Financial Incentives of Eco-lighting

You can reduce your bottom line with greener lighting, but you also may be able to take advantages of tax breaks, bonds and rebate programs.

Tax Benefits

Utility Rate Discounts:

A few electric utilities offer rate discounts to encourage residential energy efficiency.
For homes that meet certain energy efficiency criteria, such as those established by the federal Energy Star program, the owner or tenant is awarded a percentage discount on each month’s electric bill.

Sales Tax Incentives:

Sales tax incentives typically provide an exemption from the state sales tax (or sales and use tax) for the purchase of a renewable energy system, an energy-efficient appliance, or other energy efficiency measures. 
Several states have established an annual “sales tax holiday” for energy efficiency measures by allowing a temporary exemption – usually for one or two days – from the state sales tax.

Rebate Programs:

States, local governments and utilities offer rebates to promote the installation of renewable energy systems and energy efficiency measures. 
The majority of rebate programs that support renewable energy are administered by states, municipal utilities and electric cooperatives; these programs commonly provide funding for solar water heating and/or photovoltaic (PV) systems.  Most rebate programs that support energy efficiency are administered by utilities.  Rebate amounts vary widely based on technology and program administrator. 

Click here to see if your facility qualifies for rebate monies.

Property Tax Financing Authorization:

Property tax incentives include exemptions, exclusions and credits. 
The majority of property tax incentives provide that the added value of a renewable energy system is excluded from the valuation of the property for taxation purposes.  For example, if a heating system that uses renewable energy costs more to install than a conventional heating system, the additional cost of the renewable energy system is not included in the property assessment.  In a few cases, property tax incentives apply to the additional cost of a green building.  Because property taxes are collected locally, some states grant local taxing authorities the option of allowing a property tax incentive for renewable energy systems.

Production Incentives:

Production incentives provide cash payments based on the number of kilowatt-hours (kWh) a renewable energy system generates.
To ensure project quality, payments based on a system’s actual performance are generally more effective than payments based on a system’s rated capacity.  Production incentives are also known as performance-based incentives. (Note that tax incentives based on the amount of energy produced by an eligible facility are categorized as “Corporate Tax Incentives.”)

Personal Tax Incentives:

Personal tax incentives include personal income tax credits and deductions.
Many states offer these incentives to reduce the expense of purchasing and installing renewable energy or energy efficiency systems and equipment.  The percentage of the credit or deduction varies by state, and in most cases, there is a maximum limit on the dollar amount of the credit or deduction.  An allowable credit may include carryover provisions, or it may be structured so that the credit is spread out over a certain number of years.  Eligible technologies vary widely by state.  In recent years, the federal government has offered personal tax incentives for renewables and energy efficiency.

Loan Programs:

Loan programs provide financing for the purchase of renewable energy or energy efficiency systems or equipment. 
Low-interest or zero-interest loans for energy efficiency projects are a common demand-side management (DSM) strategy for electric utilities.  State governments also offer low-interest loans for a broad range of renewable energy and energy efficiency measures.  These programs are commonly available to the residential, commercial, industrial, transportation, public and nonprofit sectors.  Loan rates and terms vary by program; in some cases, they are determined on an individual project basis. Loan terms are generally 10 years or less.  In recent years, the federal government has offered loans for renewables and energy efficiency projects.

Leasing/Lease Purchase Programs:

A few electric utilities offer leasing programs for prospective customers in remote areas, especially if the cost of extending electric distribution lines to the customer’s home or facility would be expensive.
Through these programs, customers may lease from the utility a system that generates electricity, such as a photovoltaic (PV) system.  In some cases, the customer may choose to purchase the system after a specified period of time.

Industry Recruitment/Support:

To promote economic development and the creation of jobs, some states offer financial incentives to recruit or cultivate the manufacturing and development of renewable energy systems and equipment.
These incentives commonly take the form of tax credits, tax exemptions and grants.  In some cases, the amount of the incentive depends on the amount of eligible equipment that a company manufactures.  Most of these incentives apply to several renewable energy technologies, but a few states target specific technologies, such as wind or solar.  These incentives are usually designed as temporary measures to support industries in their early years, and they commonly include a sunset provision to encourage the industries to become self-sufficient.

Green Building Incentives:

Green buildings are designed and constructed using practices and materials that minimize the impacts of the building on the environment and on human health. 
Many cities and counties offer financial incentives to promote green building.  The most common form of incentive is a reduction or waiver of a building permit fee.  The U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) is a popular point-based certification program for green buildings.  The LEED system awards points for site selection and development; material, energy and water efficiency; indoor air quality; innovation; and the application of renewable technologies.

Commercial Buildings Tax Deduction:

The Energy Efficient Commercial Buildings Tax Deduction (CBTD) is a special financial incentive created by the Energy Policy Act of 2005 and designed to reduce the initial cost of investing in energy-efficient lighting and other building systems via an accelerated tax deduction.
This special tax deduction allows building owners (or tenants) to write off the complete cost of upgrading a building’s indoor lighting, HVAC/hot water and building envelope in the year the new equipment is placed in service, capped at $1.80/sq.ft.  Alternately, the owner (or tenant) could upgrade one of these three systems to earn the CBTD capped at $0.60/sq.ft.  In short, with the CBTD, the cost of new lighting or other building systems can be claimed in a single tax year instead of amortized over a period of years.
The CBTD expiration date has been extended twice, most recently by the Energy Independence Act of 2007 (EISA).  With this extension, the CBTD can be claimed for qualifying projects completed before January 1, 2014.
With the nation’s recent renewed interest in the environment, many facets of the building industry are trying to preserve valuable resources by encouraging end-users to conserve energy, particularly in the lighting industry.  Utilities are increasingly offering lighting rebates to end-users to preserve their precious commodity: electricity.  Check with your local utility to see if your project qualifies for rebate monies.

Grant Programs:

States offer a variety of grant programs to encourage the use and development of renewable energy technologies and energy efficiency measures.  Most programs offer support for a broad range of technologies, while a few programs focus on promoting one particular technology, such as photovoltaic (PV) systems. 
Grants are available primarily to the commercial, industrial, utility, education and government sectors.  Most grant programs are designed to pay down the cost of eligible systems or equipment.  Others focus on research and development, or support project commercialization.  In recent years, the federal government has offered grants for renewables and energy efficiency projects for end-users.  Grants are typically available on a competitive basis.

Corporate Tax Incentives:

Corporate tax incentives include corporate tax credits, deductions and exemptions. These incentives are available in some states to corporations that purchase and install eligible renewable energy or energy efficiency equipment, or to construct green buildings.
In a few cases, the incentive is based on the amount of energy produced by an eligible facility. Some states allow the tax credit only if a corporation has invested a minimum amount in an eligible project.  Typically, there is a maximum limit on the dollar amount of the credit or deduction.  In recent years, the federal government has offered corporate tax incentives for renewables and energy efficiency.

Click here for further information about The Energy Efficient Commercial Buildings Tax Deduction (CBTD).

Bond Programs:

Bonds allow governments (and corporations) to raise money by borrowing.  A few states and local governments have established bond programs to support energy efficiency and renewable energy for government-owned facilities.
After a government has raised an authorized sum of money through the sale of bonds, the money collected is used to improve energy efficiency or to install renewable energy systems on government facilities. The bonding authority is usually reimbursed using the energy savings resulting from these projects.