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Banking On Utility Rebates

March 3, 2017
While utility rebates can fuel lighting sales, a recent survey of electrical distributors unveiled lots of frustration on the time and effort they take to process.

We are in the midst of the LED revolution. From troffers to tubes and from bollards to high bays, lighting sales are all about LED. This revolution is being fueled not just by the intrinsic qualities that LED lights offer — longer life, reduced maintenance, lower operating costs — but also by rebates offered by utility programs around the country.

Utilities are regularly required by their public utilities commissions to provide incentives to their customers to reduce power consumption. These programs exist for a variety of reasons,  including the slowing demand for power and the related reduction in need for new plants, wires, stations and poles; easing capacity issues in areas that are capacity constrained; and addressing the environmental issues associated with power production.

Getting customers to shift from traditional lighting — incandescent, fluorescent, etc. — has been a mainstay of these programs. Utility companies have quickly gravitated to LED programs and the promise of energy efficiency. Nowadays, most, if not all, utility rebates for lighting focus on LEDs. There are prescriptive, mid-stream and custom rebate programs, all designed to help accelerate your lighting sales.

One rebate tracking site, www.briteswitch.com, says 594 utility programs exist throughout the country. Briteswitch says on its website that according to its North American Rebate and Incentive database, 79% of the US is covered by an active commercial lighting rebate program, the highest since it started measuring the coverage eight years ago. “There are several reasons for this historic high,” the website says. “First, many programs replenished their rebate funds in January. Second, some large programs that ran out of money years ago have come back, such as FirstEnergy in Ohio and Duquesne Light in Pennsylvania.

“Typically, between 10% to 25% of programs run out of funding before the end of the year, so it’s important to plan early for your project. If you have a project you’re considering, we can help you find the best time since our database tracks when programs have historically run out of funding.”

Rebate programs vary in form. Some offer a rebate to the customer to help reduce the cost of the product while others provide an incentive to the distributor/manufacturer to help sell the product. The latter type of program, a mid-stream program, is increasingly popular for commercial/industrial lighting. But easily the most common program model is the downstream model.

To be successful, these programs rely on existing distribution systems to help bring these LED products to market. To better understand how these programs are perceived by electrical distributors and what they accomplish, Channel Marketing Group, Raleigh, NC,  surveyed distributors earlier this year.

This survey provided some revealing insights, most notably that the vast majority of electrical distributors participate in more than one program and that these programs help drive sales. But at the same time, these programs are seen as confusing and costing distributors money. While a great deal of room exists for these programs to improve how they work with distributors, distributors also have work to do in how they participate in these programs.

Feedback from 95 distributors was received. Given the geographic reach of utility programs, all regions were represented. However, responding distributors were concentrated in the Midwest (35%), Mid-Atlantic (19%) and Southeast (13%), which happen to be where utility programs have been launched.

Distributors were generally relatively small, with 55% of respondents representing locations that do less that $25 million in sales annually (the survey asked about location volume rather than company sales).  This was done with the knowledge that every market is a local market and utility programs are focused on local sales efforts.  Fourteen percent of respondents, however, represented corporate offices that do more than $100 million in sales.

Key findings. Ninety-three percent of responding distributors use utility rebates to sell LED bulbs/lamps, fixtures and controls and 66% of respondents participate in programs from more than one utility.  Of those who do not use utility rebates, it’s largely because the programs are not available in their sales territory, but one respondent felt that utility rebate programs are too much work. Overall, the respondents seem to have strong familiarity with these programs.

For those who use utility rebates to sell products, fixtures and lamps are the most commonly rebated items sold, but LED tubes are also commonly sold using rebates. Looking more closely at what they sell using rebates, it’s clear that LED lamps and LED troffers are the primary products sold with rebates — upwards of 90% of respondents use rebates to sell these products. LED tubes, outdoor fixtures and lighting control systems follow closely behind, with over 80% of respondents using rebates to sell these products. Slightly more than half of respondents also use rebates to sell other interior fixtures (not tubes, troffers or lamps).

