Fiscal Incentive for Building Owners in the New Sustainable Economy
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Fiscal Incentive for Building Owners in the New Sustainable Economy

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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......

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.

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  • Answer any questions participants may have about the breakout subject matter just discussed. Parking lot any questions you can’t answer today and get back to them with the answer.

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  • 1. “Section 179D – “Fiscal Incentive forBuilding Owners in the NewSustainable Economy” California Center for Sustainable Energy May 2011
  • 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 ServicesSlide 2
  • 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 3
  • 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 organizationSlide 4
  • 5. Four Levels of LEED®Slide 5
  • 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 6
  • 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 educationSlide 7
  • 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 taxesSlide 8
  • 9. ACEEE State Energy Efficiency Scorecard NH WA 22 6 VT MN MT ND 5 10 33 51 OR MN 3 ID 8 MA 2 SD WI NY 26 MI WY 39 11 4 RI 7 27 48 IA PA CT 8 NE 12 16 NV OH NJ 12 47 IL IN 19 UT 27 10.40 31 WV DE 27 CA 12 CO VA 19 KS KY 43 MD 16 1 MO 34 46 36 43 DC 19 NC AZ OK TN 35 24 NM 43 AR SC 18 22 41 40 AL GA Ranks 1 - 10 MS 49 37 TX 50 Ranks 11 - 20 LA 32 Ranks 21 - 30 42 HI AK Ranks 31 - 40 12 37 FL 30 Ranks 41 - 51Slide 9
  • 10. Correlation between electric rates andincentive programs NH WA 14.13 7.24 VT MN MT ND 14.13 14.81 8.72 7.28 OR MN 8.13 ID 9.02 MA 16.33 SD WI NY 6.35 MI WY 8.01 10.26 17.05 RI 14.02 10.72 7.73 IA PA CT 18.67 NE 9.34 10.96 NV OH NJ 14.44 7.52 IL IN 11.82 UT 9.51 10.40 8.12 WV DE 13.17 CA 8.17 CO VA KS KY 6.63 MD 14.37 9.18 MO 8.72 8.25 7.19 11.77 7.57 DC 11.17 NC AZ OK TN 7.79 9.35 NM 8.59 AR SC 9.66 9.03 8.73 9.18 AL GA MS Residential average 9.24 9.07 TX 9.40 price (Cents per KWh) LA 12.41 6.35 to 8.01 9.38 HI AK FL 8.12 to 9.03 24.13 15.12 11.20 9.07 to 9.66 10.26 to 13.17Slide 10 14.02 to 24.13
  • 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 ► $1.25 per conditioned square foot (for LEED certified NC or EB buildings) ► Must achieve a minimum of 4 points for optimized energy performance and comply with all LEED whole building modeling requirementsSlide 11
  • 12. 24 states have Energy Efficiency ResourcesStandard (EERS) Four have pending regulations – four ► OH: 22% energy savings by ‘25; 8% ► DE: cut consumption 15%, peak 10% have efficiency goals peak by 2018 by 2015 ►WA: all cost-effective conservation ► ME: reduce use 30%, peak 100 MW ► PA: cut consumption 3%, peak 4.5% (~10%) by 2025 by 2010 by 2013 ►OR: save 256 aMW 2010-2014 ► VT: 2% annual, 11% cumulative ► MD: reduce electricity use, peak 15% ►CA: energy reductions by 2011 by 2015 save 1,500 MW, 7,000 GWh; reduce peak 1,537 MW: 2010-12 ► MA: 2.4% annual electric savings by ► VA: reduce electric use 10% by 2022 ►NV: 2012 0.6% annual saving (~5%) to 2015; ► WV: EE & DR earn credits in A&RES EE to 25% of RPS ► NY: reduce electric use 15% by 2015 ► NC: EE to meet up to 25% of RPS to ►UT: PUC examining 1% energy savings ► CT: 1.5% annual utility savings, 10% 2011 by 2020 peak ► FL: 3.5% cumulative energy savings ►AZ: at least 22% cumulative energy ► RI: cut consumption by 2019 savings by 2010; peak credits 10% by 2022 ►NM: 10% electric savings by 2020 ► NJ: Energy Master ►OK: Plan proceeding EE up to 25% of renewable goal ►TX: 25% annual savings in 2012; 30% in 2013 and beyond ►HI: 30% electricity reduction by 2030 ►MN: 1.5% annual savings to 2015 ►IA: 1.5% annual, 5.4% cumulative savings by 2010 ►WI: task force recommended 2% annual savings EE as part of an RPS law or rule Voluntary standards or in renewable goalSlide 12 EERS by regulation or law (stand-alone) EERS regulations pending ►IL: 2% energy reduction, 0.1% peak by 2015 ►MI: 1% annual energy savings
  • 13. Indirect Incentives for LEED Certification► Energy Efficiency - Utilities or State programs ► Based upon technology installed ► Lighting ($ 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 13
  • 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 buildingSlide 14
  • 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 letterSlide 15
  • 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 - 2013Slide 16
  • 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 seperatelySlide 17 17
  • 18. Brief overview and background of utilitymarkets NH VT MA RI CT NJ DE MD DC AS GU MP PR Meets or exceeds ASHRAE Standard Meets or exceeds ASHRAE Standard State has adopted a new code 90.1- 2007 or equivalent 90.1 - 1999-2001 or equivalent VI to be effective at a later date Meets or exceeds ASHRAE Standard No statewide code or precedes ASHRAENOTE: These maps reflect only mandatory 90.1 - 2004 or equivalent Standard 90.1 - 1999statewide codes currently in effect.Slide 18
  • 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 qualifyingSlide 19 19
  • 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 codeSlide 20 20
  • 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 21 21
  • 22. Additional Lighting RequirementsSuch 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 sensorsScrew-in lamps do not qualify, must be fixture changes – real depreciable propertySlide 22 22
  • 23. Qualifying PathwaysProperty Energy Efficiency BenefitLighting (Interim Method) 25 – 40% LPD reduction Scaled $0.30 - $0.60 per sq footLighting (Permanent Method ) 16 2/3% energy cost reduction modeled No Scaling – $0.60 per sq ft if target metHVAC/HW 16 2/3% energy cost reduction modeled No Scaling – $0.60 per sq ft if target metBuilding Envelope 16 2/3% energy cost reduction modeled No Scaling – $0.60 per sq ft if target metLighting + HVAC/HW 33 1/3% cost reduction modeled No Scaling – $1.20 per sq ft if target metLighting + Envelope 30% cost reduction modeled No Scaling – $1.20 per sq ft if target metHVAC/HW + Envelope 30% cost reduction modeled No Scaling – $1.20 per sq ft if target metLighting + HVAC/HW +Envelope 50% cost reduction modeled No Scaling – $1.80 per sq ft if target metSlide 23
  • 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 24 24
  • 25. Qualifying Pathways1. Interim Lighting Methodology: 25 – 40% LPD reduction Scaled benefit $0.30 - $0.60 per sq foot2. 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 met5. 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► All systems: 50% cost reduction modeled, benefit $1.80Slide 25
  • 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 massSlide 26
  • 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/designerSlide 27
  • 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 efficiencySlide 28
  • 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 29
  • 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 30
  • 31. QuestionsSlide 31
  • 32. Thank youfor your participation and feedback!