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Financial analysis for a LED lighting upgrade

Author:ELLINS OPTOELECTRONCIS CO.,LTD Click: Time:2019-09-30 00:00:00

October 21, 2019 //By Julien Happich

When a building receives a professional energy audit, upgrading to LED lighting is among the most common recommendations. LED products use between 30% and 90% less electricity than older lamp types, and their long service life saves many lamp replacement over time.

LED lamps and fixtures may seem expensive if you only consider their upfront cost. However, when energy consumption and lamp replacements are factored in, LED lighting has a lower ownership cost than other types of lighting. This article will describe how to estimate the annual savings and payback period of an LED upgrade.


Step 1: Inspecting the current lighting system

Before estimating the potential savings of an LED upgrade, you must know your current lighting costs. The first step is collecting the following information:

  • Types of lamps and lighting fixtures currently used, and their individual wattage.
  • Operating schedule of the current lighting system.
  • The cost of electricity.

The electricity price can be easily obtained from the latest power bill. Information about the lamp types and their operating schedules can be collected with a site inspection. For simplicity, this example considers two types of lighting fixtures with different operating schedules, and an electricity price of 16 cents per kilowatt-hour ($0.16 / kWh) is assumed:

This lighting installation uses both fluorescent and HID lighting, and its estimated operating cost is $9,392.64 per year. The next step is finding a suitable LED upgrade for each of the lamps and fixtures identified.

Step 2: Finding LED upgrades for the existing lamps and fixtures

There are three main options when upgrading to LED lighting: relamping, retrofitting, or replacing the fixtures completely.

  • In a relamp, the existing lamps are replaced with LED versions without changing the fixtures themselves. The wiring, ballasts and lamp sockets are not modified.
  • A retrofit uses the existing fixtures with modifications to their wiring, such as removing the ballasts used by the previous lamps.
  • In a complete replacement, the existing fixtures are removed completely and replaced with LED versions.

A LED retrofit is applied for the fluorescent lighting in this example: the existing T8 tubes are replaced with LED tubes that don’t use a ballast. On the other hand, the outdoor HID fixtures are replaced completely with equivalent LED fixtures.

  • The existing fluorescent fixtures are equipped with 18-watt LED tubes, which reduce the power consumption of each fixture from 105W to 54W. 
  • The 440W HID fixtures used outdoor are replaced with 150W LED fixtures, saving 290W per fixture.

If the energy consumption and annual operating costs are recalculated after the LED upgrade, the following results are obtained:

The annual operating cost has been reduced from $9,392.64 to $3,761.28, achieving 60% savings of $5,631.36 per year. The annual electricity consumption has been reduced from 58,704 kWh to 23,508 kWh, which is equivalent to 35,196 kWh per year.

Step 3: Estimating the LED upgrade cost and payback period

Once the energy savings are known, the next step is estimating how much the LED upgrade will cost. This example requires the following lamps and fixtures:

  • 300 4” LED tubes, to upgrade the 100 fluorescent fixtures (3 tubes per fixture).
  • 20 LED pole fixtures, to upgrade the HID fixtures used outdoors.

LED tubes can now be obtained for less than $10 each, while outdoor LED fixtures are available for less than $200. All the lamps and fixtures required for this upgrade can be purchased for around $7,000. Assuming that materials are 50% of the project cost, the total budget for the LED upgrade would be $14,000. The other 50% covers labor, overhead, and contractor profits.

With a project cost of $14,000 and annual savings of $5,631, the payback period is 2.5 years and the annual return on investment is 40%. High-quality LED products normally have a warranty period of 5 years, which is twice as long as the payback period in this example. As a result, the financial return is assured.

When energy efficiency measures are suggested after an energy audit, LED upgrades tend to have some of the quickest payback periods. This makes LED lighting an excellent starting point for building owners who want to reduce their energy expenses.






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