Cash For Caulkers-Soft Ware Advice-Eligible Programs

The following article is a Guest Post-'Home Star Energy Retrofit Act of 2010'- known as Cash for Caulkers by: Houston, Neal,Director of Marketing-Software Advice www.softwareadvice.com (512) 364-0117 (800) 918-2764 (toll free) (360) 838-7866 (fax) houston@softwareadvice.com. It was submitted to me July 21, 2010. Be sure to Check Out his Web Site

"Cash for Caulkers" is nearly here. Last month the House of Representatives passed H.R. 5019 - also known as the Home Star Energy Retrofit Act of 2010 or "Cash for Caulkers" - to kick-start construction, create jobs and cut back carbon emissions. While the bill still needs to clear the Senate, supporters predict it will pass this summer.

This is great news for homeowners and contractors alike. The bill provisions $6 billion for energy-efficient or "green" retrofits. It is expected to fund renovations for 3 million families, create 168,000 new jobs and save consumers $9.2 billion on energy bills over the next 10 years.

But in order to cash in on upcoming rebates, homeowners and contractors will need to do their homework. There are 13 types of retrofits eligible for funding. Each retrofit has unique eligibility requirements and set rebate amounts. You can read the full text here.

We made it really easy to wade through the legalese. Below is a table that breaks down the 13 retrofits of the bill, along with the requirements and rebate amount for each. In addition to the requirements we listed, each retrofit must comply with Building Performance Institute (BPI) standards or other procedures to be approved by the Secretary of Energy.

We also decided to combine these retrofits into three packages that will help homeowners get the best bang for their buck. But first, let's review the program details.

Who is Eligible and How to Qualify? The Home Star bill offers two rebate programs, the "Silver Star" program and "Gold Star" program. Here are details for each:

• Silver Star - Unless another amount is specified in the "Rebate Amount" column above, homeowners will receive a $1,000 rebate for each retrofit listed in our table. The maximum amount of rebates paid out will be $3,000 or 50% of the total cost, whichever is lower. For example, if a homeowner spends a total of $4,000 on eligible retrofits, they will get $2,000 or 50% back as a rebate. If they spend $8,000 on eligible retrofits, they would only receive $3,000 in rebates instead of $4,000 (which would be 50% of the cost).

• Gold Star - To qualify for the Gold Star program, homeowners must reduce their total home energy consumption by 20%. A $3,000 rebate will be rewarded for this reduction. Homeowners can receive an additional $1,000 for each additional 5% reduction, up to a total rebate of $8,000 or 50% of the total retrofit cost. Rebates may be provided for any of the retrofits listed under the Silver Star program, or for any other energy-saving measure, including: home energy management systems, high-efficiency appliances, highly reflective roofing, awnings, canopies, and similar external fenestration (window) attachments, automatic boiler water temperature controllers, energy-efficient wood products, insulated vinyl siding, and mechanical air circulation and heat exchangers in a passive-solar home.

The Home Star bill also includes rebates for do-it-yourself (DIY) homeowners that are confident in taking on the renovations themselves. DIY'ers can get up to $250 in rebates for products purchased without installation service. This rebate is limited to attic insulation, crawl space insulation and/or air-sealing retrofits.

Seal Your House Envelope and Improve Insulation Before carrying out any serious retrofit, homeowners need to weatherize and seal their house "envelope." The envelope includes outer walls, windows, doors, floors and the ceiling. If the house is not properly sealed and insulated, then subsequent HVAC retrofits won't be as effective.

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Common Air Leaks

n some cases, savvy do-it-yourselfers may be able to handle these projects themselves. There are plenty of books and great online resources (e.g.ACEEE.org) that provide instructions. However, you should seriously consider hiring an auditor beforehand. Special diagnostics equipment will show where air is escaping and to what extent. For example, thermal imaging devices detect areas in walls that are poorly insulated and dispersing heat. This information would be unavailable without such devices.

So how much does it cost to seal all the air leaks in a home? Prices will obviously vary based on where you live, how big your property is and the scope of the retrofit. But it will likely cost a few thousand dollars to hire a contractor for this type of renovation. In this example from the New York Times, the author spent $3,760 for insulating and sealing the envelope of his 1,200 square foot home.

How much can homeowners expect to save? The Environmental Protection Agency (EPA) estimates that homeowners can save 20% on heating and cooling costs by sealing leaks and adding insulation. In New York - one of the most expensive places to heat a home with an average annual cost of $1,513 - this would be a yearly savings of $300 just for heating.

Continuing with the example from the New York Times, the Silver Star program would provide $1,880 (50%) in rebates for their retrofit. At an annual savings rate of $300, the renovation would pay for itself in six years (or less if you include cost savings from reduced air conditioning bills).

