Michael Twedt, PE

Tax Incentives, Grants and Low Interest Loan Programs for Energy Efficiency

and Sustainable Facility Projects

Presentation for thePlain Green Energy Efficiency Workshop

April 17, 2009

Speaker Introduction

Michael Twedt, P.E., C.E.M.Mechanical Engineer, Energy Analysis and Efficiency Focus

Director, Wind Application Center, SDSUWAC.sdwind.org

Director, Energy Analysis Lab, SDSUCo-PI, CBRD & Biomass/Bioenergy Research

Email: Michael.Twedt@SDSTATE.EDUPhone: 605.688.4303

Energy Saving Benefits

Reduction in reliance on foreign energy sources

Reduction in energy use = reduction in greenhouse gas

Energy cost savings reduce facility expenses

Promotes good practices; use less, save more

Energy Efficiency Grant and/or Tax Deduction

Overview

Energy Issues

Energy issues in South Dakota• An extreme climate leads to extreme heating and

cooling requirements• Limited and fixed budgets for most facilities• Rising energy costs• Limited information available for making better

choicesAddressing these issues

• Focus on life cycle costs instead of solely on first costs

• Purchase better materials, equipment, systems that will save money and energy

Bio & Renewable Energy Benefits

Rising Energy CostsGlobal Warming / PollutionDependency on Foreign Energy

What can we do?

Decrease our energy use (increase efficiency) Increase ‘home-grown’ energyIncrease cost-effective, renewable energy

Overview

How to Implement Energy Efficiency

Utilize savings to pay for investments• Perform simple payback or life-cycle cost analysis• Consider:

• Energy cost savings• Productivity/labor cost savings• Resource cost savings

Utilize incentives to pay for investments• REAP/9007 Grants & Loans• Commercial building tax deductions (EPACT 2005)• Business Energy Investment Tax Credit (ITC)

Energy Grants – REAP/9007

Rural Energy for America Program (REAP) Section 9007:• Designed to assist farmers, ranchers and

rural small businesses with energy projects• Rural SD = not Sioux Falls or Rapid City

• This program provides grants and guaranteed loans for renewable energy systems and energy efficiency improvement projects

Energy Grants – REAP/9007

Rural Energy for America Program (REAP) Section 9007:• Energy Efficiency Improvements

• Improvements to a facility or process that reduces energy consumption. Typically projects must show a 20% savings in energy audit to receive funding.

• Renewable Energy - energy from:• wind, solar, biomass, or geothermal source, hydro or • hydrogen derived from biomass or water using one of the

above energy sources

Energy Grants – REAP/9007

Rural Energy for America Program (REAP) Section 9007:• Energy Efficiency Upgrades

• Drying Systems• Motor Systems• Heating/Refrigeration

• Renewable Energy Projects• Wind• Solar• Geothermal

• 25% Eligible Cost Grant ($250K-$500K max)• 50% Eligible Cost Guaranteed Loan

• ($25 million max)

Resources – REAP/9007

Contact you local USDA Rural Development Office

More Energy Efficiency Upgrades• Lighting• Refrigeration/Freezer Systems• Insulation (addition)• Automated Controls• Windows, Doors

Energy Grants – REAP/9007

Rural Energy for America Program (REAP) Section 9007:• Competitive grant application• Applicants are scored on a variety of

parameters• Energy replaced, generated or saved

• 20% minimum, 35%+ excellent• Simple payback period (~ 11 yr max)• Technical merit• Environmental benefits

• Grant only or Loan/Grant combination

Energy Grants – REAP/9007

3rd Party Verification – Energy Efficiency:• Requires energy audit or energy assessment

• $50,000 project cost (over or under)• Documents the energy savings• Documents the cost savings• Establishes the return on investment

• Requires technical report and/or evaluation• $200,000 project cost (3rd Party if over)• Documents and evaluates the technical merit

Energy Grants – REAP/9007

3rd Party Verification – Renewable Energy:• Requires business-level feasibility study

• If over $200,000 total project cost• Documents and evaluates the feasibility• Documents the energy generation• Documents the cost savings• Establishes the return on investment

• Requires technical report and/or evaluation• $200,000 project cost (over or under)• Documents and evaluates the technical feasibility

Energy Grants – REAP/9007

3rd Party Verification – Renewable Energy:• Requires business-level feasibility study

• If over $200,000 total project cost• Documents and evaluates the feasibility• Documents the energy generation• Documents the cost savings• Establishes the return on investment

• Requires technical report and/or evaluation• $200,000 project cost (over or under)• Documents and evaluates the technical feasibility

Energy Audit Objective

The overall goal of an energy audit is toevaluate an individual facility for economically feasible, energy cost saving opportunities.

