How Energy Legislation Can Save You Money

Electricity prices for most businesses in New York are more than 50% higher than the average prices charged in other states, creating a competitive disadvantage for New York’s businesses. Adoption of energy efficiency and alternative energy generation technologies can help level the playing field by reducing energy costs with the added benefit of reducing environmental impact. Federal and state legislative and regulatory activity in 2010 have, in most cases, improved programs that provide financial incentives for investment in energy improvements – programs that often make the difference between an energy project with marginal financial benefit and a project that has a strong positive impact on the performance of the business.

New York’s financial incentives are offered through a patchwork quilt of more than 50 programs sponsored by the New York State Energy Research and Development Authority (NYSERDA), different municipalities and the state’s utilities.

Incentives for Energy Conservation and Efficiency Technologies

Rebate programs offered by NYSERDA and by various utilities in the state provide incentives for implementing eligible energy efficiency technologies such as refrigerators, water heaters, lighting, lighting controls/sensors, etc. Similarly for industrial businesses, rebates are available for process efficiency improvements. The rebates can be substantial, covering 50%-70% of project costs in some cases.

The energy-efficient commercial buildings tax deduction is an incentive that provides a tax deduction of up to $1.80 per square foot for building owners and tenants that introduce systems to reduce the building’s total energy and power cost by 50% or more in comparison to a standard performance benchmark.

In late 2009, legislation was passed enabling New York municipalities to launch property assessed clean energy (PACE) loan programs. PACE allows communities to leverage federal funds and provide low cost loans to finance energy efficiency retrofits and renewable energy systems. The loan repayment is treated as a property tax obligation, senior to mortgage obligations, which allows PACE programs to procure and provide funding at very low rates. New York received $40 million in federal stimulus funds to apply to PACE programs.

However, in July 2010, the Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac not to underwrite mortgages for properties with a PACE assessment. This has had a general chilling effect on PACE programs, and the fate of PACE in New York is not clear at this time. PACE programs in other jurisdictions such as the District of Columbia, where the focus is on commercial and industrial properties, have not been affected. This offers hope for New York businesses that PACE funding may become available during the course of 2011 and property owners should be aware of this powerful source of energy efficiency financing, should it become available.

Incentives for Alternative Energy Generation Technologies

For businesses that are considering alternative energy generation technologies, such as solar photovoltaic (PV) panels or wind turbines, the programs to consider include the U.S. Treasury Section 1603 grants, Net Metering, and other rebate programs from NYSERDA.

Section 1603 grants, which were extended through 2011 as part of 2010’s compromise tax package, provide a cash payment equal to 30 percent of the hard investment costs for businesses implementing clean energy generation projects. Businesses typically use Section 1603 grants as a central component of project finance, securing interim financing during design as well as construction and commissioning of the system. Using the payment from the treasury as “created equity,” they are then able to refinance the project at more advantageous terms.

Rebate programs through NYSERDA and various utilities in the state are available for implementing solar PV, solar thermal, small wind and anaerobic digester gas-to-electricity systems. For example, NYSERDA provides a solar PV incentive of $1.75 per watt up to a maximum of 50 KW of installed capacity for a business. At current prices this represents up to 25% of the cost of a small solar PV installation. Taken together with the Section 1603 grant discussed above, a New York business can realize incentives reducing the cost of a solar project by over 50%.

Net metering allows a business with an alternative energy generation system to both reduce its utility power consumption and also to sell electricity back to the utility. As an example, a business installing rooftop-mounted solar PV panels will directly consume the electricity generated by the solar panels rather than consuming that energy from the utility grid, reducing its utility bill. Further, during times when the electricity generated by those rooftop solar panels exceeds the demand from the business - possibly on a sunny weekend morning when the business is closed - the excess electricity is metered back onto the utility’s grid, making the meter run in reverse. Within limits set by the regulation, the business receives credit for some or all of the net surplus of generated energy. Recent changes to the legislation in September 2010 increased the allowable system capacity limits to encourage more participation, especially from businesses.

New York’s net metering legislation requires all investor-owned utilities - Consolidated Edison, Orange & Rockland Utilities, etc. - to offer net metering. Publically-owned utilities are exempted, though the Long Island Power Authority (LIPA) offers a net metering program similar to programs offered by investor-owned utilities.