Tax Incentives Boost Green ROI

Robert N. Rafson is VP Engineering of Full Circle, a Chicago-based sustainability management solutions firm. He is also co-author, with Harold J. Rafson, of Brownfields: Redeveloping Environmentally Distressed Properties (1999). What follows is Part Two of a four-part interview.

A former paint factory brownfield site. Photo: Full Circle

BPGL: You’re known in Chicago for the largest rooftop solar installation in the city, on top of a brownfield redevelopment project. But people say solar technology has a long payback. Is solar economically viable?

RAFSON: It’s an interesting time in both the financing and in the technology of solar thermal and solar photovoltaic [solar PV]. The economics of solar PV are changing rapidly. In 2008, Nanosolar came out with their first panels at 99 cents a Watt.

At the same time, the supply of pure silica production has tripled, with three new plants coming online. Now the raw materials cost has decreased dramatically, and we have a rapidly decreasing solar PV price.

The same paint factory after redevelopment. Photo: Full Circle

On one brownfield redevelopment project, a former paint factory property, we installed the largest solar thermal in the City of Chicago. The results have been very nice except for a year like last year. In Illinois, last year, we had only 11 hours of sunshine from January 1, 2008 through February 15, 2008. It was a very depressing winter! Yet we only lost 10 percent efficiency compared to prior years. You have to average your results annually and not focus on a cloudy day.

BPGL: Are you seeing a lot of companies making the leap to install solar technology?

RAFSON: Organizations like schools and hospitals — even government agencies —don’t have the wherewithal or desire to borrow money for what is still considered by some to be “frivolous pursuits.” But there are plenty of ESCOs (energy service companies) created around the world to capitalize on that market.

Engineer Rob Rafson on roof of a renovated brownfield that now uses solar power. Photo: Full Circle

There aren’t that many people like me. Even my partners look at me like, “We spent $600,000 on that project!” But we got state, federal, and local tax credits, as well as grants. Then subtract any favorable tax treatments, and roll all of that back in. With the interest rates as low as they are now, we financed the expense 100 percent. We anticipate $40,000 in savings, and our mortgage payment is only $18,000 per year. They call that “day-one ROI.” So for us, the building becomes $22,000 more profitable than before we put the solar panels in.

BPGL: Tell a bit more about the tax breaks and grants you got.

RAFSON: I was lucky. We got matching funds from the state and 35 solar panels from the city of Chicago to match the federal tax incentives. In Illinois, we’re at 30% matching grants for solar technology. Cook County has an ordinance that any additional renewable energy added to the property doesn’t increase the basis of the property; so, they don’t increase property taxes for added renewable energy. It seems obvious, but it isn’t. If you do $600,000 of improvements on a building, you’d expect that the value of the building would increase by $600,000, and that your property taxes would go up accordingly. This [property tax policy] is very forward thinking and does not penalize property owners for investing in green technologies.

Solar panels sit on the rooftop of the brownfield development. Photo: Full Circle

BPGL: Were you concerned about renovating a brownfield site for reuse?

RAFSON: This project is on a private property (it’s my fourth paint factory cleanup). Yet, it has positive economics. I’m an environmental engineer, for me environmental problems on a property are just a construction item; you simply have to be a little more careful about your management of the materials and construction. And include that in your pro forma when you purchase. We were able to purchase at a significant discount, with savings well above the cleanup cost.

BPGL: What help, if any, did you get from local sources?

RAFSON: We used many energy-saving technologies. Some were benefited by unusual and wonderful incentives that are available from time to time. For example, here in Illinois, the local power authority, Commonwealth Edison, is supporting energy efficiency. They created incentives called “Smart Ideas.” They’re funding energy efficiency projects for the next three years in their service areas for commercial and industrial customers. So I got a few dollars from them to change lights, and do a variable speed drive on my solar project instead of on/off motors. I got a bit more energy efficiency out of my equipment, funded by these types of grants.

BPGL: What about installing wind turbines? Are you doing that in Chicago?

Beautiful to some, but others say, "Not in my backyard!"

