Enhanced capital allowances are juicy carrots to encourage the use of energy efficient equipment. Building services cost expert Davis Langdon Mott Green Wall, and property tax specialist Crosher & James, explain what the scheme covers

Enhanced capital allowances (ECAs) are a form of tax relief that enables businesses to claim 100% first-year allowances on what they spend on qualifying plant and machinery. The aim is to encourage a low-carbon economy and reduce CO2 emissions by influencing the design, availability and uptake of the most energy-efficient equipment types.

There are two ECA schemes related to building services:

• energy-saving plant and machinery, as specified in the energy technology list (ETL),

• water conservation plant and machinery, specified in the water technology list (WTL).

ECAs can deliver a cash-flow boost and a shortened payback period for qualifying investments. A loss-making firm may claim a first-year tax credit for qualifying investments.

General awareness of ECAs was boosted in April, when a change in tax legislation cut the normal plant “writing-down allowances”, generally from 25-10% per annum on a reducing-balance basis. This makes ECAs even more attractive, as will the introduction of energy performance certificates (EPCs) and, ultimately, display energy certificates (DECs).

The ECA incentive is based on the premise that although “best-in-class” energy-efficient equipment may be more expensive, it will save on energy costs. This is illustrated in Figure 1 (right). But ETL products are not necessarily more costly, or more efficient, than those now being used as more efficient plant and equipment is becoming more routinely specified by designers. In this case the tax break is a potential bonus.

The benefits of ECAs are simply illustrated in Figure 2 (overleaf). It can be seen that non-qualifying plant needs to be at least 20% cheaper to “break even” (after five years) with the ECA plant – and that is without any consideration of potential energy cost savings through better efficiency.

The ECA scheme was developed by Revenue & Customs and Defra. The ETL, managed by the Carbon Trust, comprises the energy product technology list (ETPL) and the energy technology criteria list, which sets out the standards products and systems must meet.

Designers must specify named products from the ETPL to ensure they qualify for ECAs. For a few exceptions – notably lighting, lighting controls, automatic monitoring and targeting and large CHP plant – specific performance criteria are applicable because of the large number of widely differing subtechnologies that can affect the potential for saving energy.

The energy technology list

These are the main headings, to which we have added subtechnologies to show the qualifying product types, and in some cases the rationale.

Air-to-air energy recovery equipment, including

• Plate heat exchangers

• Thermal wheels

• Run-around coils.

Automatic monitoring and targeting (AMT)

• Portable products, named in the ETL, for temporary installation to identify energy waste.

• Component AMT systems (no specific products named) include permanent energy, gas and heat meters, sensors, field devices, automatic meter reading (AMR) systems, and AMT software, all installed with adequate accuracy and resolution to enable energy managers to identify waste, changes in operational characteristics and variations from benchmarks. Eligibility criteria include accuracy definitions and software and output feature requirements.

Boiler equipment

• Automatic boiler blowdown control equipment – specific dissolved solids sensors, controllers and blowdown valves.

• Biomass boilers and room heaters. The eligibility criteria vary according to equipment ratings and fuel types. Microprocessor-based controls are required to modulate burner output in response to a range of specified parameters for boilers rated above 1200kW.

• Combustion trim controls, to regulate closely and maintain programmed air and fuel flows.

• Condensate pumping equipment – condensate, produced by indirect use of steam, should be returned to the boilerhouse where it is used to heat the boiler feed water supply and reduce the amount of make-up water needed.

• Condensing economisers to improve boiler net thermal efficiency by means of heat exchangers, recovering some of the sensible heat and latent heat from the boiler flue gases.

• Flue gas economisers can improve boiler net thermal efficiency by means of heat exchangers to recover some of the sensible heat from the boiler flue gases.

• Gas-fired condensing water heaters – storage and instantaneous water heaters not exceeding 150kW, subject to thermal efficiency performance with testing confirmed by an accredited certification body. Heaters more than 400kW must also incorporate burners and controls that meet the ETL requirements.

• Heat recovery from condensate and boiler blowdown, by means of flash steam recovery vessels to minimise droplet carry-over, and/or high-efficiency heat exchangers designed for dismantling for convenient cleaning.

• Hot water boilers more than 400kW and achieving a minimum net thermal efficiency of 93% at certain specified load conditions.

• Hot water boilers up to 400kW, achieving certain minimum net thermal efficiencies at specified load conditions.

• Localised rapid steam generators to produce high-pressure steam quickly and efficiently, possibly obviating need for old and inefficient centralised boilers and distribution systems.

• Optimising controllers for wet heating systems can realise fuel savings by adapting boiler firing and heat distribution patterns to match the variations in heat demand. Must be microprocessor-based and offer specified features and programme functions.

• Retrofit burner control systems. Microprocessor-based control systems, which can be retrofitted to existing burners, to regulate more precisely the air/fuel ratio, thereby reducing heat losses in the exhaust gases and increasing fuel efficiency.

• Sequence controls may be for retrofitting or modular units for integration with a new boiler. Fuel savings are realised by optimising the number of boilers in use and/or the burner controls, to meet the required heat load.

• Modulating gas- and oil-fired steam boilers to get net thermal efficiencies of at least 89%.

Combined heat and power – eligible on a case- by-case basis, with certification via the CHP quality assurance programme (www.chpqa.com). It lists eligible units up to 500kWe.

Compact heat exchangers – having a surface area to volume ratio exceeding 200m2/m3 to achieve greater efficiency than conventional heat exchangers.

