Indiana and Ohio have recently lifted or relaxed requirements for utilities to run energy-efficiency programs as legislators and other stakeholders skepticism grew of program effectiveness. These changes have stirred up fundamental reflections among policy makers and industrial energy managers on the usefulness of utility energy efficiency programs. The question of what factors influence industry’s investment in efficiency, in particular rebates, is at the heart of these policy debates.

Traditionally, proponents argue that utility incentives serve to increase implementation of energy efficiency projects by reducing initial cost and payback. We utilized the Industrial Assessment Center (IAC) Database and employed a logistic regression statistical analysis on the data to assess the significance of availability of incentives, initial cost, payback length, and other factors on the implementation rate of identified energy conservation measures (ECM). Importantly, the IAC database provides implementation rates of ECMs in states with and without incentive programs, for those eligible manufacturers that have self-selected to receive a free energy audit.

Our study shows that availability of rebates, length of simple payback, and implementation cost have a statistically significant impact on the implementation rate of specific ECMs. The odds of implementation for capital-upgrade ECMs increases by 67% purely from the availability of a rebate. Three specific ECMs had implementation rates that ranged from 5 to 16 percentage points higher than projects with no incentives, but with equivalent upfront costs and simple paybacks. These results indicate that incentives promote implementation in ways beyond economic metrics of decision making, potentially within investor psychology.