Repair and Replace Leaky Ducts Ducts are notoriously leaky and inefficient. They are one of the usual suspects in a crime of high utility bills, or when rooms are difficult to heat and cool. The EPA calculates that 20% of air moving through ductwork is lost due to leaks, holes and poor connections. Other sources put estimates closer to 40%. So while suffering from "leaky ducts" may sound innocuous, it can have a big impact on the efficiency and costs of heating and cooling your home.

Fortunately, duct replacement and sealing is eligible for funding under the Home Star bill. Many homeowners will want to outsource this project to a qualified HVAC contractor. Contractors have equipment to detect leaks that otherwise may not be immediately visible. They also have methods to seal ducts that are inaccessible. For example, by spraying an adhesive or sealant through the duct work.

Replacing and sealing ducts can also be a DIY project, especially when ducts can be easily accessed in an attic or basement. Leaks should be sealed with mastic sealant or metal tape (not duct tape), then insulated to reduce heat loss and to further improve efficiency. The Lawrence Berkeley National Laboratory has an excellent guide on how to seal and insulate ducts.

Upgrade Your Furnace and Water Heater Heating is the largest energy expense in homes, according to the American Council for an Energy-Efficient Economy (ACEEE). In colder parts of the country, it makes up 30 to 50% of annual energy bills. So improving the heating efficiency of your home will have the biggest impact on lowering your energy costs. Sealing air leaks is a good start, but replacing your heating system could provide real leverage towards cost savings.

If your furnace or boiler was purchased before 1990, then it is time to consider an upgrade. Modern furnaces are much more efficient than those that are older than 20 years. You can use rebates from the Home Star bill to replace your furnace, but you will need to meet their guidelines:

Water heaters are typically the second largest energy users after home heating and cooling systems. Replacing convention oil-fired water heaters with high-efficiency gas or electric heaters can save homeowners thousands of dollars over a 10 to 15 year period. The Home Star bill includes a variety of replacement options eligible for rebates.

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Ground Source Heat Pump

n alternative to furnaces and boilers are ground source heat pumps (GSHPs). Also known as geothermal heat pumps, GSHPs are one of the most efficient systems for heating and cooling buildings. According to the International Ground Source Heat Pump Association, GSHPs are 50 to 70% more efficient than other heating systems, and 20 to 40% more efficient than traditional air conditioners. They can also be used as an alternative water-heating system and save up to 50% on water-heating bills.

Ground source heat pumps are more economical than using oil or air-source heat pumps, but there is still a lot of debate over GSHPs versus natural gas. Homeowners will need carry out their own due diligence beforehand.

Year over year, a ground source heat pump is more cost effective than natural gas. It's the initial cost that really drives down the return on investment (ROI) and makes natural gas a more attractive option. However, there are several rebates and tax credits available that help subsidize the upfront cost.

Additional Financing Resources With other legislation in the queue, it might take weeks or months to hear the Senate's final decision on the Home Star bill. In the meantime, homeowners can receive funding from other sources to pay for green renovations. The federal government, state governments, local municipalities and even utility companies offer several options.

For example, homeowners can still receive a federal tax credit for 30% of the cost of energy-efficient products (up to a total credit of $1,500). This includes the purchase of central air conditioning systems (both the product and installation), electric heat pumps, furnaces and boilers, and whole-house ventilation fans. Visit the US Department of Energy Energy Savers website for more information.

Another great resource is the Database of State Incentives for Renewables and Efficiency or "DSIRE" website. This allows you to view rebates, loan and grant programs, financing options and tax credits offered in your region.

Finally, new home buyers should consider an energy-efficient mortgage or energy improvement mortgage. These mortgages allow consumers to count savings from energy bills as additional income, ultimately giving them more buying power. Home Energy Magazine has a helpful article here.

-- Scott's Contracting scottscontracting@gmail.com http://www.stlouisrenewableenergy.blogspot.com http://www.stlouisrenewableenergy.com scotty@stlouisrenewableenergy.com

