Cowritten with Amber Forester, Lighting and Energy Solutions Specialist, Border States
As an operations manager or electrician, it can be difficult to calculate whether upgrading your facility’s lighting to LED will truly be a smart investment.Retrofitting large office spaces with LED lighting can have a large impact on bottom line energy savings.
How much will it cost to install a new system or retrofit the old one? How much money will really be saved? How long will it take for the business to recoup its initial investment?
These are all important questions to ask, and luckily, it’s possible to calculate your expected return on investment for LED lighting.
Strong ROI case studies on LED upgrades exist in many industries. For example, Marriott Headquarters in Bethesda, Maryland, took the leap with LED retrofit systems last year, according to Ecotec Lighting.
The Marriott headquarters replaced 400- to 1,000-watt HID lamps with energy-efficient LED lamps. The company also added lighting control systems and motion sensors.
Overall, Marriott reduced its energy use by 66 percent and now saves more than $120,000 each year in energy and maintenance costs. With these savings, the estimated payback period is only slightly more than two years.
To calculate retrofit or new systems ROI, follow these steps or use one of the tools listed below.
Information Gathering for ROI Calculations
Accurately estimating a return on investment for an LED lighting upgrade requires gathering key information, according to Hovey Companies. First, gather data regarding the existing lighting system and lamps, including:
- The current number of lamps
- The wattage of the current lamps
- The ballast factor of current lamps
- How many hours a day lamps will be on
- How many days of the week lamps will be on
- The current kilowatt hour rate
- The yearly cost of maintaining the current lighting system
Next, gather information on the proposed new LED lighting options and get estimates on installation costs.
Calculate Your Current Costs
After you’ve gathered the information, you can use it to determine the current costs to your business. To calculate the existing energy use in kWh:
existing fixture quantity x fixture wattage x hours per year
To calculate the total yearly energy costs:
kWh x utility rate
To calculate the yearly maintenance costs:
total number of lamps x $6 (which is the estimated industry average)
Calculate the Proposed System’s Costs
To determine how much energy the proposed LED system will use in kWh:
proposed fixture quantity x LED fixture wattage x hours per year
To find the total yearly energy cost for the proposed LED system:
kWh x utility rate
Next, it’s important to accurately establish the installation costs of the new system:
proposed fixture quantity x installation cost per fixture
To calculate the total fixture cost:
proposed fixture quantity x proposed fixture cost
And finally, the total cost for the proposed LED system is determined by:
total installation cost + total fixture cost
Calculation Formulas for New Systems
The formula you should use will depend on whether it’s an entirely new LED system or a retrofit.
For a new system, you should subtract the total cost of the existing system from the total cost of the proposed system. To establish the adjusted proposed system cost:
(proposed fixture cost + proposed installation cost) – (existing fixture cost + existing installation cost)
Or use the new build simple payback formula:
new build simple payback (in years)
annual savings (in dollars)
Calculation Formulas for Retrofit Systems
To determine the simple payback in years for an LED retrofit system, first calculate the yearly energy savings:
(existing kWh – proposed kWh) x utility rate
To calculate the business’s yearly savings:
(proposed total energy cost + proposed total maintenance cost) – (existing total energy cost + existing total maintenance cost)
Finally, the simple payback formula in years is:
total cost of proposed system
annual savings (in dollars)
A Little Help With Your LED Lighting Retrofit Calculations
While it’s possible to run these calculations yourself, there are many tools available to help you out.
All you have to do is gather the right information and enter it into one of the many available ROI calculators.
These tools are editable, and you can insert calculation rows or columns to accommodate more fixtures. You also have the ability to edit calculations and tailor them to your project.
Example: The Luminaire Cost Comparison is based on a 10-year system life. LEDs have closer to a 20-year life. You would edit the formula to reflect that difference.
Other Available LED Lighting ROI Calculators
GE Lighting’s ROI tool is available for download.