federal tax incentives for energy efficiency and renewable energy gail hendrickson alliance to save...

Federal Tax Incentives for Energy Efficiency and Renewable Energy

Gail Hendrickson

Alliance to Save Energy

Advancing Renewables in the Midwest

Columbia, Missouri

March 29, 2006

Presentation Outline “Two Words” About the Alliance and Energy

Efficiency

Federal Tax Incentives for Energy Efficiency

Federal Tax Incentives for Renewables

Additional Resources

What is the Alliance? NGO coalition of prominent business, government, environmental and

consumer leaders who promote the efficient and clean use of energy worldwide to benefit the environment, economy, and national security.

Mission: To advance energy efficiency world-wide through policy, education, research, technology deployment, market transformation and communication initiatives.

Chaired by Senator Mark Pryor (D-AR) and James DeGraffenreidt (CEO Washington Gas) with strong bi-partisan congressional, corporate & public interest leadership

Forging Alliances: Business, Govt. & Public Interests

Alliance enjoys sponsorship by more than 100 businesses and

organizations across a broad spectrum of economic sectors

Unique structure with expertise in research, policy advocacy,

education, technology deployment, and communications

A National Issue: U.S. Supplies Can’t Meet Demand

A Consumer “Pocketbook Issue”

A Consumer & Competitiveness Issue

Prices to Rise for Every Fuel in Every Region This Winter

0%

5%

10%

15%

20%

25%

30%

Natural Gas Heating Oil Propane Electricity

Source: EIA March 2006 Short-Term Energy Outlook

Northeast

South

Midwest

West

A Consumer & Competitive Issue

And a Hot, Expensive Summer Ahead??

Electricity Rates to Rise 5.5% Nationally (EIA)- Rate Freezes Expiring Across the Country

Already Ended in NJ, NY, OHMany Others End This Year - TX, MI, OH, MD, DE, CT

CT Faces 22% IncreaseTX Rates Have Risen 80% for TXU CustomersBG&E Customers Face 40-80% IncreaseDelmarva Power Customers Face 59 – 117% Increase

Energy Efficiency Extends U.S. Energy Supplies: CHEAPER

Each $1 invested in EE RD&D programs = $20 to the economy

Each $1 invested in Energy Star program = $75 in energy cost savings and $15 of investment in new efficiency technologies

QUICKER In 2001, California cut electricity use by 13% in Seven Months

CLEANER “Negawatt” produces NO ENVIRONMENTAL FOOTPRINT

ENHANCES SECURITY Energy efficiency is a “homegrown” resource!

Why Energy Efficiency?

The Energy Policy Act of 2005Public Law 109-58

The Road Ahead: Federal Tax Incentives for EE

Businesses (Commercial)

Consumers (Residential)

Manufacturers and Builders (Residential)

New buildings

Sec. 1331

Sec. 1332

Building improvements

Sec. 1333Heating and cooling equip.

Appliances Sec. 1334

Hybrid vehicles Sec. 1341

Fuel cells Sec. 1336 Sec. 1335

Existing Homes Homeowner tax credit up to $500. Available

2006-2007.- 10% of cost of insulation, doors, Energy Star

pigmented metal roofs.

- 10% of cost of windows (up to $200 credit).

- Central air conditioners, water heaters, heat pumps ($300).

- Furnaces and boilers ($150 + $50 for furnace fans).

New Homes Builder tax credit of $2,000 for home that uses 50%

less energy than model residential code – 2004 IECC- At least 20% of improvements have to come from envelope

improvements.

$1,000 tax credit to producer of manufactured homes using 30% less energy than in 2004 IECC, or that qualify as an Energy Star labeled home.

Available 2006-2007 Requires RESNET procedures to show compliance

Commercial Buildings Deduction up to $1.80/square foot for buildings

designed to use 50% less energy and power costs than required by model commercial code. Available for buildings placed in service from 2006-2007.