RAFSON: I want to try. The problem is, urban wind is very difficult, because of the surface roughness created by buildings. It makes a whole lot more sense to build wind turbines on Lake Michigan if you’re on the Michigan side of the lake. There, you’ve got 100 miles of water for the wind to get consistent and smooth, and that’s what a bladed turbine likes. The more consistent the wind, the more power you can produce.

BPGL: In some communities, there are regulations against installing wind turbines because it “spoils the scenic views.”

RAFSON: It’s a cultural change to get people to accept and understand. The “not-in-my-backyard” people don’t want wind turbines, because they don’t like the look of them. But not everyone thinks that way. A friend of mine in Montana put up a 3 kW wind turbine on his house. Before, no one came around. Now at least two times a week, people come by to watch the turbine spinning.

I believe it’s important to retain the historical and scenic views. But I think we need to have harmony between renewable energy strategies and the lives that we live.

Part 1: The Positive Economics of Going Green

Part 2: Tax Incentives Boost Green ROI (Top of Page)

Julia Wasson

Blue Planet Green Living (Home Page)

The Positive Economics of Going Green

“The only way the Green Revolution will be achieved is through economic opportunity, not through regulation,” says Rob Rafson. A world-renowned environmental engineer and author of the highly regarded book, Brownfields: Redeveloping Environmentally Distressed Properties (1999), Rafson has cleaned up and redeveloped 17 brownfields — including four Superfund projects. He’s on a mission to teach sustainability management to businesses. “Once they see the economic benefits of going green, the transition is easy to sell to shareholders and management,” he tells us.

“In our opinion,” Rafson says, referring to Full Circle, his Chicago-based Sustainability Management Solutions firm, “any business interested in going green should do a cost benefit analysis of tactical opportunities that support their overall strategy and simply look at the return on investment (ROI). Whether it’s through renovating to make a building LEED certified, going to solar power, reducing waste stream, etc. — if you filter all the tactics by ROI, the steps become obvious. If you execute on the projects that have immediate and real economic impact, you can stair-step toward more complex projects with longer term ROI.”

We spoke with Rafson from his office to find out more about how he is teaching businesses to go green — and how well it’s working. This is Part One of a four-part interview.

BPGL: If it’s economically beneficial to go green, why aren’t more businesses doing it?

RAFSON: In my mind, the problem of gaining traction with the business world is that they get bombarded by all these great strategies. Any one of them may be good for the environment, but there are so many strategies that the business managers get lost. One company had a 250-page sustainability strategy. They hadn’t implemented any of it, simply because it was so overwhelming.

A CD collection takes up space that a electronic downloads do not.

BPGL: How do you convince a business to get started, when it seems such a huge task?

RAFSON: Our focus is that you can make money doing it. It’s not just about creating a better image, but about the economy of becoming more energy efficient, material efficient, transportation efficient, and more efficient in packaging. When you start to talk about cradle-to-grave, you can make real change. Look at WAL-MART; they changed their national waste program and saved $33 Million in the first year. It’s not just good for the earth, its good business.

Think about iTunes, for example. Eventually, a hard physical recording of media, theoretically, will no longer be needed. You can get all your music through electronic media. They’re selling pure information — intellectual property — as opposed to taking oil and aluminum, creating a CD, shipping it, putting it on a shelf, having to heat that space that you put the CD in, and so on.

There are many industries stuck in old technologies. The transition companies are starting to make is in realizing there are big economic advantages to doing things differently.

BPGL: How about an example of a company that can’t deliver its goods electronically?

RAFSON: Republic Services (which recently merged with Allied Waste Industries) is one of the largest waste hauling companies in the world. They’re making incremental transitions in all sorts of ways, but changing the entire way they do business? That’s huge. It may take a decade or two to get there. So, they’re making little steps.

Checking tire pressure every day saved thousands of dollars for a garbage hauler.

For example, no driver is allowed to get in the truck till they check that they’ve got the correct tire pressure. With this simple action, they’re saving between 1 and 1 ½ percent on fuel.

