Reframe Pod Ep5 Transcript
[00:00:00] Jeff: Welcome to ReFrame, the podcast that explores building sustainability. I'm Jeff Nichols. In today's conversation, I get to nerd out a bit, and we're going to go into some of the weeds on two of these energy tax incentive programs. The 179D deduction and the investment tax credit or I T C. And as a reminder, 179D is all about building energy efficiency improvements and the I T C specifically section 48 relates to on-site renewable energy generation such as geothermal or solar power.
[00:00:51] And in this episode, we really explore which types of buildings or industries are gaining traction or momentum with each of these two programs. My guest today is truly an expert in these programs, and he's probably going to give away some real insights and free consulting. With that, I'm thrilled to introduce Josh Howes, CEO of Blue Energy Group.
[00:01:13] Josh, welcome to the podcast. I'm excited to have you on the show.
[00:01:17] Josh: Happy to be here.
[00:01:18] Jeff: So, first up, tell us a little bit about who are you? What, what are you doing now? And, and I'm really curious, how did you get into this?
[00:01:26] Josh: Uh, that's a little history. So, Josh Howes, the owner of blue energy group, we have offices in Louisville, Kentucky where we started and also now Denver, Colorado.
[00:01:41] We are an energy tax incentive boutique firm. We have a full team of about a dozen engineers on staff. And we help people take advantage of all the energy tax incentives that are out there from 179D to the, the new, all the new things that came out of the inflation reduction act with section 48 and 45 and all those things with the geothermal, solar, combined heat and power, biogas, biodiesel, all those tax credits that are out there now for all those technologies.
[00:02:22] And then we also do a little bit on cost segregation side. So, you know, our, our focus has always been trying to help Lower people's tax burdens, you know, whether it's a company or a private building owner. And so, we started the company in 2013. I own several companies before that and more of the construction industry and kind of fell into these tax credits around.
[00:02:51] 2010 kind of started learning about 179D. I was hired by a company to kind of spin up the engineering division of a company for them to certify 179D. And of course, my background's in, in, I'm civil engineer by trade. So went to university at Kentucky. And so anyway, I kind of fell into it that way.
[00:03:17] And a few years of working for them, I left and started blue energy group. So that's, that's kind of how the, the short and dirty of how I got here. It was just me. And I had one sales guy, we called it the closet. We worked out of the closet. So, it was just a couple of us, you know, trying to generate a business.
[00:03:38] And you know, here we are Still hanging around 11 years later. So,
[00:03:43] Jeff: well, and you know, 2010, you talk about boutique, I mean, 2010, this was not on anybody's rate. I mean, it's still something people are kind of learning about. So how did you make that work?
[00:03:55] Josh: Yeah. So, yeah, so 2010, it was more of it was definitely like the sales side of, of that process back then was trying to convince people that you're not trying to scam them.
[00:04:10] Nobody had ever heard of179D or it just seemed too good to be true at a lot of, you know, on a lot of levels. And so, a lot of the conversations would start, you know, you're really trying to steer them into. Convincing them that you're not scamming them out of money, right? Like when you send us money, we're actually going to give you something in return, you know, that actually will hold water with the IRS.
[00:04:37] And that is a legitimate, you know, tax deduction. So that was kind of the, the sales pitch in the beginning. And then of course, once I think it, once it became well known, it probably took a while. So,
179D of course started. 2006 was the first year he could claim it, but it came out of 2005. Yeah.
[00:05:00] With W George W. Bush was president. And then it kind of took a couple of quick changes right out of the gate in 2008, they made it eligible to be allocated to a designer of a public building. And it still took probably, I'd say probably until maybe 2013, 2014, before people really started to go, I've heard of this.
[00:05:22] I know what you're talking about to where today, you know, our sales pitch today is really, you know you need to use us versus somebody else you've been using because most people who are aware of it now are using it in some form or fashion. So now it's more of, you know, the sales pitch is, is more of.
[00:05:40] Using us for whatever reasons that we put in front of them that were better than the competition. But at this point, everybody's heard of it, especially now that it's such a large deduction much larger than it used to be. So started out at a dollar 80. Now it's. Gosh, probably next year it'll be pushing 6 a square foot with the bonus.
