getting your moneys worth out of energy efficiency

Getting Your Money’s Worth Out of Energy Efficiency

September 30, 201312:00 – 1:30 PM ET

www.TnEnergy.org

Agenda:

12:00-12:05 Welcome & Introductions

12:05-12:25 Monetizing Energy Solutions: The Road to Funding

Christopher Russell, ACEEE & Energy Pathfinder Management Consulting

12:25-12:50 The Tax Incentive Environment for Energy Efficiency

CJ Alberin, KBKG

12:50-1:00 Q&A and Adjourn

Monetizing Energy Solutions:

The Road to Funding

Christopher Russell

ACEEE Visiting FellowPrincipal, Energy Pathfinder

Consultingwww.TnEnergy.org

MONETIZING ENERGY SOLUTIONS:

The Road to Funding

Christopher Russell,PrincipalEnergy PathFINDER .com

About Christopher Russell, C.E.M., C.R.M. Principal, Energy Pathfinder

Visiting Fellow, American Council for an Energy Efficient Economy, 2012+

Energy Manager, Howard County, MD, 2010-2012

Director of Industrial Programs, Alliance to Save Energy, 1999-2006

MBA, M.A., University of MD; B.A., McGill University

5 ©2013 Energy PathFINDER.com

About Christopher Russell

TAKE-AWAYS FOR TODAY:


•Connect the dots between energy solutions and business performance

•Monetize energy solutions

•What’s in it for YOU? …your business, your career?

Facility Manager?

To Whom Does Energy Provide Value?

Project Engineer?

Machine Operator?

Corporate Officer?

Each has a different definition of VALUE.

7©2013 Energy PathFINDER .com

Energy is a Small Portion of Costs?

YES, relative to the annual budget.

8

NO Relative to total

cost of asset ownership

Capital (2%)

Energy (97%)

Maintenance(1%)

TOTAL COST OF OWNERSHIP

©2013 Energy PathFINDER .com

Energy is a Small Portion of Costs?

9

TODAY’S2-YEAR

PAYBACK“PROJECT”

ENERGY CONSUMPTION & LIABILITIES FOR YEARS OR DECADES TO

COME


Energy + Business:A FORCED MARRIAGE

No ENERGY means…No PRODUCTION…and no REVENUE.

End of story.


ENERGY EXPENSE

ENERGYEXPENSE

$

FACILITIES: A COST TO MINIMIZE…

…OR A CASH FLOW ATM MACHINE?


ENERGY IS ALWAYS IN MOTION.Energy that doesn’t create wealth destroys it.

WEALTH DESTROYED

HEAT, FRICTION, &CHEMICAL REACTIONS

DESTROY PLANT & EQUIPMENT,CREATE LIABILITIES

WEALTH CREATED

TRANSFORMATIONOF INPUTS INTOFINAL PRODUCTS HEAT,

PRESSURE, & MOTIVE

POWER

FUGITIVE ENERGY

COMMITTED ENERGY

FUEL &ELECTRICITY

14©2013 Energy PathFINDER.com

(c)2009 Energy Pathfinder Mangement Consulting, LLC

www.energypathfinder.com15

MONEYMONEY FUEL &ELECTRICITY

HEAT, PRESSURE& MOTIVE POWER

PRODUCTS TO SELL

ACCOUNTS

PURCHASE ORDERS

INVOICES

BUDGETS

EXPENSE REPORTS

RECEIVABLES

RECEIPTS

DEPOSITS

DIVIDENDS

PAYABLES

KILOWATT-HRS.

THERMS

STEAM- LBS./HR

HORSEPOWER

CUBIC FEET/MIN.

DEGREES FARENHEIT

WE TRACK MONEY.WHY NOT ENERGY?

LABOR HRS & RATES

EPS

PSIG/PSIA

15©2013 Energy PathFINDER.com

EXPENSES,INTEREST,

ORINFLATION

CAPITAL IS ALWAYS IN MOTION

ECONOMY(opportunity)

PLACE OF LOW

RETURNS

PLACE OF HIGHRETURNS

CAPITAL IS NEVER AT REST


A BUSINESS FACILITY IS A MICRO ECONOMY

FACILITY(opportunity)

WEALTH INPUTS

WEALTHCREATED

EXPENSES,INTEREST,

ORINFLATION

Who will get superior returns from your facility assets?YOUR BUSINESS or the UTILITY COMPANY?


