Clean Energy Opportunities for Small Businesses Federal Incentives to Encourage Energy Efficiency and Save Businesses Money
ABOUT SMALL BUSINESS MAJORITY Small Business Majority is a national small business advocacy organization founded and run by small business owners to support America s 28 million small businesses. With offices in Ohio, Missouri, Colorado, Virginia, Washington, DC, New York and California, Small Business Majority conducts extensive opinion and economic research and works with our rapidly growing network of small business owners across the country to ensure their voices are an integral part of the public policy debate. We advocate on behalf of small businesses on issues of top importance to the small business community. Those issues include clean energy, access to capital, healthcare, regulations, taxes and jobs. 2
OUR FEDERAL RESOURCE GUIDE Small Business Majority aims to provide small business owners with a reference to federal, state, utility and non-profit energy efficiency and clean energy programs that can help you save money and make your businesses more energy efficient. This resource guide is meant to provide ways to help your bottom line, whether you own a body shop or a coffee shop. Government, utilities, and in some states, non-profit organizations are offering incentives to help you lower your energy costs and help meet and exceed federal clean air standards, while helping our country achieve energy independence. Small business owners know they need to innovate and improve efficiency to thrive. In a national poll, we found that 87% of small business owners believe improving innovation and energy efficiency are good ways to increase prosperity for small businesses. Seventy-eight percent have already adopted some energy-efficient and environmentally friendly practices in their business. The federal government recognizes this and offers programs that range from incentives to make your business more energy efficient to offering low-interest loans that help small businesses looking to develop new clean energy technologies. 3
FEDERAL PROGRAMS Energy-Efficient Commercial Buildings Tax Deduction The federal Energy Policy Act of 2005 building meeting minimum person primarily responsible for the established a tax deduction for energy- requirements set by ASHRAE system's design. Deductions are taken efficient commercial buildings Standard 90.1-2001. Energy savings in the year when construction is applicable to qualifying systems and must be calculated using qualified completed. buildings placed in service from January 1, 2006, through December 31, 2007. This deduction was subsequently extended through 2008, and then again through 2013 by Section 303 of the federal Energy Improvement and Extension Act of 2008 (H.R. 1424, Division B), enacted in October 2008. computer software approved by the IRS. Deductions of $0.60 per square foot are available to owners of buildings in which individual lighting, building envelope, or heating and cooling systems meet target levels that would reasonably contribute to an overall building savings of 50% if additional The IRS released interim guidance (IRS Notice 2006-52) in June 2006 to establish a process to allow taxpayers to obtain a certification that the property satisfies the energy efficiency requirements contained in the statute. IRS Notice 2008-40 was issued in March of 2008 to further clarify the rules. NREL published a report A tax deduction of $1.80 per square systems were installed. (NREL/TP-550-40228) in February 4 foot is available to owners of new or existing buildings who install (1) interior lighting; (2) building envelope, or (3) heating, cooling, ventilation, or hot water systems that reduce the building s total energy and power cost by 50% or more in comparison to a The deductions are available primarily to building owners, although tenants may be eligible if they make construction expenditures. In the case of energy efficient systems installed on or in government property, tax deductions will be awarded to the 2007 which provides guidelines for the modeling and inspection of energy savings required by the statute, and the US Department of Energy has compiled a list of qualified computer software for calculating commercial building energy and power cost savings.
