Tax and Government Incentives Promoting Sustainable Development in Oregon

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Green or sustainable building is the practice of creating healthier and more resource-efficient models of construction, renovation, operation, maintenance, and demolition. Research and experience increasingly demonstrate that when buildings are designed and operated with their life-cycle impacts in mind, they can provide great environmental, economic, and social benefits. Elements of green building include:

  • Energy efficiency and renewable energy
  • Water stewardship
  • Environmentally preferable building materials and specifications
  • Waste reduction
  • Toxics reduction
  • Indoor environment
  • Smart growth and sustainable development
  • Green building offers a number of environmental and economic advantages. Although up-front costs can exceed traditional building design costs, improvements in efficiency of energy use eventually offset the higher up-front costs.

To promote green building, federal and state governments have proposed a variety of incentives. The State of Oregon, its subdivisions, and its utilities have a host of incentive programs designed to encourage the implementation of green building practices. Indeed, there are numerous incentive programs to be considered when deciding if your Oregon construction project would benefit from going green. Due to the large volume of available incentives and the host of factors affecting which programs apply to a given project, an exhaustive listing of available programs here is impractical. The summary below is intended to provide you with an overview of the types of incentives that may apply to your project. Further information is available at http://www.dsireusa.org.

FEDERAL TAX INCENTIVES

A number of federal income tax benefits may be available with respect to an energy-efficient commercial building. Section 179D of the Internal Revenue Code of 1986, as amended ("Code"), allows a deduction for the cost of certain energy-efficient commercial building property placed in service during a taxable year. The amount of the deduction is generally equal to the cost of depreciable interior lighting systems; depreciable heating, cooling, ventilation and hot water systems; and depreciable building envelope property. To qualify for the deduction, this property must be certified as being installed as part of a plan designed to reduce the total annual energy and power costs for respective systems of the building by at least 50 percent in comparison to the minimum requirements of Standard 90.1-2001 of the American Society of Heating, Refrigerating and Air-Conditioning Engineers and the Illuminating Engineering Society of North America.

 

The lifetime amount of the deduction with respect to any building is limited to $1.80 per square foot. If a building fails to meet the 50 percent certification requirement, but is certified as meeting energy-savings targets to be established by the Internal Revenue Service, the deduction is limited to $0.60 per square foot. In either event, under current law, the deduction is only allowed for buildings that are placed in service before January 1, 2014.

In addition to the deduction for energy-efficient commercial building property, a building owner may be able to qualify for accelerated deductions and federal income tax credits or grants applicable to renewable energy production facilities. For example, section 48 of the Code allows for an income tax credit equal to 30 percent of the cost of any equipment used to generate electricity from solar energy that is placed in service during a taxable year. This is a nonrefundable credit against income tax liability that can be claimed entirely in the year the solar equipment is placed in service. Under current law, a solar facility must be placed in service before January 1, 2017 to qualify for the credit.

Pursuant to the American Recovery and Reinvestment Act of 2009, which was signed by the President in early February, the owner of a qualifying renewable energy facility can elect to receive a cash grant from the Treasury Department in lieu of claiming applicable tax credits. Like the tax credit for solar projects, the amount of the cash grant generally is 30 percent of the cost of equipment used to generate electricity from the renewable resource. This cash grant is available even if the owner of the qualifying facility does not have sufficient tax liability to utilize an income tax credit that otherwise would apply. The cash grant generally applies to equipment that is placed in service in 2009 or 2010, and the amount of the grant is not included in the recipient's taxable income.

In addition to the tax credit or cash grant, certain renewable energy property (including solar) also may qualify for 50 percent bonus first-year depreciation deductions and five-year accelerated depreciation, which can generate significant federal income tax savings.

For more information regarding federal tax incentives for sustainable development, contact the following Stoel Rives LLP attorney: Kevin T. Pearson (at 503-294-9622 or kevin.pearson@stoel.com).

OREGON TAX INCENTIVES

Oregon provides state tax benefits for energy-efficient buildings. The primary benefits are the Business Energy Tax Credit ("BETC") and the Residential Energy Tax Credit ("RETC").

