Texas is the largest energy-producing state in the country, and the state's energy landscape is changing fast. Alongside its dominant oil and gas sector, Texas now leads the nation in wind power generation and is rapidly expanding its solar capacity. For businesses operating in or adjacent to the energy sector, this creates a deep pool of incentive programs spanning severance tax exemptions, environmental grants, utility rebates, and federal clean energy funding.
This guide covers the most important Texas energy incentives for businesses available in 2026, including state programs, federal opportunities, and utility-level rebates that many businesses overlook.
Texas Severance Tax Incentives
Texas imposes a severance tax on the production of oil, natural gas, and other natural resources. However, the state provides several exemptions and reductions that can significantly lower the tax burden for qualifying energy producers.
High-Cost Gas Exemption
Gas produced from high-cost gas wells — including tight formations, deep wells, and unconventional sources — may qualify for a reduced severance tax rate. This incentive has historically encouraged development of wells that would otherwise be uneconomical. Operators must apply to the Texas Railroad Commission for well certification.
Enhanced Oil Recovery (EOR) Incentive
Texas provides a reduced severance tax rate for oil produced using approved enhanced oil recovery techniques, including CO2 injection, steam flooding, and polymer flooding. Projects must be certified by the Railroad Commission. This incentive can reduce the effective severance tax rate by 50% or more on qualifying production.
Low-Producing Well Exemption
Wells producing 15 barrels of oil or less per day, or gas wells producing 90 MCF or less per day, may qualify for reduced severance tax rates or full exemptions depending on current commodity prices. This incentive keeps marginal wells in production, preserving jobs and royalty income across rural Texas.
Inactive Well Incentive
Wells that have been inactive for at least three years and are returned to production may qualify for a severance tax exemption for up to 10 years. This program encourages operators to bring dormant wells back online rather than plugging and abandoning them.
TCEQ Environmental Grants
The Texas Commission on Environmental Quality (TCEQ) administers several grant and incentive programs related to emissions reduction, clean energy, and environmental compliance.
Texas Emissions Reduction Plan (TERP)
TERP is one of the largest state-level emissions reduction programs in the country. It provides grants to replace or retrofit heavy-duty vehicles and equipment with cleaner alternatives. Businesses that operate diesel-powered vehicles, construction equipment, marine vessels, or stationary engines may qualify for grants to cover a significant portion of replacement or retrofit costs.
TERP includes several sub-programs:
- Diesel Emissions Reduction Incentive (DERI): Grants for replacing or repowering on-road and non-road diesel vehicles and equipment. Awards can cover up to 80% of eligible costs.
- Texas Clean Fleet Program: Grants for fleets of 10 or more vehicles to upgrade to cleaner vehicles, including natural gas, propane, electric, or newer diesel models.
- Texas Natural Gas Vehicle Grant Program: Grants to replace medium and heavy-duty vehicles with natural gas vehicles.
- Light-Duty Motor Vehicle Purchase or Lease Incentive: Rebates for the purchase or lease of qualifying new light-duty electric, plug-in hybrid, or natural gas vehicles.
Supplemental Environmental Projects (SEPs)
When businesses settle enforcement actions with TCEQ, they may direct a portion of penalties toward Supplemental Environmental Projects that benefit the community. While this is not a traditional grant program, it creates opportunities for environmental improvement projects in communities across Texas.
Utility Rebate Programs
Texas utility companies — including investor-owned utilities, electric cooperatives, and municipally owned utilities — offer rebate programs for energy efficiency improvements and demand reduction.
Commercial and Industrial Efficiency Rebates
Major Texas utilities like Oncor, CenterPoint Energy, AEP Texas, and Texas-New Mexico Power offer rebate programs for businesses that invest in energy efficiency. Common qualifying improvements include:
- High-efficiency HVAC systems and controls
- LED lighting upgrades and advanced lighting controls
- High-efficiency motors and variable frequency drives
- Building envelope improvements (insulation, windows, roofing)
- Refrigeration system upgrades
- Combined heat and power (CHP) systems
Rebate amounts vary by utility and project type, but can offset 20% to 50% of project costs. Many utilities also offer free energy audits or assessments to help businesses identify the most cost-effective improvements. Contact your specific utility provider to learn about current program availability and application requirements.
Demand Response Programs
Some Texas utilities and ERCOT (the Electric Reliability Council of Texas) offer demand response programs that pay businesses to reduce electricity consumption during peak demand periods. Large commercial and industrial customers can earn significant payments by agreeing to curtail load when called upon, particularly during extreme weather events.
Federal Energy Programs for Texas Businesses
Department of Energy (DOE) Grant Programs
The DOE offers multiple grant and funding programs relevant to Texas businesses in the energy sector:
- Industrial Assessment Centers (IAC): Free energy audits for qualifying small and mid-size manufacturers. IAC teams from Texas universities evaluate your facility and recommend energy and cost saving improvements. This program has saved participating manufacturers an average of $130,000 per audit.
