Penola IGA Fresh is a locally owned and operated supermarket located in the Penola / Coonawarra district in southeast South Australia.
Operating for 27 years and trading 12 hours a day, seven days a week, Penola IGA Fresh pride themselves on offering a range of fresh, locally produced products such as apples, yoghurts, cheeses and honey along with all the grocery essentials to customers.
The upgrade journey
An energy audit undertaken in May 2017 identified refrigeration used to chill or freeze (70 percent) and lighting (12 percent) as the largest consumers of electricity in the business.
The audit report also identified a likely increase of 60 percent in electricity costs in the next contract period due to the nature of the South Australian electricity market.
A range of energy efficiency and renewable energy opportunities were identified and the business decided to pursue two: replacement of shop floor standard double-tube fluorescent lighting with highly efficient LED lighting and a significant upgrade to refrigeration cabinets through the installation of hinged, frameless doors and new unit lighting.
The savings we will realise from these upgrades will help us thrive in a market that is becoming more competitive every year. For us, it was really important to access available government support to improve the project viability.
– Shane McPherson, Owner
Energy saving/renewable energy actions
- Refrigeration door and lighting upgrade
- Lighting replacement – LED
The Federal Government’s Accelerated Depreciation for Small Business Entities initiative is an excellent opportunity to upgrade equipment, save energy, and help your small business long-term.
Under the instant asset write-off option, assets purchased by eligible small businesses costing less than the instant asset write-off threshold of $20,000 can be written off in the year they are bought and used, or installed ready-for-use.
Assets that cost $20,000 or more are deducted over a shorter time using the general small business pool option.
Further information is available from the Australian Tax Office (ato.gov.au). You should consult your own tax, legal, and accounting advisors before engaging in any transaction or project.
Project Financials
Justification for implementing energy saving projects are typically assessed using the simple payback method where the business owner calculates how many years of energy and maintenance savings will be required to pay back the original investment.
Being in South Australia, the Penola IGA Fresh lighting project has qualified for a rebate of $4,455 under the Retailer Energy Efficiency Scheme.
As the full value of the lighting project was below the $20,000 threshold, the full value can be written-off in the first year, reducing the tax liability by $5,314.
However, as the full value of the refrigeration project exceeds the $20,000 threshold it cannot be fully written off in the first year. The assets must be “pooled” with other depreciating assets that cost more than $20,000. All the assets in the “asset pool” are depreciated by 15% in the first year, and then 30% each year thereafter. Once the remaining balance decreases below $20,000 the remainder can be depreciated in that year.
Initiative
- Replace shop-floor lighting with LEDs
- Capital Outlay: $19,325
- Energy Savings (MWh/yr): 72,182
- Energy Savings ($/yr): $11,549
- Other rebates: $4,455
- Maintenance savings (pa): $3,733
- Tax offset (Year 1): $5,314
- Payback (years) Without tax incentive: 0.97
- Payback (years) With tax incentive: 0.63
- Installation of doors on all open cabinets
- Capital Outlay: $115,966
- Energy Savings (MWh/yr): 61,105
- Energy Savings ($/yr): $9,777
- Tax offset (Year 1): $4,784
- Payback (years) Without tax incentive: 11.86
- Payback (years) With tax incentive: 11.37
Only the Year 1 reduction in the tax liability of $4,783.60 is included in the payback calculations, however, a further tax liability reduction of $27,107 can be realised over Years 2 to 4.
Penola IGA Fresh also received support from the South Australian Energy Productivity Program in undertaking the initial assessment and implementing these initiatives.