ECA for Energy-Saving Investments

9 December 2004 Mike Perry IEMA: Sustainability in the Built Environment

The Carbon Trust

“The Carbon Trust will take the lead on low carbon technology and innovation in this country and put Britain in the lead internationally” - The Prime Minister, October 2000

UK Climate Change and Energy Policy Targets

•

UK Kyoto obligation

“Cut greenhouse gas emissions by 12.5% on 1990 levels averaged over 2008-12”

• – – – – –

UK Energy White Paper: Goals to 2020

20% cut in CO 2 by 2010 from 1990 levels Cut carbon emissions by 15-25 MtC per annum 10% of electricity generated from renewables by 2010 . . .

. . . with an aspiration to rise to 20% by 2020 10GW e of electricity from combined heat and power (CHP) schemes by 2010 •

UK Energy White Paper: Goals beyond 2020

– – To cut CO 2 emissions by 60% by 2050 To create a low carbon economy in the UK

There are 3 levers that can deliver a low carbon economy

The UK’s climate change objective requires reduction in the ratio of:

CO

2

emissions Unit of GDP

1. Reduced Energy Intensity 2. Improved Energy Efficiency 3. Reduced Carbon Intensity

CO 2 emission Energy supply x Energy supply Energy demand

Focus of The Carbon Trust’s activities is improving energy efficiency and reducing the carbon intensity of energy supply

x Energy demand GDP

The Carbon Trust has 2 Financial Products

ECA for Energy-Saving Investments Energy-Efficiency Loans for SMEs • • 100% first year tax allowance + Definitive list of qualifying products (ETL) • • • £5k to £100k unsecured (£50k W, NI) 0% APR Repayable over 1 to 4 years

The ECA Scheme at a Glance

 Scheme announced by Chancellor in November 1999 Pre-Budget report and came into statutory effect in August 2001  A means of recycling CCL receipts to bring about emissions abatement via energy-efficiency  Businesses can write off 100% of qualifying investments against taxable profits for period during which they make the investment  ECA saves 30% of investment cost in first year compared to 7.5% for ordinary capital allowances (assuming corporation tax at 30%) 1st year cash flow boost designed to help address the higher purchase price of the more energy-efficient plant & machinery to enable business to benefit from lower on-going energy bills

What are the benefits?

 Scheme initiates carbon savings  Provides fiscal incentive to users  Provides a marketing tool for manufacturers, thereby encouraging innovation  Energy efficient equipment can potentially provide savings through future energy bills

How much of an incentive is it?

 Ordinary capital allowances can save £7.50 for every £100 spent per annum (assuming company pays tax on profits)  Enhance capital allowance = 100% first year allowances, save £30 for every £100 spent (assuming company pays tax on profits at 30%)  All allowances due in the first year, therefore greatest effects of the scheme are on cashflow

1 2 3 4 5 6 7 8 9 10

How the rates of relief compare

Year Expenditure written off against profits

25.0

18.8

14.1

10.5

7.9

5.9

4.4

3.3

2.5

1.9

Capital Allowance (25%) Capital Allowance SMEs Rate (40% then 25%)

40.0

15.0

11.3

8.4

6.3

4.7

3.6

2.7

2.0

1.5

100% ECA

100 -

What qualifies for ECA?

  Products on the ETPL as viewed on the ECA website www.eca.gov.uk/etl Or for the 3 technologies lighting, pipework insulation and CHP – products which comply with the ETL criteria Plus costs arising as a direct result of the installation of qualifying plant and machinery such as:    Installation costs Professional fees Costs of altering an existing building   Investment in assets for leasing: expenditure incurred from 17 April 2002 on energy-saving equipment for leasing can qualify for 100% first year allowances …provided capital allowances available under the normal rules for plant and machinery leasing

The ECA scheme & the Energy Technology List (ETL) ECA Scheme ECA (tax break)

• Claimed on tax return • Administered by I.R.

ETL (qualifying equipment) Criteria List (ETCL)

   

Performance criteria

Categories of equipment Split into Technology Groups &

Sub-Technologies

Updated annually

Product List (ETPL)

    All qualifying products Uniquely identifiable Manufacturer self-certification Updated monthly

Adding your product to the List

   Product list updated on 1 st every month Complete online application Application assessed by technical expert  OR Letter of acceptance  Invitation to re-submit if not accepted   If accepted, products listed on website Lighting and pipe insulation manufacturers will have company details, technology area and sub-technology listed rather than products

Online product application (1) Products and Claims

Online product application (2) Products and Claims

Adding a new technology to the List

 Categories reviewed on annual basis and new categories/ amendments to existing are proposed in Budget and if accepted added the the List in the summer  Historically, proposals have been accepted from individual companies or associations (process takes about one year)  For 2004/5 Carbon Trust are undertaking a strategic review of the Scheme

