Mitsubishi s Enhanced Capital Allowance (ECA) Guide

Mitsubishi s Enhanced Capital Allowance (ECA) Guide
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The Enhanced Capital
Allowances (ECA)
Issue One
The Enhanced Capital
Allowances (ECA)
This is an independent guide produced by Mitsubishi Electric
to enhance the knowledge of its customers and provide
a view of the key issues facing our industr y today.
The guide accompanies a series of seminars, all of which
are CPD accredited. The changing face of construction in the
21st Century demands that designers, specifiers and suppliers
work as teams to create better buildings - for occupants and
the environment. Mitsubishi Electric aims to be a part of this
by encouraging employees and customers to work together
to increase their knowledge of the latest technology,
legislation and markets.
Page 2
Enhanced Capital Allowances - An Introduction
Page 4
How can they work and who will benefit?
Page 6
What does it take to get on the ECA list?
Page 8
Further Information
Enhanced Capital Allowance
- An Introduction
The Enhanced Capital Allowances (ECA) scheme
was introduced by the Government as an incentive
for businesses to invest in energy efficient equipment.
It works by enabling businesses to claim all of their
tax allowances against energy efficient equipment in
the first year, rather than spreading the allowances
over several years. This is discussed in more detail
in the “How can they work and who will benefit?”
section on page 4.
ECA’s are just one of a raft of initiatives introduced
to reduce the UK’s carbon dioxide emissions. The
scheme is managed by the Carbon Trust, for the
Government in collaboration with the Department
for Environment, Food and Rural Affairs (DEFRA)
and the Inland Revenue.
Carbon Dioxide
and Global Warming
Carbon dioxide (CO2) is the source of carbon used by
plants to make their food in a process called photosynthesis.
Consequently, a certain amount of CO2 in the atmosphere
is essential to all life on earth, as plants ultimately feed the
rest of the food chain.
Burning of fossil fuels - which also produce CO2 has led to
a rapid increase in the levels of atmospheric CO2, which is
‘insulating’ the planet and causing the Earth’s temperature
to rise. The principle is the same as used in greenhouses,
where the glass allows heat from the sun to enter
the greenhouse but prevents much of it leaving again.
As a result, gases that cause global warming - of which CO2
is the most significant - are also known as greenhouse gases.
Levels of CO2 in the atmosphere have risen by a third since
Page 2
industrial times, and are expected to double in the next
hundred years. This build up is the direct result of
generating energy from fossil fuels such as gas, oil and coal.
Internal combustion engines make by far the most significant
contribution to this, but the use of energy in buildings is also
a major contributor.
Heating and lighting account for most energy consumption
in commercial buildings, but according to the Carbon Trust,
CO 2 emissions from air conditioning in the UK have
quadrupled in the last 20 years and this increase is expected
to continue for the next 20 years.
The Kyoto Protocol
In 1992 the majority of the world’s nations joined together
to sign the United Nations Framework Convention on
Climate Change (UNFCCC). In the case of the UK, the
Government has committed to reducing its CO2 emissions
to 20% of 1990 levels by 2010. To achieve this, a number
of initiatives have been introduced.
The Climate Change Levy
The Government introduced the Climate Change Levy
(CCL) on 1st April 2001, increasing the cost of energy
in buildings through the application of a levy on energy
tariffs. The current rates of levy are as follows:
Natural Gas
1.17p/kg (approx 0.15p/kWh)
0.96p/kg (approx 0.07p/kWh)
Oil products are exempt from the levy, as these already
carry excise duty. In addition, the following are also exempt:
Combined Heat & Power (good quality)
Renewable Energy
Waste Derived
Road Fuels
CCL applies to all non-domestic consumers of energy
with the following exclusions:
Children’s Homes
Homes for the elderly/disabled
School/University accommodation
Armed Forces accommodation
Self-Catering Holiday accommodation
Community heating schemes
Charities (on non business use only)
De minimus supplies (very small consumptions)
ECA’s were introduced at the same time as the CCL,
providing a reward for companies that choose to invest in
energy efficient equipment - so the two work together in a
‘carrot and stick’ relationship.
Parallel Initiatives
There are a number of other regulations and initiatives that
have an influence on the specification of building services
plant, in relation to energy efficiency.
