Capturing Tax Incentives from Energy Retrofits

firstenergymonopolyAs we approach the month of April, we draw closer to the deadline to file our taxes. Though we all experience a bit of dread at this prospect, tax season doesn’t always have to carry a negative connotation. Unknown too many of the clients I work with, are a number of tax exemptions or incentives for the energy related retrofits that they perform. In many cases, the value these deductions present can be as lucrative to the project as the energy savings themselves.

Below is a very high level (and overly simplified) overview of three tax mechanisms available in the market today. There are certainly more to consider (qualified leasehold improvements and bonus depreciation), but these represent the most reoccurring opportunities I have found for my clients. Some have strict deadlines regarding when you can claim the deduction while others require detailed engineering studies. It is important to be aware these opportunities exist, but ultimately, you will want to work closely with your tax professional to capitalize on the full value.

EPAct 179D

This is probably the most commonly used tax tool we can offer to our clients. This federal legislation was passed in 2005 to provide a tax related incentive for businesses to curtail energy consumption. It offers up to a $1.80 per square foot tax deduction for improvements made to buildings. The deduction is available in three equal parts related to HVAC, Building Envelope, and Lighting. Each is eligible for a deduction of $0.60 per square foot.

Case Study: Recently, I worked with a manufacturing client on an LED retrofit for their facility. The building is approximately 40,000 square feet. This project was eligible for the $0.60 per square foot deduction through 179D. Their write-off on their tax returns is $24,000. To determine the actual monetary impact, we simply multiplied their deduction by their effective tax rate. A top end tax rate of 39.6% yields a value of $9,504 of avoided tax payments.

Removal and Partial Disposition

This tax deduction allows you to write down the remaining depreciable cost basis of what gets thrown in the dumpster during a renovation or improvement of a building. Everything with a deprecation schedule can be included. It is a one-time tax benefit for building owners that can also incorporate the labor on the project. Each building and retrofit project is unique, so deduction values will vary. It is not uncommon to capture 15% to 25% of the total renovation value.

Cost Segregation

This is an approved IRS mechanism to accelerate depreciation of certain assets. Typically, most owners will utilize a straight line deprecation schedule of 39 years for their whole building. Cost segregation breaks our various components of the building and accelerates their depreciation schedule. Some key elements of cost segregation include the following.

  • Depending on the component, depreciation schedules can be reduced to 5, 7, or 15 years
  • This can apply to anyone who spent $250K or more on a building or $200K on leasehold improvements
  • The building should have been acquired or renovated in the last 15 years
  • Benefits will vary, but a general rule of thumb is $50,000 Income Tax Deduction per $1 million of building cost basis.  Benefits will range based on building type

 

Taxes always appear complicated and challenging to understand. Do not allow that to be a deterrent. There are too many great opportunities in the market to capture additional value for the work you are already performing. In addition, in many cases, I have found the deductions my clients can claim often make projects more tenable because of the reduced payback period. If you do not already work with a tax professional that can help you understand your options, feel free to contact me directly (eauerbach@energyplanners.com) and I can help pair you with a reputable professional in your community.

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Understanding ASHRAE Level Audits

DSC_7446 (2)EPCO performs energy audits, or energy assessments, for commercial businesses throughout Ohio. Depending on geographic region, there may be utility incentives to cover the cost of the audit. Not all energy audits are made equal, and it is essential to understand the various levels of audits available. The primary goals of an energy audit are to determine how the building energy systems are performing, how improvements can be made to enhance that performance, and how those improvements will affect the owner in both financial and non-financial factors.

Energy audits vary in depth and complexity, depending on a variety of factors including building energy systems configurations, project parameters, and the capabilities the energy auditor can provide. ASHRAE (American Society of Heating, Refrigerating and Air-Conditioning Engineers) has defined three levels of audits that energy providers perform, which I will explain in greater detail.

ASHRAE Level 1 – Walk Through Analysis / Preliminary Audit

The ASHRAE Level-1 audit is the starting point for building energy optimization. This audit involves a review of the facility’s utility bills and operating data, a brief walk-through of the building and basic interviews with on-site operating personnel. This audit is intended to identify areas for potential energy improvements, understand the building configuration, and define the type and nature of energy systems. Your energy advisor should give you a short report detailing findings from the audit, which should identify an array of efficiency opportunities. Typically this report does not include detailed recommendations for improvement, with the exception of very visible operational and project flaws.

The ASHRAE Level-1 audit should help the energy team at a business establish a baseline for measuring energy improvements, and also give them an idea of how their building performs in relation to similar businesses. A common example can be found among many school systems. Often, they will have comprehensive controls in place for systems such as process cooling or heating. But, after years of evolving use, those control set points need to be recalibrated to align with existing facility use.