The amount of the BETC for commercial buildings is based on the cost of constructing a "sustainable building" and is a function of two factors: first, the square footage of the building area, and, second, the U.S. Green Building Council ("USGBC") Leadership in Energy and Environmental Design ("LEED") rating that the building achieves, which must be at least a "silver" rating. The maximum BETC that can be claimed for a sustainable building is $3.5 million, which is 35 percent of the certified cost, up to a maximum certified cost of $10 million. A qualifying homebuilder installed renewable energy facility (e.g. a solar water heater) is eligible for a BETC of up to $9,000 and a qualifying "high performance home" is eligible for a BETC of up to $12,000. The amount of the homebuilder tax credit is based on the amount of energy saved as determined by calculations approved by the Oregon Department of Energy ("Oregon ODOE").

As an income tax credit, the amount of the BETC reduces the taxpayer's Oregon income tax liability dollar for dollar. The BETC must be claimed over a period of at least five years, and any amount not used in a particular year may be carried forward up to eight years. Any owner of a project is eligible to claim the BETC, whether the owner is a corporation or an individual or group of individuals, including persons who hold the project through a partnership or an S corporation. The BETC is a nonrefundable credit, so the owner or owners must have Oregon tax liability to use the BETC. The BETC can, however, be sold to any Oregon taxpayer at a discount approved by the Oregon DOE. It is important to file with the Oregon DOE an application for preliminary certification "before financially committing to start the project (e.g. signing a contract, ordering equipment, etc.)." For residential property, the amount of the RETC for a qualifying energy efficient appliance or system is based on the amount of the energy saved. Only homeowners, renters, and landlords may qualify for the RETC. Like the BETC, the amount of the RETC reduces the taxpayer's Oregon income tax liability dollar for dollar. Any RETC amount not used in a particular year may be carried forward up to five years. The RETC can be sold to any Oregon taxpayer at a discount approved by the Oregon DOE.

Oregon property tax benefits also may be available for a new commercial building. Property equipped with solar systems or certain other renewable energy systems used for heating or cooling or to generate electrical energy is exempt to the extent of the value added by the system.

It may also be worthwhile to explore the potential availability of other Oregon tax incentives not tied to the energy conservation aspects of a project. These incentives include the property tax exemption available under the Oregon Enterprise Zone Act and the income tax exemption under the Oregon Investment Advantage program. Both benefits are tied to the project's geographic location, number of jobs created and type of industry. As with most tax incentives, it is necessary to file a preliminary application form before committing funds or commencing construction.

For more information regarding Oregon tax incentives for sustainable development, contact the following Stoel Rives attorney: Robert Manicke (at 503-294-9664 or robert.manicke@stoel.com).

ENERGY TRUST INCENTIVES

The Energy Trust of Oregon (Energy Trust) offers a host of programs and incentives, and also offers technical assistance with efficiency and sustainable development. Listed below are some of the main programs offered by the Energy Trust.

New Buildings Efficiency Program

The Energy Trust's New Buildings Efficiency Program provides assistance to building owners, architects, engineers, contractors and others involved in new commercial, industrial, agricultural and institutional construction as well as major renovation projects. Major renovation of an existing commercial, nonresidential structure includes decreasing the building's carbon footprint, changing occupancy, reconstructing a vacant structure or completely replacing two or more of the building's energy systems (i.e., lighting fixtures, HVAC systems and building envelope, which includes roof, insulation and windows).

Qualifying projects that make energy-efficient choices may be eligible for financial incentives and/or technical assistance through this program.

