Businesses are always looking for ways to manage costs and retain earnings. Upgrading property is an opportunity to implement project details that accomplish just that. Through sustainable upgrades, businesses realize benefits that go beyond energy savings. The benefits of transitioning to sustainable features begin even before renovations start, with special funding that covers the upfront costs. Incentives and programs are available locally and nationally that are designed to help businesses improve sustainability. These programs are often offset with tax incentives, longer terms and in some instances, partial loan forgiveness. On top of these programs, businesses realize the benefits of lower energy costs over the long term as well as earning a marketable reputation for climate-friendly action.
There are thousands of options for building sustainably, from using low-carbon concrete to installing a green roof. Because buildings produce about 40% of the world’s CO2 emissions, they’re one of biggest areas for environmental improvement. As the climate awareness becomes more predominant, states and cities may see the rollout of further sustainability incentives in the near future. This article will focus primarily on energy-saving measures and the funding that exists now to make them possible. Talk with your loan broker to find out about all of the options available to you in your area.
Green Windows
Upgrading the windows in a commercial building has a substantial impact on future cost savings. Windows can account for as much as 30% of the increase or decrease in interior temperatures, affecting the amount of energy spent on temperature regulation. Upgrading windows is often cited as the second most impactful building improvement after HVAC systems.
Replacing old windows should be one of the first steps in any commercial building sustainability upgrade. Single-pane glass windows and windows improperly sealed cause a significant transfer of heat between the interior and exterior environments. The number and placement of windows can also eliminate or reduce the energy requirements of interior lighting.
Smart HVAC
Upgrading to a smart HVAC system is another cost-saving sustainability upgrade. These systems utilize smart technologies that keep track of use and preferences as well as tracking consumption and allowing for micro-climate control. Smart thermostats can detect how often a space is used and regulate the room’s environment accordingly. Vacant or infrequently-used rooms can be set to reduce cooling or heating in those areas, reducing overall energy consumption.
Smart HVAC systems can alert to maintenance requirements and repair needs. Keeping an appropriate maintenance schedule improves the operation and efficiency of HVAC systems, driving down cost and energy consumption. Some systems utilize the power of the “Internet of Things,” (networked machinery monitored and run through computer systems) allowing for remote diagnostics, controls, and performance reporting.
Industrial Solar
Rural areas often present challenges to accessing reliable and consistent energy. Because many agricultural businesses are necessarily far from city centers, utility infrastructure can be lacking. Industrial solar not only provides a reliable energy source but generating solar power can also earn agricultural businesses added income that balances the ups and downs of farming.
Solar reduces overhead through utility savings, lowers tax liability, and hedges against rising energy costs. A business running industrial solar is more resistant to fluctuations in the energy market. Panels can be installed on flat roofs, peaked roofs, parking structures, or on the ground. Most of these systems come with extended or lifetime warranties. If the system produces more energy than the business needs, excess energy can be sold to local energy providers.
The number of solar panels needed to offset a business’s energy costs completely depends on the type of panels used and the number of peak sunlight hours the property receives. Independent solar energy consultants and knowledgeable solar energy providers offer customized estimates that take an individual business’s conditions and goals into consideration.
Investment Tax Credit
The Investment Tax Credit or ITC is closely tied to industrial solar. It’s a tax incentive for the installation of Commercial PV (Commercial solar photovoltaics) and other types of renewable energy. It gives deductions for installing systems that reduce power use, credits and grants for using alternative energy sources, and bonus depreciation for reuse and recycling of materials. It covers panels, racking, sales tax, installation, transformers, circuit breakers, energy storage, and more.
30% of the cost of a solar system installation can be claimed as a deduction on federal corporate income taxes. Systems eligible for the ITC are also typically eligible for an accelerated depreciation corporate deduction. The ITC is scheduled to scale down in the coming years, so a business benefits more from installing industrial solar this year than it will in upcoming years.
More details about the ITC can be found on the Department of Energy’s website here.
CPACE Financing
Commercial Property Assessed Clean Energy, or CPACE financing, is one way for businesses to manage the upfront costs of energy-efficient and renewable energy improvements. Although this program has to be authorized by a state or local government, the funds come from private lenders. CPACE does not rely on public funding. Although it is currently available in Colorado, not every state has authorized the program. A map of the participating states can be found here.
The program works by funding upgrades upfront with private loans. The loans are then repaid by the business via a voluntary benefit assessment lien. This reduces taxable earnings while simultaneously upgrading the property and reducing operational costs. The business pays the loan costs along with its property taxes.
Unlike a traditional commercial loan with a seven to ten-year term, C-PACE loans typically have twenty to thirty-year terms. Since lenders consider the tax assessment repayment plan to be low risk, interest rates are competitive. The loan is attached to the property, so if ownership of the building changes hands, the new owner inherits the repayment obligation.
Financing Sources
Introducing sustainability upgrades can help a business save on the overhead costs of running a commercial property, but where does the funding for these projects come from? While the CPACE program described earlier is one way to pay for solar upgrades, there are several ways to finance sustainable building options.
Asset-Based Financing
A business can leverage its assets, such as real estate, equipment, accounts receivable, and inventory, to get financing for sustainable upgrades. Hard money and bridge loans are short-term options that provide capital to cover upfront costs. These loans can be secured on the property being upgraded or on another property. Factoring lets a business sell its accounts receivable assets to get immediate cash in advance of customer payments.
Property Improvement
Funding Property improvement loans can pay for building upgrades, whether or not they incorporate sustainability features. Some loans, like the SBA 504 loan, have a higher maximum funding amount for construction projects designed with sustainability in mind. Private commercial construction loans will fund renovations and are often easier to get than traditional commercial loans.
Federal Programs
Federal sources of sustainability funding abound, including the EPA, SBA, and the USDA. Most come in the form of rebates, but some will help offset the initial costs of an upgrade project. For example, the USDA’s Department of Rural Development offers funding for energy audits, installing solar panels, converting to clean technologies, and producing biofuels.
State Programs
The federal government isn’t the only public source of funding. State programs also help businesses invest in sustainable upgrades that reduce dependence on municipal resources. The state of Colorado’s Clean Energy Fund provides funding for building projects that reduce utility costs, reduce GHG emissions, or increase solar PV at a fixed rate. The fund gives businesses up to $250,000 for upgrades.
Each area and each industry has its specific financing and incentives for green building upgrades. The best way to learn more about all of these options efficiently is by contacting a broker. A qualified broker will be able to pinpoint the best choices for an individual business’s needs depending on its budget and scope of the project. Brokers will also have access to special deals they’ve gained through their lender relationships, deals they can pass on to the business seeking financing.
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