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How Incentives Help Commercial Building Retrofits

| Monday July 13th, 2009 | 0 Comments

Rising electricity prices, climate change and a sagging economy are driving public and private institutions to focus on energy efficiency in the built environment. Before the economy soured, the focus was on constructing high performance buildings, but after lending dried up, a renewed interest emerged in improving energy consumption in our aging infrastructure through retrofits.
The fact is that over 80 percent of our existing commercial building stock will still be standing 10-15 years from now. Smart building technologies geared towards the retrofit market promise substantial energy savings. These technologies, coupled with targeted federal incentives, could mean a fundamental shift in the way our buildings use energy.


The retrofit market recently received a boost from the stimulus package by providing funding for renovations to federal buildings. But public buildings represent only a small fraction of all commercial space. The largest potential lies in retrofitting the over 5 million commercial buildings in the U.S.
According to the EIA, electricity consumption in commercial buildings tops 10 trillion Btu’s with costs topping $69 million. Businesses are anxiously trying to find ways to lower these expenditures and are realizing that conserving energy by using innovative technologies can reduce energy consumption by 20 to 30 percent.
So why aren’t business owners rushing to retrofit their buildings if it means saving money, improving employee comfort and property values, not to mention saving the planet?
The reason lies in the inconvenient truth that you have to spend money to save money. The economic drivers and suitable ROI models are proven and the technology exists that makes buildings, even older ones, operate more intelligently, but the call to action might need a boost from Uncle Sam. For many building owners capital costs are the barrier to investing in building retrofits and without incentives, large-scale adoption of energy saving retrofits will be a challenge.
There are federal incentives in the energy efficiency field, but few exist that are focused on energy efficient building retrofits. The Energy Policy Act of 2005 includes a provision allowing businesses to take a tax deduction for new or renovated buildings by reducing the energy costs associated with the lighting system, building envelope, and heating, cooling and water heating equipment. Buildings that save at least 50 percent of projected energy costs are eligible for a tax deduction of $1.80 per square foot, with lesser annual energy savings eligible for a partial deduction of $0.60 per square foot.
The issue is that this deduction is primarily utilized in new construction where architects and engineers can design-in systems to be 50 percent more efficient than what is the standard. Achieving 50 percent savings in a retrofit takes considerable investment, making the ROI unsuitable.
Change is coming as the new administration pushes for incentives aimed at building retrofits. The American Clean Energy and Security Act of 2009 recently passed by the House includes some key building related provisions, including a retrofit program called “Retrofit for Energy and Environmental Performance”.
This funding program would provide $2.5 billion to states annually from FY10 to FY13 for business owners who qualify for incentives by achieving increases in building efficiency. Commercial building owners can qualify for financial incentives with the amount of the incentive dependent on the overall percentage of improved efficiency. Incentives for commercial buildings would be capped at 50 percent of the cost of the retrofit. This program would create jobs, promote building reuse and reinvestment and would signal a commitment to green existing buildings and combat climate change.


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