Energy efficiency equipment payback drastically reduced.
The payback period for Data Centre capital upgrades can be drastically reduced from 3 years to 1 year. Be it Uninterruptible Power Supplies (UPS), Chillers, or Computer Room Airconditioning (CRAC)
The Federal Budget announced on the 6th of October that all businesses with turn over less than $5B will be able to fully deduct capital equipment purchases in operation by June 2022. If you couple this with the state-based Electricity or gas savings or both. More scheme (The NSW Energy Savings Scheme (ESS) provides financial incentives to install, improve or replace energy savings equipment and appliances in NSW households and businesses. The ESS was established in 2009. Financial incentives are in the form of tradeable certificates, called energy savings certificates (ESCs). Generally, householders and businesses who fund energy savings activities transfer the right to create ESCs to Accredited Certificate Providers (ACPs) in return for a discount on the cost of the energy savings activity. The MWh savings from the project determines the number of ESCs that can be created. The ESS works by allowing ACPs to create and register ESCs for energy savings that are supported with appropriate evidence. ESCs are then purchased each year by mainly electricity retailers operating in NSW to meet their share of a legislated annual energy savings target. More, Victorian Energy Upgrades is a Victorian government energy efficiency program that gives every Victorian household and business the opportunity to receive rebates or discounts on energy saving products. More) 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 250kW UPS with a cost of say $90,000. The aging UPS is currently running at 232 kW input and 194 kW output (83.6% efficiency). New high-quality UPS run at 97% efficiency and hence 200kW input with 32kW saved.
The figures for the new UPS commissioned by June 2022 are as follows
- New UPS installed purchase price $90,000
- Immediate tax writeoff 30% x $90,000 = $27,000
- Compared with tax write off over 10 years = $2,700 PA
- Energy Saving Certificates = $45,000
- Capital Costs (after tax writeoff and certificates)
- $90,000 – $27,000 – 45,000 = $18,000
- Annual Electricity Savings of 365 x 24 x 32 kW x $0.15 / kWh = $42,000
Compare the three scenarios
Payback = Capital Costs (after rebates & tax cuts) / Annual Savings
No tax cuts & not claiming environmental certificates
- Simple payback = $90,000 / ($42,000 + $2,700) = 2.0 years
Using tax cuts & not claiming environmental certificates
- Simple payback = ($90,000 – $27,000) / $42,000 = 1.5 years
Using tax cuts & environmental certificates
- Simple payback = ($90,000 – $27,000 – $45,000) / $42,000 = 5 months
Hence by performing the upgrade with the Federal Budget changes (extending the immediate tax write off from $150,000 to unlimited) drastic shortens the payback period and provides a much higher ROI. 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. UPS 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.
- UPS and CRAC upgrades for Data Centres
- Variable Speed Drives for large motors and fans (very fast payback)
- Chillers and Condenser upgrades
- Hot Isle / Cool Isle configurations
All these assets can claim energy savings certificates and funding towards the upgrade using the Measurement and Verification methods under the different state-based schemes (the Victorian Energy Upgrades and the NSW Energy Saving Scheme) as well as under the Australian Carbon Farming Initiative (Climate Solutions Fund).