Energy-Efficient Commercial Buildings Tax Deduction Eligible Industries: Eligible Technologies: Amount: How to Apply: Web Site: Commercial, Construction, State Government, Federal Government Equipment Insulation, Water Heaters, Lighting, Lighting Controls/Sensors, Chillers, Furnaces, Boilers, Heat pumps, Central Air conditioners, Caulking/Weather-stripping, Duct/Air sealing, Building Insulation, Windows, Doors, Building Insulation, Windows, Doors $0.30-$1.80 per square foot, depending on technology and amount of energy reduction Include deduction amount in the Other deductions line of your tax return. A statement listing the types and amounts of "other deductions" should be attached to the return. In addition, it is important that a taxpayer obtains and retains the necessary certifications and documentation to claim the deduction. http://www.efficientbuildings.org Frequently Asked Questions How should a taxpayer claim the section 179D deduction relating to energy efficient commercial buildings? There is no special form to claim the deduction. The IRS instructions to business forms (e.g., Form 1120 for corporations, Form 1120-S for S corporations, and Form 1065 for partnerships) indicate that the taxpayer should include the amount of the deduction in the amount in the "Other deductions" line of the tax return. A statement listing the types and amounts of "other deductions" should be attached to the return. In addition, it is important that a taxpayer obtain and retain the necessary certifications and documentation to claim the deduction (see, IRS Notice 2006-52 for these requirements). What types of buildings will qualify? What types of expenditures will qualify? Section 1331 of H.R. 6 provides that energy-efficient commercial building property is defined as property that is: Installed on or in any building located in the United States that is within the scope of Standard 90.1-2001, Energy Standard for Buildings Except Low- Rise Residential Buildings, of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America; Installed as part of (i) the interior lighting systems, (ii) the heating, cooling, ventilation, and hot water systems, or (iii) the building envelope; and Certified as being installed as part of a plan designed to reduce the total annual energy and power costs of interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 50 percent or more when compared to a reference building, which meets the minimum requirements of Standard 90.1-2001 (which came into effect on April 2, 2003). What is the tax deduction amount? The deduction is equal to energyefficient commercial building property expenditures made by the taxpayer, subject to a cap. The deduction is limited to an amount equal to $1.80 per square foot of the property for which such expenditures are made. The deduction is allowed in the year in which the property is placed in service. For tax purposes, "placed in service" generally means the time at which the property is ready for its intended use. 5
Energy-Efficient Commercial Buildings Tax Deduction 6 Are there certification requirements and if so, what are they? Certain certification requirements must be met in order to qualify for the deduction. The secretary of treasury, in consultation with the secretary of energy, promulgated guidance on June 2, 2006 in Notice 2006-52 that describes methods of calculating and verifying energy and power costs, using qualified computer software based on the provisions of the 2005 California Nonresidential Alternative Calculation Method Approval Manual or, in the case of residential property, the 2005 California Residential Alternative Calculation Method Approval Manual. How will calculation design methods impact various technologies? The intention is that the calculation be fuel neutral: the same energy efficiency features qualify a building for the deduction, regardless of whether the heating source is a gas or oil furnace, or boiler, or an electric heat pump. In addition, the calculation methods are to provide appropriate calculated energy savings for design methods and technologies not otherwise credited in either Standard 90.1-2001 or in the 2005 California Nonresidential Alternative Calculation Method Approval Manual, including the following: Natural ventilation; Evaporative cooling; Automatic lighting controls such as occupancy sensors, photocells, and timeclocks; Daylighting; Designs utilizing semi-conditioned spaces that maintain adequate comfort conditions without air conditioning or without heating; Improved fan system efficiency, including reductions in static pressure; Advanced unloading mechanisms for mechanical cooling, such as multiple or variable speed compressors; On-site generation of electricity, including combined heat and power systems, fuel cells, and renewable energy generation such as solar energy; or Wiring with lower energy losses than wiring satisfying Standard 90.1-2001 requirements for building power distribution systems. The calculation methods may take into account the extent of commissioning (the initial operability of a system) in the building, and allow the taxpayer to take into account the amount of system performance that may exceed typical performance. IRS issued guidance on March 12, 2008 regarding these energy savings technologies. Will there be inspections of buildings to determine compliance? Who will do them? IRS Notice 2006-52 requires inspectors to be engineers or contractors licensed in the jurisdictions where the building is sited. Inspections must meet guidelines of the National Renewable Engineering Laboratory. Do public buildings qualify for this tax deduction? For energy-efficient commercial building property expenditures made by a public entity, such as public schools, the IRS issued guidance on March 12, 2008 that allows the deduction to be allocated to the person primarily responsible for designing the property in lieu of the public entity. Are partial deductions allowed for building subsystems instead of a whole building deduction? In the case of a building that does not meet the whole building requirement of a 50 percent energy savings, a partial deduction is allowed with respect to each separate building system that comprises energy-efficient property and which is certified by a qualified professional as meeting or exceeding the applicable system savings targets established by the secretary of the treasury.