[00:06:01] So it's, it's quite a bit, bit, bit different now.
[00:06:04] Jeff: And how, how do you think the Inflation Reduction Act, you know, has changed? Obviously the, the dollar per square foot has increased, but you know, from your perspective, what is the biggest impact that the Inflation Reduction Act has had?
[00:06:20] Josh: The biggest impact is the prevailing wage and apprenticeship requirements.
[00:06:24] The standard is still 2007 ASHRAE 2007. So, building that's built today doesn't really have any trouble exceeding the energy standard by 25%. Codes are, are so much more advanced now. The lighting systems are so much more advanced, so you don't have to spend a lot of money to really get the deduction from that standpoint.
[00:06:48] So now the challenge when they've introduced this five times multiplier kind of carrot that they've dangled in front of everybody for all of those tax credits that I mentioned at the beginning, they're all part of that. So. All of them have a base deduction, and then they have a five times multiplier if you meet the prevailing wage and apprenticeship requirements.
[00:07:08] And so I think for most people, that's the hurdle. Even for a lot of my public designers and contractors that are looking at taking, whether it's a credit or deduction, the prevailing wage part of that equation is not it. Overly challenging. They that's pretty understandable. We've been dealing with prevailing wages for decades.
[00:07:31] It's the apprenticeship requirements. That's kind of the new hurdle and everybody's got to kind of jump through. And so, I think federal projects are pretty accustomed to doing apprentices. So, our union contractors, that's just something they've been really good at for a lot of. A lot of years, right? But it's the private industry that's going to have to catch up, you know, in some ways, it's a welcome addition to the tax code.
[00:07:59] You know, I've been personally complaining for years that the blue-collar workers are really getting scarce. The jobs are plenty. The workers are few. So, we've been pushing college educations for so long that kids coming out of high school think that's the route. But. You know, becoming a mechanical electrical plumber contractor, those are still much needed.
[00:08:24] And, and, you know, a lot of my contractors that I deal with on a day-to-day basis are really struggling to hire really good employees, you know, in those trades. So, the apprenticeship is a, is a really good addition. I think putting that five times multiplier on there is, you know, maybe that that was a little much, but it is what it is right now.
[00:08:46] So we're kind of having to deal with it. And., I think in the long run, everybody's going to make that adjustment. But for right now, that's, that's the big hurdle right now is getting these apprenticeship programs in place so that they're, they're able to take advantage of that bonus.
[00:09:00] Jeff: How do you advise clients to just make that easy?
[00:09:04] Josh: I don't know that it is easy, right? I mean, it just depends on, I think it just depends on the nature of their business. So, if they're just kind of a, A general contractor where they, they hire all the subcontractors and they're just GC in it, then it's not as hard for them because they're just putting in their contracts with their subcontractors that they need to meet these requirements and then kind of leaving it to the, to the trades to figure it out.
[00:09:32] In some cases, they're just going to hire a union contractor. In other cases, that contractor's, you know, spinning up an apprenticeship program for the contractors that do a lot of self-performing work. It's a little bit of a lift for them. You know, they're, they're trying to get it in place quickly so that their current projects can qualify.
[00:09:52] And it's just not something that you can just spin up overnight. It's. Taken a few months for a lot of them to get, you know, these programs in place. And of course, you know, you're in the middle of building these projects. So, you don't have resources to just say, hey, go and spend three months, you know, developing an apprenticeship program.
[00:10:13] It's, it's starting to come around, but it's still, we're, you know, we're still dealing with a lot of. Trying to hold their hands and saying, you know, you're going to have to do it in order to get that bonus, or you're going to be missing out.
[00:10:24] Jeff: Can you break down, Josh, you know, some of the apprenticeship details?
[00:10:28] Because it's, you know, there's, it's a certain percentage, it's not 50%. If that's one of the biggest challenges, you know, what, you know, how is that perceived? And what are those details?
[00:10:39] Josh: Well, it's 15 percent of the hours that you have. You have on the job, right? So, to keep something simple, if you do a lighting retrofit and you have a thousand hours of labor on the job, then you have to show that you had 150 of those hours covered by an apprentice.
