This page presents some general issues associated with VAT and modelling. Before discussing any modelling issues, I note that the VAT and the VAT refund on capital expenditures are not treated the same way in different countries. Here are some very general points about VAT.
First, if VAT is charged on capital expenditures and it is generally refunded before or immediately after operations begin. The very general notion is that VAT will be paid on the price of electricity and if you also charge it on capital expenditures there is a double charge. The manner in which the VAT is refunded is different, but it is typically refunded either after six months or you wait until completion and then refund the VAT. If a model is annual an assumption that the VAT would be repaid in the first year of operations would be reasonable. In addition, the basis of the VAT can be different. It can only include direct capital expenditures that exclude things like interest during construction and fees during construction. Alternatively it can include IDC and fees (I think this is the case for Mexico).
Second, the risk associated with paying VAT and receiving a refund is related to the government refunding payments and has nothing to do with the risk of the project. This means that a very low risk and relatively short term loan can be made for the VAT that is similar to a short-term loan to the government.
Third, the measured leverage or gearing by convention does not include the VAT. This convention reflects the low risk of VAT and the VAT debt as well as the short-term nature of the loan.
Presentation of VAT in the Uses of funds below (note the Interest during construction and fees on VAT) is shown below. I have included the model so that you can see how the VAT works and how it is presented. The screenshots below show how the VAT is modelled.
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