Requiem for a Solar Plant

> Investments like land aren’t necessarily consumed. You can reasonably deduct when an actual expense happens, but buying steel etc to be used next year doesn’t guarantee it is actually used rather than sold.

In many cases you're buying something intending it to be consumed, even if it hasn't been yet, and have to buy it ahead of time because you have to get it installed or connected or forged etc. before it can start being used.

If you then sell the steel instead of using it, the sale price gets added to your income and the cost was already deducted previously, so that cancels the previous deduction and you're back to paying the tax on it.

> Money is fungible, you hand me money to buy land and I can redirect money I would have spent to buy something else.

In order to get a tax deduction for buying land to build a solar farm, you have to buy land to build a solar farm. You can't spend that money on something else and still get that tax deduction. You can spend other money on something else, but the amount of money you have available to spend on other things has gone down, and the point is to increase your incentive to build the solar farm, which it is effective in doing.

The missing flavor: Texas mineral rights are very bizarre (they dominate surface land rights, and there's no state registry of them), the detailed power grid analysis completely contradicted the preliminary analysis, and the costs of upgrading less than 2 miles of wiring to carry 3 MW is nearly $800k.

I'm used to think that California is an overpriced legal quagmire if you want to build something. I didn't expect Texas to fare not much better.

> An interest free loans means you’re ahead in that transaction.

Except that you had to sit on some asset in the meantime instead of using it for something. Or if that asset was a productive investment that yielded returns, the government is ahead in that transaction, because the returns from investing the deferred taxes increase your taxable income.

> One can’t invest all their money in any given year or one lacks the ability to buy food. You also can’t spend all your money in a given year or you go broke.

You can both invest all of your assets by taking on new debt to buy food and spend all of your assets and have nothing left. Both of those are things some people actually do. And for people who neither spend nor invest 100% of their assets, different incentives will affect the proportion of each one they do.

> Thus both saving and spending are happening and reducing the amount of money required to save means you can up spending.

Suppose you're paying a tax rate of 33% and have access to investments with a 10% return. If you have to pay the tax when you get the money then if you get $100 you immediately lose $33 and can only invest $67, and if you get 10% interest on the $67 then you can only reinvest $4.49. In other words, your compounding rate is now 6.7% instead of 10% and after 10 years you'd have $128.

If instead you pay the tax when you spend the money, your compounding rate is 10%. So if you started off with $100, after 10 years you have $259 before tax and then you pay a third of that in tax and get to spend $174.

So in one case you have the choice between spending $67 today or $128 in ten years, in the other case your choice is between spending $67 today or $174 in ten years. That increases the incentive to invest the money now and spend more of it later, instead of spending it now.

You do then get to spend more of it later, but the extra money you get to spend is value that only exists because of the additional investment.

And then the government gets $85 in taxes in 10 years instead of $33 today, i.e. it got a 10% ROI too.

> No, you benefited from sitting on that productive asset. Getting a free stock option is still a meaningful benefit even if you never case it in.

If you buy a ton of steel with no intention of ever doing anything other than selling it for the same value as you paid for it in a while, you haven't benefited from it and have in fact cost yourself value in opportunity cost because other investments return more than that.

If you get a free stock option and then there is a 30% chance it turns out to be worth something, the government benefits from the same 30% chance that you'll get money from it which will then be taxable income.

> The money you got from that loan is an asset you’re not investing in that hypothetical.

Loan principal doesn't create net assets. You get new money and new debt at the same time and they cancel.

> As to “spend all of your assets and have nothing left” yes I mentioned going broke was an option repeating what I already said isn’t an argument here.

I took your implication to be that it was something bad and so nobody would purposely do that. But people purposely do it all the time. They have some money and then choose to spend all of it instead of investing any of it.

> Ignoring the possibility to just spend more today and also spend the same amount in 10 years is disingenuous here.

Even that scenario still requires the amount of investment to increase. What you'd be doing is spending some but not all of the taxes deferred on the amount you initially invested, e.g. instead of spending $33 and investing $33 you invest $37 and spend $42, and you had ~$12 extra because of the taxes deferred on the $37. But now you're investing $37 instead of $33, and that's the minimum you could invest to get the same after-tax amount in ten years because now you haven't paid the taxes yet.

Doing that is also more disfavored because you get better returns from diverting more money to investment but the benefits of immediate spending haven't increased.

As a European three things stood out for me:

- He didn't consult with somebody who had any experience in planning such a project, but a person who - while maybe personally impressive - had zero experience and started by writing scripts to find suitable properties. Isn't the project already doomed at this point? You are looking to invest 7m USD, who will you consult for this?

- He wouldn't do the project unless he was able to get insurance for it. The whole issue of exploring and acquiring mineral rights was just to get insurance for the project. Why not forego insurance? EDIT: Okay, needed insurance for financing the project. I assumed the project would be financed through the crypto gains.

- From ballpark numbers his projected cost of 1,37 USD per Watt DC seems very high (~2 USD per Watt Peak AC). In Europe large scale PV has reached 600 EUR / kWp so building a 4.5 MWp plant should cost more like 3m USD rather than his projected 9m USD. Of course 4.5 MW is small (10000 panels) so this might be part of the issue.