[00:11:00] So it's a straight 15 percent of your total hours worked on the job have to be performed by apprentices. Right now. And that, that seems to be where they've capped it at. So, I don't, I mean, it could go up, you know, with new legislation, but right now it's at 15 percent and you have to have an apprentice that's a part of a, an apprenticeship, a registered apprenticeship program, so it can't just be.
[00:11:24] A guy you hired off the street and you called him an apprentice, right? He has to be in an actual program then. And that's the struggle, right? Is trying to get them enrolled in a program, if one doesn't exist. They're trying to spin up a program and, you know, to kind of meet the requirements that their particular state has in order to actually qualify as an apprenticeship program.
[00:11:46] So, you know, they have to have. You know, regular trainings, they have to have exams. They have to be, you know, kind of in this program where they're not only on the job, but they're also in the classroom learning how to do this job. Right. Like I said, the unions are really good at it. And so that's kind of where a lot of people are kind of going to, to get some advice, you know?
[00:12:08] Uh, but yeah, so, but it's nothing more complicated than its 15 percent of the total hours worked on the job have to be done by an apprentice, so.
[00:12:15] Jeff: So obviously, you know, major metropolitan areas are going to have established, you know, trades and unions and that sort of stuff. But in other maybe smaller markets, my understanding was there is the possibility to get exemptions because the administration understands that, you know, that this is something that's going to take some time to spin up.
[00:12:34] Can you tell us more about that?
[00:12:35] Josh: Yeah, you can get an exemption. I think it's just a matter of kind of state to state on how established the apprenticeship program is. You know, the way the legislation is written is that there's this assumption that there's an apprenticeship program in every state and that.
[00:12:53] You can just call this program up and say, hey, send me two electrical apprentices for my job, you know, and they will. And if they don't, then you get exempted from the requirement because you asked for one or two, you know, you asked for the number that you needed and they didn't have them available. I'm not so sure it's that simple, but at least that's how it reads.
[00:13:15] So I think the main thing to keep in mind if you're going for the exemption is that you actually made a considerable effort to get apprentices on the job and that you can document all the efforts that you made in order to try to get a program going to get your contractor, you know, your subcontractors to be compliant.
[00:13:35] You tried to call, you know, every apprenticeship program that you're familiar with around you, even if it's in the neighboring state to try to get them to send you one or send you the required number of apprentices. And then, you know, if you just keep coming up short, then you've done your due diligence and you can apply for that exemption.
[00:13:56] And there's not really an application. You just, when you file, you, you claim the five times multiplier, and then you say, we didn't meet the apprenticeship requirements, but here's all the documentation showing that we. Made a good effort.
[00:14:09] Jeff: That's really applicable, right? For projects starting in 2023.
[00:14:14] Josh: So, we're
[00:14:14] Jeff: now just starting to see that, right.
[00:14:17] As people kind of file for that tax year, but that'll be something that all 23,
[00:14:22] Josh: it was only 12 and a half percent. 24 starts at 15 percent.
[00:14:25] Jeff: 15. Let's switch gears. Let's talk 179D. You know, it'd be helpful to hear more real-life examples. And so, we're hoping that you could kind of break it down for us.
[00:14:38] You know, talk about a real client. We don't need the name, but you know, real client, what was their industry? How did they come to you? And kind of what was the starting point?
[00:14:49] Josh: Well, we're a little different cause we're more of a wholesale. We don't deal direct with too many building owners. We deal with accounting firms.
[00:14:58] We deal with contractors, design firms like A& E firms, but the typical building owner that comes to us, basically they've heard about 179D and they're like, hey, I want this 5 a square foot thing. Right. And that's kind of where the education starts because again, we're in this prevailing wage and apprenticeship requirement kind of thing.
[00:15:19] That we have to explain to them and, and most of the times they didn't meet that, you know, the caveat is right now this little window where if your project was under construction before January 29th of 23, you kind of get grandfathered in to that five times bonus. So., we had a lot of clients that, that took advantage of, of that little loophole, so to speak, that's in the, in the rules where they got the bonus and they didn't actually meet, you know, the prevailing wage and apprenticeship wage requirements, but they, they were under construction when they changed the law.
