The R&D Tax Credit Aspects of Refrigeration/Air Conditioner Compressor Technology



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Refrigeration  
        Since early air compressor designs in the mid 1800s, air compressor technology has progressed substantially.  Today, they are used to propel a range of different technologies, such as air tools, earth drills, refrigerators, and air conditioners.  Although the last two technologies listed are often taken for granted, their associated operating costs are greater than many people realize.

        According to the U.S. Department of Energy (USDOE), air conditioning and refrigeration consumes over 27% of all electricity in U.S. households.   Furthermore, nearly 6% of our gasoline is used to power car air conditioning, and in southern states such as California, Arizona, Texas and Florida, it may account for up to 35% of automobile fuel costs.

        In the average air conditioned U.S. home, air conditioners use more than 2,000 kilowatt-hours of electricity per year. In order to produce the electricity needed to air condition the average U.S. home, the average power emits roughly 3,500 pounds of carbon dioxide and 31 pounds of sulfur dioxide per year.
 
        These high costs associated with cooling technologies largely stems from the energy needed to propel compressors, which are present in most air conditioning and refrigeration devices. However, engineers in the industry are working towards signficiantly reducing these costs with innovative air compression technologies.

        The most energy-efficient air conditioners on the market today consume 30-50% less energy than models manufactured in the mid 1970s.   In addition to energy efficiency, recent air compressor innovations involve noise reduction, new maintenance techniques and self-regulating intelligent systems.  When innovators develop technologies such as these, they may be eligible for federal and state Research and Development tax credits.


The R&D Tax Credit

        Enacted in 1981, the Federal Research and Development (R&D) Tax Credit allows a credit of up to 13 percent of eligible spending for new and improved products and processes. Qualified research must meet the following four criteria:

  • New or improved products, processes, or software
  • Technological in nature
  • Elimination of uncertainty
  • Process of experimentation
    
        Eligible costs include employee wages, cost of supplies, cost of testing, contract research expenses,  and costs associated with developing a patent. On December 18, 2015, President Obama signed the bill making the R&D Tax Credit permanent. Beginning in 2016, the R&D credit can be used to offset Alternative Minimum tax and startup businesses can utilize the credit against payroll taxes.


Energy Efficiency

        Energy costs are a significant portion of any compressed air system's total lifetime cost.  In fact, the amount of energy required to run an air compressor for just one year can exceed the compressor’s total purchase price.  In light of these high energy costs, upgrading to a newer, more energy-efficient air conditioner may be well worth the initial cost outlay.  Even if an air conditioner is just 10 years old, upgrading to a new energy-efficient air conditioner could save anywhere from 20-40% of cooling costs.

        Despite advancements in energy-efficient technology surrounding air compressors, there is still room to further reduce energy costs.  An open innovation competition, called the Boston Innovation Prize, was created by two organizations in Boston in hopes of discovering a way of lessen energy consumption in air-conditioning systems. It was set by the Barr Foundation, a private foundation that aims to improve the quality of life of people in the Boston area, and the Cambridge Energy Alliance, an organization that aims to reduce the carbon footprint of Cambridge, Massachusetts. The goal of the competition was “to radically improve efficiencies in space cooling and dehumidification” and to “identify breakthrough technologies and/or designs which will provide cooling and dehumidification with dramatically higher energy efficiency than current room or window air-conditioning units, while maintaining affordability.”  

        One major innovation introduced to the market is a lightweight turbo compressor, designed by Muller Industries, a heating and cooling technology company based in Memphis, Tennessee.  Designed to be both efficient and compact, this innovative technology features a revolving compression system that is much faster than what is found in most conventional appliances. This is acheived through an integral motor comprised of woven, high-strength fibers. Essentially, Muller Industries’ engineers realigned the stressing forces in the fibers to provide greater strength and deliver higher  compression, resulting in greater energy efficiency. Some analysts describe this energy savings potential as tremendous. Additionally, the compressor is signficantly quieter, which is another hihgly desired characteristic in the compressor industry.


Reduced Noise

        One of the most heavily researched aspects of compression technology involves noise reduction.  Noise level is an important factor that Consumer Reports considers when testing refrigerators for consumer preference.  As air compressors create a high pressure pumping system, they produce a lot of noise.  This noise is undesirable in most settings and can even cause ear injuries to users.  Therefore, a huge challenge for innovators is diminishing the noise output created by compressors.  Some solutions include the use of acoustics or sound barriers in order to muffle the noise.  Other solutions involve creative techniques to release exhaust noise and reduce vibration-radiated noise that is generated from the compressor gears and bearings.   
    
        Exhaust and intake noise is often identified as the primary noise source in compressors.  When operating, a refrigerator compressor produces a pulsating noise, primarily driven by internal suction and discharge processes.  To alleviate this exhaust noise, compressors often have a muffler that is located inside the refrigerator. There are many challenges associated with designing effective mufflers. For example, the muffler must be very compact in size and have an extremely low pressure drop.  It also must be capable of lessening noise over a wide range of frequencies.  Furthermore, it is also essential that the muffler has an infinite expected life; if the muffler breaks down before other components in the compressor, the whole unit will be undesirable by the user.  


Preventive Maintenance

        Like all electro-mechanical equipment, compressed air systems require periodic maintenance to operate at peak efficiency and minimize downtime.  Proper air-conditioning maintenance is necessary to ensure that air-conditioning units are working properly around the clock. An air-conditioning compressor has a motor which contains moving pistons that compress the refrigerant gas. Like all mechanical systems, those moving parts need to be lubricated and cooled.