PURSUING ECONOMIC OPPORTUNITY

1. Benchmark current capital performance2. Perceive opportunities for superior performance3. Estimate investment risk/return 4. Reinvest capital5. Continuous improvement. See Step 1.

For the ECONOMY…For the FACILITY…

DYNAMICS ARE THE SAME18 ©2013 Energy PathFINDER.com

BAD ECONOMY?You can delay investment decisions…

But your CAPITAL is still in motion.

You still need to actively decide its velocity and destination.

FREE CASH FLOW?

RATE OF RETURN?

COST OF DOING NOTHING?


What do executives need to know?

Think INVESTMENT, Not PROJECT

• PROJECTS:– Cost money– Take up time– Distract from operating goals & procedures

• INVESTMENTS: – Produce a cash flow– Earn a rate of return– Grow the business, create wealth


$0.925926INPUTS

$1.00REVENUE

Example: 8% Rate of Return22

Your Business = Your Investment BenchmarkA MONEY-MAKING MACHINE

(Over simplified)


EXAMPLE: You want a 2-YR Payback

23

ENERGY IMPROVEMENT COST: $1,000,000ANNUAL ENERGY SAVINGS: $250,000AMT FINANCED: $500,000/8%/25YRSMARGINAL INCOME TAX: 35% ECONOMIC LIFE: 25 YRS

SIMPLE PAYBACK: 4 YRS pre tax8 YRS post tax

©2013 Energy PathFINDER.com

REJECT?

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

RATE

OF

RETU

RN (

No

Com

poun

ding

)

SIMPLE PAYBACK (Years)

INVESTMENTDEAD BAND


0% -

20% -

25

ENERGY PROPOSAL IRR = 12% POST-TAX & FINANCE

ENERGY PROPOSAL IRR = 25% PRE-TAX

MUTUAL FUNDS = 3%COST TO BORROW = 4%

CURRENT RoR ON INVESTED CAPITAL = 8%

IRR = -12.6% REJECT PROJECT, NEGATIVE CASH FLOW

10% -

TWO-YEAR PAYBACK = 50%


30% -

40% -

-10% -

50% - Ex: 8-YR PAYBACK POST-TAXCost: $1 million

Savings: $250,000/YR 25-YR Economic Life

50% -

You cannot “walk away” from an energy efficiency investment

26

Purchased Energy

COMMITTEDENERGY VOLUMEAN

NU

AL E

NER

GY

CON

SUM

PTIO

N

CURRENT ALTERNATIVE

ENERGYWASTED

ENERGY AVOIDED

VOLUME AT-RISK:PAY FOR IT EITHER WAY.


Monetize Energy Solutions:KNOW YOUR INVESTMENT OUTCOMES


REJECT ACCEPT

GET Satisfaction of no capital expenditure? Gross energy savings

GIVE UP

Total cost of doing nothing Amortized project cost

-PENALTY +FREE CASH FLOW

Facilities Management 1.0• Facilities = cost center• “Cost of doing business”• Do more with less• That’s the way we’ve always

done it• Budget hoarding• Success = “don’t get noticed”


CHANGE

CHANGE…RISK or OPPORTUNITY?

• Energy price volatility• Smart grid technologies• Evolving emissions &

safety standards• Green & sustainable

markets


Facilities Management 2.0

• Facilities = a profit center• Monetize your energy position• No more energy audits

collecting dust…• Success = show value created• Contribution to cash flow and

growthFUTURE-PROOF YOUR BUSINESS PERFORMANCE…and your job.


Keep pushing the same buttons….

Keep getting the same results!31 ©2013 Energy PathFINDER.com

Energy PathFINDER .c

omChristopher Russell

@ENERGYpathfndr

THANK YOU!

