Sales Tax and Utility Rebates Can Yield Massive Savings

Beyond the federal tax benefits available, consultants and engineers often overlook the avoided sales tax (and other fees) that exist when energy saving projects are implemented.  I would like to demonstrate this via a case study on a lighting project that was recently approved in a geographic area that is known for having the some of the lowest electricity costs in the USA.

What is interesting is that after looking at the client’s new utility rate structure, we found the demand and kWh costs had each increased by 30% from 2010 to 2011.  This was compelling, but I was also surprised that the sales taxes and other utility fees amounted to about 15% of additional cost beyond the raw electrical costs!  We also applied for rebates from the local utility, which were not easy to find on the utility’s website.

By calculating all these savings, the project’s cost-effectiveness improved and we were able to meet the client’s financial criteria for approval.  The point is that without these savings and financial justification, the project would not have been approved and zero energy would be saved.

Case Study:

Citizens National Bank had an old lighting system with acrylic lenses and the T-12 lamps were being phased out by the Energy Policy Act.  Thus, they wanted to replace the 2 x 2 lighting systems, not only because procuring T-12 lamps would be difficult, but also finding rare parts (for an old lighting system) was becoming expensive. 

Several replacement options were installed as samples to see what the occupants preferred and finally a replacement T-5 fixture “kit” was chosen.  This kit can be installed easily and uses part of the existing fixture housing, while removing the lens and installing a new backing within the existing fixture box… the visual effect is the appearance of a completely new fixture and the light levels increased about 10% at the desk level, which is another benefit as the existing lighting was a little insufficient. 

This is not “rocket science”, but I still find it amazing that you can take a fixture that consumes 72 watts (or more as measured in this case) and replace it with new technology that consumes 32.2 watts (1.15 ballast factor and 14w T-5 lamps), while increasing the lighting levels.

The economics of the project were slightly insufficient to meet the client’s financial criteria for approval.  This was partly because the retrofit kits were more expensive and there were some additional re-circuitry and facility upgrades that would be included in the project to make it operate correctly. 

If I did nothing more, the project likely would have “stalled” in the development phase, so I went back and looked more closely at the calculations.  When I analyzed the actual utility bill, we found that utility surcharges and local sales taxes on energy represented a 15% extra cost per kWh.  After the new lighting system is installed, there will be less kWh consumed and the client would not pay taxes on these avoided kWh. When these avoided costs were included in the annual savings (basically an additional 15%), the payback was reduced by about 1.2 years. 

After some time searching on the utility website and several phone calls, we were able to identify that there was a rebate available which equaled about $6 per fixture.  When the utility rebate was incorporated, the payback was reduced by about 2 years!

There were likely additional savings that could have been included.  Perhaps air-conditioning savings as well as avoided costs on labor, material and disposal would have been appropriate.  However, most of these savings were balanced out by additional material costs (T-5 lamps are more expensive than T-8 or T-12 lamps).  One strategy that was effective was bulk purchasing of materials, which reduced the installation cost significantly.