fiscal incentive for building owners in the new sustainable economy
DESCRIPTION
Governors, state legislators and officials, and citizens increasingly recognize energy efficiency---the kilowatt-hours and gallons of water or gasoline that we DON'T use, thanks to improved technologies and practices--- as the cheapest, cleanest and quickest energy resource to deploy.(The 2010 State Energy Efficiency Scorecard--ACEEE) States continue to offer substantial financial incentives to help save consumers money, boost local economies by creating jobs, and improve the environment. An increasing number of states are raising energy efficiency budgets and funding levels; adopting energy efficient policies and improving building codes. Utility and public programs; combined heat & power applications, cash incentives, rebates and tax benefits are at an all time high level of availability. All of these contribute to improving the Return on Investment associated with new construction and major renovations. The time has never been more appropriate or more lucrative to incorporate energy efficiency and alternative energy resources into your energy portfolio.TRANSCRIPT
“Section 179D – “Fiscal Incentive for Building Owners in the New Sustainable Economy”
California Center for Sustainable Energy
May 2011
Slide 2
“Section 179D – “Fiscal Incentive for Building Owners in the New Sustainable Economy” ► Eric Scheidlinger, LEED AP
Manager, Reno Efficient Sustainable Practices (ESP)► Terry Hudgins, Ernst & Young LLP
Senior Manager, Climate Change and Sustainability Services
Slide 3
Disclaimer
► Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited located in the US.
► The Ernst & Young organization is divided into five geographic areas and firms may be members of the following entities: Ernst & Young Americas LLC, Ernst & Young EMEIA Limited, Ernst & Young Far East Limited and Ernst & Young Oceania Limited. These entities do not provide services to clients.
► This presentation is © 2011 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.
► Any US tax advice contained herein was not intended or written to be used, and cannot be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.
► The views expressed by speakers at this event are not necessarily those of Ernst & Young LLP.
Slide 4
Green Building (LEED®)
► LEED is a green building certification. ► The LEED rating system is a voluntary, consensus-
based national standard for high-performance, sustainable buildings.
► Members of the U.S. Green Building Council (USGBC), representing all segments of the building industry, developed LEED and continue to contribute to its evolution
► The USGBC is not associated with the federal government and is a non-profit organization
Slide 5
Four Levels of LEED®
Slide 6
Green Building (LEED®)
► Direct incentives for LEED certification► Based upon the level (Certified, Silver, Gold, Platinum)► Based upon the program (EB, NC, CS)
► Indirect incentives for aspects of LEED► Energy efficiency ► Renewable energy► Water conservation
► Match incentives to green building attributes. ► Reduce cost of going green!
Slide 7
Direct Incentives for LEED Certification
► Various forms: legislation, executive orders, resolutions, ordinances, policies, and incentives ► 45 states► 194 localities ► 130 cities ► 36 counties ► 28 towns► 34 state governments► 13 federal agencies or departments► 17 public school jurisdictions► 39 institutions of higher education
Slide 8
Direct Incentives for LEED certification
► Grants/Tax Incentives - States, counties, local jurisdictions ► Property tax credits/exemptions, grants equal to cost of LEED registration
with USGBC, state tax credits► Virginia, Pennsylvania, Oregon, New York, New Mexico, Maryland, Illinois,
DC, Nevada, Ohio
► Example:► City of Cincinnati offers property tax abatement for LEED certified
