For the past three decades, contractors have capitalized on energy-efficient product rebates from the roughly 3,000 U.S. utilities—incentives proven to reduce energy consumption and drive upgrade activity among homes, businesses and institutions. Despite the unprecedented challenges posed by the pandemic, utility rebates and government incentives on energy-efficient products remain available.
Industry experts shared their insights on rebate and incentive trends and contractors’ best bets for 2022 and beyond.
The rebate landscape
According to the Edison Foundation Institute for Electric Innovation*, “Energy-efficiency programs are now viewed by the electric power sector as an essential element in an ever-expanding set of service offerings—high-efficiency lighting, smart thermostats, dynamic rates, energy management, renewable energy, storage, and more—to meet the expectations of electric customers who live in an on-demand, service-centric world.”
The report revealed that in 2018, utility expenditures of $7.2 billion on energy-efficiency programs saved 211 terawatt-hours of electricity—enough to power 26 million homes for one year and representing 5.5% of total end-use electricity consumption—and avoided 149 million metric tons of CO2 emissions.
“With energy-efficiency resource standards [present] in half of all U.S. states and more than 30 states with regulatory frameworks that support electric company investments in energy efficiency,” wrote the report’s authors, “IEI believes that expenditures are likely to exceed $9 billion by 2025.” The report noted that California, Massachusetts, New York, Illinois and Florida were the top five states in terms of energy efficiency expenditures.
“Preliminary data from 2019 reveals that overall utility expenditures on rebates for electric efficiency and other grid-interactive measures held constant at about $7.2 billion,” said Steve Rosenstock, senior manager of customer technical solutions at the Edison Electric Institute, Washington, D.C.
In terms of economic, legislative or other external drivers that may influence rebate activity in 2022, “we’ve seen more jurisdictions adopt codes or laws requiring more building electrification or decarbonization, such as the installation of EV charging stations, more electric end-use equipment and, in some cases, the replacement of existing equipment with electric equipment,” Rosenstock said.
According to Rosenstock, “Federal tax credits are available for solar and geothermal installations in commercial and residential settings through 2023, and large wind systems are eligible for production tax credits. In addition, small business expensing (in the form of a tax deduction in year one) also remains in place for investments in small equipment such as HVAC systems or upgrades by small businesses.”
However, Rosenstock was quick to note that demand for such incentives has been disrupted by the pandemic and will continue to be affected by the public health crisis and new modes of working for at least part of 2022.
“According to building security leader Kastle Systems, commercial building occupancy (as measured by security card swipes) during the pandemic was down to 10% in some areas, and while it’s over 70% in other parts of the country based on local policies, it’s still only 25% in Washington, D.C., for example,” he said. He added that, while lower occupancies may make it a good time for retrofits, “rents are down and building owners have less need and incentive to upgrade their spaces. Utilities are still offering incentives, but fewer building owners are taking advantage of them now as they work to minimize their operating budgets and preserve cash.”
Leading with lighting
Lighting remains one of the most popular rebate categories—from LED linear products to high bays, troffers, track lighting, parking garage fixtures and more—and continues to experience strong activity.
“In 2021, commercial lighting rebate amounts have been fairly similar to 2020 levels, which is remarkable since, in all previous years, rebate amounts per product typically dropped 10%–20% each year,” said Leendert Enthoven, owner of BriteSwitch, a Princeton, N.J.-based company specializing in managing and securing rebates, tax incentives and other financial rewards (primarily in lighting) for commercial properties. “Because LED product prices increased tremendously in 2021 and many utility rebate programs have struggled to get enough energy-efficiency projects on their books since the pandemic, it’s possible that rebate amounts could actually increase in 2022 to encourage more projects.”
In terms of utilities’ current rebate format, “the vast majority of commercial rebates (some 60%) are ‘prescriptive’ and provide a fixed dollar amount per lamp/fixture/control. About 35% of lighting rebates are ‘custom’ or ‘performance-based,’ meaning that the dollar amount of the rebate is based on their actual kilowatt or kilowatt-hour savings, or their savings versus a code like ASHRAE or Title 24,” Enthoven said, adding that the remaining 5% are “midstream,” meaning they are provided instantly at the point of sale and usually taken off the invoice.