Additionally:• Quantify the amount of energy waste• Translate energy waste into wasted dollars• Assist in good decision making• Required for some Federal Grants

Energy Audit

Steps• Analyze utility usage and costs • Perform site visit, collect data• Identify potential energy saving measures• Calculate energy and cost savings• Calculate cost of measures• Evaluate economic feasibility of each measure• Formulate an action plan for implementation• IMPLEMENT FEASIBLE MEASURES!

Energy Conservation

How Much Can You Save??????????• How much are you currently spending?• Example: a school spends $9,000/yr on propane

for heating. Can a new heating system save $20,000/yr in propane energy costs?

• A grain handling system uses $600/yr in energy costs. Can you save $2,000/yr in energy costs by buying a new, ‘energy efficient’ system?

Energy Use SummarySample

Phase I Energy UseMMBtu/yr

electricity natural gas

Energy Audit – On Site

On site• Confirm utility usage and costs • Site visit

• Inspect equipment and systems• Identify potential energy saving measures• Collect detailed information on these systems• Operating parameters

• Operating hours• Building occupancy• Temperatures

Energy Audit – Identify

On site – what to look for:• Equipment/systems that can be shut off

• How? How often?• Equipment/systems that can be turned down

• How? How often?• Old/inefficient equipment

• What is current efficiency? How much is it used?• Heating/cooling systems

• Can you recover energy? How? How often?

Energy Audit – Energy Use

Calculate current energy use and cost:• How much energy is each equipment/system

consuming? (energy/year)• What is the current cost? (energy/yr x energy cost)

Calculate new energy use and cost:• How much energy would the new systems

consume? (energy/yr)• What is the new cost? (energy/yr x energy cost)

Computer Simulations

Provide a tool for investigating physical systems• Uses:

• Forecasting/prediction• Energy use

• Comparing alternatives• HVAC systems

• Examples include:• Indoor Air Quality• Airflow• Thermal comfort• Equipment performance• Building energy modeling

Building Energy Modeling

Used to evaluate the performance of buildings• Evaluates energy, cost, and comfort• Performance monitored for full year• Includes most building systems

• Envelope• HVAC• Lighting• Service hot water• Scheduling• Controls

Building Energy Modeling

Some examples of software include:• EnergyPlus, BLAST, DOE-2, many others

Typical modeling environment:• Consists of interaction between several ‘modules’• Complex computational environment

Building Energy Modeling

Why is it important?• Buildings use approximately 1/3 of all energy• Simulation can and has helped reduce building

energy consumption• Allows energy alternatives to be investigated

• Leads to an energy- and cost-optimized building• Can help isolate operational problems in existing

buildings• Necessary for many incentive programs • Required for LEED

• Compare proposed building to ASHRAE Standard 90.1-2004

Energy ModelingSample Facility Energy Usage

$82,201/yr

Energy Audit – Savings

Calculate energy and cost savings for each measure:• Energy Savings = Current Energy Use – Proposed

Energy Use (energy/year)• Cost Savings = Current Energy Cost – Proposed

Energy Cost ($/year)

Compare savings to implementation cost:• Simple Payback Period = cost / $ savings per yr • Evaluate the feasibility for your facility• Generally 3 year payback or less is very good

Energy ModelingEnergy Savings – Increase Envelope Insulation

$77,749/yr

$4,452/yr savings

Energy ModelingEnergy Savings – Geothermal

$63,761/yr

$18,440/yr savings

Energy ModelingEnergy Savings – Thermostat Setbacks

$69,947/yr

$12,254/yr savings

Energy ModelingEnergy Savings – Heat Recovery

$65,006/yr

$17,195/yr savings

Energy ModelingEnergy Savings – Lighting & Equipment

$76,419/yr

$5,782/yr savings

Energy ModelingEnergy Savings – High Efficiency (All Systems)