Building Regulations
Each revision to Approved Document L2 of the Building
Regulations brings more stringent requirements for the
energy performance of buildings. In relation to air
conditioning and mechanical ventilation (ACMV), the
designer can choose to measure the carbon performance
rating of the ACMV system on its own or include it in a
measure of the carbon emissions for the whole building.
Either measurement method increases the incentive to use
efficient air conditioning plant.
Page 3
The Energy Performance of
Buildings Directive (EPBD)
The EPBD, due to come into force in January 2006,
introduces procedures for assessing the performance of
a building and certifying it accordingly. It is closely linked
to the Building Regulations and compliance with current
Building Regulations requirements should ensure
compliance with the EPBD.
Emissions Trading Scheme
Under the European Union Emissions Trading Scheme,
which began on 1st January 2005, large users of energy are
given CO2 emissions targets. If they exceed the target they
have the option of buying an extra carbon allowance, via the
Energy Trading Exchange. Companies that can reduce their
CO2 emissions to below their target can sell the surplus on
the exchange.
Currently, the cost of carbon is set relatively low but
as the scheme develops, prices are expected to rise
dramatically to incentivise fur ther energy savings.
The Emissions Trading scheme only applies to around
1000 major energy users in the UK.
Enhanced Capital Allowances
- How can they work and who will benefit?
The Enhanced Capital Allowances (ECA) scheme
was introduced by the Government in April 2001,
in parallel with the Climate Change Levy (CCL).
The CCL imposes a levy on energy tariffs for
businesses (excluding very small businesses), while
the ECA scheme enables these businesses to
reclaim the tax if they invest in energy efficient
How ECA’s Work
These two initiatives form part of the Government’s
strategy for reducing carbon dioxide emissions and
global warming, in keeping with the UK’s
commitment to the Kyoto Protocol.
This ‘reward scheme’ approach is not confined to energy
efficient building services plant. It is also available for vehicles with
low carbon dioxide emissions, technologies that encourage
sustainable water use and was applied to encourage businesses
to invest in IT during the late 1990’s and early 2000’s.
The ECA scheme is managed by the Carbon Trust,
for the Government in collaboration with the
Department for Environment, Food and Rural
Affairs (DEFRA) and the Inland Revenue.
Capital Allowances
Any business making a capital investment in new equipment
is entitled to offset the cost against its income or
corporation tax by claiming capital allowances. For most
capital investments, this allowance is spread over a period
of time. Capital allowances are normally given at 25% on a
reducing balance basis, so that after a period of 10 years
almost all of the allowances have been claimed.
For example, when a company buys an item of equipment
costing £1,000 it can claim £75 tax allowance in the first
year, assuming a tax rate of 30%.
Tax Rate
% of expenditure to which allowance applies
Equipment cost
Taxable amount reduced by
Balance brought forward to second year
Taxable amount reduced by
Page 4
Enhanced Capital Allowances are used to encourage
businesses to invest in particular types of equipment by
providing up-front tax relief - as 100% of the allowances can
be reclaimed in the first year. So, using the previous example
above of a £1000 investment in equipment that qualifies
for ECA’s, the company could reclaim £300 in the first year.
ECA’s and energy in buildings
In order to ensure that ECA’s are only claimable against
energy efficient equipment, the Carbon Trust has drawn up
a list of approved technology categories - which form the
Energy Technology List. The Energy Technology List details
over 6000 products that meet the Government’s energy
efficiency criteria offering end users the following benefits:
Energy efficiency, resulting in significant
long-term financial benefits
Enhanced tax relief
Boosted cash flow
Faster payback on investment
Reduced energy costs, resulting in lower cost of ownership
Improved environmental performance for the business
Reduced environmental impact
Capital Allowance
25% of £1000 = £250
30% of £250 = £75
£1000 - £250 = £750
25% of £750 = £187.50
30% OF £187.50 = £56.25
Enhanced Capital Allowance
100% OF £1000 = £1000
30% of £1000 = £300
Qualifying Technologies
Mitsubishi Electric Products
The following technologies are included in the
Energy Technology List:
Mitsubishi Electric products currently qualify under three
categories for varying tax allowances:
Heat Pumps - VRF systems and Inverter driven
heat pump systems:
Air to Air Energy Recovery
Automatic monitoring and targeting equipment
Compact Heat Exchangers
Combined heat and power
Compressed air equipment
Heat pumps for space heating
HVAC Zone Controls*
Pipe insulation
Refrigeration equipment
Solar thermal systems
Thermal screens
Variable speed drives
Warm air and radiant heaters
The Energy Technology List continues to grow and
additional technology categories are introduced to the list
on a regular basis. To ensure that products continue to
comply with the energy efficiency criteria, the Carbon Trust
carries out regular, random testing of products on the list.