According to Enthoven, 74% of the U.S. is currently covered by a commercial lighting rebate, which is almost the same as last year.
“The biggest regional change was Ohio, where at the end of 2020, the Ohio state legislature stopped virtually all utility rebate programs,” he said.
Activity by region
“The best rebate zone continues to be the Northeastern states, which typically have statewide prescriptive rebates for LEDs with high dollar amounts that are capped at 100% of the material cost,” he said. “The Midwest and Northwest states usually have pretty strong rebates as well, although they don’t run statewide rebate programs, so users have to look utility-by-utility to determine actual rebate details. That’s definitely a challenge in a state like Washington, which currently has 31 separate rebate programs.”
Elsewhere, “California prefers using legislation instead of rebate programs to drive energy efficiency, so while there are some rebate programs there, they’re no longer the best in the country,” Enthoven said. “Lastly, Texas is notable in that their rebate programs are extremely complex, run out of funding regularly and usually provide smaller-than-average rebate amounts.”
Alliance with vendors
In other trends, Enthoven said there’s a growing movement requiring vendors to be active trade allies in order to participate in a utility’s rebate offerings.
“This can be a big burden for vendors, since it not only requires them to submit all kinds of paperwork, insurance documents and customer references, but also to attend training sessions to learn about the latest program procedures,” he said. “In addition, a number of utility rebate programs have recently switched out the companies managing their administrative process, which has led to implementation issues and long delays on rebate applications.”
Finally, he noted, “the importance of a product’s inclusion on the DesignLights Consortium (DLC) list has continued to increase, and, at this moment, 70%–85% of all rebate programs require products to be actively listed on the DLC website to be eligible for rebates.”
Words to the wise
“During the pandemic, quite a few lighting retrofit projects have been put on hold, especially in the retail and office arena, and LEDs have experienced a number of price increases and supply issues,” Enthoven said. “On the other hand, we continually see new contractors reaching out to us for rebate help since they simply can’t dedicate their limited manpower to estimate rebates for their customer quotes or manage lengthy rebate applications; our research reveals that on average, it takes 12 steps to complete a typical rebate application over a period of five months. Other contractors who want to continue handling rebates in-house have turned to our RebatePro database service, which helps them find detailed rebate information across the entire U.S. much more easily.”
Rosenstock agreed that gridlock at ports and resultant product backlogs will hamper the supply chain for months to come—a reality contractors need to plan around.
“Timing is critical and rebates do run out, so contractors need to order well ahead of time and work with their vendors to get products before rebate programs run out of funds from being oversubscribed,” he said. On a positive note, he said, federal legislation could result in incentives for electric vehicles and zero-emissions/fully electric homes, “which could be game-changers for end-users and contractors.”
As for 2022, “it should be a good year for businesses that have survived and thrived during COVID and are in good financial shape,” Rosenstock said. “Utilities have energy-efficiency resource standards and must save a certain amount of energy through efficiency programs, so they’ll be offering rebates and working with contractors and customers to promote their use, though uptake may not be where it was in 2019–2020 based on business conditions.”
Enthoven hopes contractors will take advantage of rebate opportunities.
“By now, almost all vendors know that ‘free money’ exists and many have received or facilitated rebates for at least a few projects from their local utility,” he said. “Unfortunately, we continue to see a significant number of channel members ignoring available rebates because they have no time to look into the latest program details, didn’t update their trade ally status in time, or simply find the rebate process too much of a hassle. The fact is, rebates are valuable tools that typically improve project paybacks by 20%–25% and lower project costs without diluting margins.”
For that reason, Enthoven said, “Contractors should always make sure to incorporate rebates into every single one of their customer quotes, not just when asked. It’s truly a huge value-add that can differentiate a contractor’s proposal from their competitor’s.”