Although some federal credits for alternative power projects expired last year, a handful remains possible for businesses through 2013 and even 2016. The Tax Incentives Assistance Project serves as an excellent resource for all your questions. Here is a quick overview of how your business might benefit:
Commercial Properties: Owners (or tenants in some cases) can earn a tax deduction of up to $1.80 per square foot if they construct or reconstruct their commercial buildings to save at least 50 percent on energy costs (heating, cooling, ventilation, water heating, and interior lighting). Partial deductions also are availabe—60 cents per square foot—for improvements to reduce energy costs for the building’s envelope (by 10 percent), lighting (by 20 percent), or heating and cooling system (by 20 percent.) Federal guidelines detail specific eligibility. The deduction is available through 2013 for facilities placed in service.
Combined Heat and Power: Using a Combined Heat and Power (CHP) system that is 60 percent efficient (on a lower heating value basis), and produces at least 20 percent of useful energy as electricity and at least another 20 percent as useful thermal energy, qualifies owners for a tax incentive. Owners of CHP systems smaller than 50 megawatts can earn a 10 percent investment tax credit for the system’s first 15 megawatts. The credit is available through 2016 and the equipment must also be placed in service.
On-Site Renewable Resources: Covering solar energy systems, small wind systems, and geothermal heat pumps, the on-site renewable resource tax credit is available through 2016 and systems must also be placed in service. Qualifying equipment uses solar energy to generate electricity, to heat or cool a structure, to provide hot water, or to light the inside of the structure through fiber-optic distributed sunlight. For more specific details on the energy credit, visit www.seia.org.
Owners of wind systems producing 100 kilowatts or less can receive a credit for 30 percent of the total installed cost of the system.
Geothermal projects cover heat pump equipment that uses the ground or groundwater as the energy source to heat or cool the structure. Investment tax credits of 10 percent are available for commercial structures implementing such systems.
Fuel Cells and Microturbines: Credits up to 30 percent for fuel cells and up to 10 percent for microturbines (with pre-determined limits per power production) also are possible through 2016 and the equipment must also be placed in service. Fuel cell systems must have at least 30 percent efficiency and at least a half-megawatt capacity. Microturbines must have an efficiency of at least 26 percent and a capacity less than 2,000 kilowatts.
From a business standpoint, the decision to utilize energy efficient products and technologies comes down to what works best for each organization. If tax credits help justify the investment, then your business might want to take a serious look at whether alternative energy is a way to stabilize your energy costs for the long term.
For more information about alternative energy tax credit opportunities for your business, please contact our Tax Strategies group at 215.441.4600.