Working Smart: Rebate Fundamentals

Though utility rebates on energy-efficient electrical products have waxed and waned during the past 20 years as a function of the economy and legislative landscape, experts confirm that they have remained a primary and highly effective tool that is driving upgrade projects across the nation.

“Data from the Consortium for Energy Efficiency (CEE) reveals that 2011 was actually a record year, with over $5.7 billion spent on rebates and other incentives by electric utilities, and their preliminary data estimates that over $7 billion was spent on incentives by electric and gas utilities in 2012,” said Steve Rosenstock, senior manager of energy solutions for Edison Electric Institute (EEI), Washington, D.C. EEI represents the nation’s investor-owned utilities, a collection of 150–200 large entities accounting for more than two-thirds of all electricity sales in the United States. 

According to Rosenstock, it’s still a pretty active market for rebates, largely because they have been proven to reduce demand for electricity and help shift load.

“For example, during the 1950s, the nation’s electric energy use grew at a rate of 7–10 percent per year, and then, during the oil crisis of the 1970s, growth declined to 3–4 percent per year. In contrast, our nation’s electric energy use in the past few years has only grown by about 0.3–0.8 percent per year, and it actually declined in the last several years based on our collective use of more energy-efficient technologies. The fact is if we weren’t using all of these energy-efficient technologies, it’s estimated that our nation would be consuming 40 percent more energy. So energy-efficient technologies have definitely been effective in helping to offset a significant level of demand, and rebates have been a proven force behind the adoption and use of these products,” he said.

So what does the landscape look like for rebates today, and how can electrical contractors use their availability to help secure more upgrade projects? Our experts weigh in on current rebate opportunities and ways for contractors to capitalize on these demonstrated project drivers.

Today’s landscape

Though some things have changed with respect to utility rebate programs, Rosenstock said that the two main forms utility rebates have taken have largely remained the same over time.

“‘Prescriptive’ rebates offer a certain amount of money back based on the product you buy; these are determined by the technology and its energy-saving potential, so typically the higher the savings, the higher the rebate offered,” he said. “The other popular type of rebate is a ‘performance-based’ one, in which you receive cents back per kilowatt-hour saved (and/or peak kilowatt demand reduced), a measure which could either be simulated through computer modeling or verified by actual metering after the upgrade.”

Rosenstock reiterated that lighting is still the No. 1 most rebated-on technology because it’s the easiest to retrofit, though he noted that the types of lighting products involved in rebate programs today has evolved.

“Fluorescent T8 lamps used to be among the most heavily rebated technologies, but, with new federal standards taking effect and T12 fluorescent lamps taken out of production as of this year, 
T8 lamps are now the minimum standard and are delivering smaller and smaller rebate payouts,” he said. “Along with T8s and compact fluorescents, T5 lamps, induction lighting and LEDs are taking greater hold and represent the next evolution of lighting rebates.”

In addition, Rob Vaughan, regional business manager for CLS Facility Services, a provider of facility management services based in Mentor, Ohio, said, “most rebate programs we’ve dealt with are increasing their rebates on occupancy and motion sensors, as they represent a major method of driving energy savings.”

Otto Kirchheiner, vice president of Miami-based Tri-City Electric Co. Inc., an electrical contracting firm that has served southeastern Florida for more than 50 years, agreed that the product focus of lighting rebates has shifted. At Florida Power & Light, whose rebate programs Kirchheiner has monitored for the past 12 years, it’s now about T5s, LEDs, lighting controls and shedding load, he said. 

Rebates have evolved for other building-envelope products, too. New ASHRAE standards have made certain variable frequency drives, efficient motors, insulated windows and other such products more standard, opening the door for rebates to help accelerate the adoption of a new generation of cutting-edge technologies that deliver even greater efficiencies. These include renewables such as solar and wind, which are currently covered mostly by federal tax credits and state incentives and not largely incentivized at the utility level, Rosenstock said, as well as products such as electric vehicle charging stations, which he said utilities currently address through the use of separate tariffs that recognize peak or off-peak usage as opposed to straight rebates.

Considering the expected growth, “the market for charging stations and the way they’ll be promoted by utilities will be interesting to watch,” he said.

Making rebates work for you

“The truth is we don’t go selling jobs just because of a rebate,” Kirchheiner said. 

“It’s the ‘gravy on top’, and only about 30 percent of the jobs we do today involve rebates. Customers are pursuing these upgrades because they make economic sense on their own; the rebate is just an added bonus,” Vaughan said. “The utility rebate is only a small part of the reason why a business should move forward with retrofit projects, regardless of whether that rebate pays for 5 percent or 75 percent of the project. For example, if you have a 160-watt fixture, operating eight hours a day, five days a week, and a lighting retrofit can reduce consumption to 54 watts, you’re going to enjoy 65 percent-plus energy savings. Those numbers are real … just imagine an office building with 2,000 of those fixtures.”

“We often find that many customers initially look into upgrade projects to achieve energy savings and obtain rebate money. Interestingly enough, though, when projects are completed, the vast majority of customers are even happier to have better performing facilities; the rebate was merely the icing on the cake,” Kirchheiner said.

Of course, “utility rebates definitely boost the economics of a project,” Rosenstock said, adding that, for some customers, it can be a deciding factor on whether they take on a project or not.

“Rebates can definitely help secure a project in many instances, especially if a company is on the fence, since many projects are a big financial commitment,” Vaughan said.

In the case of a generous residential solar incentive that the Tri-City team recently discovered through FP&L, “it reduced the solar payback period from 10–12 years down to five years, which is substantial,” Kirchheiner said. “Rebates offset the up-front price of a project, and, when you can show customers how that rebate improves the project’s ROI or reduces the payback period from, say, three to five years to just one and a half years, it gets more palatable for them to say ‘I’ll do this.’”

What else can contractors do to help customers understand and use available rebates beyond just presenting the powerful economics of the equation? Well, one great service for a contractor to provide is to oversee the administration of the rebate with the utility.

“The CFO of a company wants to be able to write a smaller check to the utility company every month, but he doesn’t necessarily know how to get there. Completion of all of the appropriate paperwork for a utility rebate is a joint venture with our customers, but we definitely try to administer and oversee that process to make it easier for them,” Kirchheiner said.

Vaughan agreed that the rebate administration process is best left in the hands of the contractor for many reasons.

“First of all, an experienced contractor will know how to maximize the rebate dollars for the client and get the most out of the rebate program. Also, if the customer does their own rebate paperwork and then the scope of work changes and different materials are used, major headaches can occur … this happens more than people think. Keeping the rebate responsibilities tied to the contractor helps to simplify projects, avoid confusion, and keep everything under one umbrella.”

About the Author

Susan Bloom

Contributing Editor
Susan Bloom is a 25-year veteran of the lighting and electrical products industry. Reach her at .

Stay Informed Join our Newsletter

Having trouble finding time to sit down with the latest issue of
ELECTRICAL CONTRACTOR? Don't worry, we'll come to you.