As utility programs look for big energy savings opportunities, this breakdown makes sense. Tubes, lamps and troffers represent a significant portion of lighting in commercial settings; these are exactly the type of products utility incentive programs target and want to see sold using their incentives. Not surprisingly, given the large majority of respondents that participate in these programs, they generally see them as being useful in helping to drive sales.

The survey asked multiple times how these programs are perceived and the results were consistently positive. Eighty-seven percent of respondents think rebates are very important or important in closing LED sales. This is supported by the fact that over 80% of respondents said the programs were important or very important. Additionally, 83% of respondents said the programs were “Useful”; 80% said they would sell fewer luminaires without rebates; and 66% said they would sell fewer lamps and bulbs without rebates.

Yet, when asked how big an impact these programs had on sales, the results were surprising. It seems that a significant portion of LED sales don’t use rebates. 50% of respondents reported that rebates were used in 40% or less of their total sales. Only 3% reported that all LED sales were rebated. This suggests that the rebates are useful, but not essential for selling these LED products. Given the rapid price decline in LED products, and the growing awareness of these products, this makes sense. In many cases, these are commodified products, not leading-edge technology.

As useful as these programs are for selling more products, respondents’ attitudes begin to change when they are asked about how easy it is to access and use these programs. As mentioned earlier, these program vary considerably. Not only do programs vary from one utility to another, but also the same utility may have different programs to address different types of projects. Though the incentive programs are trying to do the same thing, there is a great deal of diversity in how they go about trying to accomplish their goals.

Overall, the majority of distributors find these programs difficult to use. Fifty-two percent of respondents indicated that the rebate process used by the programs they participate in was difficult/challenging, and 75% of respondents did not agree with that statement. Said one respondent, “I know you’re looking for specifics but it just needs to be less cumbersome. The red tape is overwhelming. The utilities should pay the distributor a percentage to compensate for their time.”

Handling/processing utility rebates. For utility programs to maximize the value that electrical distributors can provide, they should consider re-examining some of their practices and program requirements. This shows up more clearly when asked how distributors handle rebates and the impact supporting these rebates has. Approximately two-thirds of respondents said handling/processing rebates costs them money and 75% say they do it because it’s important from a competitive standpoint. This is clearly an unintended side-effect of these programs and one that program administrators should address.

No industry-wide best practices exist in how distributors handle these rebates. As you can see in Table 1, distributors use multiple ways to support these incentives, with the dominant methods being outsides sales and energy efficiency/lighting experts.  The table shows that even within the same organization, multiple ways exist to handle support for these programs. This may be because the organization is dealing with programs from different utilities or because different programs from the same utility require different types of support.

One respondent  emphasized this point.  “Our biggest problem with these programs is that they are all different; there is no standardization beyond using EnergyStar and DLC. What one program does, others don’t do. It adds a lot of cost and complexity.”

In the end, it seems clear that distributors still have room to optimize how they support/participate in these programs in ways that maximize sales while minimizing participation costs. Utilities, through their utility incentive programs, have significant areas of common interest with electrical distributors, primarily that both want to see more LED lights being sold in a local marketplace. At the same time, utility programs can maximize distributor participation — and support distributor profitability — by re-examining how their programs operate and what data they require to help distributors more easily participate. One simple way to do this is to talk to the distributors while the program is being planned. Over 50% of respondents indicated that they had never been contacted by the utilities they work with to provide input into the design of the program.

Summary.  In summary, distributors looking to increase and maximize their participation in these programs should consider developing a consistent, repeatable process for handling and processing rebates; work closely with their utility to understand program goals and help educate utility staff how distributors can help them achieve their goal; find out when their utility will be doing another round of program planning and provide input as to how the program can be improved; and maximize the training and support offered by the utility or program implementer. 

To learn more about utility rebate programs and this survey, contact Chris Cloutier, Channel Marketing Group’s Energy Efficiency SME at [email protected]. Channel Marketing Group is a strategic planning, marketing planning and market research firm focused on supporting manufacturers and distributors in the construction and industrial trades accelerate growth.  Visit www.channelmkt.com or call 919-488-8635 for more information.