[00:15:50] So, you know, but I think for that building owner. They're of all, it's of all, I mean, basically every building that's newly constructed or newly renovated, where you renovated a lighting or a mechanical system, it's all eligible for 179D that, you know, they're all looking at it. So, from a building owner's perspective.
[00:16:12] You know, the, the first thing you're going to do when you build a new building or, or retro do a major retrofit is that you're going to look at a cost segregation analysis. That's a really high dollar to cost ratio benefit. So,179D is treated very similarly. They're both accelerated depreciation, both cost segregation studies and 179D both accelerate the depreciation of the building.
[00:16:40] So, so they start looking at 179D once they've. committed to doing a cost segregation study. And so, you know, for the most part, our studies are pretty quick and easy. It takes about a month to do the study. And we do a site visit, much like a cost segregation study does a site visit. And we put our eyes on the building.
[00:17:00] I think the misnomer is that there's this 5 a square foot money out there. And the concept though, is it's a tax deduction, so it's not a credit. So, because it's a tax deduction, it's 5 a square foot that you get to depreciate. But as far as how much is it really worth to you, you know, it, that depends on your tax rate.
[00:17:24] So, you know, if you just say your tax rate's 20%, then it's really only, A dollar a square foot as far as the cash value, right? So, it's 5 square foot times 20%. We get you a dollar a square foot and then people start realizing, oh, well, it's not quite as valuable as I once thought it was. It's still valuable.
[00:17:45] Don't get me wrong. If you've got a hundred thousand square foot building, that's a hundred thousand dollars cash that you should take advantage of because our studies are going to be a, a fraction of that. So, it's, it's just, I think people have this 5 in their head of, oh, it's a half a million dollar, you know, money in my pocket.
[00:18:05] And it's not quite that big, but yeah, it's definitely worth taking, you know, and like I said, most of my clients do cost seg and they also do 179D. We do a ton of them, like I said, it's still a good return on your investment. And so, you know, that's kind of. That's kind of the scenario, but it's not difficult.
[00:18:25] And I think, you know, for the other side of the coin, if you're not doing prevailing wage and apprenticeship. It maxes out at a dollar a square foot, and then your cash value is only 20 cents a square foot, and that's, that may not be worth pursuing, so to speak, so they really, they really put a lot on this prevailing wage and apprenticeship, and like I said, that may, it may have been a little aggressive from them doing it that big, but that's where we are.
[00:18:54] Jeff: So, is it fair to say, you know, whether it's a building owner or designer, they're coming to you, they, they know the high level, right? They're enticed by this 5 a square foot, but they may not understand, okay, what is the unlock to that? And then further, you know, it's not just a tax credit, it's a deduction, it lowers my taxable income, that, that is a huge factor.
[00:19:18] How do you. You know, how quickly can you kind of assess whether, you know, this is a good investment on their end?
[00:19:26] Josh: Uh, a day or two. All right. Yeah. A conversation and then a set of plans and uh, we can talk specifics at that point. And yeah, we can, we can tell them within a day or two, you know, this is right for you or it's not right for you for sure.
[00:19:44] Jeff: Yeah. Well, I know that's one of the things you pride yourself on is, you know, just being really easy to work with, you know, give us what you got. And then, you know, we can kind of give you a point of view. Like, what would you say? What are the things you know, you need for that preliminary assessment? How, how little or how much do you need
[00:20:00] Josh: this set of plans?
[00:20:02] Yeah, that's it.
[00:20:03] Jeff: Just building. Yeah. Building plans. That's it. Wow.
[00:20:06] Josh: Yeah. Well, and a lot of them don't give us that. So just as much details as we can get on the project, but it's not overly complicated from our standpoint. We've been doing this for a long time, but you know,179D it's a really good deduction.
[00:20:20] If you're in that mode of, of accelerating the depreciation or your building, if you're a building designer, like an architect engineer. Design, build a contractor. It's, it is free money for you. You're not depreciating anything. That's kind of more of our target market. Are those guys where you're, you know, you're getting basically free money for doing a nice design, nice energy efficient design.
