Funding mechanisms forenergy efficiencyModule 4
Disclaimer    This material has been developed as part of the UTS    Business School and Ernst & Young ‘Leadership & Chang...
IntroductionOne of the barriers to energy efficiency is that it is often costprohibitive – there are scarce funds to share...
Learning ObjectivesAt the end of this module, you will understand:► What Federal Government grants are available for energ...
Grants and Incentives Opportunities►   The Federal, State and Territory governments provide    support for energy efficien...
Key Funding OpportunitiesEmerging Renewables Grant                                      $126 MillionR&D Tax Incentive     ...
Federal Government funds (1)Initiative                     Funding Details                 Description                    ...
Federal Government funds (2)Initiative          Funding Details                 Description                      Planned O...
Clean Energy Legislation Package (1)Initiative                Funding Details                     Description             ...
Clean Energy Legislation Package (2)Initiative                   Funding Details                Description               ...
Clean Energy Legislation Package (3)Initiative           Funding Details               Description                     Pla...
Clean Energy Legislation Package (4)Initiative           Manufacturing Activities CoveredClean Technology     In order to ...
Clean Energy Legislation Package (4)Initiative         Funding Details                    Description                    P...
Clean Energy Legislation Package (4)Initiative           Manufacturing Activities CoveredClean Technology     In order to ...
Clean Energy Legislation Package (5)Initiative                    Funding Details                 Description             ...
General Features of Competitive Applications►   Company has focused strategic business plan and project fits    within cor...
R&D Tax Incentive – Eligibility Guide►    Are you a company incorporated in Australia or a permanent     establishment?►  ...
R&D Tax Incentive - How to access►   Identify eligible R&D activities and calculate eligible R&D expenditure.►   Register ...
Case Study 1 – Small manufacturing company►   A small Australian manufacturing company has become aware of the    ‘waste’ ...
Case Study 2 – Mining Company►   A mining company is aware that one of its current waste water plant is    struggling to p...
Accounting for Grants and R&D Tax IncentiveGovernment grants► Entities account for government grants in accordance with  A...
Energy Certificate Schemes►    There are a number of schemes in Australia that support and     encourage renewable energy ...
Energy Savings Scheme (NSW)How it works:► An Energy Savings Certificate (ESC) is a tradable certificate. Each  ESC represe...
How it worksEnergy Saver                 Accredited                       Trading               Cash!!Organisation        ...
Renewable Energy Certificates (RECS)►    The Renewable Energy Target (RET) creates a financial incentive for investment in...
Case Study – Metropolitan BuildingCommercial Lighting Energy Saving FormulaOpportunities:► Twin T8 to single T8 with high ...
Energy Performance Contracts►   Energy performance contracts are an effective way of providing new energy    efficient cap...
Case Study 3 – Industrial Plant►   An industrial plant has limited resources for improving the    energy efficiency of its...
Case Study 3 – Industrial Plant                                  Industrial Plant                   An industrial plant ha...
Split Incentives – Benefit Imbalance                                       Debt or                                       e...
Balancing out the benefits –Environmental Upgrade Agreements    Increase                                                  ...
Subsidised Energy Audits►    The Office of Environment and Heritage is able to provide subsidise     energy audits and fac...
Thank youModule 4
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Module 4 - Funding mechanisms for energy efficiency

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  • This project involved upgrading the lighting system and installation of occupancy sensors in areas such as toilets. The company has a good history of keeping up with energy efficiency technologies, and generally performs upgrades on different systems every few years. Lighting areas within the building that could be updated were with 15 watt LED dimmables, 150 watt halogens in the banquets room with 15 watt high intensity LEDs, two-bar 36 watt fluoros in the kitchen with single bar 36 watt low-bay fluoros with high intensity reflectors, 30 watt compact flouros in teh foyer were replaced with 18 watt fluoro dimmables etc. The electricity cost savings and up front ESC value make the payback period for the lighting re-fit 2.9 years, although energy savings will be more valuable as electricity costs rise. (The efficient lighting also comes with a significant maintenance cost saving of $66,725 per year, reducing the payback period again, now bringing it to 1.7 years.)Based on electricity prices of $150/MWh^ Based on $25 ESC (actual price set by market)
  • THIS SLIDE IS ANIMATED
  • Split incentives are a barrier to energy efficiency for landlords.From a cashflow perspective:Leases are a structural barrier toinvestment due to their deconsolidationeffectThe Building owner carries eitherthe fixed charge of borrowingdebt to pay for the works or thedilution of reinvesting after taxprofits in a non-incomegenerating activity.