buildings► 100% property tax abatement for 15 years (new construction) or 12 years
(existing building renovations)► Owner must enter into an agreement with the local Board of Education
district to pay the board an amount equal to 25% of the avoided property taxes
Slide 9
ACEEE State Energy Efficiency Scorecard
WA6
OR3
CA1
NV19
ID26
MT33
WY48
UT12
AZ18
CO19
NM22
TX32
ND51
SD39
NE47
KS46
OK43 AR
41
LA42
MS50
AL49
GA37
FL30
SC40
NC24TN 35
VA34KY
36MO43
PA16OH
27IN31
IL10.40
IA12
MN8
WI11 MI
27
NY4
MN10
AK37
HI12
VT5
NH22
MA 2
RI 7
CT 8
NJ 12
DE 27
MD 16
DC 19
Ranks 1 - 10
Ranks 11 - 20
Ranks 21 - 30
Ranks 31 - 40
Ranks 41 - 51
WV43
Slide 10
Correlation between electric rates and incentive programs
WA7.24
OR8.13
CA14.37
NV11.82
ID6.35
MT8.72
WY7.73
UT8.17
AZ9.66
CO9.18
NM9.03
TX12.41
ND7.28
SD8.01
NE7.52
KS8.25
OK8.59 AR
8.73
LA9.38
MS9.40
AL9.24
GA9.07
FL11.20
SC9.18
NC9.35TN 7.79
VA8.72
WV6.63
KY7.19
MO7.57
PA10.96OH
9.51IN8.12
IL10.40
IA9.34
MN9.02
WI10.26 MI
10.72
NY17.05
MN14.81
AK15.12
HI24.13
VT14.13
NH14.13
MA 16.33RI 14.02
CT 18.67
NJ 14.44
DE 13.17
MD 11.77
DC 11.17
Residential average price (Cents per KWh)
6.35 to 8.01
8.12 to 9.03
9.07 to 9.66
10.26 to 13.17
14.02 to 24.13
Slide 11
Direct Incentives for LEED certification
► Rebates – States, Utilities ► Cash incentives per sq ft LEED certified► Washington, Nevada, New York, Oregon
► Example:► Avista Utilities in Washington State LEED Certification Incentive
Program► $1.25 per conditioned square foot (for LEED certified NC or EB
buildings)► Must achieve a minimum of 4 points for optimized energy
performance and comply with all LEED whole building modeling requirements
Slide 12
Four have pending regulations – four have efficiency goals►WA: all cost-effective conservation (~10%) by 2025►OR: save 256 aMW 2010-2014►CA: save 1,500 MW, 7,000 GWh; reduce peak 1,537 MW: 2010-12►NV: 0.6% annual saving (~5%) to 2015; EE to 25% of RPS►UT: PUC examining 1% energy savings by 2020►AZ: at least 22% cumulative energy savings by 2010; peak credits►NM: 10% electric savings by 2020►OK: EE up to 25% of renewable goal►TX: 25% annual savings in 2012; 30% in 2013 and beyond►HI: 30% electricity reduction by 2030►MN: 1.5% annual savings to 2015►IA: 1.5% annual, 5.4% cumulative savings by 2010►WI: task force recommended 2% annual savings►IL: 2% energy reduction, 0.1% peak by 2015►MI: 1% annual energy savings►IN: 2% electricity savings by 2019
► OH: 22% energy savings by ‘25; 8% peak by 2018
► ME: reduce use 30%, peak 100 MW by 2010
► VT: 2% annual, 11% cumulative energy reductions by 2011
► MA: 2.4% annual electric savings by 2012
► NY: reduce electric use 15% by 2015► CT: 1.5% annual utility savings, 10%
peak► RI: cut consumption
10% by 2022► NJ: Energy Master
Plan proceeding
► DE: cut consumption 15%, peak 10% by 2015
► PA: cut consumption 3%, peak 4.5% by 2013
► MD: reduce electricity use, peak 15% by 2015
► VA: reduce electric use 10% by 2022► WV: EE & DR earn credits in A&RES► NC: EE to meet up to 25% of RPS to
2011► FL: 3.5% cumulative energy savings
by 2019
24 states have Energy Efficiency Resources Standard (EERS)
EE as part of an RPS law or rule Voluntary standards or in renewable goal
EERS by regulation or law (stand-alone) EERS regulations pending
Slide 13
Indirect Incentives for LEED Certification
► Energy Efficiency - Utilities or State programs► Based upon technology installed
► Lighting ($ per lamp or fixture)► HVAC system efficiency ($ per ton)► Motor efficiency ($ per hp)► Appliance purchases (Energy Star)► Roofs with reflective coating or added insulation ($ per sq ft)► Variable Frequency drive ($ per kW)
► Example:► APS in Arizona
► Rebates cover up to 90% of the project cost, ► Program pays the rebate directly to the contractor, ► The customer’s return on investment is less than one year for most
projects.