When you think about the fact that a fleet of 1,000 urban trucks will spend about $18-25 Million on fuel in one year, and you realize a company like Republic has 15,000 trucks…. Do the math. Tire pressure checks and maintenance become vastly more important than just keeping the trucks rolling. They’ll eventually have an impact on the company’s carbon footprint and help prepare them for cap and trade.

BPGL: That’s a significant savings for a trucking company, especially when fuel prices are high. What can other companies do?

RAFSON: Basically, every industry needs to look at how they can save fuel. In November, United Airlines flew to Australia. They did lots of strategizing and, without changing the plane at all, they saved 1,600 gallons of fuel. They flew at the same altitude, but slower. They reduced the amount of water on the plane and did everything they could to reduce weight.

It’s all about looking at what you’re carrying to reduce your drag. They avoided wind turbulence. They calculated the amount of fuel they needed more accurately, and used a constant descent vector on approach. They could have saved 2,600 gallons of fuel, if they hadn’t had to fly around a storm.

United Airlines cut their carbon footprint and their costs.

What usually happens is that a company focuses on their core business, and they’re already making transitions there. They don’t always look at other parts of their business. The reality for the airline industry is that 95 to 98% of their carbon footprint is the plane. But that’s leaving out the discussion of what to do with the ground equipment, anything outside of the plane.

United Airlines is committed to switching their ground gear to electric. Already, almost 100 percent of their pushback equipment is diesel electric or pure electric. They have other equipment they still need to transition.

A lot of airlines that don’t have electric equipment have gone to no-idle policies: If it’s not moving, it’s off. We may think that’s a simple idea, but it’s changing the way of thinking. Drivers don’t like to restart diesel engines when it’s cold outside. They used to turn the baggage trucks on in the morning and off at night. The trucks would run all day. Turning them off when not in use requires a cultural change, a change in the way of thinking.

BPGL: You mentioned that real change wouldn’t happen through regulation, but through realization of the economic benefits. Tell us a little more about that.

RAFSON: It’s so obvious and mind-blowing that people don’t think of it that way. In the past, most industries focused only on the strategies with regulatory pressure on them: air, water, CAFE [corporate average fuel economy] standards — whatever. Obviously when they quit changing the CAFE standards, all U.S.-based automakers quit thinking they needed to do anything more in terms of increased efficiency.

Changing from diesel to electric vehicles is economical, but requires a change of mindset.

Now, we’re not only dealing with greenhouse gases, but with terrorism and hugely high oil prices (not today, but they’ll be back again) as the economic drivers. U.S. automakers are losing out, because they didn’t think people really cared. When the price of gas was around $3.75/gallon, I estimated a Prius driven the average 12,000 miles per year saves $1,200 or $1,300. That’s assuming the Prius gets 55 miles per gallon (mpg), and that the average US car gets 22 mpg.

The average American keeps a car for 9 1/2 or 10 years, so the saving is about $12,000. Subtract that from the actual price of a car, and it’s a whole lot cheaper than anything else Americans have on the market.

If you look at it that way, selling a “cheap” car isn’t necessarily selling a cheap car. You have to look at the life cycle and operating cost for the vehicle, and then focus on additional strategies.

BPGL: What do you mean by “additional strategies”?

RAFSON: Somebody had a great idea for the Prius: Plug it into your business or home. Drain the battery during peak power and fill it up during non-peak power. In Chicago, the ROI for doing that with a Prius is something over $1,000 year. This is especially true during the summer, when the cost of electricity doubles in the daytime while air conditioning is running. You’re basically reducing the peak load demand.

Conceptually, one vehicle doesn’t matter; 100 doesn’t matter. But when you start to get to millions of vehicles, you start to change the structure of power distribution. You change the structure of demand. Then, if you add solar PV to the grid along with other inconsistent power generation devices, like wind, you can actually stabilize the power grid using strategies like this.

Part 1 of 4

Part 1: The Positive Economics of Going Green (Top of Page)

Part 2: Tax Incentives Boost Green ROI (Top of Page)

Julia Wasson

Blue Planet Green Living (Home Page)