The State of the Tax Incentive

Environment for Energy Efficiency

CJ Alberin

Shareholder, KBKGwww.TnEnergy.org

SOLUTIONS FOR TAX PROFESSIONALS AND BUSINESSESTAX CREDITS • INCENTIVES • COST RECOVERY

PRESENTED BY:

CJ Aberin, CCSPShareholder

Energy Efficiency Tax Incentives – Insight into the § 179D Tax Deduction & Other Opportunities

NATIONWIDE SERVICE Tax Credits · Incentives · Cost Recovery

© KBKG inc 2013

The Problem = Buildings are responsible for almost half of all US energy consumption Buildings consume

77% of all electricity Large contributor of

carbon dioxide

*Source:

Architecture 2030

49%

28%

23% BUILDINGS

TRANSPORTATION

INDUSTRY

Energy Consumption (2011)


© KBKG inc 2013

275 billion sf of buildings as of 2010

Every year: 1.75 billion sf torn

down 5 billion sf renovated 5 billion sf newly

constructed By 2035, ~70%

new or renovated

*Source: Architecture 2030

0

200

400

600

0

200

400

600

0

200

400

600

0

200

400

600

0

200

400

600

As of 2010, the US building stock is 275 billion sf

By 2035:

44 billion sf will be demolished

125 billion sf will be remodeled

125 billion sf will be new construction

Therefore, by the year 2035, ~70% of the building stock will be new or renovated

Bill

ion

Sq

uar

e F

eet

(sf)

So

urc

e: E

ner

gy

Info

rmat

ion

Ad

min

istr

atio

n

Opportunity to Solve Problem


© KBKG inc 2013

§ IRC 45L – Energy Efficient Dwelling Tax Credit ($2,000 per Unit)

§ IRC 179D – Energy Efficient Commercial Building Deduction (up to $1.80/sf)

§ IRC 48 – 10-30% Tax Credit for Renewable Energy Property

Other State and Local Incentives

Green Building

Tax Incentive

s

§ IRC 179D

§ IRC 45L

§ IRC 48

Local & State

Federal Tax Incentives


© KBKG inc 2013

179D Timeline

2006 2007 2008 2009 2010 2011 2013

Rev Proc 2011-14

Form 3115 for 179D

IRS revises 179D rules

IRS revises guidance

179D extend thru 2013

2005 EPACT goes into

effect

IRS issues initial

guidance

2012

179D Will Sunset at

End of 2013; Future

Extension in Works


© KBKG inc 2013

Increased 179D Benefits for 2014 & Later Obama’s Better Buildings Initiative aims to transform

§179D Deduction into a larger tax deduction Trying to make permanent

Future Outlook


© KBKG inc 2013

IRC Section 179D allows for an immediate deduction of up to $1.80/sf for “commercial buildings” that achieve a 50% reduction in total energy and power costs for lighting, HVAC & hot water systems in comparison to 2001 energy standards. Building Envelope HVAC & Hot Water Interior Lighting

§179D Tax Deduction Energy Efficient Commercial Building


© KBKG inc 2013

Whoever makes investment and places in service for first use Building owner or landlord Tenant

ORDesigners for government buildings

§179D Tax DeductionWho Benefits?


© KBKG inc 2013

“Commercial Buildings” includes Public & government buildings (i.e

schools, prisons, etc…) Typical commercial buildings (i.e.

office, retail, industrial, etc…) Housing that is 4 stories or higher

Must be located in the United States

§179D Tax Deduction - What Building Types are Eligible?


© KBKG inc 2013

Ground up constructionRenovations and retrofitsApplies to affected square footages

(rate x sf)PIS between 2006 through 2013

§179D Tax Deduction - What’s Type of Construction is Eligible?


© KBKG inc 2013

§179D Tax Deduction - Various Ways to Achieve Deduction

Fully Qualifyi

ng Propert

y

Partially Qualifying Property

Envelope

HVAC Lighting (Permanent Rule)

Interim Lighting Rule(PIS before publication of final 179D regs)

1/1/06 to 12/31/08: Energy Cost Savings*

50%

16-2/3%or

10%

16-2/3%

or20%

16-2/3%or

20% 25% to 40% LPD Reduction (50% LPD Reduction for Warehouse) + other factors

1/1/09 to 3/11/12:Energy Cost Savings*

10% 20% 20%

3/12/12 to 12/31/13:Energy Cost Savings*

10%20%or

15%

20%or

25%

Tax Deduction $1.80/sf

$0.60/sf

$0.60/sf

$0.60/sf $0.30 to $0.60/sf (using applicable % from 2006-52)

* Compared to a Reference Building that meets 2001 energy standards.


