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Energy incentives and energy codes

Kent HanwayOn Jan. 1, Idaho adopted the 2012 International Energy Conservation Code, the most current and most stringent code applicable to renovation and new construction for commercial construction. This brings Idaho in line with states such as Washington, Oregon, California, Massachusetts and many others. While energy is relatively inexpensive in Idaho and some may ask why we are working so hard, this is a strong move for our future to keep energy consumption and costs low.

Many people think manufacturing and transportation are the big energy consumers and polluters. Each does its share, with manufacturing consuming 31 percent and transportation 28 percent of U.S. energy. The remaining 41 percent? Buildings. The energy to construct and then use the buildings we make consumes more energy than either industry or transportation. Buildings are also the No. 1 producer of global carbon dioxide emissions and the amount is steadily increasing. An analogy from The Living Building Challenge, a nonprofit promoting sustainable design, compares building a 50,000-square-foot commercial building to driving a car 20,000 miles per year – for 730 years!

No matter your view on climate change, we cannot continue on this trend. It simply costs too much to build and operate inefficient buildings. The IECC is revised every three years, and compared to 2006, the 2012 code raises energy efficiency of commercial buildings by 30 percent. However, it is up to the states to adopt new codes, so the federal government and many power companies employ construction-related programs that encourage better-than-code outcomes. Often these programs are very generous, paying for equipment and upgrades with the owner paying only for design and installation.

Idaho Power is one of those companies. Since 2002, Idaho Power has implemented various programs to incentivize building owners and builders to exceed code requirements and build greener buildings. The industry term is “demand-side management,” and per the Idaho Public Utilities Commission, it is a mandated component of Idaho Power’s Integrated Resource Plan. Idaho Power currently sponsors three commercial building programs:

  • Easy Upgrades offers incentives for simple retrofits within existing commercial and industrial buildings.
  • Building Efficiency for Commercial Construction assists in offsetting capital expenses for efficient lighting, cooling and control systems, as well as better-built building shells for new or renovated commercial and industrial construction.
  • Custom Efficiency for Complex Projects addresses large commercial and industrial users that improve their electrical systems or processes.

With the change to more stringent codes, the baseline for energy efficiency requirements continues to rise, making incentive programs less cost effective or even redundant over time. Idaho Power will continue to monitor energy codes, assess the costs and benefits of their programs, and modify them to fit new performance thresholds. Simply, they will not provide incentives for buildings just to be code-compliant.

A federal incentive program within Section 179(d) of the tax code allows generous tax deductions in the form of accelerated depreciation for energy upgrades to existing commercial buildings. As much as $1.80 per square foot can be depreciated in the applicable (implementation) year. This program was very successful for some developers and building owners, although many did not know of its existence or work to take advantage of its benefits. In April 2013, the president’s energy policy urged an extension of 179(d), but no action has been taken, and the provision sunset on Dec. 31. Projects completed in 2013 are eligible for tax credits, but unless Congress acts to extend the program, it is likely at an end.

Will the uncertainty or demise of these programs put a damper on green design and sustainable building? Absolutely not. More stringent codes are pushing the trend, but savvy developers and investors already know something very important about building green: bottom-line benefits.

The simple payback from many energy efficiency measures is estimated to be only five to seven years. Green buildings are less expensive to operate, raising return on investment compared to comparable leased space. Green buildings are also perceived to have greater value in the market. In five different studies from 2009 to 2011 in 12 urban U.S. markets, some including Boise, green buildings experienced higher rents, fewer vacancies and faster absorption. Sales of green buildings experienced shorter durations and higher net prices.

In 2011, Boise’s Leadership in Energy and Environmental Design office rents just barely outpaced comparable non-LEED properties. However, only 2 percent of LEED office space was vacant versus 12 percent of other office space. Karen Warner, president of Tenant Realty Advisors in Boise, sums it up:

“The demand for green office buildings will continue to increase as more and more national firms recognize the benefits of leasing sustainable office space. Not only does it make economic sense, but green buildings also have a positive influence on employee retention and productivity.”

The financial incentives of grants, rebates and deductions may be vanishing, but the real money in green building remains.

Kent Hanway is a licensed architect and president of CSHQA, a Boise-based, 90-person architectural and engineering firm. He is a member of the Idaho Power Energy Efficiency Advisory Group, the Urban Land Institute and the American Institute of Architects.

About Kent Hanway