Rebate vs. Incentive – What’s the difference?

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Some utilities offer a Rebate, and others offer an Incentive, is there really a difference?

To your utility company, there’s a big difference.  Think about their mindset:  They know that some customers will install a new HVAC unit if it saves them 20% on their heating/cooling cost and recover those savings over 5 years, but maybe not a lot of people.  Your utility wants to motivate people that wouldn’t replace their HVAC unit on their own, and motivate as many people as possible, but not give away any more money than they need to.  Also know your utility has a budget for rebates (or incentives, typically the same budget) so they have to spend it every year.  They have to show the state agency overseeing them how many dollars they saved in energy consumption by offering these rebates.  Since the energy savings, they report to the state is based on reducing kWh (kilowatt hours), if your utility can offer a rebate directly tied to kWh saved, then they will maximize the savings reported to the state for their budgeted rebate dollars.  Cue the Incentive – Since the utility is paying you a bonus based on how much energy you save, it’s no longer a rebate for installing that HVAC system, it’s an incentive to reduce your energy consumption by X kWh, often calculated based on $.08-$.18 per kWh (depending on the state you live in) saved in 1st year after deploying the savings product.

Another reason your utility company may be moving to incentives is because, in the traditional rebate model, the utility company has no way to guarantee you keep that energy saving appliance installed for 5 years, which is traditionally the duration the rebate is calculated on.  If they pay you an incentive for only the 1st year of energy savings, it’s much less risk for your utility company, and they can pay a large number of customers an incentive, thus reducing overall consumption, which is really their goal.

Improving the energy efficiency of your building is an effective long-term solution for cutting down overhead costs. The more energy you save, the lower your energy costs will end up being. For larger buildings, these energy costs can be quite substantial. However, the problem is that some of the methods for saving energy require substantial investments. These investments come in the form of building automation, upgraded HVAC systems and much more. While they can be quite expensive initially, most of these investments end up paying for themselves in the form of energy savings over time.

The problem is that many building owners may either be unable to afford to take a short-term financial hit to invest in the improvement of their building’s energy efficiency – or simply don’t want to make such a large initial investment. Fortunately, you can soften the blow of some of the more expensive investments through the use of rebates and incentives.

Energy Saving Rebates and Incentives

Reducing your energy costs isn’t the only benefit of investing in energy-efficient building improvements. You’re also reducing the building’s carbon footprint, thereby reducing the negative effect that buildings typically have on the environment. The government wants to promote the implementation of energy efficient building improvements for this very reason, which is why they offer rebates and incentives in order to help offset the costs of your initial investment. The following are a few of the things that you should know about energy saving rebates and incentives.

Energy saving rebates

Rebates are basically specific amounts of money that are given back to once you’ve invested money into an energy saving product. For example, if you’ve installed a new air conditioning system. Rebates such as these are typically offered for products that meet certain energy efficiency guidelines. These products can include HVAC (heating, ventilation and air conditioning) products, lighting products, water heating products, refrigeration products, food service equipment and more.

Think of rebates as a sort of cash back program. Typically, rebates are provided for smaller investments. They help encourage building owners to upgrade equipment.

Energy saving incentives

Energy saving incentives are available for larger investments. Whereas rebates are available in return for purchasing certain energy-efficient products, incentives are more about meeting and exceeding certain energy efficiency standards. Both the state and federal government offer incentives in the forms of tax credits.

Utility companies will often provide incentives in the form of reducing your energy costs by a certain percentage if you meet a certain kWh reduction over a certain period of time, such as over a year. If the energy efficient improvements you invest in meet certain standards, you may qualify for certain incentives that could include having a certain percentage of your project’s total cost covered. This, in turn, gives building owners more reason to invest even more into improving the efficiency of their buildings so that they can qualify for these incentives. Energy saving incentives are typically for projects much bigger in scope than the types of things rebates usually cover. In order to qualify for certain incentives, your project typically needs to be pre-approved.

The whole point of energy saving rebates and incentives is to encourage building owners to invest in energy efficient building improvements, thereby helping to reduce the negative impact buildings have on our environment. Couple this with the fact that these investments will pay for themselves within a matter of years due to a substantial decline in energy costs, investing in energy efficient improvements for your building should be a no-brainer.

Although energy saving rebates certainly help offset the costs of piecemeal equipment upgrades, investing in larger energy saving projects can help you qualify for certain incentives, which will allow you to save a much more substantial amount of money – not just in the short-term, but over the long-term as well. For more information on how you can improve your building’s energy efficiency, be sure to contact us at BOSS Controls today. To find out what kind of energy saving rebates you can take advantage of in your state, be sure to explore out our energy saving rebate hub.

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