Grant and Federal Funding for Decarbonization

What is Decarbonization?

Decarbonization is a hot buzzword these days. But what does it really mean? In its most simplest terms, the reduction of carbon. When it comes to our built environment, it refers to converting an existing building to systems that reduce the emissions of CO₂. While our electric grid is not completely free from contributing to climate change, almost 70% of our electricity in Illinois comes from Nuclear and Renewable energy – sources that do not contribute to climate change.

In the past, we’ve looked at small improvements to energy efficiency for our buildings. For example, instead of a 80% efficient gas fired furnace, let’s improve to 92% so only 8% of the natural gas is lost inefficiency. But even if we achieve 100% efficiency in traditional heating sources, natural gas will always produce CO₂, a greenhouse gas and a contributor to climate change. Decarbonization, in other words, is a process of electrification under current technological limitations. 

There is a title wave of support for buildings that want to decarbonize, from the recent Inflation Reduction Act, to the Climate Energy and Justice Act, to local municipal initiatives. As more and more of our customers are dreaming big on capital projects related to this – I thought it would be helpful to lay out the variety of potential funding sources available in 2023 for decarbonization.  

What we have seen from solar projects in our client base is a combination of different incentives to make a project successful – and we believe the same playbook will drive large building electrification projects.  

Utility Funding

Utility funding is always the place to start when thinking about efficiency. ComEd alone spends almost $450,000,000 annually on energy efficiency. They are also increasingly seeking out ways outside of lighting to hit their goals. If you have not done a lighting upgrade at your facility yet, now is the time as incentives are higher than we have ever seen in Illinois.  

The utility supports small improvements like Demand Control Ventilation and CEE Tier 2 upgrades –  a lot of our clients take advantage of this early replacement strategy.  However, we have started to see incentives from the utility that are hundreds of thousands of dollars dedicated toward projects that support the Very High Efficiency (VHE) HVAC concept.  Combining Energy Recovery Ventilator with Variable Refrigerant Flow heat pumps can lead to 60-80% savings on HVAC energy costs and can completely eliminate a building’s need for natural gas. These are bigger projects, but we are finding bigger value and larger support from the utility in terms of funding dollars. This funding is available to private businesses, non-profits, and municipal buildings.  

City of Chicago Climate Infrastructure Fund

This new 2023 program through the City is funding up to $250,000 for buildings that want to really decarbonize. While the first deadline was Feb 24th for funding requests, we believe additional rounds of requests will be announced throughout the year. Verde applied for funding for our own building in the first round and hope to have good experience and feedback to share for our Chicago customers. This funding is available to nonprofits and small businesses.  

US Department Of Energy – Building Upgrade Prize

The DOE  is looking to stimulate creative projects in the US, with up to $400,000 in prize money for buildings that take ambition to drive efficiency to new levels.  “Community-based organizations, state and local governments, Indian tribes, building owners, utilities, nonprofit organizations, energy efficiency program implementers, and other organizations are encouraged to team up and apply.” Phase 1 opened for submissions in February 2023.

Investment Tax Credit

As a part of the Inflation Reduction Act, the Investment Tax Credit was expanded to include Geothermal Heat Pump Systems. Typically, this credit helps support Solar PV power, offsetting 30% of the costs in 2023 and beyond. With the expansion to include geothermal heat pumps, some decarbonizing projects can find some additional support to help bring a project across the finish line.  

Tax Incentives – 179D

Most buildings that do major upgrades can do accelerated depreciation on these investments and find a tax benefit. However, municipal governments and nonprofits lack this incentive to invest in their buildings – so there are tax incentives that they can assign to other entities that “design” projects on their behalf.  This tax benefit was adjusted and strengthened through the Inflation Reduction Act of 2022. 

This incentive is now roughly $5 per sq foot in 2023 – and is assigned as a tax deduction for other corporations that project manage and design. For example, a 10,000 sq foot fire station that upgrades their HVAC systems to VHE HVAC would have $50,000 of benefit they can assign. They can be assigned via a certified letter at a cost of $.07 per square foot, or about $700 in the firehouse example.  The firm that receives this benefit would save about $50,000 off their taxable income – so approximately $15,000 at a 30% taxable rate.  This can help offset the cost of the project if the firms involved are seeking to offset taxes.

Inflation Reduction Act – Investment Tax Credit Changes

If you are familiar with solar power for buildings, then you are aware of the Investment Tax Credit.  It covers 30% of the cost for solar PV on our building, and now it can also cover geothermal heat pump systems.  This can be powerful, and geothermal is simply a ground source heat pump, as opposed to most systems are air source heat pumps.  Geothermal is not right for all buildings or areas of Chicago – but our customer at the Alsip-Merrionette Library has had a geothermal system for years.  I was in that building several times before I even realized that there was a geothermal system, showing how comfortable it can provide a space even the size of a huge public library.  

Future Opportunities

With the huge growing interest in decarbonizing buildings at a policy level, we can be confident in one thing – there will certainly be more incentives, grants, and benefits to looking at building electrification in the future. Whether because of the growing financial incentives or by elevated energy costs in the future – our clients are increasingly interested in mitigating their energy costs and environmental impact.

Will many of these potential projects be fast and easy to accomplish? No. The changing of a building system can often be a long, slow process with many moving parts. 

Will they be paid for fully out of the above incentives?  Probably not, but we do believe that some aggressive grant writing organizations will be able to accomplish that. Buildings that have a boiler or chiller or even a grouping of smaller systems like Rooftop units, will be able to upgrade with these incentives for less out of pocket than if they pursue traditional replacements. 

When you combine that with the benefits of energy savings, everyone should be exploring this transition today so they are prepared when the opportunity arises and it will.