Energy efficiency equipment payback drastically reduced. The payback period for many capital equipment purchases can be drastically reduced (40% or greater). Be it Boilers, Chillers, HVAC, UPS, Motors, VSD, Compressors and Blowers.
The Federal Budget announced on the 6th of October that nearly all businesses 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 (NSW, ESS, VIC, 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 6MW Gas-Fired Steam boiling is using say 45,000 GJ PA at recent prices of say $11.00 per GJ and hence $500,000 PA in gas charges. The upgrade to a new high efficiency boiler with economiser, O2 trim could cost around $800,000. The efficiency gains from moving from a 30 year old boiler to a modern one could be as high as 30%, but we’ll use a 25% reduction in gas usage for this example and hence annual gas savings of 11,250 GJ PA. Prior to the Federal Budget (and after June 2022) a new boiler asset would need to be depreciated over 20 years.
The figures for the new boiler commissioned by June 2022 are as follows
- Immediate tax writeoff 30% x $800,000 = $240,000
- Compared with tax write off over 20 years = $12,000 per annum
- Energy Saving Certificates = $110,000
- Capital Costs (after tax writeoff and certificates)
- $800,000 – $350,000 = $450,000
- Annual Gas Savings of $11.00 x 11,250 = $124,000
Compare the three scenarios
No tax cuts & not claiming environmental certificates
- Simple payback = $800,000 / ($124,000 + $12,000) = 5.9 years
Using tax cuts & not claiming environmental certificates
- Simple payback = ($800,000 – $240,000) / $124,000 = 4.5 years
Using tax cuts & environmental certificates
- Simple payback = ($800,000 – $240,000 – $110,000) / $124,000 = 3.6 years
Hence by performing the upgrade with the new Federal Budget changes reduces the outlay by more than 25% and brings down the payback period substantially. 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.
Boilers 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.
- Gas-fired Steam Boilers in Industrial process
- Gas-fired Hot Water Boilers for Commercial Buildings
- Chillers for Commercial HVAC
- UPS and CRAC upgrades for Data Centres
- Air Compressor upgrades
- Variable Speed Drives for large motors and fans (very fast payback)
- Warehouse and Orchard Coolroom upgrade
- Installation of Large Scale Solar PV in Victoria under the VEU
All these assets can claim energy savings certificates using the Measurement and Verification methods under the different state-based schemes as well as under the Australian Carbon Farming Initiative (Carbon Solutions Fund).
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