Deduction goes to the designer for publicly-owned buildings

Partial deduction up to $0.60/square foot for three pertinent components: building envelope, HVAC and hot water, or lighting system.

Vehicles Hybrid Vehicles: Buyer tax credit for light-

duty hybrids ranging from $250-$3400 depending on fuel economy. - Credit available from January 1, 2006 –

December 31, 2010 for light-duty vehicles and until December 31, 2009 for heavy duty hybrids

- Bigger credit for heavy-duty hybrids (over 8,500 lbs) of $7,500 - $30,000 depending on weight

Vehicles Hybrid Vehicles: Credits will be gradually phased

out, after the company has sold 60,000 eligible vehicles

- 1st quarter after the 60,000th vehicle sold, full credit still available

- Next 2 quarters, 50 percent of credit

- Next 2 quarters, 25 percent of credit

- Thereafter, no credit

Vehicles Diesel, Alternative Fuel & Fuel CellDiesel Vehicles - subject to the same credit values and phaseout as hybrids

Alternative Fuel Vehicles – tax credit equal to 50 percent of the incremental cost, plus additional 30 percent depending on emissions. Incremental cost limits of $5,000-$40,000, depending on weight class. Available January 1, 2006 – December 31, 2010

Fuel Cell Vehicles – $8,000 base credit through December 31, 2009 for light-duty FCEVs. $1,000-$4,000 increase based on fuel economy improvements. Credit reduced to $4,000 beginning 2010. Credits ranging from $10,000-$40,000 for heavier weight classes.

Fuels Small Producer Biodiesel and Ethanol Credit – 10 cents per

gallon tax credit for up to 15 million gallons of agri-biodiesel produced. Available through 2008.

Renewable Diesel Tax Credit – Amends biodiesel tax credits to include renewable diesel fuel derived from biomass. $1.00 per gallon of renewable diesel.

Biodiesel Excise Tax – Biodiesel producers eligible for a tax credit of $.50 per gallon of waste-grease biodiesel through 2008

Alternative Fuel Infrastructure Tax Credit – Fueling stations eligible for 30% credit, up to $30,000, for cost of installing clean fuel vehicle refueling equipment through 2010. $1,000 tax credit for buyers of residential refueling equipment. Available January 1, 2006 through 2009 (hydrogen purchases expire 2014)

Residential and Business Solar Equipment Photovoltaic systems and solar hot water systems eligible for residential and business credits

Solar hybrid lighting system credit eligible for business

Credit is 30% of cost, up to $2,000, for individuals. (More complicated calculation for businesses)

10% credit remains available for businesses that invest in or purchase geothermal energy property

Credits available for systems “placed in service” in 2006 and 2007

Stationary Fuel Cells and Microturbines

Primarily for businesses, although individuals are eligible for the fuel cell credit. Credits available for systems “placed in service” in 2006 and 2007

For fuel cells 30% of cost up to $1000 per kW of energy produced.

Requires efficiency of at least 30% and capacity of at least 0.5kW

For microturbines 10% of cost up to $200/kW of output. Requires efficiency of at least 26% and capacity of less than

2,000kW

Appliances Credit to manufacturers of energy-efficient

appliances – clothes washers, refrigerators, dishwashers

Credit applies to additional sales Cap of $75 million per manufacturer,

including a $20 million cap on the least efficient eligible refrigerators

Available on models produced in 2006 & 2007.

Renewable Depreciation Deductions

Businesses can recover investments in solar, wind and geothermal property through depreciation deductions under the Modified Accelerated Cost-Recovery System (MACRS)

For solar, wind and geothermal property placed in service after 1986, the terms are five years.

Renewable Electricity Production Tax Credit

Provides a business tax credit of 1.5 cents/kWh, adjusted annually for inflation, for electricity generated by wind, closed-loop biomass and geothermal (1.9 cents/kWh adjusted for 2005)

Electricity generated from open-loop biomass, small irrigation hydroelectric, landfill gas, municipal solid waste resources and hydropower receive half that rate (currently 0.9 cents/kWh).

