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For many building owners, the upfront cost of building performance improvements is too high a barrier to overcome. The Institute for Building Efficiency’s 2013 Energy Efficiency Indicator Survey found that 51% of North American building owners listed availability of capital or other financial criteria as their top barrier to investing in energy efficiency. Thankfully, building owners can utilize tax incentives and Energy Savings Performance Contracts (ESPC) to overcome upfront capital expenditure barriers.

Tax Incentives

Many building owners are familiar with the Energy-Efficient Commercial Building Tax Deduction (commonly referred to by its section in the tax code–179D), which provides a $1.80 per square foot tax deduction for buildings which decrease their energy consumption 50% below the ASHRAE 90.1-2001 standard. NEMA was instrumental in creating the 179D tax deduction in 2005, and we continue to support the improvement and extension of the deduction.

However, if Congress deems it appropriate to broaden the tax base and retain a limited number of simplified, high-priority incentives, NEMA has developed a technology-neutral tax deduction to encourage installation of equipment and systems to maximize or improve energy efficiency in new and existing buildings. Eligibility for this tax deduction would be based on the ASHRAE Building Energy Quotient (bEQ) building rating and labeling system. For new buildings, the tax incentive would be based on the bEQ level achieved after the first 12 to 18 months of actual operation of the building. For upgrades to existing buildings, the incentive would be based on: (i) the post-upgrade bEQ level achieved; and (ii) the extent of the energy savings, indicated by the improvement in pre- and post-upgrade bEQ levels.

Energy Savings Performance Contracts (ESPCs)

Energy Savings Performance Contracts allow building owners and government agencies to improve the energy performance of their buildings with no upfront capital expenditure.    

Under an ESPC, building owners pay a slightly lower rate per month than their historic energy bill to an energy services company (ESCO) for a set period of time (typically 15-25 years), and in exchange the ESCO will install upgraded energy technologies (such as lighting systems; heating, air conditioning, and ventilation controls; energy-efficient motors; variable-speed drives; and more) and guarantee a specific amount of energy savings. After the contract period ends, the energy savings accrue to the building owner or federal agency. For a visual explanation, see the diagram above from the Lawrence Berkeley National Laboratory.

ESPCs have saved $7.2 billion dollars in energy costs in federal buildings alone since 1998 and have the potential to save billions more. To find out more, visit the U.S. Department of Energy’s ESPC website.


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