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Why change your lighting to LED?

Updated: Oct 28, 2022

By Tim Donovan

Many years ago when I was selling LED lighting to a national department store, the client walked over to the light switch on the wall, flicked it off and back on a couple times and asked, “Why do I need to buy new lights? The ones I have work fine.” It’s a fair point.

Traditional lighting systems using fluorescent, incandescent, or high-intensity-discharge (HID) technologies will all provide light. However, lighting technology has advanced to the point where significant operating cost savings are now possible. For example, light emitting diode (LED) lamps last 5-10 times longer, reducing maintenance costs associated with replacements. LEDs operate at far cooler temperatures, reducing HVAC cooling costs. And most importantly, LED lighting uses a fraction of the energy, reducing electricity costs.

Each of these responses has something in common - they will all save money. And this means a lighting project has a financial return that is derived from all three sources of savings.

How big are these savings?

There are many factors that go into calculating potential savings on a lighting project. Before we explore those factors, it’s important to understand how we are charged for energy. A utility bill can be complex but there are three main factors that go into determining the cost on a utility bill:

1. the level of power you require at peak, measured in kilowatts (kW)

2. the amount of energy consumed, measured in kilowatt hours (kWh)

3. the rate the utility charges, measured in both $/kW for demand (1) and $/kWh for the energy (2)

Because of this, there are limited opportunities to affect overall utility costs. You can either use less energy (in terms of both kW and/or kWh) or ask your utility for lower rates. Since the second is unlikely, we focus on the amount of usage.

In lighting, the advancements made in solid state lighting can result in savings of over 80% in many cases. This can be done through upgrading the lighting fixture to a lower wattage fixture and through the application of sensors to ensure the lighting system is only on and using energy when needed. Depending on the types of fixtures and their application, the savings can be significant.

What it looks like in practice...

Let’s look at a couple of examples. A local warehouse is currently using 400w metal halide fixtures to light their warehouse. Each of the 400w fixtures are replaced with 55w LED lighting fixtures, resulting in a reduction of 345w, or 86% reduction in consumed energy. The fixtures are left on 12 hours a day 5 days a week or 3,120 hours a year. At this run rate and a utility cost of $0.07/kWh, each 400w fixture was costing about $88 per year. This particular facility has 200 of these fixtures resulting in an annual running cost of $17,500. Just swapping the fixtures out results in annual savings of over $15,000.

We can drive even deeper savings through applying sensors to the project to automatically dim or turn off the lights when not needed. But for the case of this example, let’s assume we are just replacing the fixtures. A project of this size can vary in cost based on complexity, type of fixtures selected, recycling, and labor, but let’s assume the turnkey price for executing this project is $25,000. In this case, it would result in a 1.66 year simple payback ($25,000 turnkey project cost / $15,000 annual savings), meaning the client will recoup the $25,000 invested in 19 months and for the next 8 ½ years (the useful life of the new lights), can expect the full savings with little or no maintenance cost.

Another client has a parking structure with (500) 250w high pressure sodium fixtures that are on 24/7/365. At the same $0.07/kWh, replacing these with 50w LED lighting fixtures will create roughly $25,000 in annual savings. If the lights cost $50,000 to install, the simple payback is 2 years.

As you can see, these projects allow building owners or operators to invest in the underlying value of their asset with the benefit of generating cash flows in the form of savings. These savings are often at a high internal rate of return (IRR) - greater than most any other opportunity that they have to deploy capital - allowing a business to capture these cash flows and thus helping their bottom line.

More than lighting

Lighting efficiency represents a significant opportunity to invest in building assets with a great return on investment. Technological advances to other systems within buildings can yield similar savings. So, if you haven’t yet addressed lighting via a turnkey approach, start there because the savings can be significant and somewhat easier to attain. But once you’ve done a lighting project, don’t stop because there are many other areas that can yield additional savings.


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