Energy-Efficient Commercial Buildings Tax Deduction The applicable system savings targets to be established by the secretary are those that would result in a total annual energy savings of 50 percent for the whole building, if each of the separate systems met the system target; note that the maximum allowable deduction is $0.60 per square foot. The separate building systems are the: Interior lighting system; Heating, cooling, ventilation, and hot water systems; and Building envelope. IRS modified the June 2006 targets on March 2008. The new subsystem targets are 20% interior lighting, 20% HVAC & hot water, and 10% building envelope. What are the prescriptive rules for lighting projects? Building owners are encouraged under the law to focus first on lighting systems for two reasons: first, their ease and availability of upgrading, and second, the known achievements in energy efficiency that will be gained. In the case of a lighting system (including the retrofit of an existing system), the system energy savings target for the lighting system is deemed to be met by a reduction in lighting power density of 40 percent (50 percent in the case of a warehouse) of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-2001 (as in effect on April 2, 2003). In the case of a lighting system that reduces lighting power density by 25 percent, a partial deduction of $0.30 per square foot is allowed. A pro-rated partial deduction is allowed in the case of a lighting system that reduces lighting power density between 25 and 40 percent. Certain lighting level and lighting control requirements must also be met in order to qualify for the partial interim lighting deductions. What is the effective date for taking advantage of this tax deduction? The provision is effective for property placed in service after December 31, 2005, and prior to January 1, 2014. After the deduction is taken how is the remaining asset value handled? As stated in the provision, the basis of the property is reduced by the deduction amount and the remaining asset value is depreciated over its tax life for the class of property. Are garages eligible for the deduction? Yes, parking garages are a space type covered by ASHRAE 90.1. In March 2008, IRS also added 'unconditioned garages' as elgible. Are churches eligible for the deduction? No. Although religious buildings are in 90.1 and they don t pay taxes, they are not government buildings, so churches don t qualify. If a building were designed to a newer building standard, wouldn t it already satisfy the conditions for the tax deduction? Not likely. Although lighting power densities in, for example, ASHRAE 90.1-2004 are almost low enough to satisfy the interim lighting LPDs, the lighting controls requirements of the interim lighting provision go beyond those of 90.1-2004. During the development of the legislation care was taken to insure that free riders would be minimal. 7
Energy-Efficient Commercial Buildings Tax Deduction What if a commercial building tenant performs a retrofit that would meet the energy savings, would they get the deduction? Is the deduction for privately owned buildings restricted to the owner or can a management company or a tenant in a leased space take advantage of the deduction? The tax deduction is to be given to the owner of the lighting system. Do you believe this enables ESCOs, if they own the lighting system until the end of their performance contracts, to claim the tax deduction for themselves as the legal owner of the lighting system? Could the building owner even do it legally if the ESCO is the owner under the performance contract? Unfortunately, as in many matters of tax law, the question is not Necessarily clear. The person who gets the CBTD deduction is the person who owns the property for tax purposes. Although in many, if not most instances, a tenant improvement will revert to the landlord as the end of a lease, the property is not necessarily owned by the landlord for tax purposes. It is a question of fact and the determination depends on the arrangements between the parties. If the tenant pays for the investment, constructs it according to its owns specs, and there are no concessions in the lease or from the landlord, it is likely that the tenant will be the owner of the improvements for tax purposes and eligible to claim the CBTD deduction. Fortunately, this is a question that arose under the tax law before the enactment of the CBTD. In the case of tenant improvements, the tenant and landlord would have to determine who is the tax owner for purposes of claiming depreciation deductions in nay event. The CBTD does not change that determination. The CBTD simply provides a more beneficial deduction that that normally provided by depreciation. The analysis is the same regarding improvements in government buildings. If the contractor is the owner for tax purposes, it can claim the CBTD. Whether a private person can be an owner of property with respect to a government building under the applicable local law is a factor that would have to be taken into account in determining who is the owner for tax purposes. Does the accelerated tax deduction cover the complete cost of the lighting, including installation labor, or does it only include the cost of purchasing the equipment? What are the components of the "cost" that can be written off? It includes anything that can be