ETL – Technology Groups

              

Air-to-air energy recovery*

Automatic monitoring and targeting equipment Boilers CHP

Compact heat exchangers*

Compressed air equipment Heat pumps for space heating

HVAC zone controls*

Lighting Motors and Drives Pipe insulation Refrigeration equipment Solar thermal systems Thermal screens Warm air and radiant heaters

* Added August 2004

Air-to-air energy recovery

 Heat exchangers for recovering ventilation energy losses from buildings.  ECA may be claimed on qualifying: – – – Plate heat exchangers Thermal wheels Run-around coils  ETL criteria for each of the above, performance levels set based on: effectiveness; leakage and pressure drop

Automatic monitoring and targeting equipment

 Systems that monitor energy consumption and automatically generate reports that enables the business to manage the energy it uses  ECA may be claimed on qualifying: Portable monitoring equipment Component based installations that include all of the following elements A.Fixed meters/metering B.Automatic meter reading system C.Energy management software  ETL criteria for each of the above  Note ECA claim requires a certificate issued by Defra online application process at www.eca.gov.uk/etl

Boilers and boiler add-ons (i)

 Boiler plant and machinery, and associated heat distribution equipment, will be eligible for ECA support, whether installed, either as part of a heating system, or CHP scheme  ECA may be claimed on qualifying: Hot Water Boilers up to 400kW that are classified as condensing boilers under the Boiler Efficiency Directive Hot Water Boilers over 400kW Steam Boilers Localised Rapid Steam Generators Gas Fired Condensing Water Heaters Biomass boilers up to 300kW Biomass boilers 300 to 15,000kW » cont’d

Boilers and boiler add-ons (ii)

 ECA may be claimed on qualifying: Burners with controls Retrofit burner controls systems Combustion trim controls Sequence controls Automatic TDS control Optimising controllers Flue gas economisers Condensing economisers Heat recovery from boiler blowdown Condensate recovery and return systems  ETL criteria for each sub-technology above

Combined Heat and Power (CHP)

 Systems that simultaneously generate heat and power (usually electricity) in a single process; supplies otherwise wasted heat for use, for instance in industry or in Community Heating.  ECA may be claimed on: New and Upgraded CHP Schemes Good Quality CHP certified under CHPQA Programme Relief for the full cost of qualifying expenditure incurred in accounting period and within Scheme boundary  Note ECA claim requires a Certificate of Energy Efficiency from Defra (issued via CHPQA)   Details on CHPQA Web Site ( www.chpqa.com

) See also CHP Club Website (www.chpclub.com)

Compact heat exchangers

 ECA may be claimed on qualifying CHEs: 3 types included: – Plate heat exchangers (excluding air-air plate heat exchangers for building applications) – – Plate-fin heat exchangers Compact heat exchangers with precision formed surfaces  ETL criteria require – Surface to volume ratio greater than 200m 2 /m 3 – Minimum design efficiency at least 90% at 100% capacity Plate

Compressed air equipment

 ECA may be claimed on qualifying:   Electronic drain taps.

Condition monitoring control systems   Ultrasonic leak detector Refrigerated air dryers  ETL criteria for each sub-technology above

Heat pumps

 ECA may be claimed on qualifying heat pumps in the categories: – Air cooled: split and multi-split (incl variable refrigerant flow) – – Air cooled: packaged “double duct” units Air cooled: Single-duct units – Water cooled: split and multi-split appliances – – Water cooled: packaged Air cooled: Gas engine driven split and multi-split (including variable refrigerant flow) – – Ground source: Brine to water Ground source: Brine to air  ETL criteria for each sub-technology above: – – Performance criteria for both heating and cooling (Standard EN14511) Products not covered by Eurovent certification required to show evidence of 3 rd party testing by accredited laboratories

HVAC Zone Controls

  Provide environmental control of independent building zones whilst minimising the energy requirements.

ETL criteria require controls to    be dedicated to a particular aspect of building services control.

ensure that energy consuming devices only operate when required and operate at a level appropriate to the demand from the zone. be either   a single unit, or modules which operate together via a communication network

Lighting

 Lighting includes the Lamps, Associated control gear, Lighting fittings (aka “luminaires”), and Controls necessary to meet the wide range of lighting requirements  ECA may be claimed on qualifying:  High efficiency lighting units, defined as consisting of: – Lamp(s) PLUS associated control gear PLUS lighting fitting – All 3 components must meet ETL defined specifications – Criteria determine the overall application efficacy 

Controls

– – Stand alone lighting control devices, e.g. occupancy sensors Criteria related to product functionality

Motors & Drives

 ECA may be claimed on qualifying:  Single Speed Motors  Multiple Speed Motors  Switched Reluctance Drives - Integrated motor/drive units - Variable speed drives  ETL criteria for each sub technology above

Pipework Insulation

 The eligibility criteria for pipework insulation is based on insulation being installed in compliance with BS5422 (2001).