For a new construction project or major renovation to participate in the New Building Efficiency Program, the project must qualify through one of the Energy Trust's three programs: the Standard Track, the Custom Track or the U.S. Green Building Council LEED® NC Track. In addition, a project that qualifies through the Standard Track may also qualify for incentives through the ENERGY STAR® Track. Incentives and requirements for each track include:

1. Standard Track – "out of the box" program with preselected products.

  • Incentives up to $100,000 can apply to an entire project or a single building
  • Incentives for equipment and component upgrades
  • Incentives for high-efficiency lighting, lighting controls, motors, air conditioning, heat pumps, air-to-air heat exchangers, chillers, demand control ventilation, variable speed drives, and natural gas equipment (i.e., domestic hot water, heating equipment and cooking equipment)
  • Standard Track projects whose total potential incentive is estimated to be $3,000 or more may apply for a fixed $500 technical assistance incentive. The technical assistance monies are deducted the final project incentive.
  • No energy calculations are required
  • Standard Track may be combined with Custom Track, making up to $400,000 available per project

2. Custom Track – permits the applicant to develop its own list of efficiency measures, the energy-efficiency benefits of which must be calculated.

  • Incentives up to $300,000 can apply to an entire project or a single building
  • Incentives for building energy systems that reduce annual energy use as compared to a code minimum building of the same type and occupancy
  • Energy calculations and documentation of energy savings are required
  • All energy measures are screened and must pass an Energy Trust cost-effectiveness test to receive an incentive
  • Custom Track projects may apply for a technical assistance incentive of up to 50 percent of the project's estimated total incentive, up to $25,000. The technical assistance monies for Custom Track projects are in addition to the project's incentive.
  • Up to $40,000 in additional commissioning incentives is available per project for qualifying measures
  • Custom Track may be combined with Standard Track, making up to $400,000 available per project. A total of $465,000 may be available through the combination of Custom Track, Standard Track, technical assistance and commissioning incentives.

3. USGBC LEED® NC Track and LEED® CS Tracks provide incentives for projects that receive certification from the US Green Building Council (USGBC) USGBC LEED® NC or LEED® CS program.

  • Cannot be combined with other two tracks.
  • Incentives up to $300,000 per project
  • Incentives for enhanced commissioning and measurement and verification are available up to $40,000 per project for both LEED® NC and CS projects.
  • Incentives are based on either (1) the number of Energy & Atmosphere Credit 1 points awarded to the project or (2) the estimated energy savings determined by an energy analysis

4. ENERGY STAR® Track – can be combined with Standard Track incentives, but Custom Track and LEED® projects are not eligible for additional incentives through the ENERGY STAR® Track.

  • Incentives to achieve the ENERGY STAR® building performance certification from the U.S. Environmental Protection Agency ("EPA")
  • Incentives from $2,000 to $30,000 per eligible project
  • Facilities must meet certain criteria and achieve a target rating of 75 or higher using the EPA's tools, Portfolio Manager and Target Finder
  • Buildings must have been completed and in operation for at least 12 months
  • Program is retroactive to all new commercial construction projects that completed construction and were occupied after January 1, 2005
  • ENERGY STAR® Track may be combined with Standard Track, making up to $130,000 available per project
  • An ENERGY STAR® project does not have to participate in any other track to be eligible for incentives through the ENERGY STAR® program

To be eligible to receive incentives from the New Building Efficiency Program, a project must meet all of the following criteria:

  • The project must be served by Portland General Electric ("PGE") or Pacific Power to receive incentives for electric measures and NW Natural or Cascade Natural Gas to receive incentives for gas measures.
  • The project must pay or plan to pay the public purpose charge.
  • The project site must be located in Oregon.
  • The project must be new construction, an addition to an existing structure a tenant buildout or a major renovation to an existing structure.
  • The project must be a commercial, industrial, manufacturing or institutional building. Eligible building types may include office, retail, health care and hospitals, warehouse or storage, restaurant, manufacturing, grocery, hotels and motels, public and private schools or colleges, mixed-use, high-rise multifamily residential (more than three stories) and parking garages.

Existing Buildings Efficiency Program

Energy Trust offers incentives for commercial, agricultural and institutional customers to increase the energy efficiency of their existing buildings. The standard incentive program provides prescriptive rebates for the retrofit of electric motors, insulation, water heaters, lighting equipment, and HVAC equipment, as well as equipment specific to the food service and lodging industries. Projects must be pre-approved before making any equipment purchases or initiating any work.