Slide 14
Federal tax deduction
► Section 179D – energy-efficient buildings deduction► $0.30 to $1.80 a square foot of the building up to the total costs of
the energy-efficient property placed in service ► Accelerated depreciation of property that would otherwise be
treated as 39-year property ► Property installed meets energy efficiency targets for:
► Interior lighting systems► Heating, cooling, ventilation and hot water systems ► Building envelope
► Effective 1 January 2006 through 31 December 2013 ► The deduction for a government-owned building can be allocated
to the designer of the building
Slide 15
Federal tax deduction
► Government-owned building allocations► Federal, State, or local government or a political subdivision
thereof
► Able to be allocated a designer ► designer is a person that creates the technical specifications for
installation of energy efficient commercial building property► A designer may include, for example, an architect, engineer,
contractor, environmental consultant or energy services provider who creates the technical specifications for a new building or an addition to an existing building
► Miscellaneous deduction► Required form, format, assignment letter
Slide 16
Section 179D deduction
► The deduction will be allowed to the designer for the taxable year that includes the date on which the property is placed in service
► An allocation of the § 179D deduction to the designer of a government-owned building must be in writing
► The owner has discretion to allocate the deduction among several designers
► Can take this deduction for years 2006 - 2013
Slide 17
17
Federal Tax Benefits
► Tax deduction equal to the cost of energy efficient building property
► Maximum amount of $1.80/sq ft► Part of lighting system, HVAC or building envelope as
defined by ASHRAE 90.1-2001, which is “certified” to reduce energy costs by 50% or more in comparison to reference building as defined by ASHRAE 90.1-2001
► Partial deduction of $0.60 per sq ft by meeting 16 2/3% reductions for lighting, HVAC or envelope systems seperately
Slide 18
Brief overview and background of utility markets
Meets or exceeds ASHRAE Standard 90.1- 2007 or equivalent
Meets or exceeds ASHRAE Standard 90.1 - 1999-2001 or equivalent
State has adopted a new code to be effective at a later date
Meets or exceeds ASHRAE Standard 90.1 - 2004 or equivalent
No statewide code or precedes ASHRAE Standard 90.1 - 1999
NH
VT
MA
RI
CT
NJ
DE
MD
DC
AS
GU
MP
PR
VI
NOTE: These maps reflect only mandatory statewide codes currently in effect.
Slide 19
19
Benchmark
► ASHRAE 90.1 – 2001 Energy efficiency standard for commercial buildings
► The standard has “prescriptive” requirements► This standard is the basis for most building codes► The 2001 version is older so buildings built to newer
(more stringent) standards have a better chance of qualifying
Slide 20
20
Standards and Codes
► ASHRAE (American Society of Heating Refrigeration and Air-conditioning Engineers) sets the standards which become the basis for most building codes
► Building codes define the “worst building that can legally be built”
► Many buildings use technology to achieve energy efficiency results above code
Slide 21
21
Federal Tax Benefits
► Energy-efficient commercial building property is defined as depreciable property ► Light fixtures and controls, not light bulbs► New or replacement HVAC systems and controls► New buildings or replacements windows, roofs and doors
► Example:► a building with a total square footage of 100,000 square feet could
have a maximum deduction of approximately $180,000. ► The deduction is allowed in the year in which the property is
placed in service and reduces the basis of the property at issue, consistent with Section 179D(e).