Compressed air equipment

It may not generally be realised how much of a ‘normal’ installation can qualify for enhanced capital allowances

• Energy-saving controls for desiccant air dryers to eliminate unnecessary desiccant regeneration cycles.

• Refrigerated air dryers with energy-saving controls and having relatively low pressure drop across them.

• Ultrasonic leak detectors intended to locate gas leaks rapidly.

Heat pumps for space heating – comprising air source, ground source and water source devices that use refrigeration technology to transfer heat to or from a space.

Heating, ventilation and air-conditioning zone controls – which can facilitate individual control of independent zones to achieve the specified environmental conditions, but only as and when required according to occupancy, time of day or other parameters.


• High-efficiency lighting units (HELUs) – six different categories, each consisting of a combination of lamp(s), control gear and luminaire to achieve specified minimum output lumens per lamp and output lumens per watt, and subject to a derived light fitting efficiency code. There are no specific products named in the ETPL, so every claim will depend on proof that luminaires will meet or exceed the minimum performance thresholds.

• Lighting controls – a wide range of time controllers, presence detectors, daylight sensors and central control units all achieving energy savings by dimming or switching off lights automatically. Claims will depend on proof that controls meet the design philosophy described, for example by not permitting manual override of particular automatic energy-saving functions.

• White light-emitting diodes, for amenity, accent and display lighting, are expected to be added imminently to the ETL, qualifying on performance rather than by named product.

Motors and drives – comprising single-speed high-efficiency motors, variable speed drives, switched reluctance drives and integrated motor-drive units.

Pipework insulation – primarily as applied to commercial hot water, heating and cooling, and process pipework. No specific products are named; eligibility is based on proof that installations comply with the clauses and environmental table set out in BS5422 (2001).

Radiant and warm air heaters

• Radiant heaters for large volume buildings with high air-change rates, and for localised spot heating, comprising gas or oil tube heaters and radiant plaque or cone heaters.

• Warm air heaters for space heating, which may be directly or indirectly fired.

Refrigeration equipment

• Absorption and other heat-driven cooling and heating equipment – applies only to products installed as part of a CHP scheme; eligible via assessment under the CHPQA programme.

• Air-cooled condensing units, automatic air purgers and permanent refrigerant leak detection systems, cellar cooling units, commercial service and refrigerated display cabinets plus associated curtains, blinds, covers and sliding doors, evaporative condensers, forced-air pre-coolers, liquid pressure amplification systems, packaged chillers, refrigeration compressors and control systems, all eligible as named products in the ETL and subject to test procedures.

Solar thermal systems – designed to capture solar energy and convert it to useful heat for water heating. Claims may include for solar collectors, associated storage vessels, valves, pumps, controls and specific limited pipework.

The water technology list

With the exception of membrane filtration systems for greywater, all eligible products are specifically named in the WTL. The technologies included are listed below.

• Cleaning-in-place equipment – water-saving spray devices and monitoring/control devices.

• Efficient membrane filtration systems – applicable to wastewater treatment/recycling. Compact and relatively low-energy equipment, subject to certification for inclusion in the list.

• Efficient showers – to achieve less water use (including hot water) via low flow or aerated showerheads, thermostatic-controlled shower sets, auto shut-off showers, electromagnetic systems, mechanical and pneumatic push systems, and flow regulators for showers.

• Efficient taps – save water by restricting the flow rate or by automatic shut-off.

• Efficient toilets – cut water use up to 25% through the specification of low-flush toilets, retrofit WC flushing devices, urinal controls and urinals with integral controls.

• Efficient washing machines – commercial and industrial washing machines can be specified to use less water than normal models.

• Flow controllers can ensure water delivery is switched on only when needed, or that the minimum necessary flow is achieved. Can also be used for leak detection and water management.

• Leakage detection equipment, including data loggers, pressure reducing valve controllers and remote meter reading and leak warning devices.

• Meters and monitoring equipment – including flow meters and water management software, but not meters intended for charging and incorporating tariff functionality.

• Rainwater harvesting equipment – for toilet flushing, washing machines, process or cooling, irrigation, agricultural and horticultural uses. Includes rainwater filtration, storage, treatment, monitoring and control equipment.

• Small-scale slurry and sludge dewatering equipment – mechanical equipment used to treat effluent streams, thereby improving water quality. On-site use of liquid fractions can also reduce water use. Includes belt press, centrifuge and filter press equipment.

• Vehicle wash water reclaim units – different criteria apply for full-reclaim and partial-reclaim systems.

• Water-efficient industrial cleaning equipment, such as steam cleaners, will qualify subject to the corresponding criteria.

Scope of ECA claims

As can be seen from the summaries above, the scope is comprehensive. It may not generally be realised, however, how much of a “normal” installation can qualify. Costly items such as lighting and air conditioning, which consume a large proportion of a building’s total energy, can qualify as plant and machinery as long as “best-in-class” products and systems are specified. In practice, such equipment will often be selected after life-cycle cost analysis, where ECAs can make a significant impact.

Claims will be considered for the cost of the equipment and other costs directly involved in installing it, such as transport, craneage, project management and labour, plus any modifications to the site or existing equipment, and professional fees – if directly related to the acquisition and installation of the plant.

The diagram (above) shows the typical claim process for ECAs. It is important to consider the potential for making best use of the allowances early in the design process. Investors would be well-advised to use a property tax and finance specialist to liaise with the design team when a project is initiated, and throughout the procurement and construction phases. ECA claims should be submitted as part of a normal corporate tax return.