation.maintenance_cost_per_kwh instead."
             end
-            replace_cost_per_kw = 0.0
+            # TODO: These get set to zero but their non-zero value is used in the net_present_cost calculation above? Should this if statement come before the effective_cost fn is called?
+            replace_cost_per_kw = 0.0 
             replace_cost_per_kwh = 0.0
+            net_present_replace_cost_per_kw = 0.0 ## TODO: is this the right thing to do with degredation modeling? 
+            net_present_replace_cost_per_kwh = 0.0
         end
-
+
+
+
         return new(
             s.min_kw,
             s.max_kw,
@@ -315,11 +364,16 @@ struct ElectricStorage <: AbstractElectricStorage
             s.total_itc_fraction,
             s.total_rebate_per_kw,
             s.total_rebate_per_kwh,
+            s.replace_macrs_option_years,
+            s.replace_macrs_bonus_fraction,
+            s.replace_total_itc_fraction,
             s.charge_efficiency,
             s.discharge_efficiency,
             s.grid_charge_efficiency,
             net_present_cost_per_kw,
             net_present_cost_per_kwh,
+            net_present_replace_cost_per_kw,
+            net_present_replace_cost_per_kwh,  
             s.model_degradation,
             degr,
             s.minimum_avg_soc_fraction

src/core/energy_storage/thermal_storage.jl

@@ -134,9 +134,12 @@ struct ThermalStorage <: AbstractThermalStorage
             discount_rate = f.owner_discount_rate_fraction,
             tax_rate = f.owner_tax_rate_fraction,
             itc = s.total_itc_fraction,
-            macrs_schedule = s.macrs_option_years == 7 ? f.macrs_seven_year : f.macrs_five_year,
+            macrs_schedule = s.macrs_option_years == 7 ? f.macrs_seven_year : s.macrs_option_years == 5 ? f.macrs_five_year : [0.0],
             macrs_bonus_fraction = s.macrs_bonus_fraction,
-            macrs_itc_reduction = s.macrs_itc_reduction
+            macrs_itc_reduction = s.macrs_itc_reduction,
+            replace_macrs_schedule = [0.0],
+            replace_macrs_bonus_fraction = 0.0,
+            replace_itc = 0.0
         ) - s.total_rebate_per_kwh
 
         return new(