[00:20:45] It's really, really beneficial for them.
[00:20:48] Jeff: Yeah. Let's break that down. So, it's, it really is. These are designers, so it's architects. But you have a lot of design build folks, especially in the mechanical contracting space, right. That, that would qualify for this. But the key is that This is, this is work that's done for a public or not for profit, right?
[00:21:07] Entity that then the real hitch is they've got to allocate that benefit to you. Have you ever run across, I'm curious, have you ever run across where there are two firms that have designed the sufficiency improvement that are claiming an allocation letter or how, how does that get mad? It seems kind of wild west to me.
[00:21:29] Josh: Yeah. The IRS leaves it up to the building owner to give that deduction to whichever designer they want. And so, a lot of times it's first come first served and yeah, you do kind of get into, you know, we try not to get into the middle of it, sound like we're, we're the messenger, you know don't get mad at us.
[00:21:48] We're just the messenger, you know, but the building owner has to allocate it to one or the other. A lot of them, a lot of them work together. A lot of my clients are, are used to this and you know, if it's an architect, engineering firm, you know, if architect firm and an engineering firm, both chasing the deduction, a lot of them have learned to work together over the years.
[00:22:08] And so just kind of a matter of a course of business, they'll split it and they'll kind of go in to the building owner together and get that letter. You know, split 50 50 between them and things of that nature. I've got another contractor that splits a third, a third, a third with the contractor engineer architect.
[00:22:26] So these things are in place. It's just a matter of it's team. It's basically culture, right? Like if you're, if your culture is to work with the same architect or same engineering firm, every time that you do a project and you want to be on a friendly basis, you're going to try to share it. If your culture is not that, then you might take it all for yourself and it is what it is.
[00:22:52] So, but it
[00:22:52] Jeff: may not get invited back next. Yeah, you may not. Yeah.
[00:22:55] Josh: But you know, if you're in the cat bird state, if you're the architect and you're the one that's always driving these projects, then, and you feel obligated, you know, that it's, that it's your deduction and they take a hundred percent of it.
[00:23:07] So we have a lot of architects that take a hundred percent of it. Kind of going back a little bit to the conversation with the private building owners, based on your reframe kind of concept, I think what do we get? A lot of questions is what do we need to do to our building in order to qualify for179D, right?
[00:23:26] So like they might be. I'm building a new building and they're thinking, I want this 179D tax deduction when it's all said and done. So, what kind of energy efficiencies do I need to build into the building? And our standard answer is always don't construct a building based on 179D energy efficiencies.
[00:23:47] And. It's unfortunate to have to say that because the legislation is supposed to be there in order to incentivize these building owners to build a more efficient building, but you have to design efficiencies based on your, you know, like how efficient do you want your system? How much is it going to cost today versus how much is your annual, you know, expenses for running this equipment?
[00:24:13] Those are the decisions that you have to make. Make in order to decide if I want to do a more efficient system or not
[00:24:20] Jeff: Part of why the government has introduced these energy tax incentives Is to get people to build more efficient buildings, right? And so, it's having you know Some impact but maybe not the full impact what in your opinion?
[00:24:35] What? What would really drive, you know, more of these energy efficiency improvements if the current programs are, you know, doing an okay job, but not a great job,
[00:24:47] Josh: bigger deductions,
[00:24:49] Jeff: just more benefit. Okay,
[00:24:51] Josh: we'll get into it. But the inflation reduction act targets specific technologies. So, I think that's probably more where it's going to go is more down that road to were.
[00:25:04] Their target, you know, whether it's because of lobbyist or because of a particular industry, they've got a heart for, you know, the legislators are going to, they're going to tag their tax credits and deductions at specific industries and specific technologies versus just kind of an overall general efficiency type analysis.
[00:25:27] That's why that
[00:25:28] Jeff: you mean like HVAC lighting, you know, windows, that's well
[00:25:32] Josh: more specific than that. Like I want you to use solar or I want you to use wind or I want you to use geothermal, you know, a specific technology within that category within the heating and air category within the electrical category.