Available through December 31, 2007 for renewables

Renewable Energy Production Incentive

New qualifying renewable energy generation facilities eligible for annual incentive payments of 1.5 cents/kWh for the first 10 years of operation.

Qualifying facilities must use - Solar- Wind- Geothermal- Biomass - Landfill gas- Livestock refuse- Ocean generation technologies (tidal, wave, current and thermal)- Fuel cells using hydrogen derived from eligible biomass facilities

Caveat Emptor…

Tax incentives started January 1, 2006. Most only last through 2007.

Alliance to Save Energy is working to extend many of the energy efficiency tax incentives

Most rules, guidance, and forms for the energy efficiency tax incentives have not been issued by the IRS.

RESOURCES

Consumer tax credits: www.ase.org/taxcredits

Tax Incentives Assistance Project (TIAP) www.energytaxincentives.org

Database of State Incentives for Renewable Energy www.dsireusa.org

Tax rules and forms: www.irs.gov

Energy bill: www.ase.org (Under Policy Makers)

Contact Us

Alliance to Save Energy

1200 18th Street, NW

Washington, D.C. 20036

Phone: 202.857.0666

Website: www.ase.org

Gail Hendrickson

Vice President for Corporate, Communications and Government Relations

ghendrickson@ase.org

Clean Energy Opportunities for Clean Energy Opportunities for MissouriMissouri

Jesse KharbandaJesse KharbandaEnvironmental Law and Policy CenterEnvironmental Law and Policy CenterMarch 29, 2006March 29, 2006

Who is this presentation for? Organizations that want to:

- Cut costs

- Generate new income streams

- Be a better steward of the environment

Three Clean Energy Opportunities for Rural Missouri

Opportunity #1:

Energy Efficiency

Why energy efficiency? Energy costs are a chunk of change, up to

- 30% for grain farmers, - 10% for hog, poultry and dairy

Energy efficient equipment cuts costs:- 30% cut in energy costs on largest

contributors (HVAC, lighting, etc.)

Energy Efficiency Opportunities for Grain Farmers

Grain drying Irrigation systems

Energy Efficiency Opportunities for Dairy and Poultry Farmers

Poultry Houses Manure Pumping Well under $25,000 (ventilation, heat-

lighting for farrowing)

Energy Efficiency Opportunities for Small Business Owners

Store Lighting and Refrigeration HVAC systems Heating systems (e.g. Laundromats)

Opportunity #2:

Anaerobic Digesters

Digester Basics Cattle, dairy, hog farms very important to region Manure to heat/electricity Digested solid for fertilization Also, odor reduction Technology choice depends on manure content,

temperature

Digester Economics Average system costs around $800,000 Pay-back around 10 years 8 cents per kilo-watt hour Minimal scale to be economical

Opportunity #3:

Wind Systems

Other clean energy opportunities Ethanol and biodiesel plants (stay tuned) Bioenergy plants Solar PV systems

- Lighting, pumps Geothermal systems

For Farmers and Rural businesspeople: Section 9006

- Covers up to 25% of capital investment in renewable energy systems (up to $500,000) and energy efficiency upgrades (up to $250,000).

- Easy-to-understand summary of the program rules and an application template at: www.farmenergy.org

- Program has leveraged $800,000,000 in investment in rural communities

- Application deadline: May 12, 2006

For Rural Electric Co-Ops Clean Renewable Energy Bonds

- $800 million available to finance large-scale wind projects.

- Bond issuers pay no interest, instead bondholders are awarded a generous tax credit

- Learn more at www.cleanenergybonds.org

For Rural Electric Co-Ops Rural Utilities Service Loans

- Since 2000, have given more than $100 million dollars in loans

- Since 2005, have developed a fast-track program for renewable energy projects

- Municipalities, public utility districts, subdivisions, states, as well as non-profit, limited

dividend and mutual associations eligible.