ASHRAE Level 2 – Energy Survey and Analysis

The ASHRAE Level-2 assessment builds upon the findings of Level-1, and evaluates the building energy systems in detail to define potential energy efficiency improvements. This should include the lighting, ventilation, building envelope, heating, and air conditioning (HVAC), domestic hot water (DHW), compressed air and process cooling or heating. This audit starts with a detailed energy cost and consumption analysis. Then, the assessment should evaluate air quality, lighting, humidity, temperature, ventilation, and other conditions that could influence energy performance or comfort of facility occupants. ASHRAE Level-2 should include in-depth discussions with the building management, ownership, and occupants to examine potential problem areas, and determine their goals for increasing energy efficiency.

Your energy advisor should provide you with a clear and concise report that includes a briefing to the building owner and management team, explaining a variety of Energy Efficiency Measures (EEMs) including operational changes, no-cost and low-cost measures, system controls and building automation modifications, and potential fiscal upgrades. The findings of this audit should also include performance metrics, as well as a method for the building owner to determine the next steps in proceeding with implementation of the plan. Anybody that hasn’t actively been involved with energy efficiency nor have an energy portfolio, we may put under the Level-2 umbrella. Very likely there is a cost associated with this audit, but depending on your geographic location, rebates may cover a good portion of it.

Recently, I had the opportunity to collaborate with a mid-size regional medical facility that asked us to complete an in-depth analysis regarding replacement of their existing HVAC system in exchange for a more efficient solution. Due to the complexity of the system and unique operation of the facility, equipment metering and engineering was required to identify the appropriate solution for the building’s needs. This required a cost, but the majority was covered through local utility incentives.

ASHRAE Level 3 – Detailed Analysis of Capital Intensive Modifications

The ASHRAE Level-3 audit is a very in-depth and detailed energy assessment. This audit involves data collection over the course of weeks or even months. Data loggers will monitor temperatures of affective space, lighting levels, pumps and motors operation, switching behavior, and other factors. This audit requires an intensive facility-wide assessment. We try to steer our clients away from this audit if at all possible, due to its high cost and length of time required. We would only perform this audit in specific situations. One such example would be businesses governed by strict regulations that mandate this level of reporting on an annual or semi-annual basis.

Conclusion

A carefully crafted energy plan will empower your business with the ability to more seamlessly manage your energy portfolio. At EPCO, we design a plan that factors each component of your specific energy fingerprint, including how you use energy, when it’s consumed, and most importantly, where you can save without disruption to your operation.  Whether you move forward immediately with each measure, or wait for a more opportune time, you will be better informed and prepared. For more information on energy planning, contact eauerbach@energyplanners.com or 216.559.4103

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Energy Upgrades—Is Total Cost of Ownership the Best Way?

total-cost-of-ownershipWhen evaluating energy upgrades, the #1 question a business will ask is always, what is the return on our investment (ROI)? How much am I (really) going to save from doing this project? Traditionally in energy efficiency projects, Total Cost of Ownership analysis is the universally accepted way of determining ROI. While total cost of ownership is a good benchmark for evaluating the value of energy upgrades, it isn’t the ‘be all end all’ way of determining the projects benefits. In this blog, I’ll discuss total cost of ownership analysis, as well as additional methods for getting the most accurate ROI projection for your energy efficiency project.

Total Cost of Ownership (TCO) is defined as, “an estimation of the expenses associated with purchasing, deploying, using, and retiring a product or piece of equipment. “ Let’s look at a school system deciding whether or not to upgrade to LED lighting. While the florescent lights the district is currently using has a lower starting price, LED lights may have a better value over an extended period of time. If the total cost of ownership shows an advantage of LED lights over florescent lights in the next 2-5 years, than the LED lights are most certainly the better choice. However, there are complicating factors, such as access to capital, alternative capital expenses, and the current economic situation of that particular school district that should also be considered.

A total cost of ownership analysis takes into consideration multiple factors including initial cost, product lifespan, energy cost to operate, frequency of maintenance, expense of product replacement, hours of operation, utility incentives, and how the product will be used. While this is the go-to method of gauging the value of energy efficiency projects, EPCO likes to take this analysis a step further. It is common practice to determine TCO by using industry standard figures for maintenance, repair and operation (MRO) expenses. EPCO has found this isn’t always the most accurate method for determining ROI in energy upgrades.