 Note: Products not listed on the ETL. Manufacturers details given on the ECA website.

Refrigeration

 ECA may be claimed on qualifying:       Air Cooled Condensing Units Automatic Air Purgers Automatic Leak Detection Cellar Cooling Equipment Commercial Service Cabinets Curtains, Blinds, Transparent Covers        Evaporative Condensers Forced Air Pre-Coolers Liquid Pressure Amplification Packaged Chillers Refrigeration Compressors Refrigerated Display cases Refrigeration System Controls  ETL criteria for each sub technology above

Solar thermal systems

 Capture solar energy and convert it for heating.  ECA may be claimed on qualifying system, comprising   Collector(s) All tanks and heat exchangers except auxiliary tank and cold water tank      Pipework and valves connecting the above Insulation for the above Frame or mounting system of the above Pump(s) Controls, sensors and their power supplies  ETL criteria require   Systems with collectors which meet BS EN 12975 or entire systems which meet BS EN 12976 Insulation which meets ETL criteria for pipework insulation

Thermal screens

 Specifically designed to reduce energy consumption of a greenhouse  ETL criteria require consideration to be given to:  Screen Material (minimum specifications detailed: energy saving performance of at least 40%; life expectancy in excess of 3 years; dimensional stability)    Operating Mechanism (mechanical opening/closing) Controls Manual Switches

Warm air and radiant heaters

 ECA may be claimed on qualifying: – Packaged warm air heaters   Indirectly fired Directly fired – Overhead radiant heaters    Unitary radiant tube Multi burner radiant tube Continuous radiant tube   Radiant plaque Radiant cone – Plus optimiser controllers for the above  ETL criteria for each type of heater, based on efficiencies.

Promoting the Scheme – the ETL Logo

 Energy Technology List symbol  An opportunity for marketing to different audiences  The ETL symbol signals:    

Equipment meets energy saving criteria Businesses may claim 100% first-year capital allowance Potential cash-flow boost and shortened payback period Energy-saving technologies should reduce energy costs

More information from ….

 ECA website  www.eca.gov.uk

 The Carbon Trust’s Energy Helpline  0800 58 57 94  Factsheet available from Helpline

Claiming ECA – Eligibility

 Business in the charge to UK corporation tax or income tax  Capital purchase of plant & machinery included on the ETL  Further information from the Inland Revenue website  www.inlandrevenue.gov.uk

    http://www.inlandrevenue.gov.uk/capital_allowances/investmentschemes.htm

http://www.inlandrevenue.gov.uk/capital_allowances/index.htm

http://www.inlandrevenue.gov.uk/capital_allowances/eca-guidance.htm

Overview

http://www.inlandrevenue.gov.uk/capital_allowances/eca-guidance-pt1.htm

 http://www.inlandrevenue.gov.uk/capital_allowances/eca-guidance-pt2.htm

Allowances ECA scheme Qualifying Detailed notes

Claiming an ECA

 Choose from the products displayed on Energy Technology Product List (Look out for the ETL logo)  Install equipment that qualifies  Obtain documentation that would enable you to prove your claims for 100% allowances (eg. invoice)  Fill in self assessment tax return

Claiming ECA – Tax Return

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Making Business Sense of Climate Change

Disclaimer

    Capital expenditure incurred on equipment that is (a) on the Energy Technology List and Energy Technology Product List; and (b) which comprises plant and machinery for the purposes of Capital Allowances (Tax), can qualify for 100 per cent Enhanced Capital Allowances (ECAs). If you are in any doubt about whether expenditure can qualify, you must consult your tax adviser. To qualify for the Energy Technology List and be allowed to use the Energy Technology List symbol, products and technologies must comply with energy efficiency criteria set by Government. Neither the Carbon Trust nor the Government make any warranties or representations of any kind in relation to the products or technologies and, to the maximum extent permitted by law, accept any liability whatsoever for the same including, without limit, for direct, indirect or consequential loss, business interruption, loss of profits, production, contracts, goodwill or anticipated savings. Any person makes use of the products or technologies on the Energy Technology Product List at their own risk and it is recommended that they seek professional advice from their own adviser whenever appropriate.

A full list of all products and technologies that are allowed to use the Energy Technology List symbol can be found on www.eca.gov.uk.

Whilst reasonable steps have been taken to ensure that the information contained within this document is correct, neither the Carbon Trust nor the Government give any warranty or make any representation as to its accuracy and accept no liability for any errors or omissions.