Interviews & Articles

New Federal Law Boosts Solar, Microturbines, Energy Efficiency Investments

The Energy Policy Act of 2005 (EPACT) is a mammoth thousand-page bill that contains some striking benefits for renewable and on-site energy generation and efficiency improvements. Sustainability advocates should plan to take maximum advantage of these credits while they exist.

As the law currently reads, the tax benefits are available ONLY for projects put into service between January 1, 2006 and December 31, 2007, a two-year window, owing primarily to Congressional budgeting constraints. While it is impossible to plan projects on an extension, don’t be surprised if the 2007 Congress extends the provisions of the new law for an additional period of two or more years.

Projects now in design, for which construction completion and occupancy is planned before the end of 2007, should re-visit their energy-efficiency and on-site power production goals to see if the new law can be of use to them. Interface Engineering can help you examine the costs and benefits of these systems for specific projects, as we have experience designing all of them. Please contact Andy Frichtl, PE, Principal, leader of our energy team, with specific project requests, at 503-382-2266.

The new law provides for tax credits, which offer a “dollar for dollar” subtraction from tax liability and are therefore worth much more than tax deductions, whose value depends on your marginal tax rate.

Here’s what the law provides:

1. Solar electric systems. 30% federal tax credit for photovoltaics (PV) for commercial projects, with no cap on expenditures. Businesses have two years in which to use the tax credits.
2. Solar thermal systems. 30% federal tax credit for solar thermal systems, including domestic water heating, for commercial projects, with no cap on expenditures. Businesses have two years in which to use the tax credits.
3. Residential solar systems. 30% federal tax credit for residential solar water heating and photovoltaic systems, with a $2,000 credit cap ($6,667 system cost) for each technology. (Think condos here, where a developer could apportion the credit to the owners.) Pool heating systems for residential use receive no federal credit.
4. Local incentives used first. The basis for the credit is the net cost, after state and local utility incentives are subtracted from the cost. If a state or utility, for example, offered a 25% credit on a PV system, then the tax credit for a $10,000 system would be $2,250 commercial for a commercial system (30% of $7,000) and $2,000 for a residential system (the maximum allowed).
5. Microturbines and fuel cells. 10% federal tax credit for microturbines and fuel cells used in a business, up to $200 per kilowatt credit ($2,000 per KW system cost). Microturbines must be of 2,000-KW capacity or less, with an efficiency of 26% at ISO conditions.
6. Energy-efficiency measures in buildings. A tax deduction (immediately available instead of depreciation) of up to $1.80 per square foot for commercial buildings that achieve a 50% reduction in annual energy cost to the user, compared to a base building defined by a model based on the ASHRAE 90.1-2001 standard. Rental housing of four stories or more and publicly-owned buildings are also eligible. The law provides that a public entity can transfer the credit to the “Person primarily responsible for designing the building.” There is a maximum credit of $0.60 per square foot for each of the three major energy influences in a building: lighting, building envelope and HVAC/water heating systems. New construction in an existing building is also eligible for the credit.
7. Energy-efficient new homes. Residential tax credits for builders/contractors are eligible for a credit of $2,000 per dwelling unit, if the unit has 50% less energy use than the national model code – the 2004 IECC Supplement, assuming an SEER-13 air conditioner. This provision may also apply to condominium units.
8. Hybrid vehicles. A tax credit of about $3,400 for purchase of a Toyota Prius-level hybrid vehicle, based on a sliding scale.

Caution: With this newsletter, Interface Engineering is providing only broad guidance to the new energy bill, as a public service. Not all the enabling regulations for these credits have been written yet, although many will be available by January 1st from various tax advisory services and publishers. Anyone intending to use the provisions of this bill needs to consult a qualified tax advisor before proceeding. For further information, you might want to consult the following web site: http://www.energytaxincentives.org.

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