How Going Green Can Boost Your Bottom Line

Thursday, August 23, 2007

Merrill Lynch, http://mlperspectives.com/c.do?&cid=555402&oid=138170&xsl=34/newsletter.xsl

The return on energy-conserving systems and building materials is more attractive and more easily attainable than you may think.

When Scott Sklar was planning the offices of The Stella Group, his five-person strategic marketing and policy firm, he put his company’s expertise in eco-friendly work environments to work on the new headquarters’ design. A $20,000 investment in solar shingles and a wind turbine reduced his monthly energy bill to $70 a month—about a quarter of the local utility’s typical rates. This enhancement, along with tax credits and accelerated depreciation for energy-efficient roofing, let the Arlington, VA, company recoup its entire investment in only seven years.

Both federal and state incentives are making such eco-friendly small businesses more viable than ever. “The Small Business Administration (SBA) and other federal agencies have issued some very nice directives,” says Sklar. “It is almost imprudent now not to do it.”

“Businesses in some regions are effectively paying just 10 to 20 cents on the dollar for their eco-friendly systems.” —Scott Sklar, owner, The Stella Group

Many of the tax- and cost-saving energy incentives result from The Energy Policy Act of 2005—and many states also offer tax-credit and grant programs as well. (Visit www.dsireusa.org for a comprehensive list.) As a result of both federal and state incentives, says Sklar, “Businesses in some regions are effectively paying just 10 to 20 cents on the dollar for these eco-friendly systems.”

What Going Green Means

Some of the typical energy-efficient overhauls include:

* Building or renovating facilities: Businesses can receive up to $1.80 per square foot in tax deductions by providing a 50% reduction in energy consumption, as determined by federal benchmarks.

* Installing double-paned argon-filled windows, reducing lighting usage or installing green heating and cooling systems: This can reduce heating and cooling costs by up to 60 cents per square foot.

* Installing solar water-heating and electrical systems: Businesses can take 30% of the cost of such system installations off their tax bill while also enjoying a 60% decrease in their energy bills and accelerated five-year depreciation on this equipment.

And even more simple ways to implement eco-friendly upgrades can help cut energy costs. For example, compact fluorescent bulbs use 75% less electricity than standard bulbs, while reducing the output of air-conditioning systems by 10%, as they burn cooler than traditional lighting. Other resource-conserving devices such as low-flow toilets and automatic faucets pay for themselves within 18 months.

Congress Champions the Cause

Congress is working on legislation that, if approved, will support those small and midsize companies who plan to make their companies eco-friendlier. Versions of the CLEAN Energy Act of 2007 have recently passed in both the House and Senate. The proposed legislation would authorize the SBA to back on-bill financing agreements between utilities and business customers who purchase or upgrade renewable energy systems. Under the plan, borrowers would make payments as part of their regular utility bills instead of paying for the total cost upfront. Another provision would grant tax credits for building improvements to businesses who rent their business space. (Currently, only landlord/business owners can receive credits.) “A lot of small businesses don’t own the space they operate in, so [this legislation] would benefit them greatly,” says Jim Presswood, the energy advocate for the Natural Resources Defense Council. Also as part of the proposed legislation, the SBA plans to sponsor one-on-one energy-efficiency consultations for business owners. For additional information on federal tax programs, visit www.sba.gov/advo.

* Consult with your Financial Advisor about the return on investment in any new construction or renovation with energy-efficient components.
* Explore both federal- and state-level energy-conservation incentive programs.
* Learn more about financing options that may be appropriate for your business.

Differences between the competing House and Senate versions of the CLEAN Energy Act must now be resolved in a conference between the two bodies.

Incurring any new costs is always serious business. But with more and more attention being paid to alternative fuels and eco-conservation, the incentives to go green—both financial- and value-based—make sense right now.

Neither Merrill Lynch nor its Financial Advisors provide tax, accounting or legal advice. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors. Any information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties.

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