  • Environmental Upgrade Agreements (EUAs) - a tripartite agreement between Local Government, Lender and Building Owner1. Lending Body pays for energyefficiency improvements2. Council levies the tenant an environmental upgrade chargeto recover the cost of works3. Landlord recovers environmental upgrade charge Benefits:Building Owner - Greater building value uplift than using any other type of capitalTenant – reduces outgoings, improved tenancy sustainabilityGovernment – advances sustainability objectivesIf time direct people to the city of Sydney example
  • Qualified energy auditors will identify opportunities for your organisation to save energy and provide business cases with payback periods and an implementation plan.These energy saving opportunities can be technology upgrades and retrofits, improved maintenance procedures or staff behavioural changes. Technical support will also be provided during the implementation phase by the resource efficiency contractor.
  • Module 4 - Funding mechanisms for energy efficiency

    1. 1. Funding mechanisms forenergy efficiencyModule 4
    2. 2. Disclaimer This material has been developed as part of the UTS Business School and Ernst & Young ‘Leadership & Change for Energy Efficiency in Accounting & Management’ project. The project is supported by the NSW Office of Environment & Heritage as part of the Energy Efficiency Training Program. For more information on the project, please go to: http://www.business.uts.edu.au/energyefficiency/. This presentation is for educational purposes only, and does not contain specific or general advice. Please seek appropriate advice before making any financial decisions.2
    3. 3. IntroductionOne of the barriers to energy efficiency is that it is often costprohibitive – there are scarce funds to share across thebusiness.This issue can be addresses by sourcing funds throughalternative measures:► Grants► R&D Tax Incentives► Energy Certificate Schemes► Energy Performance Contracts► Environmental Upgrade Agreements 3
    4. 4. Learning ObjectivesAt the end of this module, you will understand:► What Federal Government grants are available for energy efficiency projects and the process to apply for a grant► The Federal Government’s Research and Development Tax Incentive scheme and how to access it► Accounting treatments of grants and R&D Incentive► The various energy certificate schemes and how to generate certificates► The concept of energy performance contracts and their benefits► How to overcome the problem of split incentives with the use of Environmental Upgrade Agreements 4
    5. 5. Grants and Incentives Opportunities► The Federal, State and Territory governments provide support for energy efficiency initiatives via a range of programs► Funding programs typically cover some or all of the following: ► Development of a new technology ► Trial and demonstration of a new technology to confirm feasibility ► Implementation of a new technology or processes to improve environmental performance5
    6. 6. Key Funding OpportunitiesEmerging Renewables Grant $126 MillionR&D Tax Incentive UncappedClean Energy Legislation PackageClean Energy Finance Corporation (CEFC) $10 BillionAustralian Renewable Energy Agency (ARENA) $3.2 BillionClean Technology Program $1.2 Billion Clean Technology Food and Foundries Investment Program $200 million Clean Technology Investment Program $800 million Clean Technology Innovation $200 million 6
    7. 7. Federal Government funds (1)Initiative Funding Details Description Planned OutcomesEmerging Renewables Total funds of $126 Million, The program splits projects Accelerate the developmentGrant with no maximum funding into two funding categories: of renewable energy and accept the limit of the enabling technologies in program funding. Some ACRE Projects – for Australia, particularly in theAvailable until 30 June 2012 matching funding required. following sectors: renewable energy and enabling technologies and ► Solar Funds allocated as follows: products which lower the ► Wind ► at least $40 million to cost of renewable energy in ► Geothermal assist development of Australia. ► Wave/Ocean/Tiday renewable energy and ► Bioenergy/biofuels enabling technologies ACRE Measures – ► Hybrid systems with potential to renewable energy industry contribute to the capacity building activity, generation of large-scale skills development activity or base load power, such as a preparatory activity for an wave, geothermal and ACRE Project. enabling technologies. ► 26.6 mil for the geothermal energy sector. 7
    8. 8. Federal Government funds (2)Initiative Funding Details Description Planned OutcomesR&D Tax Incentive A 45% refundable tax offset Federal tax incentive which To encourage industry to will be available to small- rewards companies for conduct research and medium enterprises (SMEs) conducting qualified activity development activities thatAvailable now with an annual aggregate in and outside of Australia in may not otherwise have turnover of less than $20 the form of a tax offset. been conducted million. A 40% non-refundable tax offset will be available to companies with an annual aggregate turnover of $20 million or more. Unused offset amounts may be able to be carried forward for use in future income years. 8
