Energy efficiency equipment payback drastically reduced.  

The payback period for Data Centre capital upgrades can be drastically reduced from 3 years to 1 year. Be it Uninterruptible Power Supplies (UPS), Chillers, or Computer Room Airconditioning (CRAC)

The Federal Budget announced on the 6th of October that all businesses with turn over less than $5B will be able to fully deduct capital equipment purchases in operation by June 2022. If you couple this with the state-based energy savings scheme (ESS, VEU) then a business can substantially reduce their energy costs, and achieve a much shorter payback.  With the added bonus of the higher reliability and lower maintenance that comes with new equipment.

Take for example the upgrade of a 250kW UPS with a cost of say $90,000.  The aging UPS is currently running at 232 kW input and 194 kW output (83.6% efficiency).  New high-quality UPS run at 97% efficiency and hence 200kW input with 32kW saved.

The figures for the new UPS commissioned by June 2022 are as follows

  • New UPS installed purchase price $90,000 
  • Immediate tax writeoff 30% x $90,000 = $27,000
  • Compared with tax write off over 10 years = $2,700 PA 
  • Energy Saving Certificates = $45,000
  • Capital Costs (after tax writeoff and certificates)
    • $90,000 – $27,000 – 45,000 = $18,000
  • Annual Electricity Savings of 365 x 24 x 32 kW x $0.15 / kWh = $42,000

Compare the three scenarios

Payback = Capital Costs (after rebates & tax cuts) / Annual Savings

No tax cuts & not claiming environmental certificates

  • Simple payback = $90,000 / ($42,000 + $2,700) = 2.0 years

Using tax cuts & not claiming environmental certificates

  • Simple payback = ($90,000 – $27,000) / $42,000 = 1.5 years

Using tax cuts & environmental certificates

  • Simple payback = ($90,000 – $27,000 – $45,000) / $42,000 = 5 months

Hence by performing the upgrade with the Federal Budget changes (extending the immediate tax write off from $150,000 to unlimited) drastic shortens the payback period and provides a much higher ROI. Also, be aware that with the changes that allow companies to offset future losses against past profits for the financial years of 2020-2022 means that you can carry back losses (ie the capital cost) to reduce last year’s tax bill as well. UPS are one asset type that uses a large amount of energy and has the potential to save substantial energy, but the same applies to many other equipment upgrades that will drive substantial energy savings.  Consider these aging assets for replacement by using the immediate tax depreciation and NSW Energy Saving Scheme or Victorian Energy Upgrades to drive much short payback periods.

  • UPS and CRAC upgrades for Data Centres
  • Variable Speed Drives for large motors and fans (very fast payback)
  • Chillers and Condenser upgrades
  • Hot Isle / Cool Isle configurations

All these assets can claim energy savings certificates and funding towards the upgrade using the Measurement and Verification methods under the different state-based schemes (the Victorian Energy Upgrades and the NSW Energy Saving Scheme) as well as under the Australian Carbon Farming Initiative (Climate Solutions Fund).