At EPCO, we believe interviewing the client and understanding their unique energy fingerprint, is the best method for understanding the true inputs and cost of operational expenses. Some businesses have energy expenses that are higher than the industry standards. For example, manufacturers that operate and run equipment more heavily during second shift will likely have a more unfavorable load profile than their counterparts producing mostly during first shift. This effects avoided cost values. EPCO will always review historical billing and consumption patterns to determine the true value of an energy efficiency project.

Although SB 310 led to the discontinuation of small commercial energy rebates throughout northern Ohio, larger businesses and school systems have the potential to capitalize on remaining incentives and tax credits for energy efficiency projects. One such example is receiving an exemption to costly utility fees and riders that appear on all electric consumer bills. EPCO has the expertise to identify, prepare, and submit exemption applications on behalf of clients. Most energy firms overlook this option, but it has added benefits for many large businesses and school districts.

Total cost of ownership is the standard way of determining the added value of energy efficiency projects. Though this analysis can give an accurate judgement of savings with projects, industry standards are not always the best indicator of true ROI. It is important to take an individualized, case-by-case approach, when evaluating energy efficiency projects. To learn more about how this could help your organization, email EPCO at info@energyplanners.com, or visit us at www.energyplanners.com

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Can a Single Business Battle the Effects of Climate Change?

Is it possible for just one person or one business to battle the effects of climate change? Perhaps a more appropriate way to evaluate that question is to simply ask if you and your business could. It seems like an unrealistic expectation; the idea that a single company can impact a global crisis. Such a goal may not be as out of reach as you may think.

Earth

Let’s take a step back for a moment to appropriately set the stage. Recently, a peer reviewed article outlining the critical effects of climate change began receiving some notable attention from outlets such as CNN and USA Today. The research article painted a grim and distributing image of what Earth’s future may look like in the absence of necessary change in global human behavior.

Originally appearing in Science Advances, the premise of the article argues that Earth is possibly facing the 6th mass extinction event in the planets history. Since 1900, nearly 500 species have gone extinct. During that period, historical data indicates that number should have been just 9.

Arguably, the most alarming conclusion is that the loss of biodiversity would lead to a mass extinction event in as little as three generations. According to the CNN article, the data shows it is possible for humans to wipe out nearly 75% of species on Earth if drastic and needed changes aren’t made. That window to effect change is rapidly closing.

Scientists are not the only ones advocating for considerable change in human behavior. In June, the Pope published a manifesto regarding climate change. In his writings, the Pope argued the reckless behavior of humanity is adversely affecting our planet; a common good that we all must take care of.

Whether advocated by science or the Pope, the steps we all can take amount to the same. It boils down to reducing your carbon footprint. This simple concept is the impetus for energy efficiency, and the foundation for all that I do with my clients. Regardless of your motivations for energy efficient behavior, we each can do our part.

Let’s revisit our original premise. It is difficult still to imagine that a single person or company can effect change on a global scale. But what happens when millions of people and thousands of companies work in concert.

At the end of the day, it wasn’t simply one business, government, or entity that created this problem. It was countless participants, spanning decades, within countries around the globe. Each has played a singular role in what is quickly developing into a global catastrophe.  It stands to reason that we can reverse this trend in much the same way; one business and one person at a time, doing their part.

The one remaining question is what role you will play moving forward…

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Identify Energy Solutions with an Energy Advisor

The energy industry today is more dynamic and complex than ever before. The advent of new technologies, shifting energy costs, and the constant barrage of federal and state legislation, has made it extremely difficult for consumers to stay adequately informed. For these reasons, EPCO is a huge proponent of the idea that every business should have an energy advisor.

The concept of an energy advisor hasn’t fully taken hold throughout the marketplace. Perhaps it is because most businesses don’t clearly understand what an energy advisor is, or, how they would use one. Think of it in these terms. A typical business will utilize a lawyer for legal needs or a CPA for accounting. There are many professionals and firms that can provide the same consultative services for managing your energy consumption.

Advisor Image

For smaller enterprises, you may leverage the expertise of an energy advisor to negotiate better rates for your gas and electric utility. But if you are a larger consumer, like most clients I work with, your energy management needs could be substantial. The right advisor can help identify and craft energy solutions for a myriad of concerns. This may include lighting audits and retrofits, power factor correction studies, or improvement to process cooling / heating performance.

You want to be sure to work with the right advisor, not all are created equal. Each client that EPCO collaborates with receives a unique and customized energy evaluation. No two businesses have the same needs or operate in the same way. Your energy consultant should provide you with a distinctive energy saving solutions that will allow you to make immediate and lasting cuts to your operating budgets.