        Some compressors within air conditioning units have high compressor switches that users can turn on to help prevent the compressor from over-heating. This is especially useful for those who live in areas with polarized weather conditions.  In the summer, the switch can be turned on and vice versa during the winter.  Other compressors may have this feature built in so that it switches on and off automatically.  Automatic monitoring and controls is another focal point for innovation within the industry.  With the advent of the Internet of Things, this type of automation is likely to become increasingly intelligent and more prevalent in newer model units as well. 


Internet of Things

        Today, intelligent air conditioners and refrigerators are perhaps the most breakthrough innovations in the industry.  Some units can be controlled by the user with a cell phone or an iPad.  Others can even pick up signals based on the phone’s location and adjust temperature patterns so that less energy is used when the user is away from home and more energy is used as the user approaches the unit. 

        There are a few companies mainly responsible for designing these smart apps and controls.  Quirky, the online community of inventors  has one listed on their website. Sensibo the Tel Aviv, Israel-based intelligent cooling company, has a smart scheduling app that makes sure the user’s bedroom is pre-heated so he or she wakes up in a warm room.  Tado, the United Kingdom-based smart thermostat company, utilizes cell phone location to cut heating costs.

        One user of the Tado smart control technology had this to say about the product: “Our electricity bill has dropped dramatically since we use the smart AC as beta testers.  Now the air conditioner does not need to run all the time.  Even at night our preferred temperature is set automatically.”  Another user said this: “The smart AC control works completely automatically.  You can set and save different profiles which combine a certain AC mode, fan, temperature, etc.  And it’s super nice that the apartment is pre-cooled when you get home.”  Besides the Internet of Things (IoT’s), there are other intelligent designs that can help save on energy costs .  One, for example, involves compressors that are smart enough to adjust speeds based on the amount of compression that is needed at any given time.   


Variable Speed Driven Compressors

        Variable-speed driven compressors adapt the speed of the compression element to match the compressed air demand.  This is made possible by use of a smart processor that controls the compressor motor.  Sensors are used to tell the motor when to vary its speed.  The motor then responds by shutting down some of the screws or pistons which drive compression, while allowing others to function normally.  When less screws/pistons/rotars/etc. are turning, less energy is being consumed, similar to shutting down unneeded cylinders in a gas or diesel motor to save on fuel. For some compressors, this can mean capturing an energy savings of over 35%.

        There are many different challenges associated with designing variable-speed air compressors. For example, some products require duel compressors.  In this case, the compressors must be synced so that they operate most efficiently as a tandem unit.  Other challenges involve designing an optimal lubrication ratio or ensuring the correct oil return in a cooling circuit as well as the sizing of the suction and discharge points are all critical factors that must be considered when an adjustable component is introduced to a single speed compressor model. 


Efficiency Standards Drive Innovation

        Energy efficiency standards in the industry are largely shaped by Federal regulations. In response to the 1970’s energy crisis, lawmakers pushed to reduce energy consumption across all U.S. sectors. This set the stage for the Energy Department’s Appliance and Equipment Standards Program, which established a single federal energy efficiency standard for air conditioner manufacturers, rather than a patchwork of state-by-state standards.

        Since 1992, the Energy Department has issued conservation standards for manufacturers of residential central air-conditioners and heat pumps. The initial standard is expected to net $29 billion in energy bill savings from 1993 to 2023. Furthermore, the standard passed in 2006 is anticipated to result in $70 billion in energy bill savings from 2006 to 2035 and will prevent more than 369 million metric tons of carbon dioxide emissions, equivalent to the annual greenhouse gas emissions of about 72 million cars. Already the program has been responsible for driving huge improvements in efficiency for new air-conditioning technology that has helped consumers save both energy and money.


Supermarket Refrigeration

        Supermarkets are some of the most energy-intensive commercial buildings. This is largely due to the amount of energy that is dedicated to maintain chilled and frozen food in both product display cases and storage refrigerators throughout the store.  Typical supermarkets with approximately 3700-5600 square meters of sales area consume over 2-3 million kWh annually for total store energy use.  Compressors and condensers account for 60-70% of this energy consumption.  In these supermarkets, multiple large compressors operate side by side simultaneously often times 24 hours per day.

        In order to reduce energy consumption and advance energy-efficient supermarket technology, the International Energy Agency (IEA) established IEA Annex 26 (Advanced Supermarket Refrigeration/Heat Recovery Systems).  Annex 26 focuses on demonstrating and documenting the energy saving and environmental benefits of advanced systems design for food refrigeration as well as space heating and cooling for supermarkets. The goal of the program is to identify supermarket refrigeration and HVAC technology options that reduce the total equivalent warming impact (TEWI) of supermarkets and their potential impact on global 3 warming. The Annex currently has five participating countries: Canada, Denmark, Sweden, the United Kingdom, and the United States.

        There are other government regulations, such as the U.S. Environmental Protection Agency (EPA), addressing supermarket refrigeration technologies as well.  Recently, the EPA announced a proposal to ban the use of R-404A, R-507, and a number of other perceived high-GWP refrigerants from use in a wide range of commercial refrigeration equipment installed in 2016 or later. Rusilla Hufford, director of the Stratospheric Protection Division in the EPA had this to say about the legislation, “The EPA continues to seek comments on technical challenges, availability of alternatives, need for changes to manufacturing processes, safety upgrades, and its ability to meet proposed compliance dates.”


Conclusion

        Air compressor technology is constantly evolving to be more energy efficient, quieter, less maintenance oriented and more intelligent.  When companies develop these technologies they are often eligible for federal & state R&D tax credits.

Article Citation List

   


Authors

Charles R Goulding Attorney/CPA, is the President of R&D Tax Savers.

Andrea Albanese is a Project Manager with R&D Tax Savers.

Michael Wilshere is a Tax Analyst with R&D Tax Savers.