$31,506/yr

$50,695/yr savings

Sample Energy Savings

Sample Building 1 Summary8.5% reduction in annual energy use• $42,956/yr total energy cost reduction• 8.1% reduction in annual energy costs• 4.7 year total simple payback period for all

recommendations combined

Sample Building 2 Summary• 7.0% reduction in annual energy use• $34,894/yr total energy cost reduction• 6.9% reduction in annual energy costs• 1.6 year total simple payback period for all

recommendations combined

Energy Savings SummarySample Building 1

Phase I Energy SavingsMMBtu/yr

energy savings

Energy Conservation – Measures

Additional Examples of Energy Efficiency:• High efficiency heating & cooling systems

• Heat recovery• Modulation controls (turn down/shut off)

• Lighting • Replace incandescent with HE fluorescent• Replace mercury vapor with HPS/MH/HE fluor.

• Heating systems• Temperature setbacks – freeze protection• Plug leaks / prevent infiltration

• Turn Down• Shut off

Incentive Programs

EPAct 2005 Federal Tax Deduction• Commercial Building Tax Deduction: Provides a

tax deduction for exceeding ASHRAE/IES Standard 90.1-2001 to the property owner for which the energy efficient expenditures are made

• New construction or renovations

Incentive Programs

Commercial Building Tax Deduction• Allows for up to $1.80/sf tax deduction• Fully qualifying property

• Saves at least 50% in energy costs through improvements in the following• Envelope• Lighting• HVAC/SWH

Incentive Programs

Commercial Building Tax Deduction -Subsystems• Partially qualifying property up to $0.60/sf in each

• Saves at least 10% in envelope• 20% in lighting• 20% in HVAC/SWH

Incentive Programs

Commercial Building Tax Deduction –Lighting Subsystem Details

• Interior Lighting Tax Deduction: Lighting energy consumption is estimated to represent approximately 1/3rd of commercial building energy use • Outperform the ASHRAE/IESNA Standard 90.1-

2001 lighting requirements by 25-40% . Eligible tax deduction per sqft will be between $0.30-$0.60

Incentive Programs

Commercial Building Tax DeductionProvides a tax credit AND energy savings!

• Client qualified for $1.07/sqft tax credit• Installed high-performance insulation

• Qualified for full $0.60/sqft• Installed efficient lighting technologies

• Qualified for $0.47/sqftRequired energy model and comparison of ASHRAE

90.1-2001 baseline and actual installationExample Provided by Derek Hengeveld, PE

BTU Engineering, Inc. hengeveld@BTU-Engineering.com

Incentive Programs

Business Energy Investment Tax Credit (ITC) • U.S. Dept. of Treasury• Commercial, Industrial, Agricultural• Only tax paying entities are eligible• 30% (Solar, Wind) or 10% (Geothermal) of system

cost tax credit• May take tax credit as a cash grant from the U.S.

Department of Treasury• The U.S. Department of Treasury has not released

guidelines and is not accepting applications currently for this grant (expected late spring’09)

Incentive Programs

Business Energy Investment Tax Credit (ITC) • U.S. Dept. of Treasury• Categories (partial)

• Solar water or space heat• Wind• Photovoltaic• Hydroelectric• Biomass• Landfill gas• Geothermal electric• Geothermal hp• Fuel cells

Energy Conservation – Summary

Best Solution:• No single magic bullet for total energy savings• Best solution: make informed decisions and

integrate a combination of many items• Consider utilizing Federal incentives to leverage

resources

Energy Help

Resources• Your utility company• Building Energy Codes – request that your builders

follow applicable energy codes• Read energy labels, compare Wattage, consider

Energy Star models• REAP/9007 - Contact you local USDA Rural

Development Office

Energy Audits• Self audit worksheets – available from State and

Federal sources • Your utility company may offer assistance• 3rd Party energy audits

Thank YouQuestions?

Michael Twedt, Mechanical Engineering Dept.South Dakota State University(605) 688-4303Email: Michael.Twedt@SDState.edu