    9. 9. Clean Energy Legislation Package (1)Initiative Funding Details Description Planned OutcomesClean Energy Finance $10 billion over 5 years. Investment in the Promote commercialisationCorporation commercialisation and and deployment of ► The renewable energy deployment of renewable renewable energy, energy stream will invest in energy, energy efficiency efficiency and low-pollutionProjected program start and low-pollution technologies, and renewable technologies,date: 2013 - 2014 technologies. It will also manufacturing businesses. which may include geothermal and wave invest in manufacturing energy and large scale businesses that provide solar power generation. inputs for these sectors; for ($5 billion) example, manufacturing wind turbine blades. ► The clean energy stream will invest more broadly; for example, in low- emissions cogeneration technology, but will still be able to invest in renewable energy. ($5 billion) 9
    10. 10. Clean Energy Legislation Package (2)Initiative Funding Details Description Planned OutcomesAustralian Renewable $3.2 billion over 9 years. ARENA will provide early- Distribute funds toEnergy Agency stage grants and financing Companies which promote assistance for projects that clean energy technology(ARENA) ARENA will also receive future funding from strengthen renewable development through a discretional dividends paid energy and energy efficiency multitude of industries.Projected funding start date: by the Clean Energy technologies and make them1 July 2012 Finance Corporation and a more cost competitive. share of future carbon pricing mechanism revenue ARENA will oversee existing should the Jobs and Government support for Competitiveness Program programs currently delivered be modified following by the Australian Centre for Productivity Commission Renewable Energy, the reviews. Department of Resources, Energy and Tourism, the Australian Solar Institute and the proposed Australian Biofuels Research Institute. 10
    11. 11. Clean Energy Legislation Package (3)Initiative Funding Details Description Planned OutcomesClean Technology $200 million over 6 years. The program will assist food Reduced emissions andFood and Foundries and beverage processing costs of manufacturing inInvestment Program The grant ratio is dependant and metal foundries to the food processing sector. on the size of the grant and embrace less emissions- the turnover of the applicant: intensive and more energy-Available Now efficient production Applicant Annual Grant processes and capital to Grant Turn- Size investment. Funding over 1:1 <100 M $25k - <500k Examples include: ► Adoption and deployment 2:1 ≥$100M $25k- <$500k of technologies to reduce 2:1 N/A $500k - energy use/carbon <$10 M emission 3:1 N/A ≥$10 M ► Process re-engineering involving adoption of energy or carbon efficient manufacturing ► Conversion of facilities from coal to natural gas ► Cogeneration plants ► Implement energy efficient opportunities 11
    12. 12. Clean Energy Legislation Package (4)Initiative Manufacturing Activities CoveredClean Technology In order to qualify for the Clean Technology Food and Foundries Investment Program, theFood and Foundries applicant must have one of the following ANZSIC class: (1111 – 1173, 1181 – 1199, 1211 – 1214, 2121, 2141 and 2210).Investment Program Of particular note: Food and Beverage Processing and Manufacturing 1. 1131 Milk and Cream Processing 2. 1161 Grain Mill Product Manufacturing 3. 1182 Confectionery Manufacturing 4. 1212 Beer Manufacturing Metal Foundries 1. 2121 Iron and Steel Castings 2. 2141 Non-Ferrous Metal Casting 3. 2210 Iron and Steel Forging Ineligible Activities: 1. 1174 Bakery Product Manufacturing (Non-factory based) 12
    13. 13. Clean Energy Legislation Package (4)Initiative Funding Details Description Planned OutcomesClean Technology $800 million over 7 years. Support investments in This investment will helpInvestment energy-efficient capital modernise parts of the The applicant must meet equipment and low-pollution Australian manufacturingProgram technologies, processes and sector and help prescribed energy or emissions thresholds in the 12 month period products, such as: manufacturers compete in aAvailable Now before submitting an application ► Development of products low-carbon world, with or be directly liable under the and adoption of benefits for the job security of carbon pricing mechanisms. technologies to reduce manufacturing workers. energy use/carbon The grant ratio is dependant on emission the size of the grant and the ► Establish new facilities to turnover of the applicant: replace existing eligible manufacturing facilities Applicant Annual Grant to Grant Turn- Size ► Process re-engineering Funding over involving energy/carbon 1:1 <100 M $25k - efficient manufacturing <500k ► Conversion of facilities 2:1 ≥$100M $25k- <$500k from coal to natural gas 2:1 N/A $500k - ► Cogeneration plants <$10 M ► Implementation of energy 3:1 N/A ≥$10 M efficiency opportunities 13