[00:25:47] I want you to use a specific technology and I'm going to give you a big tax credit for that. Because they're trying to drive revenue into those technologies and trying to make them the more preferred technologies, right? And they're not, the free market's not getting it done. So, they're going to hang that carrot out there.
[00:26:06] Jeff: Yeah. Yeah. Well, let's switch gears to talk about one of the other programs that's seeing a lot of increased interest, which is the investment tax credit. Who are the folks that are coming to you interested in this and tell us about that starting point.
[00:26:21] Josh: That would be everybody. Yeah, so those are, you know, for most buildings, we're talking about solar, wind, geothermal.
[00:26:33] Those are going to be the more accessible technologies to your average building owner. You know, there's combined heat and power and there's other types of more expensive technology, but those are going to be larger manufacturing facilities and things of that nature. So. For the average building owner, that's going to build up a 50, 000 square foot office building or something like that, the technologies that they're really going to actually have to consider at this point are solar and geothermal, because those can get paid for by the federal government at this point to the tune of somewhere between 30 and 70%.
[00:27:13] So if you're thinking, well, I'm going to put a solar field, On my building or next to my building. And I think it makes good sense because I want to offset, you know, my electrical utility expenses with solar. Uh, it's a good return on investment. Now, all of a sudden, say 50 percent of that is going to get paid for by the federal government.
[00:27:39] So now it's only going to cost you half as much and now it really makes it attractive and kind of the same with geothermal. You know, it spins into the 179D tax deduction because you're looking to, to have a very efficient building. So, let's consider geothermal. And when you start doing the math, geothermal makes a lot of sense You know, it costs a lot up front, but it, you basically have a tiny utility bill.
[00:28:04] It's a very, very economical system to run. But then when you start considering that the federal government might pay for 40 percent of the construction costs of that system, it makes it a whole lot more attractive and it brings it into play when. You may have dismissed it because of its initial cost in the beginning.
[00:28:23] You're like, wow, that's really expensive. And I don't know if I can get that kind of a loan or whatever. And now all of a sudden, it's only 60 percent of that cost. You know, the government's going to give you a check for 40 percent of that amount. It makes it a lot more attractive.
[00:28:38] Jeff: Well, and so let's talk a little bit about deductions and credits.
[00:28:42] The investment tax credit is a credit, right? So that, that is certainly from a benefit standpoint, I think appealing to a lot more folks. You know, how does that apply to public and private? Are there differences?
[00:28:56] Josh: Yes. So private building owners get a tax credit. So, it's basically whatever you owe the IRS you subtract the tax credit.
[00:29:09] Uh, and that's now what you owe the IRS. So, it's actual cash sort of, it's not cash, but it's a cash equivalent, right? So, if you're a profitable company and you have a large tax bill every year, these tax credits are going to be very attractive to you. If you don't have a profitable company and you don't have a tax burden that can handle a large tax credit like that, you can transfer at one time.
[00:29:33] As a private building owner. So essentially you can sell it. So, you know, we're kind of seeing about 90 cents on the dollar out there right now. So, if you. Do a geothermal project and you get a million-dollar tax credit and you'll never owe the IRS a million dollars. Then you can sell that tax credit to somebody who does owe the IRS a million dollars who would like to have that tax credit for 900, 000 instead of a million.
[00:29:58] So you both win, you get 900, 000 cash and they get a million-dollar tax credit for 900, 000. So,
[00:30:05] Jeff: right.
[00:30:06] Josh: That's a good trade for a private building owner. So, they've made it very accessible to take advantage of those. You're not stuck. If you don't, you know, if you don't have a big tax bill, you're not stuck because of that one-time transfer.
[00:30:18] If you're a public building owner or a nonprofit, like a nonprofit hospital or some nonprofit entity like that, it is cash, you don't pay taxes. And so, the, the IRS. Essentially gives you a, a cash. So, you
[00:30:34] Jeff: would check back. Yeah. Those, those are fun days when you get that.
[00:30:38] Josh: So, they are actually paying for a percentage of your project in cash at the end of the project.
[00:30:45] So it's real money. They've made it pretty easy to access. You know, you just got to jump through the hoops and know how to, how to file for these things, but it's definitely real and it's definitely being taken advantage of. I saw the other day. Where one of these trade exchanges where, you know, they kind of have a, it's kind of like an eBay for these tax credits.