capitalized, including labor. Are recycling costs deductible? Any cost that may be capitalized may be considered for the deduction. Can portions of buildings be retrofitted and still qualify for a deduction; for example; the common area versus tenant spaces; or a portion of the common area? Portions can be retrofitted and the associated square footage areas considered. If a building is used as both a warehouse and manufacturing facility, ASHRAE/IES 90.1 appears to allow the building area method to be used separately for the warehouse portion and the manufacturing facility portion. Is it then the case that the tax deduction would be calculated separately for both areas of the building if the building area method is used-50% savings and $0.60/sq.ft. for the warehouse, and 25-40% savings and $0.30-$0.60/sq.ft. for the manufacturing facility? The building areas could be addressed separately, as suggested. 8
Energy-Efficient Commercial Buildings Tax Deduction Are exit signs included in the program; and if so; can they be retrofits versus new signs? No, ASHRAE 90.1-2001 does not allow exit signs to be considered in the lighting power allowance determinations. Are screw in compact fluorescent lamps included; and if so; is there any requirement for permanence? No, screw in CFLs could not be used to reduce wattage for purposes of the deduction. The ASHRAE 90.1-2001 lighting power calculations require that the maximum labeled wattage of incandescent luminaire be used. Is there a criterion for what type of lighting systems qualify for the partial tax deduction? For example, in a manufacturing facility, would task lighting upgrades qualify if the LPD is reduced by enough to obtain the deduction? Or is the deduction for ceiling lighting system upgrades? The legislation does not specify lighting technology for the tax deduction. The applicability of task lighting would typically turn on the question of whether it is "permanently installed". ASHRAE 90.1-2001 defines "permanently installed" as "equipment that is fixed in place and is not portable or movable". To be considered, then, the task lighting would need to satisfy this definition. Is there a site that I can visit for answers to questions like these? www.efficientbuildings.org contains frequently asked questions and other helpful information. The Energy Policy Act's accelerated tax deduction provision goes into effect January 1, 2006. Is this part of the law moving forward in the face of new budget cuts as a result of the costs of reconstruction after Hurricane Katrina? The Commercial Buildings Tax Deduction was not impacted by legislation related to Hurricane Katrina. The math involved in calculating the tax deduction may result in a value between $0.30 and $0.60 that is a fraction with multiple decimal places, such as $0.4287/sq.ft. Will there be a regulation regarding rounding, or will the exact numbers be applied (e.g., $0.4287 x 1000 sq.ft. is $428.70, while $0.43 x 1000 sq.ft. is $430.00)? There probably will be no mention of rounding in the regulations. Is it the case that per ASHRAE/IES 90.1 the maximum possible wattage for the fixture will be applied? The luminaire wattage to be used in the power calculation depends on the type of lighting technology (see ASHRAE 90.1-2001 Section 9.2.5). Please consult lighting designers and manufacturers as to what wattage would be appropriate for "lamp/auxiliary" combinations. The warehouse requirement of 50% savings appears strict. What technology candidates can be used to achieve the deduction? What was the thinking behind setting a 50% goal instead of a 25-40% goal? An assessment of actual buildings indicated that 50% below ASHRAE 90.1-2001 is not so difficult to achieve for warehouses. Consequently the 25-40% sliding scale was not permitted to reduce the potential for "free riders"-- those who would qualify for the deduction without any action. 9
Energy-Efficient Commercial Buildings Tax Deduction The requirement for bi-level switching is not in ASHRAE/IES 90.1. What was the thinking behind including it in most building space types? What typical savings can be achieved through bi-level switching? Or was the thinking more of requiring a basic infrastructure so that advanced controls are more attractive for installation and can be used to generate higher savings? Bi-level switching was included so that the lighting-only interim provision would result in a 50% below ASHRAE 90.1-2001 overall energy reduction for a typical building application. Bi-level switching is projected to typically reduce lighting power input by 10-15% on an annual basis. The reduced lighting power input would also reduce HVAC load for most building types. Bilevel switching would also provide some controls for all retrofits (See ASHRAE 90.1-2001 about "lighting alterations" controls requirements). Is bi-level switching required for the interim lighting provision? Yes, as stated in the legislation, bi-level switching is required for the interim provision. It is not required, but may 10 be used in the whole building approach as a means to reduce energy use in the annual cost calculation needed for compliance with the provision. I have seen several different definitions of bi-level switching, for example in California and New York rules. What is the definition? Some state regulations define bi-level switching in a particular way for their own jurisdictions. These