LED Building Lighting Drives Supermarket EPAct Tax Deductions

In the last few years, energy efficient LED refrigerator and freezer case lighting upgrades have had a large impact on the supermarket industry. LED building lighting technology is quickly mainstreaming into select mainstream building categories led by supermarkets that have the first mover advantage from already utilizing and benefiting from LED refrigerator and freezer lighting technology. Low wattage energy efficient LED building lighting applications typically qualify for large EPAct tax deductions.

EPAct Tax Deductions

Pursuant to Energy Policy Act (EPAct) Section 179D, building owners or tenants making qualifying energy-reducing investments can obtain immediate tax deductions of up to $1.80 per square foot.

If the building project doesn't qualify for the maximum $1.80 per square foot immediate tax deduction, there are tax deductions of up to $0.60 per square foot for each of the three major building subsystems: lighting, HVAC (heating, ventilating, and air conditioning), and the building envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation.

Understanding LED lighting

A Light Emitting Diode (LED) is a semiconductor device that converts electricity into light. LED lighting has been around since the 1960s, but is trending to make major inroads in the commercial building lighting market . In 2008, white LED fixtures (used by most retail and industrial property owners) accounted for just over 50% of the embryonic LED building lighting fixture market. The commercial marketplace for LED bulbs is forecast to exceed $5 billion in 2012, corresponding to a compound annual growth rate (CAGR) of 28% from 2008 to 2012. And, as the global production market for LED bulbs expands, combined with the continuous doubling of capability and halving of the price (Moore’s Law), the price for an LED bulb will steadily decline. There is industry-wide consensus that LED lighting for building applications is at the tipping point for major market penetration and once the $10 per bulb threshold is reached, the LED market will take off . In order to maximize the economic incentives of an LED lighting retrofit, LEED buildings should endeavor to make any desired LED lighting upgrades on or before the current EPAct statutory deadline of December 31, 2013 .

Supermarket Focus on Energy Management

For supermarkets, overall energy cost is a very large operating cost that can be managed. Energy costs related to refrigeration and freezers are the biggest energy cost user in addition to the lighting and HVAC costs for general building needs. Appropriate lighting is crucial in supermarkets for product presentation particularly for increasing volumes of fresh foods including seafood and produce.

Supermarket LED Lighting Tax Deductions

Supermarkets vary in square footage based on demographic location and a particular brands standard format. Often inner-city stores are smaller at around the 25,000 square foot level. Suburban strip center supermarkets are frequently in the average supermarket store range of 50,000 square feet. Larger big box supermarket formats are 100,000 square feet and greater. The following table presents the EPAct lighting tax deduction opportunity for a single supermarket and 50 store chains at all three size ranges:

Supermarket EPAct Tax Deductions

EPAct Potential Tax Benefits

Case Study Experience from Supermarket Case Lighting Applications

Supermarkets require large numbers of refrigerator and freezer cases. Previously, these cooled spaces lost a tremendous amount of cooling related energy just to offset the heat generated by previous generation case lighting that utilized heat generating incandescent and fluorescent lighting. Even more energy was lost with fluorescents, because at the lower temperatures in a refrigerator, their output is reduced up to 25%. Throughout the country, supermarkets have moved quickly to substantially reduce their energy cost by converting existing case lighting to cooler operating LED case lighting. The major new case manufacturers have shifted to energy efficient lighting and emphasize energy efficient case lighting as major selling point. As a result of this widespread occurrence, supermarket facility managers have quickly become familiar with LED lighting.

Another advantage of LEDs that is of great potential to supermarkets is the ability to blend colors. Due to the color mixing capabilities of LEDs, supermarket owners can easily tailor the lighting arrangement to fit each individual product. Different combinations of LEDs can be used to make a product's packaging more vibrant or to make meats and vegetables appear fresher. The Lighting Research Center at Rensselaer Polytechnic Institute has experimentally shown customer preference of products lit with LEDs. When asked to choose between identical products in two adjacent cases, nearly all of the people questioned preferred the products lit with LEDs over fluorescents4. Another study, with similar conditions, conducted by LEDs Magazine reported that sales from the LED case were 19% higher than the sales from the CFL case5.