Working in concert with you, and focusing on your specific needs, a reputable advisor will design a sensible compilation of measures that provide for turnkey energy efficiency solutions. Ultimately, you will want to take a long-term planning approach, leveraging short term savings opportunities that are invested into more capital intensive projects. This diversifies energy portfolios and ensures a cost effective and sustainable path into the future.

There are many more factors to include. You will want to leverage potential financing and rebates as well as develop a structured strategic plan to help guide you. The first step though is to find and work with the right team of professionals. The world of energy procurement and management is virtually the Wild West. Make sure you are coming armed with the right support.

 

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Yes… Lighting is Your Low Hanging Fruit

Let’s say you’re the director of facilities for a local manufacturer or the business manager for a school district. By now, you’ve likely had a parade of salespeople knocking on your door to sell you a lighting retrofit. Each comes armed with a very similar pitch. Lighting technologies are the most advanced that they’ve ever been. ROIs are up and payback periods are down. And the most overused saying, lighting is your low hanging fruit.

In your job, you have to wade through all the gimmicky sales jargon and back of the envelope math to figure out what’s real and what’s a mirage. The difficulty is you wear many hats, and finding the time to learn the truth is challenging.

Having a clear understanding of your opportunity, along with a defined plan, will help streamline and simplify the process.

First, let’s be realistic. Just because a lighting retrofit reduces energy, doesn’t automatically mean it’s the highest and best use of your capital improvement dollars. As we have previously shared, you should start with a comprehensive facility audit. This will help to determine what projects, if any, you should focus on.

Assuming, lighting is a true cost-saving opportunity, you should understand what the current environment looks like. It is true that LED lighting efficiency is on the rise and costs have continued to decline.  This has made retrofitting your facility more economical than ever before.

However, lighting is no longer as simple as swapping out a light bulb. Advancements in lighting solutions have required the industry to move away from simple one-to-one replacements, opting instead for structured and thoughtful design. This is where it becomes imperative that you work with the right lighting firm that understands your specific needs.

Church Lighting

Many lighting firms still use antiquated methods for installing lighting. Worse yet, some firms attempt to sell you a solution you don’t need, simply to increase project costs. Ultimately, the lighting solution you choose should be unique and customized to your facility. It should incorporate the most efficient and effective design with products that maximize lumens and comfort for employees and guests of your facility.

Don’t be afraid to utilize a design-build process. Your energy advisor can work alongside you to create the right facility design and layout, and then solicit bids for the cost of the fixtures to ensure you receive a favorable market rate.

Opportunities for energy efficiency will continue to increase as technology improves. Surround yourself with a competent energy advisor that will ensure clear, transparent, and efficient energy solutions for you and your facility.

 

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Four Steps to Reducing Inefficiency in Your Building

Is your facility as energy efficient as it could be? How does your energy rates compare to current market conditions? Do you have equipment and systems needlessly using energy when off-cycle? These are more difficult questions to answer than most would think. Many clients I work with are wearing multiple hats each day. I am confident you are too. It’s extremely challenging for them to keep up on prevailing technologies or fluctuating rates while trying to juggle production schedules and personnel.

An essential tenant of the EPCO philosophy to energy management is having a comprehensive plan to guide you. Your energy plan should be a holistic approach to the energy consumption of your facility.  Utilizing a long-term lens, EPCO designs a plan that factors each component comprising your specific energy fingerprint. This includes how you use energy, when it’s consumed, and most importantly, where you can save without disruption to your operation. As great as this may sound, the next logical question is, how do I create this plan?

EPCO has simplified the process into an easily digestible four-step approach.

  1. Identify your pain points – Work alongside your energy advisor to understand, from your perspective, the energy-related issues you are facing. This could be as a simple as utility billing errors or ineffective lighting to more complex issues such as process cooling / heating and heat reclamation.
  2. Perform an ASHARAE Level Audit – A facility Audit is a great step towards realizing your simple payback. Whether it is an LED upgrade, automated controls, or mechanical equipment retrofit, an audit provides the facilities baseline data needed to understand your opportunities.
  3. Prioritize the Data – Following the audit, review the data to determine where the most substantial and relative savings exist. Cross reference the pain points you first identified with each proposed solution. Calculate what the capital costs are in relation to energy savings. And be sure to leverage incentive and financing opportunities.
  4. Draft and Execute Your Plan – Once you have determined the value and importance of each solution, your energy advisor can work with you to implement each identified energy savings opportunity. Start with the highest prospective paybacks so you can reinvest those savings into more energy intensive projects.

A carefully crafted energy plan will empower you with the ability to more seamlessly manage your energy portfolio. Whether you move forward immediately with each measure, or wait for a more opportune time, you will be better informed and prepared.