    14. 14. Clean Energy Legislation Package (4)Initiative Manufacturing Activities CoveredClean Technology In order to qualify for the Clean Technology Investment Program, the applicant must haveInvestment Program one of the following ANZSIC class: (1220 – 2110, 2122 – 2139, 2142 – 2149 and 2221– 2599). Ineligible Activities: 1. 2121 Iron and Steel Casting 2. 2210 Iron and Steel Forging 3. 2141 Non-Ferrous Metal Casting 4. Activities covered under the Clean Technology Food and Foundries Grant 14
    15. 15. Clean Energy Legislation Package (5)Initiative Funding Details Description Planned OutcomesClean Technology $200 million over 5 years The Government will provide Increased investment inInnovation Program an additional $200 million clean technology from the Funding will be on a over five years for grants to private sector. co-contribution basis, with support business investmentProjected funding start date: in research and industry providing one dollarJuly 2012 development (R&D) in the for every dollar from the Government. areas of: ► renewable energy; ► low-pollution/clean This assistance recognises that, in some instances, a technology; and higher rate of Government ► energy efficiency. support for innovation to reduce carbon pollution will This funding will be in be important, at least for a addition to the broader R&D transitional period, until tax concession and will help private investment Australian businesses increases. creatively work towards a clean energy future. 15
    16. 16. General Features of Competitive Applications► Company has focused strategic business plan and project fits within core business► Track record in successfully undertaking and commercialising technology► Strong management team and well qualified technical team► Strong technical and commercial advantages for project outcome► Need for funding and ability to provide matching fund► Able to quantify climate change benefit 16
    17. 17. R&D Tax Incentive – Eligibility Guide► Are you a company incorporated in Australia or a permanent establishment?► Will the R&D activities: ► Include experimental activities ► Generate new knowledge to fill a gap in technical knowledge ► Follow a systematic scientific process► Is the company undertaking the project on its own behalf?► Is the majority of the project to be undertaken in Australia?► Will the company maintain contemporaneous records that substantiate the carrying on of these activities? 17
    18. 18. R&D Tax Incentive - How to access► Identify eligible R&D activities and calculate eligible R&D expenditure.► Register R&D activities with AusIndustry (within 10 months of the company’s year end).► The AusIndustry registration team will review the application for completeness and may ask for further information.► Once processed, AusIndustry will provide a notice of registration which includes a number for inclusion in the ATO R&D Tax Incentive Schedule.► Claim the benefit by completing the Australian Taxation Office R&D Tax Incentive Schedule and the relevant labels in the company’s tax return. 18
    19. 19. Case Study 1 – Small manufacturing company► A small Australian manufacturing company has become aware of the ‘waste’ heat which is created during their novel manufacturing processes.► The company does not have internal expertise in this area but have engaged an engineering consultancy firm who has collected heat data, produced models and presented a series of potential ways to recycle the heat.► The budgeted project costs are as follows: ► Design and modelling - $250,000 ► Procurement and construction - $500,000 ► Commissioning and testing – 150,000 ► Project management - $100,000► Could this project be eligible for the R&D tax incentive, what expenditure may be eligible, and what could the benefit be?19
    20. 20. Case Study 2 – Mining Company► A mining company is aware that one of its current waste water plant is struggling to process water to meet the EPA requirements, primarily due to increasing plant throughput.► The company has considered replicating the existing treatment plant (to double capacity) however it has also identified an opportunity to develop a new water treatment process, which could also reduce emissions associated with the current process.► The cost to duplicate the existing plant is $3 mil.► The costs to develop a new process includes: ► Design and modelling – $500,000 ► Detailed design, procurement and construction - $4 mil ► Commissioning and testing - $500,000► This second option would cost more to deliver, but could it be eligible for a grant/R&D tax incentive?20
    21. 21. Accounting for Grants and R&D Tax IncentiveGovernment grants► Entities account for government grants in accordance with AASB 120 (Accounting for Government Grants and Disclosure of Government Assistance)R&D Tax Incentive45% refundable R&D tax offset:► Should be treated as a government grant (AASB 120) rather than a reduction in tax payable as the receipt does not depend on taxable profits, and it is certain.40% non-refundable R&D tax offset:► Should be treated as a reduction in current income tax 21
    22. 22. Energy Certificate Schemes► There are a number of schemes in Australia that support and encourage renewable energy installation and energy efficiency initiatives. The schemes are designed to increase opportunities to improve energy efficiency by rewarding companies who undertake eligible projects that either reduce electricity consumption or improve the efficiency of energy use.Victorian Energy Efficiency Certificates (VEECs)► Current price: $19/ VEECEnergy Savings Certificates (NSW)► During 2011 the price fluctuated between $25 -$31/ ESC 22
