January 15, 2009

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Tax Credits Give Incentives for Renewable Energy Use

Marie Mischel

January 15, 2009

The cry for development of renewable energy sources has often been drowned by red ink pouring from the ledger. Energy from the sun, wind and water is more expensive to tap than that from conventional sources, such as coal. Now, however, state and federal tax credits are convincing businesses that renewable energy isn’t only the environmental choice, it’s also economically feasible. The state of Utah began offering tax credits in 1995 through the Renewable Energy Program to residents and businesses. That first year, 30 credits were approved. In 2007, that number rose to 96. As of July 2008, the latest data available, 79 had been approved. Seventy-six of those were for residential, excluding multi-unit; three were for commercial projects. The total average credit was $137,197. The allowable credit is for 25 percent of the reasonable installed cost for a residential installation up to $2,000 and 10 percent for a commercial project up to $50,000. The credit is non-refundable but can be carried forward for up to four years, and must be applied for through the state energy program. In addition to the state tax credit, the federal government in 2008 began offering a tax credit of 30 percent of the reasonable installed cost. This is a slight change from the previous federal program, which limited the credit to $2,000; now the credit applies to the reasonable installed cost without a limit. The state also offers a sales tax exemption on the purchase or lease of equipment used to generate electricity from renewable sources. This can apply to a range of items, from wind turbines to control and monitoring systems. It also applies to electrical general systems of 20 kilowatts or greater, or for expansions of 1 megawatt or greater. These systems can be in the commercial, industrial or utility sectors. The state tax credits are expected to “ramp up the market for solar,” says Elise Brown, state Energy Program renewable energy coordinator, adding that the credits now extend to utility-scale solar projects, whereas it was previously limited to residential applications. Utah ranks fourth in the nation in solar resources, and Brown believes the interest will continue. “If you have that 30 percent from the federal program, and you have the 10 percent from the state, you essentially will be having at least 40 percent of the project paid for in tax credits,” he says. “I think more and more residents will be doing installs. It’s more viable because it’s essentially less expensive for them.” Price Check Installing a renewable energy source comes with large up-front costs, Brown says. ”But, you can also look at it as a hedge against rate hikes.” The cost of an alternative energy system had kept Denise Oblak, co-owner of Canyon Voyages Adventure Co. in Moab, from making such an installation, despite her belief in renewable energy sources. “We definitely have always been a proponent of utilizing alternative energy where possible,” says Oblak, who started the company in 1991. “We’ve always, since conception, contributed to the Blue Sky wind power program. It’s a philosophy on our part. We definitely want to wean ourselves away from fossil fuels if possible. I think that’s a lofty goal; it’s something we all should be working toward.” She took another step toward implementing that philosophy in 2007, when the company obtained a grant through Rocky Mountain Power that, coupled with the available tax credits, made installation of a solar photo-voltaic system more attractive. “That put it in the realm of possibility for us, even though it was definitely a net out of pocket of quite a few dollars, but it brought it to the point where we could seriously consider it,” Oblak says. “It was still money we had to take out of our pocket, but I think it was an investment in the future.” Canyon Voyages Adventure installed an eight-panel PV system with a 1,440-watt capacity. “The solar panels that we have don’t provide 100 percent of our needs; that was going to be too costly for us to consider,” she says, but added that the system is designed to allow for expansion. Energy produced from the system helps offset the company’s energy bill. As part of the condition of the grant, the excess energy generated by the system is sent into the Rocky Mountain Power grid and Canyon Voyages Adventure receives credit for the production through the net metering program. Solar Push PV systems are the most common renewable energy source in Utah. They range in size from the 160-kilowatt system at the Glen Canyon National Recreation Area Dangling Rope Facility to systems as small as 1 kilowatt, like that at the Green Building Center in Salt Lake City. “There’s actually been quite a large increase in commercial installations in Utah over the last 18 months,” says Orrin Farnsworth, president of the Utah Solar Energy Association. The Beehive State is reflecting a national trend; as head of U.S. dealer sales for the wholesale distributor AEE Solar, Farnsworth has seen dealers nationwide increase their sales by 50 percent to 100 percent annually. In Utah, large companies such as Kennecott Land and USANA have installed PV systems, as have public entities such as Hogle Zoo and the Tracy Aviary. Farnsworth attributes the increased installation at public facilities to Governor Jon Huntsman’s push for the state to become more energy efficient. For corporations, renewable energy makes sense, he says, “on a couple different levels. Number one, there are some pretty high upfront costs but they are negated by the 30 percent federal tax credit. On the commercial side, there’s accelerated depreciation and there’s a 10 percent state tax credit.” Funding through local government improvement zones, redevelopment zones or grants for