HVAC Commercial Market / Commercial Controls

Financing HVAC Systems, Building Controls

Business and building owners often face a dilemma when considering replacing or updating their HVAC system. Although operating an energy-efficient HVAC system saves money for business and building owners in the long run, many are concerned by significant first cost. Too often the recommendation is to retrofit an existing building with energy-efficient HVAC in order to save money on energy costs, but then the question arises — how to fund the investment?

The considerations: Would a quick fix or band-aid on the system do for the time being? Would a very low first cost make sense? The owner is faced with the choice of coming up with the required capital or continuing to face increased operating costs and future repairs. The return on investment (ROI) or simple payback period (SPP) on new, energy-efficient systems may take a bit longer, but the equipment will perform more reliably, provide a better environment and lower operating costs both short and long term. Most business owners will assume that funding for energy-efficient upgrades must come from dipping into their equity in the facility, or from an outside funding source such as a bank loan.

Alternative Strategies

Fortunately, there are alternative strategies that may be initiated to fund energy-efficiency projects by significantly lowering the business or building owner’s tax burden. One tax benefit unfamiliar to facility owners is found in Section 179D of the Energy Policy Act of 2005. The section includes full and partial tax deductions for investments in energy-efficient commercial buildings that are designed to increase the efficiency of energy-consuming functions. The deduction available is up to 60 cents per square foot for each of the following: lighting, HVAC, and building envelope, creating potential for $1.80 per square foot if all three components/
subsystems qualify. These deductions are applicable to buildings that were either built or retrofitted after Dec. 31, 2005. In order to qualify for the deduction, the taxpayer must receive a third-party energy-efficiency certification.

Professional expertise is essential when looking at HVAC system upgrades that will qualify for the 179D deduction. In order to qualify, the building that is to be improved with the new HVAC system must be modeled by a qualified individual using IRS prescribed software. Required data may be blueprints/plans and specifications for the building and the new system. Based on the specific needs and characteristics of the property, as well as the variety of HVAC and control systems available in the marketplace today, it may be prudent to model any and all possible systems to identify the most appropriate solution for the facility. Third-party certification is required in order for the system to qualify for Section 179D — per the IRS.


There are a variety of options for improving the efficiency of heating and cooling systems, including first replacing an older, maintenance-intense system; and also installing controls and building automation systems (BAS). Also known as direct digital control (DDC), business management systems range from simple programmable thermostats to complex, sophisticated systems that control multiple facilities and a variety of systems. Control systems typically contain three primary components:

1. The automated system that provides controls for HVAC, lighting, and/or other systems within the facility;

2. Energy information systems that work with the controls to provide energy data to operators and energy managers; and

3. The participants in the automated system that result in system efficiency.

These systems perform functions of programmed commands for HVAC, ventilation, temperature, and may include lighting commands. These systems typically record data, including utility demand and energy use, building conditions, climatic data, and status of controlled equipment. The data furnished by the control system is vital to managing energy usage — only if it is measured can it be managed.


New or existing systems need adjustment based on conditions and use, which is sometimes difficult for staff to manage. Sequencing multiple processes is best completed by automatic controls designed specifically for that purpose. Leaving control of energy systems to the occupants may have a major — and historically negative — impact on energy usage. Even if an old HVAC system is replaced with a new, energy-efficient unit, the effect of individuals manually raising and lowering the temperature may be extremely detrimental. Human interaction with manual controls often taxes the system and decreases efficiency and consistency in the equipment that is being controlled. The efficiency of facilities is improved radically when control routines are established and implemented within an automated control system.

Additionally, the target for thermal comfort according to ASHRAE Standard 55-2004 is 80 percent of occupants within a space. Thermal comfort is one of the most subjective dynamics of environmental conditions.

There are countless configurations and smart technologies that can be put to work in building automation systems. Occupancy modes such as “unoccupied,” “warm up,” and “night setback” may be used to set schedules for lighting and temperature control and often safety and security systems.


Certainly, the technology is advancing — virtually on a daily basis — so that when considering a retrofit the component parts that may improve efficiency and ultimately operating expenses are also a major dynamic in the system application as well as the financial picture of the project. After making the decision to implement an automated control system, it’s important not to just assume that the system is providing energy efficiencies. A thorough verification and measurement approach is the only way to provide evidence that systems are properly automated and actually resulting in savings and greater energy efficiency.

Instead of looking to outside funding sources or reducing valuable equity to fund energy-efficient HVAC upgrades or systems, it makes sense to enlist the skill and knowledge of qualified professionals to coordinate green building improvements. Whether in the planning and design stages of a new facility or making decisions on retrofits or upgrades of existing commercial buildings, working with these pros may allow commercial building owners to not only pinpoint the most effective improvements to implement but also create a cohesive plan to ensure that maximum energy savings and tax benefits result from the capital expenditure.

Publication date: 5/14/2012

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