When CPA Tom Klismith began the decision process to place solar electric panels at his office in Plover, Wis., he did his homework. Initial cost, tax benefits, incentives and depreciation were just a few of the things he needed to consider.
Renewable energy systems are new for many accountants, and there are many factors that affect return on investment. The huge national interest in renewable energy has produced a lot of hype and misinformation. Claims are being made about payback times, suitability of use, life spans, how a material was procured and positive impacts on the environment that just don't hold up under scrutiny. Both residential and business clients of accounting firms are going to need more help in preparing calculations and business plans for renewable energy features in the future.
How does a CPA sort all of this out?
There are experts in all areas of renewable energy, as well as other areas of sustainability. Klismith hired a local expert in photovoltaic systems to find the right type of system that would benefit him. Right away Tom received a real shock in the fact that the cost of installing solar panels would run $145,000. A quick calculation showed that the amount of the electricity produced would never pay back the cost of the equipment. However, Tom was aware of some tax breaks and incentives that would change the calculations.
Klismith took advantage of the federal tax credit that applies to certain improvements in energy conservation. As of Jan. 1, 2009, the federal tax credit for qualified renewable energy features is 30 percent. He also took advantage of a Wisconsin program through Focus On Energy, a utility-funded agency that provided a direct rebate for the whole project that amounted to $35,000.
Calculations of depreciation and federal tax credits reduced the cost of Klismith's system to $63,000 at the end of the first year, down to $46,000 at the end of the five-year solar equipment depreciation period.
Because businesses can depreciate capital improvements, an additional tax savings is realized for both state and federal taxes. Residential property owners need to be made aware of this in the initial stages of planning. Placing their renewable energy equipment into a business, farm or rental may result in significantly shortening the payback period because of the ability to depreciate. There are programs, however, that are just for residential property owners that may exceed the value of depreciation.
A Parallel Generation-Solar Agreement with Wisconsin Public Service provides $0.25 for each kilowatt-hour that Klismith's system produces. He sells all of the electricity he produces to the utility at that higher rate and buys electricity back at the lower, regular rate of about $0.115 per kWh.
With the help of his solar expert, Klismith calculated that he will produce enough electricity in eight years to pay back the initial investment. With a service life of 20 or more years for the equipment, he will have at least 12 years of nearly free electricity production.
Not all renewable energy systems are as easy to calculate payback based on energy produced as photovoltaic, however. Photovoltaic ratings are standardized at 1 kilowatt per square meter of panel at 25°C. Small wind turbines that might produce as much electricity as Klismith's system do not have a standardized rating at this time, so it's difficult to compare different types of wind turbines and the amount of electricity that will be produced from an individual unit. Wind generators, solar hot water systems, passive solar heating, and geothermal heating and cooling all require careful calculations from experts intimately familiar with the particular equipment, the environment it will be used in, and how it is going to used.
WHAT ELSE IS BEING DONE?
Many businesses are going "green" because there are true benefits in doing so. Conservation through lighting and insulation upgrades can have an immediate affect on comfort and utility costs. Permeable concrete is being used more for sidewalks, parking and patios so that water can be drained from a site without allocating additional space for retention ponds. Sustainable landscapes can provide low-maintenance green space that helps cool buildings, reduces runoff, improves aesthetics and can even provide an extra employee benefit of garden space at work.
Renewable energy and all things "green" offer new and exciting ways for accountants to be involved in the sustainability movement. As more people look at these options, there will be a greater need to explain the numbers in ways that people can understand. CPAs will want to be proactive about assisting their clients early in the planning stage for renewable energy and sustainable options, because this type of planning will be critical to the financial success of these projects.
"I'm very interested in the environment and wanted to do a project that would make a difference to people and the planet," said Klismith. "I also wanted to draw on my accounting and financial management skills in a way that was true to my professional beliefs. I have been able to create benefits for the environment, for myself and for the bottom line."
Thomas J. Girolamo is a speaker, consultant, sustainable landscaper and author of Your Eco-Friendly Yard. Reach him at (715) 344-2817 or firstname.lastname@example.org.
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