The minimum qualifying criteria will be increased on a two
year rolling programme. This means that older equipment that
no longer qualifies will be removed from the list and newer,
more energy efficient equipment will be added. Any company
interested in investing in low carbon energy efficient
technologies can view the Energy Technology List. The list
can be accessed at, which allows searches
by type of technology, category or name of manufacturer.
The full cost of qualifying equipment
The cost of installation of the qualifying equipment
Professional fees directly related to the installation
of qualifying assets
Cost of alteration to the existing building to facilitate
the installation of qualifying equipment
Variable Speed Drives - Cooling only VRF Systems
The value of the variable speed drive within the
equipment can qualify for ECA
This is a fixed amount and is dependant on the
inverter motor rating
Air to Air Energy Recovery - Lossnay Heat Recovery
Ventilation Systems
The full cost of qualifying equipment
The cost of installation of the qualifying equipment
The costs of associated controls, fans and ductwork that are
installed specifically for the purpose of energy recovery
Tax allowances are claimed as part of the normal
income/corporation tax returns.
The Inland Revenue’s guidance on the ECA scheme
can be found at:
Funding for Smaller Companies
Claiming Allowances
Any business that pays income tax or corporation tax is
entitled to enhanced tax allowances against equipment on
the Energy Technology List. This only applies to outright
purchase or lease purchase by the end user of the equipment
- it does not apply to lease hire equipment, nor does it apply to
suppliers or installers. Allowances can be claimed against the
cost of the product, along with other costs directly associated
with the provision of the product, including installation.
Page 5
In addition to offering advice on selection, installation and
running of energy efficient equipment, the Carbon Trust
offers interest-free loans of between £5,000 and £100,000
to small and medium sized enterprises (SME's). A company
would qualify if it employs less than 250 employees, or has
a turnover of less than 40m Euros (approx £25m), has
less than 27m Euros worth of assets and has no controlling
interest of more than 25% by a non-SME.
Eligibility can be verified by completing a form at
Enhanced Capital Allowance
- What does it take to get on the ECA list?
Eligibility Criteria:
Heat Pumps
Initial criteria are aligned with the EC Directive on
Energy Labelling of Household Air Conditioners.
Currently appliances must be Category C or above.
In August 2006, all qualifying products must be
Category B or above.
Heating COP’s and Cooling EER’s are detailed for
different appliances on the website.
Variable Speed Drives
Eligible controllers must be designed specifically to
electronically vary the frequency of a supply to a
standard 3-phase AC induction motor.
Air to Air Heat Recovery
Qualifying products must have a sensible heat
exchange efficiency of 50% or more, an internal
leakage level of less than 1% and a pressure drop of
less than 250 Pascals.
Page 6
As we can see by now, the Government’s aim is to
encourage specifiers to select the most energy efficient
products available.
The Government publishes an Energy Technology List,
which designates what constitutes ‘energy saving technology’
for the purposes of the ECA scheme. But of course,
technology moves on and so the list of ECA eligible
products must be continually updated.
Manufacturers play the major role in this process. If a
technology category (such as heat pumps or variable speed
drives) is already on the list of accepted technologies, then
a manufacturer has to show that its particular product
is energy efficient within that field. Evidence has to
be submitted which demonstrates that COPs are within
certain limits, or that they comply with certain
industry standards. To ensure that the information supplied
is correct the Carbon Trust request that manufacturers
supply units that are on the Energy Technology List for
independent testing. The Carbon Trust will randomly
request a model that is on the list for various manufacturers.
The units are then tested to ensure that the COP and
capacity is within the stated limits. The testing is carried
out by an independent body (such as the Building
Services Research and Information Association - BSRIA).
Manufacturers strive to develop new technology, in order to
meet customer demands for better performance and to
stay ahead of the market. The Government reviews its ECA
eligible technology categories annually, and additional
technology categories can be added.