    23. 23. Energy Savings Scheme (NSW)How it works:► An Energy Savings Certificate (ESC) is a tradable certificate. Each ESC represents the equivalent of 1 tonne of CO2-e and is derived from the measurement of energy savings.► ESCs are created by accredited certificate providers (ACPs) when they carry out activities that increase the efficiency of electricity consumption or reduce electricity consumption.► By 18 March each year, liable parties (NSW electricity retailers) must surrender a specified number of certificates to meet with their compliance obligations for the previous calendar year.Future Developments► The Federal Government is considering a National Energy Savings Initiative. 23
    24. 24. How it worksEnergy Saver Accredited Trading Cash!!Organisation Certificate ProviderImplements Energy ► Calculates the amount of ACP trades ESC’s Money providedSaving actions such certificates, evidence of with Utilities at back to participant as lighting retrofits savings provided to market price minus any ACP Fee IPART generating cash or commission ► Generates the Energy Saving Certificates(ESC)24
    25. 25. Renewable Energy Certificates (RECS)► The Renewable Energy Target (RET) creates a financial incentive for investment in renewable energy sources through the creation and sale of certificates.The Small-scale Renewable Energy Scheme (SRES)► Creates a financial incentive for owners to install eligible small-scale installations such as solar water heaters, heat pumps, solar panel systems, small-scale wind systems, or small-scale hydro systems. It does this by legislating demand for Small-scale Technology Certificates . Small-scale Technology Certificates (STCs) ► 1 MWh of renewable electricity deemed to be generated by Small Generation Units unless the Solar Credits REC multiplier applies; or ► 1 MWh of electricity deemed to be displaced by the installation of Solar Water Heaters.The Large-scale Renewable Energy Target (LRET)► Creates a financial incentive for the establishment and growth of renewable energy power stations, such as wind and solar farms, or hydro-electric power stations. It does this by legislating demand for Large-scale Generation Certificates . Large-scale Generation Certificates (LGCs) ► 1 MWh of renewable electricity generated above the power station baseline 25
    26. 26. Case Study – Metropolitan BuildingCommercial Lighting Energy Saving FormulaOpportunities:► Twin T8 to single T8 with high efficiency reflector► 150W halogen to 15W high intensity LED► 50W halogen down lights with LEDOutcomes:► Capital cost $446,760► Savings $94,275► 630 MWh of electricity► 6,600 ESC value of $166,500 26
    27. 27. Energy Performance Contracts► Energy performance contracts are an effective way of providing new energy efficient capital equipment, energy savings, or reducing maintenance costs.► Under an energy performance contract, the contractor generally provides the capital, equipment installation and maintenance for a facility. In exchange, the► contractor receives a fee over the length of the contract, which is generated by the equipment energy savings.► The best applications for an energy performance contract are in high capital cost equipment and systems with high savings-to-investment ratios Company Incentive ►Ability to improve energy efficiency with limited ►resources or upfront financial commitment Contractor Incentive ► Achieve optimal energy efficiency to maximise earnings27
    28. 28. Case Study 3 – Industrial Plant► An industrial plant has limited resources for improving the energy efficiency of its equipment. How could Company ABC upgrade its equipment whilst not having to source additional capital?28
    29. 29. Case Study 3 – Industrial Plant Industrial Plant An industrial plant has limited resources for improving the energy efficiency of its equipment. Contractor Working with a contractor, The industrial plant can upgrade its energy management system and equipment. As a result the plant will use less energy, which means savings on the annual energy bills. The work the contractor undertakes is paid for by the savings which are gained from using less energy, operating more efficiently and reducing maintenance costs. 29
    30. 30. Split Incentives – Benefit Imbalance Debt or equity capital charge Power savings30
    31. 31. Balancing out the benefits –Environmental Upgrade Agreements Increase Debt or in Base equity Rent capital charge Power Increase Valuation Savings in Base Uplift RentExample: City of Sydneyhttp://www.cityofsydney.nsw.gov.au/council/documents/policies/EnvironmentalUpgradeAgreementsPolicy.PDF 31
    32. 32. Subsidised Energy Audits► The Office of Environment and Heritage is able to provide subsidise energy audits and facilitation to help NSW businesses identify and implement energy savings. http://www.environment.nsw.gov.au/sustainbus/energyauditing.htm 32
    33. 33. Thank youModule 4

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