[00:31:06] They had a billion, 1 billion in transactions in one day. There's a lot of these tax credits out there that are trading hands right now. And so, yeah, they're real. It's definitely reframing the question, right? So, what type of a heating and air system should I build in my new building? You kind of have to consider geothermal because of the tax credits that are available for it.
[00:31:30] So at least it has to be considered
[00:31:32] Jeff: right, right. Those are still going to be your larger square footage, right?
[00:31:36] Josh: Doesn't have to be real. No, I mean, because the smaller, you know, there's a one-megawatt threshold. If you're under one megawatt. So that would be 280 tons or so for a geothermal system. And then it would be a one-megawatt solar system, which is a pretty substantial solar system.
[00:31:57] So if you're under that, you don't have to. to the prevailing wage and apprenticeship rules in order to get your five times bonus. So, if you're under that threshold, you automatically get the five times bonus no matter what you paid your contractors. So, the small building owner can take advantage of it just as well as the large one.
[00:32:17] It's going to be, you know, 30%, 50 percent of, of you know, a tax credit on your expense, whether it's a, say a 0. 1 megawatt system, you know, if it's tiny or if it's, you know, a 0. 9-megawatt system and you're just staying right under it. So
[00:32:35] Jeff: I solar, obviously it makes sense to me. It could really scale down.
[00:32:39] I would, I always thought geothermal really only made sense. Maybe it was because the cost before, but again, if that's being cut by. Whatever, 40 to 60 percent that, that could like you said, there's just the economics on that and make a lot more sense. I mean, it's
[00:32:54] Josh: a realistic expectation to get a 40 percent tax credit on geothermal.
[00:32:59] Jeff: Yeah.
[00:33:00] Josh: So yeah, that's, that's the deal with that. And like I said, I live in the Midwest. I've got people build houses out here with geothermal systems in them. So, like, it's, you can build a small geothermal system and make it, especially when you're offsetting it by 40%, it makes sense. It can make sense. Yeah,
[00:33:18] Jeff: yeah.
[00:33:19] And so just to wrap on ITC, what are the types of industry, I mean, it sounds like everyone, but like, what are the top three that, you know, if they're not talking about it or thinking about it, they really should be?
[00:33:32] Josh: As far as industry, like building owner industries?
[00:33:35] Jeff: Yeah. Like I mean, not for profit hospitals we talked about.
[00:33:38] Yeah. I
[00:33:38] Josh: mean, not for profit hospitals is where we're seeing a lot of activity right now. K through 12 school systems, we're seeing a lot of activity in both geothermal and solar, you know, nationwide. It doesn't matter at this point, if you're in the Midwest or the Northeast or the West coast, it's all, everybody's considering geothermal and solar unless geothermal just, you know, it doesn't work real well down South and way up North, but, and then I would say like manufacturing facilities.
[00:34:05] So you've got a lot of manufacturing processes going on inside and you can, you can offset a lot of your construction costs and a lot of your utility costs. If you can offset it with solar, I'd say those are the three. But honestly, it applies across the board. If you're building a new building.
[00:34:25] There's a lot to consider these days based on all the incentives that are out there. So, you need to be thinking about a lot of different things.
[00:34:33] Jeff: Yeah, yeah, and talk to an expert. Okay, final question that we have for you. Using your crystal ball, what does the future look like in five years for building owners?
[00:34:47] Josh: Honestly, like if I had to put my money on it, I'd say not a lot different than today. There'll probably be some tweaks here and there, you know, five years from today, we're talking about 2028, 2029. We're going to be kind of getting towards the end of some of these tax credits. I think they expire around 2032 so they're going to be talking about doing something else around then.
[00:35:11] I don't know if they'll have done it by then. I think what the environment that we're in today is going to probably be here to stay for the most part over the next five years, I think five years from now, we're going to be in a new environment where we're talking about what's next, but I don't think we're going to have seen what's next just yet.
