Cities and states are taking the lead on energy incentives — and you can benefit
- Many federal tax credits for clean energy and energy-efficient construction are ending — but demand for incentive programs is still strong. State and local programs are likely to expand to fill the gap.
- Energy tax incentives are often offered through nonprofit organizations, utility companies, and state and local governments.
- To qualify for and maximize these benefits, organizations need to plan carefully, collaborate early and document energy-efficiency measures throughout projects.
Some federal clean-energy tax credits tied to solar, wind and EV charging are winding down, but incentives aren’t disappearing entirely. Instead, they’re shifting toward state, local and utility-level programs.
As federal programs shrink, state and local entities are stepping back into a role they played before the Inflation Reduction Act (IRA): offering rebates, tax incentives and performance-based incentives to encourage energy-smart construction and operations.
This shift comes at a time when demand for power is rising sharply. New construction, industrial electrification and data center expansions are pushing local grids to the limit. In some markets, energy availability is even influencing whether projects can move forward.
State and local governments and utilities are likely to expand their programs to fill the gap, creating incentives to reduce load, design efficiently and generate power on-site. Developers and building owners need to understand these programs — and incorporate them into project planning from the start.
How state and local incentives differ from federal programs
Federal clean-energy incentives were generally broad, predictable and administered through the tax code. State, local and utility-level programs operate differently — and are often more dynamic. They tend to be closely tied to a jurisdiction’s energy conditions, infrastructure needs, economic development priorities and even local politics.
For example, a program in Colorado may focus on electrification and heat-pump adoption, while one in Wisconsin prioritizes energy-efficiency upgrades for manufacturing or small businesses. In Illinois, incentives may be wrapped into broader economic development tools, such as commercial corridor reinvestment.
Other key differences:
- Variation: Federal energy credits were governed by multi-year legislation, while state and local incentives can change each budget cycle — or even more frequently.
- Availability: Many state and local programs operate on annual funding caps or a “first-come, first-served” basis.
- Format: Federal incentives were predominantly tax-driven, while state and local incentives may include cash rebates, performance-based incentives, low-interest loan programs or free technical assistance.
- Collaboration: Federal incentives tend to be transactional; something claimed on a tax return. However, state and local programs can be more collaborative. In many regions, nonprofits and utility-run programs offer no-cost audits, engineering support and performance-based rebates that depend on verified energy savings.
These differences introduce new opportunities — and complexities that organizations need to plan for.
Challenges with state and local energy tax incentives
State and local programs offer real value, but they come with unique challenges that organizations should be aware of, such as:
- Frequent rule changes: Unlike federal credits, which may be in place for a decade or more, state and utility incentives can shift based on funding levels, regulatory priorities or grid capacity. A program available in January may be oversubscribed by summer.
- Variation across jurisdictions: Neighboring states — or neighboring cities or utility territories — may offer completely different incentives. Eligibility may be tied to building type, geographic zone, income thresholds or participation in local planning initiatives. This can be challenging for organizations to manage, especially if they have geographically dispersed projects.
- Technical documentation: State and local programs often require commissioning reports, energy-modeling results, engineering documentation or proof of demand reduction. These requirements may be unfamiliar to project teams that are used to federal tax filings.
How to find state and local energy tax incentives
Because these incentives are decentralized, there’s no single clearinghouse for available programs. However, several reliable starting points exist. Check with:
- State energy offices or public utility commissions (e.g., Colorado Energy Office, Illinois Power Agency)
- Local utilities, especially their demand-side management programs
- Municipal economic-development agencies
- State tax agencies that administer exemptions or credits
- Third-party aggregators, such as the Database of State Incentives for Renewables & Efficiency (DSIRE)
For most projects, your local utility office is the best starting point. They often administer rebates tied to efficiency, electrification or demand reduction — so they have the earliest and most accurate information.
Best practices for pursuing state and local energy tax incentives
Even though many federal incentives are phasing out, core strategies for maximizing energy benefits still apply.
- Explore all available options. That includes federal programs. As federal credits phase out, eligibility often depends on construction start dates and other technical requirements. Several key programs remain in place, including credits for geothermal, battery storage and biogas — technologies that school projects and nonprofit organizations may still qualify for.
- Don’t assume eligibility — verify: Eligibility varies significantly across programs. Some incentives apply only to new construction, others only to retrofits. Confirming requirements early prevents costly redesigns later.
- Energy savings still matter: Even without broad federal credits, demonstrating measurable reductions in energy use remains valuable. Many state and utility incentives are performance-based, meaning they reward projects that deliver actual, verified efficiency gains. Good energy modeling and commissioning practices are still essential.
- Timing is critical: Many state and utility programs require engagement before design is finalized or construction begins. Missing the timing can mean losing access to incentives entirely. In addition, local incentives may be competitive, capped or first-come, first-served. Engage early to secure preliminary approval, reserve funding or align design decisions with program requirements.
- Build the right team: State and local incentives involve technical thresholds, engineering documentation, tax implications and sometimes local permitting and zoning requirements. Engaging the right advisors early can help ensure incentives are properly scoped, documented, certified and claimed.
How Wipfli can help
Wipfli’s tax and energy professionals can help you navigate the new incentives landscape. We evaluate available state and local incentive programs, helping clients understand how programs apply to individual projects, company goals and your overall incentive strategy. Contact us today to discuss opportunities in your area.
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