August 30, 2005
Overview
The Energy Policy Act of 2005, which President Bush signed on August 8, 2005, is an omnibus law comprised of 18 titles that alters the energy landscape significantly. Click to view our overview of 31 Key Effects of the Energy Policy Act of 2005.
The Energy Policy Act of 2005 (the "Act") authorizes a number of incentives to encourage the use of energy efficient equipment, appliances, and materials in government and commercial property and residential homes. Among other initiatives, the Act:
- Creates new annual graduated energy usage reduction goals for all federal buildings, with the final goal of 20% reduction in energy consumption from 2003 levels by 2015 (§ 102).
- Mandates the creation of new federal building energy efficiency performance standards. These revised standards must require that, if life-cycle cost-effective, new federal buildings be designed to achieve energy consumption levels at least 30% below those of the version currently in force, and sustainable design principles (i.e., "green building" techniques) must be utilized (§ 109).
- Permits the U.S. Department of Energy ("DOE") to make grants for state energy conservation plans to assist local government to improve the energy efficiency of public buildings. To be eligible, such assistance must promote either the construction of new energy-efficient public buildings that use at least 30% less energy than a comparable public building or the renovation of existing public buildings to achieve reductions in energy use of at least 30%. This section authorizes $30 million per year in appropriations for 2006-2010 (§ 125).
- Allows deductions for the cost of energy efficient commercial building property, not to exceed $1.80 per square foot, for lighting, heating cooling, ventilation, water heating and the building envelope (e.g., insulation, windows, doors, roofing, exterior materials) when installed as part of a design to increase energy efficiency by 50% for these items. If the savings achieved are less than 50%, but otherwise meet the DOE's goals for energy efficiency, the deduction shall be reduced to $0.60 (§ 1331).
- Adds credits for energy efficient residential homes, including: $2,000 for a house with 50% lower energy consumption than a comparable house, with 1/5 of that 50% coming from elements of the building envelope; and $1,000 for a house with 30% energy savings, with 1/3 of such savings coming from building envelope elements (§ 1332).
- Creates credits for energy efficient improvements to existing homes, including 10% of the amount paid for qualified improvements up to certain aggregate limits (§ 1333), $100 or more for energy efficient appliances that meet the Energy Star criteria (§ 1334), and 30% of the amount paid for photovoltaic (solar) panels, solar water heating, and fuel cell property, not to exceed $2,000, $2,000, and $500 respectively. The credit can be carried over to the next year if costs exceed the limit, and installation costs may be added to the mix (§ 1335). There is also a credit of $200/kW for microturbines generating less than 2 MW for on-site generation (§ 1336).
In the past, energy efficiency projects and equipment in commercial property and residential homes were seen as unneeded extravagances and niche products. Now, with rising energy prices and tightening margins, these initiatives, coupled with existing state and local incentives, should make energy efficiency a more attractive addition to a new development project or retrofit.
For More Information
Please contact Bob Glasser, Peter C. Lesch, Thomas P. Riozzi, or Michael J. Zimmer or any member of our Energy or Real Estate practice groups for more information.
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Last modified: August 31, 2006
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