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Lights aren't very expensive to rent. They operate off mixing consoles just like sound does; it's just another small piece of equipment. You also need something to put the lights on. I have friends that know what they're doing in this regard, and rely heavily on them. If you have any friends with theater experience, call in favors!
I have only done indoor festivals at "legit" venues, so I don't know about licensing, but I do know of several fests that have happened in "illegal" venues that went off just fine. You just have to be careful what kind of channels you use to publicize your event, and you have to be relatively confident that the crowd of people you're expecting won't do anything stupid.
It can be done on the downlow though. I've seen it happen.
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