Feasibility Report

| July 23, 2016

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Situation:

Rex Hill (a winery located in Newberg, Oregon) has asked you to investigate a proposal for installing a PV solar panel system at their property. As Rex Hill’s consultant, you will examine the relevant factors that come into play and write a brief feasibility report (3-5 pages; single spacing) that informs the winemaker with a recommendation as to whether or not to pursue the project.

 

In planning your report, assume that Sunbridge Solar is the solar installation company and that the project would include a ground-mounted 20-kW solar array. Also assume that the owners of Rex Hill, including their financial and business advisors, will be reading the report.

 

The capital cost of the solar panel system is $82,000. The system is warranted for 20 years and has an expected lifespan of 40 years. If Rex Hill moves forward with the project, they would finance the system with a 5-year loan at 6% interest. The payments over the life of the loan are $1,585 per month.

 

After investigating and researching the benefits of the project, you calculated/found the following information:

 

  • Based on the current electrical rate, the project will save around $900 per year on utility costs over the first 5 years. That amount will likely increase in the future.

 

  • By installing the system, Energy Trust of Oregon would provide a first-year rebate of $20,000.

 

  • Rex Hill qualifies for a state Business Energy Tax Credit worth 50% of the cost of the system. The tax credit would be spread evenly over the course of 5 years.

 

  • Rex Hill also qualifies for a Federal Tax Credit worth 30% of the cost of the system. The tax credit would be spread evenly over the course of 3 years.

 

  • Rex Hill would also receive a tax benefit relating to the rapid depreciation of the equipment (which allows the winery to write off 85% of the entire cost of the system over 5 years). After talking with a tax advisor, you find out that the actual tax savings for Rex Hill amount to $2,500 per year for the first 5 years.

 

  • As part of the solar project, Sunbridge Solar would also provide an energy monitoring system, which would allow Rex Hill to display energy-saving data on a flat panel screen (think PR opportunity).

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