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What EPCO Can Do For You

As we approach summer, more and more businesses will begin to think about their energy consumption. In a just a couple of months, higher temperatures will bring increased electric consumption. Consumers will be cranking up their cooling load or increasing production. With increased consumption come increased energy costs. That is the bad news. The good news is that there are steps you can take to mitigate those rising operations expenses.

Energy Planners Company (EPCO) is a full service energy solutions firm committed to providing the best products and services available to our clients and partners. Leveraging our proprietary approach to energy management, EPCO will work alongside our clients to create a long-lasting advanced strategic plan to address all their current and future energy related needs. EPCO’s carefully designed methods and portfolio will help your business realize savings in areas you may not have known existed.

Electric & Natural Gas Utility Bill Review

For each metered account, EPCO will review all supply side charges related to the acquisition of, and costs associated with, electric and gas procurement.

ASHRAE Levels 1, 2, & 3 Assessments & Design

ASHRAE level energy audit & lighting assessments determine where, when, why and how energy is used in a facility. The main outcome of our customized energy audits is a list of recommended energy efficiency measures (EEMs), associated energy savings projections, and a calculation of whether EEM installation costs are a good financial investment for your facility.

Rebates, Incentives & Financing

EPCO specializes in creative and alternative financing mechanisms. Our team of professionals will leverage the energy efficiency projects you perform to exempt your facility from costly utility fees or apply for rebates through either your local or regional utility.

Long-term Energy Planning & Strategy

EPCO takes a holistic look at an entire building or campus to choose the appropriate approach to create cascading savings and improve asset value. EPCO will help design a clear and customized business case for a deep energy retrofit through quantifiable savings and empirical research.

Project Management & Implementation

From project identification, to design, and ultimately installation; EPCO can manage and facilitate the entire retrofit process for your facility. EPCO works with all energy intensive industries and consumers and understands the complexities of retrofitting a facility such as yours. Areas of project management expertise for EPCO include, but are not limited to, the following.

  • Lighting
  • HVAC
  • Motors, Drives, & Controls
  • Roof Top Units (RTUs)
  • Air Handling Units (AHUs)
  • Combined Heat & Power (CHP)

EPCO prides itself in its ability to cultivate unique and customized solutions for each client it works with.

Audit Image

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Introducing a New Approach to Energy Solutions

Today’s energy industry is more complex and dynamic than ever before. Throughout this decade, Ohio energy consumers have seen natural gas rates plummet, electric rates fluctuate like an EKG, and new technologies appear with the promise to solve all your energy concerns. Commercial and industrial customers are left wondering what they should do, and perhaps more importantly, who they should listen to.

It is certainly a difficult task attempting to wade through all the noise. Most clients I work with share with me that on a weekly basis, and some cases daily, they are being contacted by solutions providers offering the moon. Each provider comes armed with the promise that they’re product or service is the optimal choice with the maximum achievable savings. Wise consumers quickly realize that each of these providers has a significant financial stake in getting them to sign on the dotted line. My clients are pushed, prodded, and pressured until they relent and sign a contract. It is a truly archaic way to do business today.

The current landscape in the energy industry is what ultimately led to the inception of EPCO, Energy Planners Company. Your business likely has many professionals you turn to for expert advice. You may have an attorney for you legal needs, a CPA for accounting, or IT professionals for your technology. At EPCO, we believe every consumer should have an energy advisor. EPCO provides you with a trusted source for reliable information about current market conditions and information on the most effective and tested industry solutions.

So who exactly is EPCO, and what do we do? The EPCO team often jokes that we are a for-profit entity with a non-profit mission. Our first priority is not the bottom line, but the needs of our clients. We consider ourselves an extension of our clients’ staff. We will focus on the solutions that you need and not those that are most lucrative for us. EPCO believes strongly in the notion of strong customer service. Ultimately, EPCO’s success will be measured, not in dollars, but length of relationship with our clients.

EPCO is a full service energy solutions firm committed to providing the best products and services available to our clients and partners. EPCO takes a holistic look at an entire facility or campus to choose the appropriate approach to create cascading savings and improve asset value. EPCO will help design a clear and customized business case for a deep energy retrofit through quantifiable savings and empirical research.

The EPCO service portfolio includes four distinct energy management segments

  • Audit and Design
  • Implementation and Project Management
  • Incentives, Rebates, and Financing
  • Maintenance, Measurement and Verification (MM&V)

EPCO prides itself in its ability to cultivate unique and customized solutions for each client it works with.  EPCO looks forward to working with you next.

EPCO COMPANY OVERVIEW from Pat Oneill on Vimeo.

 

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