A new technology category must meet a number of
criteria before it goes onto the list. Most impor tantly,
it must offer significant carbon savings over existing
equipment. Proposals must show estimates of how
much carbon could be saved if the product is used - with
independent evidence. As an aspect of this, the
Government must be able to test the technology with
widely used methods - so that a proper comparison can be
made. The results of these tests, if successful, set the
standard for other manufacturers developing products in
the new category.
Page 7
It is important that the new technology not only works,
but is attractive to the market. Often innovative products
carr y higher costs in the early years. This is why a
manufacturer proposing a new technology category must
also show that the savings offered by the ECA scheme
would encourage take up by the market. The Government
accepts that the discount of 100% of first year allowances is
modest - the question is whether this will encourage
potential buyers to pay the extra capital for a new idea.
Manufacturers need to provide estimates of current
spending on the technology, spending that would be on the
new energy efficient version and the growth in the market
that would be driven by ECA's.
Finally, any addition to the Energy Technology List must also
meet the Government’s other environmental objectives such
as waste reduction and water management - and it must not
substitute carbon emissions with another greenhouse gas.
Once all the information required has been gathered, it is
drawn up in a report to the Carbon Trust, which then
considers its merits in the context of the existing list and
comparison with other possible new technology categories.
After this the technology can be taken forward, rejected or
retained for future review.
If it proceeds to the next stage, the proposal is developed
in consultation with the applicant and other stakeholders so
that the Carbon Trust can properly advise Government.
This can be a lengthy process, with no guarantee at this
point that the technology will be accepted.
So it’s easy to see how much work is required for a
manufacturer to put a new technology forward for
consideration. However, staying at the forefront of the
market today requires a commitment to energy efficiency regardless of how much paperwork is involved!
Enhanced Capital Allowance
- Fur ther Information
There’s a great deal of information on ECA’s available
online. You can check out the website at
Here you will find a list of all the Mitsubishi Electric products
which are eligible for ECA’s.
To access this list:
■ Go to
■ Click on ‘Energy’
■ Click on ‘Products and Claims’
■ Click on ‘Energy Technology List’
You will then see a series of drop-down boxes. One of
these is for manufacturers. Scroll down to ‘Mitsubishi
Electric Air Conditioning’, and hit search. You will then see
a list of all the products currently on the ECA list. This is
updated regularly, so check it out to see what’s new.
You can find more about other aspects of climate change on
the Carbon Trust website (
Further information
Page 8
If you missed the CPD seminar on Enhanced Capital
Allowances, you can call your Mitsubishi Electric Regional
sales office to arrange an in-house presentation of
this information.
Please call one of the numbers below:
East Anglia & London North East
01707 278982
London North West
01707 278982
London South West
01322 628080
London South East
01322 628080
0121 7412800
01454 202050
0141 3037010
01924 299875
0161 8666060
Direct Sales Offices
Tel: 0121 7412800
Fax: 0121 7412801
Tel: 01454 202050
Fax: 01454 202900
Tel: 0141 3037010
Fax: 0141 3037030
Tel: 01924 299875
Fax: 01924 363639
Tel: 01322 628080
Fax: 01322 628081
Tel: 0161 8666060
Fax: 0161 8666081
Telephone: 01707 282880
email: [email protected] web:
UNITED KINGDOM Mitsubishi Electric Europe Air Conditioning Systems Division
Travellers Lane, Hatfield, Hertfordshire, AL10 8XB, England.
General enquiries Telephone: 01707 282880 Fax: 01707 278674
IRELAND Mitsubishi Electric Europe Westgate Business Park, Ballymount, Dublin 24, Ireland.
Telephone: Dublin (01) 419 8800 Fax: Dublin (01) 419 8890 International code: (003531)
Country of origin: United Kingdom – Japan – Thailand – Malaysia. ©Mitsubishi Electric Europe 2005. Mitsubishi and Mitsubishi Electric are trademarks of Mitsubishi Electric Europe Limited.The company reserves the right to make any variation
in technical specification to the equipment described, or to withdraw or replace products without prior notification or public announcement. Mitsubishi Electric is constantly developing and improving its products. All descriptions, illustrations,
drawings and specifications in this publication present only general particulars and shall not form part of any contract. All goods are supplied subject to the Company’s General Conditions of Sale, a copy of which is available on request
Version 1 (February 2005)
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