[00:35:31] Interesting. But I could be wrong. If I knew the future, I'd be rich. You wouldn't be talking to me. That's right. That's right. Well, I think one of the
[00:35:40] Jeff: things, you know, I think a lot about is, you know, what are, what are some immutable truths, right? So, you know, I guess it depends on your viewpoint, but you know, do greenhouse gases, do Gas emissions, you know, create global warming is global warming create more extreme weather events You know as more time goes on are we going to see more or less of those and does that?
[00:36:03] Change kind of people's attitudes and the political will to do more faster So I think it'll be interesting, you know, see how it plays out. It's I mean you've lived it for the last decade, right? I mean it well change maybe happens slowly, you know, this industry went from being A blip to you know I think in the inflation reduction act, it's a 390 billion has been allocated for these incentive programs.
[00:36:31] Josh: So that's probably low by a factor of 10 really
[00:36:35] Jeff: nicely. Yeah,
[00:36:37] Josh: I do. I think they've got so much money to give away right now. They're just, they're begging people to take Advantage of these programs.
[00:36:44] Jeff: Well, that that's a pretty healthy down payment. Obviously, there's still a lot of work to be done. And that's where I think that one of the misperceptions is that, you know, if we just build all our new buildings, you know, really green, that that gets us there.
[00:36:57] And while that's helpful, that's good. And I think building code will probably evolve faster than the other side of the equation. But if we don't. Look to retrofit our buildings, you know, more smartly. You don't really put a dent in this thing. And our buildings are, you know, one of the most significant sources of emissions out there.
[00:37:16] But fascinating conversation, Josh. I super appreciate your time and expertise. I learned three new things today, for sure. So
[00:37:24] Josh: thanks for having me. Thank you. Absolutely.
[00:37:36] Jeff: Wow. Well, just when I think I've begun to figure out this space, I learn a ton of new things. And that was certainly true in the conversation with Josh. Here are a couple of the takeaways that I want to share. We went deep today on two main programs that are seeing a lot of interest in the marketplace.
[00:37:58] 179D And the investment tax credit or I. T. C. Specifically section 48. What I thought was most interesting. What Josh really helped illustrate for us was the broad applicability. The real facilities and building owner types that these programs are really advantageous for. So, let's look at those three.
[00:38:21] Not for profit hospitals, schools and manufacturers, and here's some statistics or data to kind of ground on the size of number of organizations that this makes sense for. There are 3400 not for profit hospitals in the U. S. 95, 842 public K through 12 schools and 585, 000 manufacturers across the U. S.
[00:38:48] that could be taking advantage of these programs as they look to make their buildings more efficient. That is a staggering number. Hundreds of thousands of, you know, buildings and entities that could be using these programs. My conversation with Josh reminded me of one of the things I found so interesting about this space.
[00:39:09] Accountants are really only paying attention to maximizing your annual return and the tax benefit after the project is completed. And engineers are really only focused on their design and getting the project, not trying to help you figure out how to pay for the project. But those building owners that are able to bridge these two worlds will benefit.
[00:39:31] And that's the reframe. Building owners aren't going to do this work just for the tax incentive, but they need to bring their tax advisors into the project planning process if they want to maximize their benefit. Taking into account how on-site renewable energy generation, like solar or geothermal, can help you qualify for the ITC, or the importance of paying prevailing wage and having apprentices involved in your project, will translate to real dollars, and it's important.
[00:40:04] These tax incentives won't change your overall project goal, but you are missing out on real dollars by not bridging the accounting and engineering worlds. Thanks for listening to reframe and my conversation with Josh house till next time
[00:40:20] Announcer: you've been listening to reframe the show about building sustainability presented by pilot light Opinions shared by the reframe guests aren't necessarily the views of their companies If you'd like to learn more about the podcast the show's host guest or topics Check out this episode's show notes or visit pilot light dot AI slash podcast Got a question for the Reframe team?
[00:40:43] Drop us a note at reframe at Pilotlight.ai. The Reframe podcast features original music by Diaphonic. The show is produced by Robert Haskitt with Eric Opel and the show's host, Jeff Nichols. Before you go, this would be a great place to hit pause in your podcast app and then hit that little plus sign up in the corner to follow the show.
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