Slide 22
22
Additional Lighting Requirements
Such as ….► Bilevel switching requirement - defined as manual or
automatic control (or a combination thereof) that provides two levels of lighting power in a space (not including off) OR
► Automatic Lighting controls such as occupancy sensors
Screw-in lamps do not qualify, must be fixture changes – real depreciable property
Slide 23
Qualifying Pathways
Property Energy Efficiency Benefit
Lighting (Interim Method) 25 – 40% LPD reduction Scaled $0.30 - $0.60 per sq foot
Lighting (Permanent Method ) 16 2/3% energy cost reduction modeled No Scaling – $0.60 per sq ft if target met
HVAC/HW 16 2/3% energy cost reduction modeled No Scaling – $0.60 per sq ft if target met
Building Envelope 16 2/3% energy cost reduction modeled No Scaling – $0.60 per sq ft if target met
Lighting + HVAC/HW 33 1/3% cost reduction modeled No Scaling – $1.20 per sq ft if target met
Lighting + Envelope 30% cost reduction modeled No Scaling – $1.20 per sq ft if target met
HVAC/HW + Envelope 30% cost reduction modeled No Scaling – $1.20 per sq ft if target met
Lighting + HVAC/HW +Envelope 50% cost reduction modeled No Scaling – $1.80 per sq ft if target met
Slide 24
24
Certification Requirements
► Energy modeling► Model the building with the minimum requirements of
ASHRAE Std 90.1-2001 then compare to actual installation to calcualte % reduction in energy costs
► 3rd party site inspection► after the property has been placed in service ► confirming that the building has met, or will meet, the
energy-saving targets contained in the design plans and specifications
► Letter of certification► By “an engineer or contractor that is properly licensed
in the jurisdiction in which the building is located”
Slide 25
Qualifying Pathways
1. Interim Lighting Methodology: 25 – 40% LPD reductionScaled benefit $0.30 - $0.60 per sq foot
2. Permanent Lighting: 16 2/3% cost reduction modeled3. HVAC/HW: 16 2/3% cost reduction modeled4. Building Envelope: 16 2/3% cost reduction modeled
Options 2-4: No Scaling – benefit is $0.60 per sq ft if target met
5. Lighting + HVAC/HW: 33 1/3% cost reduction modeled6. Lighting + Envelope: 30% cost reduction modeled7. HVAC/HW + Envelope: 30% cost reduction modeled
Options 5-7: No Scaling – benefit is $1.20 per sq ft if target met
8. All systems: 50% cost reduction modeled, benefit $1.80
Slide 26
Best building types
► Parking garages, warehouses, distribution centers or manufacturing ► WHY – single light fixture type – large spaces► Significant improvement in high-bay lighting since 2001
► Hospitality► WHY - Multiples of the same layout► Transition to CFL’s (ballasted cans)► Renovations on a regular schedule
► Retail► WHY – Multiples of a similar design► Lighting retrofits en mass
Slide 27
California example—City of San DiegoSustainable Building Policy
► New City and major renovations—► LEED Silver certification +15% better than Title 24► Qualifies for Savings by Design Program: SDG&E, SCE and
PG&E
► All newly constructed City facilities:► Minimum 15% self-generation► Power Purchase Agreement (PPA) takes advantage of federal,
state and any local incentives (Sec 45/48)► 179D Government Assignment for prime/designer
Slide 28
California example—private development
► New and major renovations—► LEED Silver certification +10% better than Title 24► Qualifies for Savings by Design Program: SDG&E, SCE and
PG&E
► Stacking Federal, State and Local incentives:► Federal Section 45/48, 1603 Grant Opportunity for self generation► Utility Self-generation incentives from fuel-cells (Wal-Mart; Kaiser
Permanente, Safeway) ► 179D deduction for energy efficiency
Slide 29
Government projects
► Government contracts► Energy efficient property must be installed “…on or in property
owned by a Federal, State, or local government or a political subdivision thereof”
► Able to be allocated a designer ► “designer is a person that creates the technical specifications for
installation of energy efficient commercial building property (or partially qualifying commercial building property for which a deduction is allowed under § 179D). A designer may include, for example, an architect, engineer, contractor, environmental consultant or energy services provider who creates the technical specifications for a new building or an addition to an existing building”
Slide 30
Government projects
► The deduction will be allowed to the designer for the taxable year in which the property is placed in service
► An allocation of the § 179D deduction to the designer of a government-owned building must be in writing
► The owner has discretion to allocate the deduction among several designers
► Can take this deduction for years 2006 – 2013► Applies to “…property owned by a Federal, State, or local
government or a political subdivision thereof…”► Public secondary schools; public or state universities buildings;
airports; stadiums; arenas; city parking garages; corrections institutions (jails)
Slide 31
Questions
Thank you
for your participation and feedback!