are specific applications of a more general approach. Bilevel switching is defined as manual or automatic control (or a combination thereof) that provides two levels of lighting power in a space (not including off). A space is defined as an area enclosed by four or more floor to ceiling walls. Dimming or switching would satisfy this definition. Of course, besides satisfying the tax deduction requirements, an installation would also have to satisfy whatever the regulations are for the jurisdiction, which may, but typically don t, require bi-level switching. For the purposes of the tax deduction, what luminaire wattage do I assume for the watts per square foot calculation? The interpretation from ASHRAE is as follows: "The intent of section 9.1.4 (b) in ASHRAE/IESNA 90.1-2004 is to ensure that the calculation of wattage for lighting compliance includes ballast and/or transformer energy for the lighting equipment that is to be installed and used. If the actual equipment to be installed and used is not known or specified, than the maximum lamp/auxiliary combination becomes the basis for wattage calculation. However, it was never the intent of the requirement that installed lamp/auxiliary combinations drawing lower wattage than the maximum should be penalized at the maximum value. Therefore, similar to the language included for screw-based socket luminaires in 9.1.4 (a), the "maximum labeled wattage" (lamp/auxiliary combination for the maximum lamp wattage allowed by the label) of a luminaire could be used for wattage calculation of luminaires with permanently installed or remote ballasts or transformers. Note1: a change to the standard for the 2007 version will add this additional language to 9.1.4 (b) Note2: This informal interpretation also applies to the 1999 and 2001 versions of the standard." More information: Public Information - IRS U.S. Internal Revenue Service 1111 Constitution Avenue, N.W. Washington, DC 20224 Phone: (800) 829-1040 Website: www.irs.gov
Modified Accelerated Cost-Recovery System Eligible Industries: Eligible Technologies: Commercial, Industrial, Agricultural Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics, Landfill Gas, Wind, Biomass, Geothermal Electric, Fuel Cells, Geothermal Heat Pumps, Municipal Solid Waste, CHP/Cogeneration, Solar Hybrid Lighting, Anaerobic Digestion, Fuel Cells using Renewable Fuels, Microturbines, Geothermal Direct-Use Amount: Eligible technologies placed in service after September 8, 2010 and before January 1, 2012 qualifies for 100% first-year bonus depreciation. For 2012, bonus depreciation is still available, but the allowable deduction reverts from 100% to 50% of the eligible basis. How to Apply: IRS Form 4562 Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. A number of renewable energy technologies are classified as five-year property (26 USC 168(e)(3)(B)(vi)) under the MACRS, which refers to 26 USC 48(a)(3)(A), often known as the energy investment tax credit or ITC to define eligible property. Such property currently includes: a variety of solar-electric and solar-thermal technologies fuel cells and microturbines geothermal electric direct-use geothermal and geothermal heat pumps small wind (100 kw or less) combined heat and power (CHP). The provision which defines ITC technologies as eligible also adds the general term "wind" as an eligible technology, extending the five-year schedule to large wind facilities as well. In addition, for certain other biomass property, the MACRS property class life is seven years. Eligible biomass property generally includes assets used in the conversion of biomass to heat or to a solid, liquid or gaseous fuel, and to equipment and structures used to receive, handle, collect and process biomass in a waterwall, combustion system, or refuse-derived fuel system to create hot water, gas, steam and electricity. The 5-year schedule for most types of solar, geothermal, and wind property has been in place since 1986. The federal Energy Policy Act of 2005 (EPAct 2005) classified fuel cells, microturbines and solar hybrid lighting technologies as five-year property as well by adding them to 48(a)(3)(A). This section was further expanded in October 2008 by the addition of geothermal heat pumps, combined heat and power, and small wind under The Energy Improvement and Extension Act of 2008. The federal Economic Stimulus Act of 2008, enacted in February 2008, included a 50% first-year bonus depreciation (26 USC 168(k)) provision for eligible renewable-energy systems acquired and placed in service in 2008. This provision was extended (retroactively for the entire 2009 tax year) under the same terms by The American Recovery and Reinvestment Act of 2009, enacted in February 2009. Bonus depreciation was renewed again in September 2010 (retroactively for the entire 2010 tax year) by the Small Business Jobs Act of 2010 (H.R. 5297). In December 2010 the provision for bonus depreciation was amended and extended yet again by The Tax Relief, 11
