RENEWABLE ENERGY INVESTMENT RISK ANALYSIS FOR LOW-CARBON CITY... 21(i.e., where tax losses have occurred) (Orihara 2015 ). With the tax reforms
instituted in 2011 in Japan, the development of net operating loss carry for-
wards has been amended from seven years to nine years (80 % of net operating
losses can be carried forward) (PWC 2012 ). Losses carried forward effec-
tively reduce future tax burdens. Thus, since they are treated as temporary
differences in the tax effects of an accounting system, the amounts can be
appropriated to the profit and loss income statement as the adjusted amount
of corporate tax for the period that is based on the effective tax rate of the net
operating loss carry forwards and according to deferred tax assets. This tax
policy can prove highly effective, particularly when there are transferred ben-
efits from real estate and business activities, insurance maturity processes, sales
gains, or other temporary profits recurring profits. When a business makes no
profit, it is possible to produce a net operating loss carry forward.
As for subsidies of solar PV installations of more than 10 kW, both
Yokohama and Kanagawa Prefectures currently do not offer any subsi-
dies for commercial solar power investments. Thus, in this analysis, two
conditions are analysed with/without tax policies (normal and immediate
amortization) to assess the effectiveness of green tax cuts as well as risks
and returns from commercial solar PV investment.
2.5 solar pv Investment results
2.5.1 HouseholdThe analysis results show that to mitigate solar module investment costs
while minimizing risk, a longer provision term of 20 years of fixed FIT
prices proves effective although the fixed price is used only for 10 years for
households under current FIT system. This paper sets up three scenarios:
(1) 20 years’ FIT fixed payment; (2) 10 years’ FIT fixed payment and
20’ years solar PV use; and (3) no FIT fixed price and 20 years’ solar PV
use. In the first scenario with a 20-year FIT cash flow calculation at FIT
price of 42 JPY/kWh, cash returns will begin in August 2027, 14 years
from initial investment. As for IRR, when using a monthly discount rate
of 0.25 %, the results show a monthly IRR of 0.33 %, which is higher than
the discount rate (Table 2.3). From the base case, a Monte Carlo simula-
tion is run 1000 times with random trial numbers to create 1510 forecasts
at the 95 % confidence level. As a result, the IRR forecasting probability
range generates a mean value of 0.27 %, a minimum value of 0.06 %, and
a maximum value of 0.51 %, and more than 50 % of the IRR probability