Business customers retrofitting existing buildings through measures not covered under the standard incentive program can still receive financial assistance from Energy Trust through the custom incentive program. To qualify for a custom incentive, the energy savings must be at least 25% of the current energy use for lighting equipment and 10% for all other equipment and measures. Approved custom lighting efficiency projects are eligible for incentives up to 35% of the total approved cost not to exceed 17¢/annual kilowatt-hours (kWh) saved. Custom incentives for projects involving non-lighting equipment or measures are approved up to 50% of the total approved cost not to exceed 25¢/annual kWh saved and $1/therm saved. To qualify for the custom incentives, projects must be submitted and approved by Energy Trust by June 30, 2009, and the project must be completed by December 31, 2009.

Both custom and prescriptive incentives for existing buildings are capped at $500,000 per site per year. To be eligible to receive incentives from the Existing Buildings Efficiency Program, a project must meet all of the following criteria:

  • Be served by Portland General Electric, Pacific Power, NW Natural or Cascade Natural Gas and contribute to the public purpose charge.
  • Have a project site in Oregon
  • Be improving an existing structure
  • Be a commercial or institutional facility

Commercial Solar Electric Program

The Energy Trust offers cash incentives that can be combined with state and federal tax credits, making solar energy more affordable. The cash incentives for eligible commercial solar systems administered through the Energy Trust are as follows:

  First 30 kW Over 30 kW

Max. Incentive (200 kW)

Pacific Power $1.50/watt $0.90 to $1.50/watt $180,000
PGE $1.75/watt $1.15 to $1.75/watt $230,000

For all systems receiving Energy Trust incentives, the system owner will own the green tags during the first five years of operation; Energy Trust will own green tags during years six through 20.

  • Tiered incentives are based on the power capacity of the solar array in rated watts.
  • Funding is capped at 200 kW, but systems of any size may be installed.
  • PGE Multi-Site: Multi-site incentives are available for solar electric systems located on several sites, with a combined total capacity up to 800 kW or the maximum incentive per participant or host. The multi-site incentive is available to PGE customers only and is a fixed rate ($0.80/W; $640,000 maximum incentive).

To be eligible to receive incentives from the Commercial Solar Electric Program, a project must meet all of the following criteria:

  • The project owner must be an Oregon customer of PGE or Pacific Power.
  • Incentive applications must by approved by the Energy Trust before installation.
  • All systems must be grid-tied and net metered to qualify.
  • Systems must be installed by an approved Energy Trust solar trade ally contractor. Self-installed systems do not qualify.
  • All system components must be new. Expansions to existing solar systems are not eligible.

When a project owner selects a contractor, the incentives and tax credits work as follows:

  • The contractor submits an incentive application to the Energy Trust for preapproval.
  • The project's qualifying energy system is installed by the contractor (the system may be subject to an Energy Trust inspection).
  • The Energy Trust pays the incentive to the contractor, who then passes it through to the project owner as the contractor's customer. The project owner then pays the contractor only the net amount after the incentive.
  • The contractor assists the project owner to fill out Oregon DOE tax credit application form.
  • The project owner submits the tax credit form to the Oregon DOE.

Other Energy Trust Programs include: (1) Community Wind program that provides resources and cash incentives to help communities, businesses and government entities install wind turbine systems up to 20 megawatts (MW) in capacity; (2) financial incentives ranging from $350 to $1,000 for builders who build an Energy Star-qualified home through the Energy Star New Homes program and (3) Solar Water Heating Buy-down Program that provides incentives to customers of Pacific Power, PGE, and NW Natural or Cascade Natural Gas who install solar water or pool heating systems on their homes, office buildings, community buildings, agricultural, and municipal facilities.

OREGON STATE ENERGY LOAN PROGRAM

The Oregon State Energy Loan Program ("SELP") was created in 1979 to ensure that Oregon has clean and affordable energy in the future by conserving energy now. The 2007 session of the Oregon Legislative Assembly increased by $25 million the amount of low-interest loans that SELP is authorized to make for renewable energy and energy efficiency. SELP is administered by Oregon DOE. Loan amounts usually vary from $20,000 to $20 million, and rates can vary depending on the term of the loan, the timing of the project and the availability of funds. As of November 1, 2008, rates for commercial loans (excluding large renewable projects) vary between 6.00 percent and 7.00 percent for terms between five and 15 years. Applicants for SELP may also qualify for the BETC discussed above.

