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Energy Savings Big Win – Federal Tax Cuts + Energy Efficiency Programs

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Energy efficiency equipment payback drastically reduced.  The payback period for many capital equipment purchases can be drastically reduced (40% or greater).  Be it Boilers, Chillers, HVAC, UPS, Motors, VSDVariable Speed Drive, Compressors and Blowers.

The Federal Budget announced on the 6th of October that nearly all businesses will be able to fully deduct capital equipment purchases in operation by June 2022. If you couple this with the state based energy savingsElectricity or gas savings or both. scheme (NSW, ESSThe NSW Energy Savings Scheme (ESS) provides financial incentives to install, improve or replace energy savings equipment and appliances in NSW households and businesses. The ESS was established in 2009. Financial incentives are in the form of tradeable certificates, called energy savings certificates (ESCs). Generally, householders and businesses who fund energy savings activities transfer the right to create ESCs to Accredited Certificate Providers (ACPs) in return for a discount on the cost of the energy savings activity.  The MWh savings from the project determines the number of ESCs that can be created. The ESS works by allowing ACPs to create and register ESCs for energy savings that are supported with appropriate evidence. ESCs are then purchased each year by mainly electricity retailers operating in NSW to meet their share of a legislated annual energy savings target., VIC, VEUVictorian Energy Upgrades is a Victorian government energy efficiency program that gives every Victorian household and business the opportunity to receive rebates or discounts on energy saving products.) then a business can substantially reduce their energy costs, and achieve a much shorter payback.  With the added bonus of the higher reliability and lower maintenance that comes with new equipment.

Take for example the upgrade of a 6MW Gas-Fired Steam boiling is using say 45,000 GJA gigajoule (GJ) is the equivalent to 1 billion joules. A joule is a measure of the energy required to send an electrical current of one ampere through a resistance of one ohm for one second. One GJ is equal to 277.8 kilowatt hours ( kWh), 1.055 million British thermal units (Btu) or 0.17 barrels of oil. PA at recent prices of say $11.00 per GJ and hence $500,000 PA in gas charges.  The upgrade to a new high efficiency boiler with economiser, O2 trim could cost around $800,000.  The efficiency gains from moving from a 30 year old boiler to a modern one could be as high as 30%, but we’ll use a 25% reduction in gas usage for this example and hence annual gas savings of 11,250 GJ PA. Prior to the Federal Budget (and after June 2022) a new boiler asset would need to be depreciated over 20 years.

The figures for the new boiler commissioned by June 2022 are as follows

Compare the three scenarios

No tax cuts & not claiming environmental certificates

Using tax cuts & not claiming environmental certificates

Using tax cuts & environmental certificates

Hence by performing the upgrade with the new Federal Budget changes reduces the outlay by more than 25% and brings down the payback period substantially. Also be aware that with the changes that allow companies to offset future losses against past profits for the financial years of 2020-2022 means that you can carry back losses (ie the capital cost) to reduce last year’s tax bill as well.

Boilers are one asset type that uses a large amount of energy and has the potential to save substantial energy, but the same applies to many other equipment upgrades that will drive substantial energy savings.  Consider these aging assets for replacement by using the immediate tax depreciation and NSW Energy Saving Scheme or Victorian Energy Upgrades to drive much short payback periods.

All these assets can claim energy savings certificates using the Measurement and Verification methods under the different state-based schemes as well as under the Australian Carbon Farming Initiative (Carbon Solutions Fund).

Image courtesy of: couriermail.com.au

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