Modified Accelerated Cost-Recovery System Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853). Under these amendments, eligible property placed in service after September 8, 2010 and before January 1, 2012 qualifies for 100% first-year bonus depreciation. For 2012, bonus depreciation is still available, but the allowable deduction reverts from 100% to 50% of the eligible basis. To qualify for bonus depreciation, a project must satisfy these criteria: the property must have a recovery period of 20 years or less under normal federal tax depreciation rules; the original use of the property must commence with the taxpayer claiming the deduction; the property generally must have been acquired during the period from 2008-2012; and the property must have been placed in service during the period from 2008-2012. If property meets these requirements, the owner is entitled to deduct a significant portion of the adjusted basis of the property during the tax year the property is first placed in service. As noted above, for property acquired and placed in service after September 8, 2010 and before January 1, 2012, the allowable first year deduction is 100% of the adjusted basis (i.e., the property is fully depreciated and additional deductions under MACRS cannot be claimed). For property placed in service from 2008-2012, for which the placed in service date does not fall within this window, the allowable first-year deduction is 50% of the adjusted basis. In the case of a 50% first year deduction, the remaining 50% of the adjusted basis of the property is depreciated over the ordinary MACRS depreciation schedule. The bonus depreciation rules do not override the depreciation limit applicable to projects qualifying for the federal business energy tax credit. Before calculating depreciation for such a project, including any bonus depreciation, the adjusted basis of the project must be reduced by one-half of the amount of the energy credit for which the project qualifies. For more information on the federal MACRS, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562. The IRS web site provides a search mechanism for forms and publications. Enter the relevant form, publication name or number, and click "GO" to receive the requested form or publication. For guidance on bonus depreciation, including information relating to the election to claim either 50% or 100% bonus depreciation, retroactive elections to claim 50% bonus depreciation for property placed in service during 2010, and eligible property, please see IRS Rev. Proc. 2011-26. More information: Public Information - IRS U.S. Internal Revenue Service 1111 Constitution Avenue, N.W. Washington, DC 20224 Phone: (800) 829-1040 Website: www.irs.gov 12
Business Energy Investment Tax Credit Eligible Industries: Eligible Technologies: Amount: How to Apply: Expiration Date: Commercial, Industrial, Utility, Agricultural Solar Water Heat, Solar Space Heat, Solar Thermal Electric, Solar Thermal Process Heat, Photovoltaics, Wind, Biomass, Geothermal Electric, Fuel Cells, Geothermal Heat Pumps, CHP/Cogeneration, Solar Hybrid Lighting, Fuel Cells using Renewable Fuels, Microturbines, Geothermal Direct-Use 30% for solar, fuel cells and small wind 10% for geothermal, microturbines and combined heat and power (CHP) Fuel cells: max. $1,500 per 0.5 kw Microturbines: max. $200 per kw Small wind turbines placed in service after 12/31/08: no limit All other eligible technologies: no limit IRS Form 3468: www.irs.gov/pub/irs-pdf/f3468.pdf 12/31/2016 The federal business energy investment tax credit available under 26 USC 48 was expanded significantly by the Energy Improvement and Extension Act of 2008 (H.R. 1424), enacted in October 2008. This law extended the duration - - by eight years -- of the existing credits for solar energy, fuel cells and microturbines; increased the credit amount for fuel cells; established new credits for small wind-energy systems, geothermal heat pumps, and combined heat and power (CHP) systems; allowed utilities to use the credits; and allowed taxpayers to take the credit against the alternative minimum tax (AMT), subject to certain limitations. The credit was further expanded by The American Recovery and Reinvestment Act of 2009, enacted in February 2009. In general, credits are available for eligible systems placed in service on or before December 31, 2016: Solar. The credit is equal to 30% of expenditures, with no maximum credit. Eligible solar energy property includes equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat. Hybrid solar lighting systems, which use solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, are eligible. Passive solar systems and solar pool-heating systems are not eligible. Fuel Cells. The credit is equal to 30% of expenditures, with no maximum credit. However, the credit for fuel cells is capped at $1,500 per 0.5 kilowatt (kw) of capacity. Eligible property includes fuel cells with a minimum capacity of 0.5 kw that have an electricity-only generation efficiency of 30% or higher. (Note that the credit for property placed in service before October 4, 2008, is capped at $500 per 0.5 kw.) Small Wind Turbines.* The credit is equal to 30% of expenditures, with no maximum credit for small wind turbines placed in service after December 31, 2008. Eligible small wind property includes wind turbines up to 100 kw in capacity. (In general, the maximum credit is $4,000 for eligible property placed in service after October 3, 2008, and before January 1, 2009. The American Recovery and Reinvestment Act of 2009 removed the $4,000 maximum credit limit for small wind turbines.) 13
