Tax Incentives for Energy Efficiency

The Energy Policy Act of 2005 includes new tax incentives for consumers, businesses, and manufacturers to promote energy efficiency.  Electric cooperatives may have opportunities to leverage and promote these new tax incentives with consumers and home builders.  The tax incentives which will have the greatest interest to cooperative members include home efficiency improvements, energy efficient appliances (including air conditioners and heat pumps), new home construction, commercial buildings, and solar systems.  Each of these incentives are described in more detail below.

Home Improvements
Customers can receive up to $500 in tax credits for specific items which improve the building envelope or for high efficiency heating, cooling, and water heating equipment.  The building envelope components must meet the model energy code and only a portion of the cost is eligible.  Building envelope items include:

• Insulation, sealing, and exterior doors – 10% of costs
• Windows and skylights – 10% of costs up to $200 credit
• Energy Star pigmented metal roofs – 10% of costs

Heating and cooling equipment and water heaters are also eligible for the tax incentives, although it is interesting to note that the only electric water heater that qualifies is a heat pump water heater.  The list of eligible equipment is summarized below:

New Residential Construction
Home builders that build energy efficient homes may be eligible for a $2,000 tax credit if the homes use 50% less energy than homes built to the 2004 Supplemental International Energy Conservation Code (IECC).  While some cooperatives have programs to promote energy efficient construction, such as Good Cents and the Touchstone Energy Home, in many cases the builder will have to make additional upgrades to qualify for the tax incentives.  Also, in order to receive the tax credit, the home must be inspected and energy savings must be documented using a certified software package.  Another important distinction is that the tax incentive goes to the builder and not to the homeowner.  Tax incentives of $1,000 are also available for manufactured homes that meet the Energy Star Guidelines.  These tax incentives also go to the builder (typically, the manufacturing plant) and not the homeowner.

Other Incentives

Commercial Buildings - Tax incentives are also available for new buildings that use 50% less energy than required by ASRAE Standard 90.1-2001.  A deduction of up to $1.80 per square foot of building space is available and partial deductions (up to $0.60/square foot) for building envelope, HVAC and hot water, or lighting systems.  Based on some preliminary analysis by EnerVision, many new buildings can incorporate energy efficient lighting systems and will qualify for the partial deduction.

Solar Systems – Solar water heating and photovoltaic systems can qualify for up to a $2000 tax credit (30% of the system costs).  Detailed specifications are listed below.

The tax incentives began on January 1, 2006 and most last through the end of 2007.  Specific dates apply to certain measures and Congress may extend eligibility dates.  Electric cooperatives should educate members about the tax incentives through newsletters, web sites, and other communication tools.  For additional information regarding tax incentives or energy conservation program design and development, please contact Robert Duval at 1-888-999-8840 or e-mail him at Robert.Duval@enervision-inc.com.