Effective last November, The Energy Policy Act of 2005 (EPACT) was created to encourage commercial building owners to implement energy-efficient building systems in order to decrease dependence on fossil fuels. Energy-efficient building systems promoted through EPACT include interior lighting systems, HVAC/hot water systems and building envelope features.

For years, building owners could reduce operating costs, increase profitability and capitalize on a competitive advantage by investing in energy-efficient building systems, but the initial investment often seemed too high in the eyes of decision makers. The tax-deduction avenue may cause some decision makers to re-evaluate.

To the benefit of building owners, EPACT created the Energy Efficient Commercial Buildings Deduction, which, for a two-year span, allows building owners to deduct the entire cost of a lighting or building upgrade in the year the equipment is installed. From Jan. 1, 2006, to Dec. 31, 2007, the Commercial Buildings Deduction presents an accelerated tax deduction that is the lesser of the complete cost of installing “energy-efficient commercial property” or $1.80 per square foot.

For EPACT purposes, “energy-efficient commercial building property” is defined as interior lighting systems, HVAC/hot water systems and building envelope features, which are:

  • Otherwise depreciable as a cost.

  • Installed in the United States or its territories.

  • Part of new construction or renovation within the scope of the ASHRAE/IES Standard 90.1-2001.

  • Certified to reduce total annual energy and power costs to at least 50 percent less than a building satisfying ASHRAE/IES Standard 90.1-2001.



If the building owner does not want to make the full investment on all three building systems, a partial deduction can be claimed. The owner can upgrade just one of the three building systems (interior lighting, HVAC/hot water or building envelope) and write off the complete cost capped at a lower amount of 60 cents per square foot.

Also of note, a sliding scale exists where one can take a deduction of up to 25 cents per square foot for reducing lighting power density (LPD) by 25 percent above and beyond ASHRAE/IES Standard 90.1-2001.

What EPACT means to the lighting industry

According to the U.S. Department of Energy, lighting represents 40 percent of the average commercial building's energy bill, followed by motors/HVAC (40 percent) and other equipment (20 percent). Because only 20 percent of existing U.S. commercial buildings feature some degree of upgraded lighting technology, the potential for system upgrades is great.

As mentioned, EPACT legislation aims to reduce the amount of lighting power density (LPD) by 40 percent above and beyond ASHRAE/IES Standard 90.1-2001. (The goal is 50 percent for warehouses and 40 percent for all other applications.) Only premium energy-efficient lighting products qualify as code-compliant lighting systems. As a result, distributors should be able to sell more high-margin products and solutions.

In response to these electrical codes, as well as commonsense economics, energy-efficient lighting is becoming a common feature in new construction. This undoubtedly encourages the sale of more energy-efficient lighting ballasts and fixtures, but the systems these lighting systems fit into requires high-end lighting controls. This adds to the energy savings end users can recover.

Customer/end-user communication

Lighting is generally considered the easiest, most profitable way to save energy in buildings. The key is to focus on the financial benefits of installing or retrofitting a lighting upgrade. In addition to the nonfinancial benefits of better lighting, the payback is substantial and quickly attainable. According to the Energy Cost Savings Council, Washington, D.C., energy-efficient lighting generates an average project payback period of 2.2 years and a 45 percent return on investment.

Joint calls with contractors/specifiers are a great tactic to communicate this information to the end user. Distributors should build a scenario that demonstrates the payback period for lighting upgrade options. In a sales scenario, if a payback period of less than three years can be demonstrated, end users usually view a lighting upgrade positively. In addition, available tax deductions strengthen the case for upgrades even further.

In addition to landing high-margin energy-efficient projects, joint calls are a wonderful marketing strategy for distributors to develop credibility with end users. Distributors who have great relationships with their customers can use joint calls to not only get in front of end users but also to receive the valuable support and approval from customers. This credibility is invaluable with end users. Contractor/specifier approval of an electrical distributor can result in a lifetime of connections and projects traveling through the pipeline.

Lighting design specialists

Because architects and engineers must have so many continuing education credit hours and are required to follow mandates, they are aware of EPACT and the potential for tax deductions. The distributor and contractor/specifier crowd is not as likely to be familiar with specifics of EPACT. This trend should change because a significantly larger percentage of all lighting projects are now completed by design-and-build contractors.

Some savvy large distributors have lighting designers on staff to coordinate design projects. In these cases, all EPACT-compliant lighting projects bring in tax-deduction opportunities for building owners and sales opportunities for the distributor. Obviously, EPACT education for an electrical distributor is important.

Distributors who offer design-and-build services focus their organizational growth on providing solutions for customers and end users, as opposed to simply pushing product to increase volume. Regardless of the size of the distributor and the breadth of resources available, any distributor can make the effort to initiate joint calls. It's much easier to sell a solution to an end user rather than simply sell a product. This attitude in perception and value-adding ability is what separates progressive distributors from stagnant ones.

Lighting controls

Although lighting controls such as occupancy sensors do not contribute to the lighting power density savings needed to qualify for the Commercial Buildings Deduction, they are required as indicated in ASHRAE/IES Standard 90.1-2001. ASHRAE/IES Standard 90.1-2001 provisions include automatic shut-off, space controls, exterior lighting controls and additional controls for specialized lighting or applications. Wall switches and ceiling-mounted occupancy sensors are convenient, cost-effective solutions that meet these provisions while providing energy savings and quick payback to the end users.

Resources

Cooper Lighting and other manufacturers schedule seminars across the United States to educate distributors, contractors and specifiers on the most recent forms of legislation and what they can do to promote nationwide energy-efficiency and ultimately increase business. Training is also available at Cooper Lighting's Source Educational Center in Peachtree City, Ga. The center annually hosts more than 9,000 lighting professionals who want training on lighting and legislation each year.

The National Electrical Manufacturers Association (NEMA), Rosslyn, Va., a key player in lobbying Congress for this legislation, has dedicated a Commercial Lighting Tax Deduction Web site at www.lightingtaxdeduction.com. It's a great resource for information on EPACT.

The benefits of upgrading a lighting system with an energy-efficient solution can prove financially rewarding, and EPACT's new tax deductions strengthen the case for any building owner to move forward with that investment. Everyone involved in the lighting sector should become educated with the specifics and encourage decision makers to take advantage. The life of this legislation really depends on its success and rate of implementation. Upgrading building systems will not only have the immediate advantage of receiving tax credits but will also indicate to Congress that this is a proper step in decreasing energy usage.




Mark Lien, manager of the Source Educational Center for Cooper Lighting, Peachtree City, Ga., is a LEED-accredited professional as well as a certified lighting management consultant (CLMC) and a certified lighting efficiency professional (CLEP). The Source Educational Center has provided professional lighting education for more than 14 years. You can reach Lien at (770) 486-4800 or mlien@cooperlighting.com.

Matthew W. Conger is a product manager for Cooper Wiring Devices, Peachtree City, Ga. He manages lighting control products and the Aspire Design System line of wiring devices. Contact Conger at (770) 631-2100 or mconger@cooperwiringdevices.com.