The Race for New Energy-Related Federal Cash Grants

The Race for New Energy-Related Federal Cash Grants by Gregory C. Burkart & Jerome M. Schwartzman Not even Franklin Delano Roosevelt could have imagined the scope and breadth of the current federal programs to stimulate the economy. Some of the new federal programs require standing in a different kind of line -- a line to obtain grants set aside for energy-related projects and, unlike the FDR programs, it appears to be the race goes to the swift. The U.S. Department of Treasury recently released its long-anticipated guidance on payments for specified energy property in lieu of tax credits (Section 1603 Grants). Since August 1, when the application became available online, this program has been a hit with the energy and investment communities. In the first 45 days of the program, the Treasury Department has issued checks totaling $1.05 billion on 40 projects. While the program does not expire until October 1, 2011, projects must generally be commenced during 2009 or 2010, and the projects must be placed in service by various dates, as further explained below. The Section 1603 Grant is received within 60 days of filing a completed application or placing the property in service, whichever is later. If you have current or potential projects that may benefit from these grants, you should review the application as well as consider the following information about the program. The Section 1603 grants under the American Recovery and Reinvestment Act of 2009 (ARRA) provides for cash grants equaling 30% of the basis of “specified energy property” (10% for certain property). For this purpose, “specified energy property” generally includes two broad categories of property, IRC Section 45 (renewable-based electricity production property) and Section 48 (qualifying alternative energy credit property). Expansions of existing Section 45 and 48 properties are also eligible for the grants. The government is offering cash grants rather than credits based on the “diminished investor demand for income tax credits” in the current economic climate. We note that the Section 1603 Grant is not subject to federal income tax (there is an exception for certain leases), but may be subject to state income/franchise or gross receipts tax. Instead, the basis of the “specified energy property” is reduced by an amount that is equal to 50% of the cash grant. To determine basis of the property, the guidance adopts the general rules of determining basis for federal income tax purposes. Generally, the basis is the cost of the property placed in service after 2008, “unreduced by any other adjustments to basis, such as that for depreciation, and includes all items properly included by the taxpayer in the depreciable basis.” To be eligible for the Section 1603 Grant, the specified energy property must be originally placed in service by the owner or lessee. “Specified property” is depreciable (or amortizable in lieu of depreciation) “tangible personal property” and other tangible property (excluding buildings) as defined in the Income Tax Regulations. The tangible personal property must be an integral part of the facility and must be located at the facility. “Placing the property in service” means that the specified energy property is ready and available for its specific use. Where a project contains used parts, the property still qualifies for “original use” if the cost of the used parts is not more than 20% of the total cost of the facility. There are four categories of persons who are not eligible for the Section 1603 Grant: 1. Any federal, state or local government 2. Any organization described in IRC Section 501(c) and exempt from tax under IRC Section 501(a) 3. A clean renewable energy bond dealer or a cooperative electric company 4. Any partnership or pass-thru entity, any direct or indirect partner of which is an organization or entity described in categories one to three above, unless the person only owns an indirect interest in the applicant through a blocker sub (e.g., a taxable C corporation). The property must be placed in service by a date known as the “Credit Termination Date,” which varies with the type of project. The applications are due, even for projects that have started construction in 2009 or 2010 but have not been placed in service during those years, by the statutory deadline of October 1, 2011. The Treasury Department promises payment of the Section 1603 Grant within 60 days of either placing the property in service or receiving a completed application, whichever is later. For those projects under construction, the Treasury Department proposes to review the application materials and notify the applicants whether the eligibility requirements, through the date of application, have been met. Once the applicant completes construction, the company has 90 days after placing the property in service to submit supplemental information to the Treasury Department for it to make a final determination on eligibility. For applications that require supplemental information, the Treasury Department will provide notification, and the applicant has 21 days to provide such information to the Treasury Department. Structuring Section 1603 Grant Investments The investment can be made through a partnership or limited liability company, but each partner/member must be eligible for the credit. However, an ineligible investor can invest through a taxable C corporation. While non-U.S. investors are generally not eligible, certain exceptions may apply. Though the grant is generally available to owners of property, it is also available to lessees in certain circumstances. For example, it is available to the lessee in a sale/leaseback transaction if three conditions are satisfied: 1. The lessee must be the person who originally placed the property in service; 2. The lessee must have sold and leased the property within three months after the date the property was originally placed in service; and 3. The lessee and the lessor must not make an election to preclude application of the “sale-leaseback” rules. If a Section 1603 Grant is received for property and the property is disposed of within five years of placing the property in service or the property no longer qualifies as “specified energy property,” the grant must be repaid to the Treasury Department on a declining, pro-rata basis over five years. That is, recapture is 100% in the first year, 80% in the second year and so forth. The Treasury Department has also issued guidance (Notice 2009-52) on electing an investment tax credit based on the cost of a facility (similar to those for solar and fuel cells) rather than based on the production of electricity. As noted by the government, cash grants may be a more attractive option these days than a tax credit. Gregory Burkart is a managing director in the Detroit office of independent financial advisory and investment banking firm Duff & Phelps. His 13 years of experience includes specialization in the structuring and negotiating of government-sponsored economic development incentive packages. Having previously served as former Michigan Governor Engler’s Environmental Ombudsman, Gregory is an expert on domestic and international site selection; economic incentives negotiation; decision analysis; and demonstrating development projects' economic and fiscal impact to state and local governments. Jerome Schwartzman is a managing director in the New York office of independent financial advisory and investment banking firm Duff & Phelps. Jerome has more than 18 years of experience as a tax specialist and attorney, primarily in the areas of mergers and acquisitions, transaction consulting and bankruptcy. He has vast expertise in tax issues related to domestic and international transactions and has served private equity funds, public and private companies and numerous investment banking firms. Jerry has also served as an expert witness in a number of litigation and arbitration matters. Next Post:[Editor’s note: To read about a project that went through the process and received funding, check out Peter Lynch’s Ask the Experts article: How to Get Renewable Energy Grant Money from the U.S. Government. ] Image Gallery (1)