low-income housing also may be available. For example, the City of St. George offers a rebate of up to $20,000 for commercial PV or wind-energy systems with a minimum capacity of 1 kilowatt. In addition, Farnsworth says, for a publicly traded company, “it’s very favorable to your stockholders to become as energy efficient as possible, and using solar energy does fit into that equation.” An executive seeking to install solar panels at a company should start with an energy audit, Farnsworth says, to see how they could become more efficient without changing production and business attributes. “Every dollar you put into energy efficiency saves you five dollars in costs of a renewal system,” he says. Typically, a solar system for a commercial application is solar panels on the building’s roof or in a nearby area. This type of installation rarely involves an interruption of the business’ day-to-day activity, he says. “Those type of things are very straight forward. Most solar panels have a warranty of 25 years, life expectancy is beyond 50, so there’s not too many things that can beat that as far as production.” Additionally, the electronics that invert solar power to electricity have a typical warranty of 10 years and a life expectancy of 15 years, he says. As a general rule, a small system of 1 to 5 kilowatt size will cost about $9 to $10 a watt to install, Farnsworth says, but the economy of scale applies to larger projects and the cost drops to an $8 to $9 range. For most businesses, converting to 100 percent solar power won’t be cost-effective or practical unless the company could benefit that heavily from the tax credit, and typical payback is 10 years. “Solar is not the only answer,” Farnsworth says. “It’s part of the answer. There are so many different avenues to look at. That’s why Utah is such a great state for that, because we have great multi-faceted energy applications, from the existing coal and limited hydro. You have, of course, solar and wind—the best renewable—but there’s also geo-thermal, there’s some bio-mass being worked on, and not to forget the great resources that we have for a potential nuclear plant, although a lot of those questions haven’t been answered yet.” Indeed, Utah’s biomass facilities include the Salt Lake Valley and Davis County landfills, which provide electricity to Murray City and Hill Air Force Base, respectively. Three other biomass facilities are planned. The largest geo-thermal plant in the state is PacifiCorp’s 34,000-kilowatt facility in Blundell; three other geo-thermal projects are proposed for 2009. Propelling Forward While bio-mass, geo-thermal and hydro-electric facilities are comparatively rare in Utah, in some areas the state’s geography lends itself to the development of wind power, says Richard Simon, director of V-Bar, LLC and a meteorologist who has worked in the wind industry since 1977. Edison International, which opened in 2008 in Spanish Fork, is the largest wind farm in Utah with nine turbines. It sends the energy it produces to Southern California. However, a project calling for 200 large turbines is proposed for the Milford area and may start construction this year. “That will be a major, major project,” Simon says. “When that’s built, it will be the equivalent of some of the larger wind projects that have been built across the United States.” The project is scheduled to generate 200 megawatts; it will be sold to the Los Angeles Department of Water and Power. Ten other wind power developers are monitoring economic and political conditions in Utah, Simon says. “Certainly the state is receiving enough interest that you’re seeing some real money spent here for the long-range planning.” The state has a program that loans and installs wind meters, also known as anemometers, to land owners and residents. “They’re very expensive to buy, put up and analyze the data,” Brown says, adding that in October, she visited a ranch owner interested in developing a commercial-scale wind project on his property and requested an anemometer as a step in that process. “It’s a good way for landowners to get some data that will, in turn, hopefully get developers interested,” she says, adding that the existing wind map of Utah is outdated, and with the point data gathered from the anemometer loan program, she is able to get a better picture of what the winds are doing in Utah. In 2007, Simon completed a study for the state that identified about 50 locations that appear to have the potential for wind energy most are concentrated in the Milford area. Other sites, such as Traverse Mountain, are promising but because of nearby residences, likely won’t be developed as wind farms. More Green Yet another option for companies looking to green up their act is renewal energy credits (RECs), also known as green tags. ”Like a little certificate that’s wrapped around on a tag on an electron, this represents the environmental attributes of clean energy technology,” says Jason Berry, manager of the Utah State Energy Program. Typically, businesses purchase RECs to obtain renewable energy credit; funding from RECs is used to develop renewable energy resources. Berry sees RECs becoming more important to executives in the future, as policies regarding carbon output and greenhouse gases are developed and businesses are regulated in this area. “RECs can be part of that solution,” Berry says. “Companies that maybe can’t afford to install certain equipment to decrease their pollution requirement can buy RECs as a less-expensive requirement to help offset their carbon footprint. A lot of companies are really interested in this.” Oblak recommends the move to renewable energy to other business owners. “If you have the money available to you, it is a longer-term payback, but it’s an investment in clean energy and I don’t think anyone can argue with that.”
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