Tax Incentives Boost Green ROI
Rob Rafson, P.E., is V.P. Engineering of Full Circle, a Chicago-based sustainability management solutions firm. He is also co-author, with Harold J. Rafson, of Brownfields: Redeveloping Environmentally Distressed Properties (1999). Blue Planet Green Living (BPGL) interviewed Rafson by phone from his Chicago office. What follows is Part 2 of our four-part interview. — Julia Wasson, Publisher
BPGL: You’re known in Chicago for the largest rooftop solar installation in the city, on top of a brownfield redevelopment project. But people say solar technology has a long payback. Is solar economically viable?
RAFSON: It’s an interesting time in both the financing and in the technology of solar thermal and solar photovoltaic [solar PV]. The economics of solar PV are changing rapidly. In 2008, Nanosolar came out with their first panels at 99 cents a Watt.
At the same time, the supply of pure silica production has tripled, with three new plants coming online. Now the raw materials cost has decreased dramatically, and we have a rapidly decreasing solar PV price.
On one brownfield redevelopment project, a former paint factory property, we installed the largest solar thermal in the City of Chicago. The results have been very nice except for a year like last year. In Illinois, last year, we had only 11 hours of sunshine from January 1, 2008 through February 15, 2008. It was a very depressing winter! Yet we only lost 10 percent efficiency compared to prior years. You have to average your results annually and not focus on a cloudy day.
BPGL: Are you seeing a lot of companies making the leap to install solar technology?
RAFSON: Organizations like schools and hospitals — even government agencies —don’t have the wherewithal or desire to borrow money for what is still considered by some to be “frivolous pursuits.” But there are plenty of ESCOs (energy service companies) created around the world to capitalize on that market.
There aren’t that many people like me. Even my partners look at me like, “We spent $600,000 on that project!” But we got state, federal, and local tax credits, as well as grants. Then subtract any favorable tax treatments, and roll all of that back in. With the interest rates as low as they are now, we financed the expense 100 percent. We anticipate $40,000 in savings, and our mortgage payment is only $18,000 per year. They call that “day-one ROI.” So for us, the building becomes $22,000 more profitable than before we put the solar panels in.
BPGL: Tell a bit more about the tax breaks and grants you got.
RAFSON: I was lucky. We got matching funds from the state and 35 solar panels from the city of Chicago to match the federal tax incentives. In Illinois, we’re at 30% matching grants for solar technology. Cook County has an ordinance that any additional renewable energy added to the property doesn’t increase the basis of the property; so, they don’t increase property taxes for added renewable energy. It seems obvious, but it isn’t. If you do $600,000 of improvements on a building, you’d expect that the value of the building would increase by $600,000, and that your property taxes would go up accordingly. This [property tax policy] is very forward thinking and does not penalize property owners for investing in green technologies.
BPGL: Were you concerned about renovating a brownfield site for reuse?
RAFSON: This project is on a private property (it’s my fourth paint factory cleanup). Yet, it has positive economics. I’m an environmental engineer, for me environmental problems on a property are just a construction item; you simply have to be a little more careful about your management of the materials and construction. And include that in your pro forma when you purchase. We were able to purchase at a significant discount, with savings well above the cleanup cost.
BPGL: What help, if any, did you get from local sources?
RAFSON: We used many energy-saving technologies. Some were benefited by unusual and wonderful incentives that are available from time to time. For example, here in Illinois, the local power authority, Commonwealth Edison, is supporting energy efficiency. They created incentives called “Smart Ideas.” They’re funding energy efficiency projects for the next three years in their service areas for commercial and industrial customers. So I got a few dollars from them to change lights, and do a variable speed drive on my solar project instead of on/off motors. I got a bit more energy efficiency out of my equipment, funded by these types of grants.
BPGL: What about installing wind turbines? Are you doing that in Chicago?
RAFSON: I want to try. The problem is, urban wind is very difficult, because of the surface roughness created by buildings. It makes a whole lot more sense to build wind turbines on Lake Michigan if you’re on the Michigan side of the lake. There, you’ve got 100 miles of water for the wind to get consistent and smooth, and that’s what a bladed turbine likes. The more consistent the wind, the more power you can produce.
BPGL: In some communities, there are regulations against installing wind turbines because it “spoils the scenic views.”
RAFSON: It’s a cultural change to get people to accept and understand. The “not-in-my-backyard” people don’t want wind turbines, because they don’t like the look of them. But not everyone thinks that way. A friend of mine in Montana put up a 3 kW wind turbine on his house. Before, no one came around. Now at least two times a week, people come by to watch the turbine spinning.
I believe it’s important to retain the historical and scenic views. But I think we need to have harmony between renewable energy strategies and the lives that we live.
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Part 2: Tax Incentives Boost Green ROI (Top of Page)
Part 4: Saving Money By Going Green