© KBKG inc 2013

Assume Federal Tax Rate = 35%** Discount Rate = 8%

1 system$0.60 / sf

2 systems$1.20 / sf

3 systems$1.80 / sf

Tax Deduction $60,000 $120,000 $180,000

NPV Benefit**(Owners) $14,348 $28,696 $43,044

§179D Tax Deduction - Benefit Example of 100,000 sf Building


© KBKG inc 2013

Envelope Better insulation & windows Cool roof

HVAC More efficient HVAC

equipment & controls Geothermal systems and

heat pumps Right sized

Lighting More efficient luminaries,

ballasts, and lamps Bi-level switching Lighting retrofit project can

range from $0.60 to $2.00/sf

And more…HVAC

Envelope

Lighting

§179D Tax Deduction Design Strategies


© KBKG inc 2013

Warehouse Retailer in MD Tax Deduction = $261,000

145,000 sf * $1.80 per sf Whole Building Qualified

53.2% Reduction in power cost

Envelope primarily concrete block

Mechanical Systems Rooftop A/C’s with EER

ranging from 10 to 15 80% AFUE Gas Heat

Lighting consists of T-8 Fluorescent & Metal

Halides Skylights & Daylighting

Systems

§179D Tax Deduction Example – Big Box Retailer


© KBKG inc 2013

Student Housing in CA Tax Deduction = $151,200

84,000 sf * $1.80 per sf Whole Building Qualified

53.3% Reduction in power cost

Envelope R-30 Roof R-13 Walls Double paned Low-E

windows Mechanical Systems

8.0 HSPF / 13 SEER Split Heat Pump

Gas Fired Boiler 85% AFUE - DHW

Energy efficient lighting – CFL’s

§179D Tax Deduction Example – Student Housing


© KBKG inc 2013

Parking Garage in TX Tax Deduction = $180,000

300,000 sf * $0.60 per sf 1 system Qualified

Interior Lighting Systems 44% Lighting Power

Reduction 48” T8 2-tube Fluorescent

Lighting throughout

§179D Tax Deduction Example – Parking Garage


© KBKG inc 2013

Building typeBuilding size & number of storiesPhysical orientationClimate ZoneUtility Rates

§179D Tax Deduction Key Variables


© KBKG inc 2013

Process: Obtain certification package No special form required

Reported on the “Other Deduction” line with a description of “Section 179D Deduction

Considerations: Deduction can reduce AMTI Can either amend or file Form 3115 to retroactively

claim deduction Deduction limited to amount invested in energy

efficient property ***Potential for additional deductions on

retrofits***

§179D Tax Deduction Tax Process & Considerations


© KBKG inc 2013

Analysis of drawings & as-built specifications

Energy simulation modeling or lighting analysis using DOE-approved software

Onsite verificationSigned certification by qualified third

party that meets all IRS requirements

§179D Tax Deduction Certification Process


© KBKG inc 2013

Minimum Criteria Large square footages (50,000 sf+ ideal) Improvements placed in service in 2006 or later

Other Factors That Help LEED Certified / Energy Star / high performance

helps but not required Stringent state or local energy codes

§179D Tax Deduction Identifying Good Opportunities


© KBKG inc 2013

Other State & Local Incentives

Rebate from utility energy-efficiency program Rebate from city or county Expedited permits Marketing/publicity awards State income tax credit Property or sales tax rebates or abatements Density bonus Access loans/loan funds Full or partial refunds for development fees 1,064+ Financial incentives for renewable

energy 1,430+ Financial incentives for energy

efficiency


© KBKG inc 2013

CJ Aberin, CCSP, Electrical Engineer

Shareholder877-525-4462 [email protected]

KBKG SERVICES

R&D Tax Credits Asset Retirement Green Tax Incentives Hiring Tax Credits Cost Segregation Fixed Asset Review Repair v. Capitalization Property Tax Sales & Use Tax Expense Recovery

QUESTIONS & ANSWERS

Questions?

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