- Better Plants Program: A voluntary partnership where companies commit to reducing energy intensity by 25% over 10 years. DOE provides technical assistance, benchmarking tools, and recognition. Several Texas manufacturers participate.
- Clean Energy Manufacturing Innovation Institutes: DOE funds research and development partnerships for advanced manufacturing technologies. Texas businesses developing clean energy technologies, advanced materials, or manufacturing processes can access funding through these consortia.
- SBIR/STTR Energy Topics: The DOE's SBIR and STTR programs fund small businesses developing innovative energy technologies. Topics include renewable energy, energy storage, grid modernization, carbon capture, and energy efficiency. Phase I awards range from $200,000 to $250,000. More about SBIR/STTR programs for Texas businesses.
Investment Tax Credit (ITC) and Production Tax Credit (PTC)
Federal tax credits remain a major driver of energy investment in Texas. The Investment Tax Credit provides up to 30% of the cost of qualifying solar, wind, geothermal, and energy storage installations. The Production Tax Credit provides a per-kilowatt-hour credit for electricity generated from qualifying renewable sources. Bonus credits are available for projects meeting domestic content, energy community, or low-income requirements. Full guide to energy tax credits for Texas businesses.
Rural Energy for America Program (REAP)
Rural Texas businesses can access USDA REAP grants and loan guarantees for renewable energy systems and energy efficiency improvements. REAP grants cover up to 50% of project costs, and loan guarantees cover up to 75%. Eligible projects include solar installations, wind systems, geothermal, biomass, and efficiency upgrades. This program is one of the most accessible energy incentive programs for businesses in communities with populations under 50,000. Full guide to rural business grants in Texas.
Property Tax Benefits for Energy Projects
Renewable Energy Property Tax Exemption
Texas provides a property tax exemption for the appraised value of solar and wind energy devices installed on business property. This means installing solar panels or wind turbines does not increase your property tax assessment, providing ongoing tax savings for the life of the system. This exemption applies at the school district, county, and city level in jurisdictions that have adopted it — most Texas jurisdictions have.
Tax Abatements for Energy Manufacturing
Many Texas cities and counties offer property tax abatements for businesses that manufacture energy equipment or invest in energy infrastructure. Abatement terms and eligibility vary by jurisdiction, but abatements of 50% to 100% of the increase in property value for 5 to 10 years are common. Contact your local economic development office to explore available abatements.
Industry-Specific Energy Programs
Oil and Gas Businesses
In addition to severance tax incentives, oil and gas businesses in Texas can access workforce training grants through the Skills Development Fund for training on safety, equipment operation, and environmental compliance. The Texas Railroad Commission also administers orphaned well plugging programs that create contracting opportunities for oilfield service companies. Guide to workforce training grants in Texas.
Renewable Energy Developers
Developers of wind, solar, and battery storage projects in Texas can access county-level tax abatement agreements, transmission credits, and federal ITC/PTC benefits. Texas's deregulated electricity market and ERCOT grid provide a favorable environment for renewable energy projects, and several Texas counties actively recruit renewable energy development.
Energy Efficiency Contractors
Businesses that perform energy efficiency upgrades can benefit indirectly from utility rebate programs, as their customers can access rebates that make efficiency projects more affordable. Additionally, energy efficiency contractors can pursue TCEQ TERP contracts and participate in utility-run efficiency programs as approved vendors.
How to Find Energy Incentives for Your Business
- Check your utility's rebate programs: Contact your electric and gas utility providers to learn about current commercial and industrial rebate programs.
- Evaluate severance tax benefits: If you are in oil and gas production, review your wells for potential exemptions with the Railroad Commission.
- Explore TCEQ TERP: If you operate diesel-powered vehicles or equipment, check whether a TERP grant can offset replacement or retrofit costs.
- Assess renewable energy tax credits: Work with a tax professional to evaluate federal ITC/PTC eligibility for any renewable energy investments you are considering.
- Contact DOE resources: If you are a manufacturer, request a free energy audit through the Industrial Assessment Centers program. If you are developing energy technology, explore DOE SBIR/STTR topics.
Bottom Line
Texas energy incentives for businesses span severance tax exemptions, TCEQ environmental grants, utility rebate programs, federal tax credits, and DOE funding opportunities. Whether you are in oil and gas production, renewable energy development, energy-intensive manufacturing, or any business looking to reduce energy costs, there are programs designed to support your operations and investments.
Not sure which programs may fit your business? Our free screening report checks your business against 150+ verified programs — grants, tax credits, loans, and incentives — and shows you which ones may match. Start your free screening →