Business Energy Investment Tax Credit Geothermal Systems.* The credit is equal to 10% of expenditures, with no maximum credit limit stated. Eligible geothermal energy property includes geothermal heat pumps and equipment used to produce, distribute or use energy derived from a geothermal deposit. For electricity produced by geothermal power, equipment qualifies only up to, but not including, the electric transmission stage. For geothermal heat pumps, this credit applies to eligible property placed in service after October 3, 2008. Note that the credit for geothermal property, with the exception of geothermal heat pumps, has no stated expiration date. Microturbines. The credit is equal to 10% of expenditures, with no maximum credit limit stated (explicitly). The credit for microturbines is capped at $200 per kw of capacity. Eligible property includes microturbines up to two megawatts (MW) in capacity that have an electricity-only generation efficiency of 26% or higher. Combined Heat and Power (CHP).* The credit is equal to 10% of expenditures, with no maximum limit stated. Eligible CHP property generally includes systems up to 50 MW in capacity that exceed 60% energy efficiency, subject to certain limitations and reductions for large systems. The efficiency requirement does not apply to CHP systems that use biomass for at least 90% of the system's energy source, but the credit may be reduced for less-efficient systems. This credit applies to eligible property placed in service after October 3, 2008. In general, the original use of the equipment must begin with the taxpayer, or the system must be constructed by the taxpayer. The equipment must also meet any performance and quality standards in effect at the time the equipment is acquired. The energy property must be operational in the year in which the credit is first taken. Significantly, The American Recovery and Reinvestment Act of 2009 repealed a previous restriction on the use of the credit for eligible projects also supported by "subsidized energy financing." For projects placed in service after December 31, 2008, this limitation no longer applies. Businesses that receive other incentives are advised to consult with a tax professional regarding how to calculate this federal tax credit. More information: Public Information - IRS U.S. Internal Revenue Service 1111 Constitution Avenue, N.W. Washington, DC 20224 Phone: (800) 829-1040 Website: www.irs.gov 14
Rural Energy for America Program Grants and Loan Program Small businesses are able to obtain assistance under this program that offers both loan guarantees and grants. This assistance allows eligible applicants to install renewable energy systems such as solar panels and make energy efficiency improvements such as replacing ventilation systems. The maximum amount of a guaranteed loan is $25 million, whereas the minimum amount is $5,000. Up to 75% of the total costs can be covered through the guaranteed loan program. There are a number of qualifications for this assistance, such as the loan or grant must go towards the purchase of a renewable energy system or to make energy efficiency improvements. Costs that are covered under these loans and grants include the post-application purchase and installation of new, refurbished or remanufactured equipment, post-application construction or improvements and energy audits. Applications for grants must be received by March 30, 2012. Applications for loans must be received by June 29, 2012. For applications, contact Rural Business Cooperative Service. More information: Public Information - RBS U.S. Department of Agriculture Rural Business - Cooperative Service USDA/RBS, Room 5045-S, Mail Stop 3201 1400 Independence Avenue SW Washington, DC 20250-3201 Phone: (202) 690-4730 E-Mail: webmaster@rurdev.usda.gov Website: www.rurdev.usda.gov/rbs 15
Additional Information State Rebates There are many programs available for small businesses to help them take the first steps to becoming more energy efficient. Many state governments and local public utility companies offer rebate programs to businesses for investing in new technologies. Be sure to check with your state energy department and/or utility provider for details on state specific programs. Energy Saving Tips Saving money on your utility bill can be easy. Below are some simple lowcost steps you can take to become more energy efficient and reduce your energy costs. Top 10 Tips to Save on Energy 1. Use fans to maintain comfortable room temperatures 2. Schedule regular HVAC maintenance (change out filters) 3. 68/72 rule of thumb 1 degree = 10% savings 4. Switch to energy efficient light bulbs 5. Install motion sensor lights 6. Check regularly for water leaks & dripping faucets 7. Use power strips to manage power pull 8. Unplug all electronics when not in use 9. Adjust water temperature to 110-120 F 16 10. Install a programmable thermostat
RESOURCES Center for Climate and Energy Solutions www.c2es.org Clean Energy Authority www.cleanenergyauthority.com Database of State Incentives for Renewables and Efficiency www.dsireusa.org Department of Energy www.energy.gov Natural Resources Defense Council www.nrdc.org Small Business Majority www.smallbusinessmajority.org U.S. Environmental Protection Agency The United States Environmental Protection Agency has offered a guide to greening your small business. www.epa.gov www.epa.gov/osbp/pdfs/smart_steps_greening_guide_042101.pdf U.S. Small Business Administration www.sba.gov 17
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