How to reduce your business’s energy costs with tax credits while also helping the environment Featured

7:00pm EDT November 25, 2010
How to reduce your business’s energy costs with tax credits while also helping the environment

There is a lot of buzz around businesses going green, but opportunities to do so are still limited.

Despite ambitious plans to implement renewable energy tools and programs, “the green economy has not yet emerged,” says Nick Lombardi, manager of risk services and energy services practice leader at Brown Smith Wallace LLC.

While some states have adopted renewable energy portfolios, there is no federal standard. And most of the sweeping, green-minded efforts that have been discussed in Washington, D.C., the past few years are still on the table.

That said, there are still things that businesses can do to improve energy efficiency and take advantage of tax credits and incentives for retrofitting commercial property and purchasing equipment.

“Only use what you need,” Lombardi says. “And consider purchasing more efficient lighting, training employees and replacing inefficient motors and other equipment to save on energy costs.”

Smart Business spoke with Lombardi about how to realize savings and reduce energy consumption by taking advantage of available tax credits and incentives and implementing efficiency measures.

How can a business take advantage of green initiatives?

There is no real answer. When the current administration stepped in, there was a lot of hype around developing a green economy. However, much of that has not been implemented, as incentives and government programs remain stalled. How can a business take advantage of a systematic program that doesn’t yet exist?

The good news is that there are some specific opportunities for businesses that are interested in undertaking renewable energy projects. These have been in place for some time and will continue to be available for businesses moving forward. For example, the EPACT (Energy Policy Act of 2005) tax credits apply to commercial buildings that implement energy-efficient measures. If an organization meets certain energy-efficiency standards, it can earn a tax deduction for the facility of up to $1.80 per square foot. Additionally, there are federal investment tax credits available for renewable projects such as installing a wind turbine, or photovoltaic equipment to produce solar energy.

Businesses should also check into local renewable energy programs that may be available through utilities. For instance, some of the most accessible incentives are earned through installation of high-efficiency lighting. Before making any retrofits, however, you should talk to a professional who is well versed in energy consumption and green tax credits.

What are other ways companies can reduce energy expenditures?

Initiating an internal training program to educate employees about energy-saving basics will go a long way toward reducing energy costs. Your mantra should be, ‘Don’t use what you don’t need.’ Highlight the importance of simple things, such as turning off lights when office spaces are not in use, and powering down computers at the end of the day.

Computers demand a lot of energy, and companies can reduce their usage by simply adopting conscientious habits, such as not allowing employees to disable a computer’s standby mode.

Utilize natural light whenever possible, and use occupancy sensors as a cost-effective way to ensure that lights are only on when necessary. Also, daylight harvesting systems are more accessible and affordable to install now. These systems involve lighting that dims and brightens depending on available natural light in a space. There are rebates and incentives available for installing this type of technology.

What is electric power factor, and what impact does it have on utility bills?

Electric power factor is the ratio of the ‘real power’ flowing to the machine to the ‘apparent power,’ the amount of energy a machine uses versus the energy the machine produces. It’s complicated to understand, but essentially, the measurement is the portion of electric energy that is doing the work and not stored or captured in back-and-forth magnetic energy.

There is a misconception that improving this ratio will drastically reduce utility bills. The way electricity is metered, only energy that is ‘doing the work’ is measured. Analyze your utility bill and you will see that the power factor component is an infinitesimal portion of your expense.

The best way to save on utility costs is by focusing on efficiency and considering upgrading to high-efficiency motors, especially those used in pumps, fans and other long-running machinery.

How do usage spikes affect my bill?

There is another utility myth — that huge spikes in power usage drive up costs. When you turn on a large bank of lights, or power up a big machine, the energy surge is depicted on a utility bill as a significant uptick. These energy surges last a fraction of a second, or a couple seconds, at most. Many believe that by reducing these spikes, one can control energy costs.

However, utilities measure electric demand over 15-minute intervals, and those brief, though enormous, spikes hardly change the average. So don’t get sold on devices that claim to reduce those huge spikes and reduce your electric bill. If you want to save money on electricity, the tried-and-true methods are to upgrade to more efficient equipment, monitor usage of items such as lights and computers, and educate employees about wise energy use.

Meanwhile, talk to your utility company or a professional about your rate structure to be sure you’re on the right rate.

Nick Lombardi, PE, is manager of risk services and energy services practice leader at Brown Smith Wallace, St. Louis, Mo. Reach him at (314) 983-1323 or