Setting an Example

Many supermarkets are beginning to integrate LED’s into their stores. The Chestnut Hill Star Market in Newton, Massachusetts increased its energy savings by 50% by converting entirely to LED lighting. By replacing their fluorescent and incandescent bulbs and taking refrigeration efficiency measures, they were able to receive the U.S. Environmental Protection Agency’s GreenChill Partnership platinum award6. The supermarket was one of the earliest in the country to retrofit its entire store with LEDs, and it is reaping the high energy cost saving benefits.

Optimizing Supermarket Utility Rebates

Many utilities offer cash rebates for a wide range of supermarket energy efficiency measures. Their energy efficiency measures are related to building lighting, refrigerator case lighting, deli, bakery and kitchen appliances, refrigerators and freezers, and general building HVAC applications. Often utilities will offer higher overall percentage rebates for multiple projects, or what the industry calls “multiple energy efficiency measures.” As a result of their numerous energy consuming activities, supermarkets are ideal candidates for so-called combined measure utility rebates. Also, installation labor and overall project cost are much lower when electrical and mechanical contractors are engaged to handle multiple measure energy efficiency upgrades at one time.

Calculating the Overall Savings

Supermarkets consume substantial amounts of energy, making energy cost a very meaningful operating high cost which even exceed total supermarket store profit. In their supermarket energy overview the federal government energy star program indicates that the average 50,000 square foot supermarket uses 50% of its $250,000 annual energy cost of $125,000 just for lighting and refrigeration. With supermarkets providing more fresh foods, refrigeration is increasing total energy use and consuming even greater percentages of energy cost.

Annual costs savings of 50% or $62,500 (50% of 125,000) from lighting and refrigeration upgrades are clearly achievable, and previous years’ supermarket data indicate that thousands of supermarkets have used energy upgrades to achieve an average annual savings of $54,000. The key is to use a combination of energy savings, utility rebates, and tax savings to achieve these results. Note that implementing both measures at once will often result in higher utility rebates in jurisdictions that offer higher combined measure rebates. The following example presumes the average 50,000 square foot supermarket makes a $170,000 investment to reduce lighting and refrigeration costs.

Note that economic results from a specific store project will vary widely depending on the store’s current energy use, the total cost and nature of the energy reduction method selected, the local utility rebate regime, and the local electrical rate.

LED Supermarket Tax Planning

The key with supermarket LED EPAct projects is to make sure the combined wattage of the new LED installation and any retained lighting meets the supermarket EPAct targets. Supermarkets frequently utilize different types of in-store lighting applications. The EPAct tax deduction is based on the combined wattage of both the new LED lighting and the retained lighting. Often the ability to obtain a meaningful tax incentive will depend on upgrading another lighting category to more energy efficient in addition to the LED upgrade.


Supermarkets present tremendous opportunities for energy savings. LED refrigeration and freezer cases have given the industry a first peek at LED lighting. Supermarkets are the first major retail category to widely embrace LED building and there presence in every community should serve as an example for all building categories considering LED's.

Charles Goulding, Attorney, CPA, is the President of Energy Tax Savers, Inc., an interdisciplinary tax and engineering firm that specializes in the energy-efficient aspects of buildings.

Raymond Kumar is an Analyst with Energy Tax Savers, Inc.

Daniel Audette is an Engineer and Analyst with Energy Tax Savers, Inc.


1. Charles Goulding, Jacob Goldman and Taylor Goulding, The Economic, Business and Tax Aspects Light Emitting Diode Interior Building Lighting, Corp. Bus. Tax’n Monthly, Jan 2009, at 31.

2.Charles Goulding, Joseph Most and Spencer Marr, The Tax Aspects of Energy Equipment Tipping Points, to be published by Corp. Bus. Tax’n Monthly.

3.Charles Goulding, Kenneth Wood and Raymond Kumar, Optimizing the 3,2,1 LED Lighting Tax Deduction Countdawn, July 2010 at Corp. Bus. Tax’n Monthly.

4."Refrigerated Display Case Lighting with LEDs." Lighting Research Center. Rensselaer Polytechnic Institute, n.d. Web. 1 Nov 2010.

5."LED luminaires get warm welcome in supermarket freezers." LEDs Magazine APR 2006: Web. 1 Nov 2010.

6."LED Lighting Contributes to Grocery Store's Sustainability Achievements & EPA Award." Lithonia Lighting. Web. 1 Nov 2010.

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