The purpose of SELP is to promote energy conservation and renewable energy resource development. The program offers low-interest loans for projects that:

  • Save energy
  • Produce energy from renewable resources such as water, wind, geothermal, solar, biomass, waste materials or waste heat
  • Use recycled materials to create products
  • Use alternative fuels

Loans are available for any Oregon project that invests in energy conservation, renewable energy, alternative fuels or creating products from recycled materials.

  • Low-interest and fixed rate loans – the rates are set after each bond sale and are fixed for the full term of each loan
  • Loan terms usually range from five to 15 years, but longer terms may be available. Overall, the loan term must be within the expected life of the project.

SELP can loan to individuals, businesses, schools, cities, counties, special districts, state and federal agencies, public corporations, cooperatives, tribes and nonprofits. Projects must be in Oregon.

Most energy-efficiency measures, renewable energy measures and waste heat projects are eligible. Loans can pay for related costs such as engineering and design, permits, loan fees and project management. An energy loan may supplement a construction or remodeling project's financing, handle cost overruns, or provide for more energy-efficient components.

A SELP applicant that must obtain an energy facility site certificate under ORS 469.300 to 469.520 for a project is not eligible for a loan unless if the project is exempted from the site certificate requirement by ORS 469.320(2) or other exemptions granted by the Energy Facility Siting Council.

For more information regarding the Oregon State Energy Loan Program, contact the following Stoel Rives attorney: Edward Einowski (at 503-294-9235 or edward.einowski@stoel.com).

OTHER INCENTIVES

Ashland Green Building Incentive. Developers in Ashland may increase the base density of units in residential developments by incorporating energy efficiency, architectural creativity and innovation, and the use of natural features of the landscape.

Ashland Electric Utility - Photovoltaic Rebate Program

The City of Ashland Conservation Division offers electric customers installing photovoltaic systems a rebate of either $2.25 per Watt (residential) or $1 per Watt (commercial), up to a maximum of $10,000 per site. In order to qualify, a solar electric system needs a total solar resource fraction of at least 75%, and no shading by a tree between 10:00 AM and 2:00 PM (on Dec 21). Systems must be interconnected with the City's electrical grid and net metered.

 

EWEB - Solar Electric Program (Production Incentive). The Eugene Water & Electric Board's (EWEB) Solar Electric Program offers financial incentives for residential and commercial customers who generate electricity using solar photovoltaic (PV) systems. Rebates are available to customers who choose to net meter, and a production incentive is available to customers with systems greater than 10 kilowatts (kW) in capacity who choose not to net meter. Under the latter arrangement, all electricity generated is fed into the grid.

 

EWEB - Energy Management Services Loan

EWEB offers cash incentives and low interest loans to businesses as part of the Energy Management Services program for the installation of solar domestic, process, and pool water heating. To date, 5 solar pool heating systems have been installed primarily at apartment complexes and motels with electrically heated pools. The actual incentives are determined by the "package" of energy measures a business implements.

Northwest Solar Cooperative - Green Tag Purchase. The Northwest Solar Cooperative (NWSC), a not-for-profit service operated by Cascade Solar Consulting, offers to purchase the rights to the environmental attributes or "Green Tags" derived from grid-connected photovoltaic (PV) or wind energy at a rate of $0.02 per kilowatt-hour (kWh) through December 31, 2009. Residential and non-residential owners of PV and wind-energy systems installed after June 1, 2002, in Oregon, Washington, Idaho and Montana are eligible to participate in the Green Tag Purchase Program. The term of the contract is not of fixed duration. Rather, production-based payments will continue through December 31, 2009, regardless of the date the contract is signed. Depending on circumstances of 3 Degrees Energy, the buyer of these Green Tags, contracts may be renewed for another three-year term beginning December 31, 2009.

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