Energy savings, maintenance costs, and rebates are just some factors to consider when calculating your return on investment for an LED lighting project.
An upgrade to LED lighting – which lasts significantly longer than traditional incandescent or fluorescent lights and provides superior illumination while using far less energy – makes both environmental and business sense.
“For decades, the standard fluorescent bulb was the default lamp for retail lighting. This has remained true although alternatives have been available for more than fifty years. The light-emitting diode (LED) has and will provide a bright path forward for retailers since it greatly reduces energy consumption, offers lower maintenance costs, and is more ecologically friendly, with zero harmful ultraviolet emissions,” wrote Sean R. Nacey in Buildings magazine in September 2024.
Supporting sustainability and reaping long-term cost benefits are great for businesses, but pinpointing how much money will be saved and understanding when a project will “pay for itself” requires a clear return on investment (ROI) analysis for LED lighting upgrades or retrofits.
Why LED Lighting Upgrades are Worth the Investment
In today’s economy, businesses must carefully consider capital expenditures, but LED lighting upgrades are worth the investment.
For starters, lighting makes up approximately 35 percent of total energy consumption in typical commercial buildings, and upgrading to ultra-efficient LED lighting leads to potential energy savings of up to 70 percent in some cases.
Buildings magazine said that the top reasons for retailers to retrofit from traditional lighting to LED lighting are:
- Long-Lasting Light: When LED lighting was first introduced in 2014 the lifetime of a T8 LED bulb was double that of a standard T12 fluorescent bulb (50,000 hours vs. 25,000 hours), but the latest LED bulbs such as the 8.9W LED can now last up to 200,000 hours.
- Improved Quality of Light: LED lights offer superior illumination and instant-on performance. Thanks to advanced technology, they can continuously dim and provide selectable options like CCT and wattage.
- Eliminating Maintenance Expenses: The significantly longer lifespan of LED lighting eliminates lighting maintenance expenses for businesses associated with replacing components.
- Enhanced Consumer Experience: Researchers have found that improved lighting quality can enhance the shopping experience for consumers, which can help a brick-and-mortar business's bottom line.
- Meeting “Clean Lighting” Laws: Some states and other jurisdictions are moving towards “clean lighting” laws, mandating a move away from toxic elements, like mercury pollution, associated with fluorescent lighting.
“As more retailers embrace LEDs to meet sustainability goals and improve customer experience, retrofit projects will become an appealing solution,” says Building magazine.
Follow These Steps to Calculate ROI on LED Lighting Upgrades
Here's a step-by-step guide on how to calculate the ROI for upgrading to LED lighting:
Energy Cost Savings:- Determine the wattage of current lighting and proposed LED lighting.
- Calculate the difference in wattage between the two systems.
- Multiply the difference by the total number of lamps or fixtures.
- Calculate total annual lighting hours (hours per day × days per year).
- Multiply the total wattage difference by annual lighting hours.
- Convert to kilowatt-hours (kWh) by dividing by 1,000.
- Multiply by your electricity rate to get annual energy cost savings.
- Determine the lifespan of current lighting and LED lighting in hours, typically defined by L70 lifetimes.
- Using those defined lifespans, calculate how many times your current lighting needs replacement over LED lighting's lifespan by dividing the LED lifespan by the current system’s lifespan (frequency).
- Estimate the cost of replacing a lamp (or fixture), including labor and equipment.
- Multiply replacement frequency by cost per replacement.
- Multiply the total number of lamps or fixtures for the total maintenance cost.
- Research available rebates from your local utility provider.
- Check eligibility criteria for LED products (e.g., DLC or ENERGY STAR certification).
- Calculate the total rebate amount based on the number of fixtures or total wattage reduced.
- Determine the total cost of the LED lighting system (product cost + installation).
- Subtract utility rebates from the total cost to get the net investment.
- Calculate total annual savings (energy savings + maintenance savings).
- Divide the net investment by annual savings to get the payback period in years.
- Calculate the ROI percentage for the first year and over the LED lifespan.
Sample ROI Calculation for a Business
Here is a sample calculation for a business to replace 100 metal halide fixtures (400W each) with LED high bays (150W each):
Energy Savings:-
- Wattage difference: 400W - 150W = 250W per fixture.
- Total wattage savings: 250W × 100 fixtures = 25,000W.
- Annual hours: 3,744 (12 hours/day, 312 days/year).
- Annual kWh savings: (25,000W × 3,744 hours) / 1,000 = 93,600 kWh
- Energy cost savings: 93,600 kWh × $0.13/kWh = $12,168/year
-
- Metal halide lifespan: 15,000 hours.
- LED lifespan: 150,000 hours.
- Replacement frequency: 150,000 / 15,000 = 10 times.
- Replacement cost: $100 per fixture (including labor).
- Total maintenance savings: 10 × $100 × 100 fixtures = $100,000.
-
- Rebate of $125 per fixture.
- Total rebate: $125 × 100 fixtures = $12,500.
-
- Total LED system cost: $500 per fixture × 100 = $50,000
- Net investment: $50,000 - $12,500 (rebate) = $37,500.
- Annual savings: $12,168 (energy) + $2,500 (maintenance) = $14,668
- Payback period: $37,500 / $14,668 = 2.56 years
- First-year ROI: ($14,668 / $37,500) × 100 = 39.1%
In this example, the business would recover its investment in just over 2.5 years, with a first-year ROI of 39.1%. This analysis demonstrates that upgrading to LED lighting can be a highly profitable investment for businesses
US LED Can Point You in the “Light” Direction
Business operations can be complex and demanding. Therefore, US LED offers expertise to assist organizations in assessing the return on investment (ROI) associated with upgrading to LED lighting. US LED can provide:
- Lighting Audit: US LED can analyze your facility’s lighting system with a comprehensive lighting audit. This audit will provide detailed information on energy usage and insights into how the existing inefficient lighting impacts your business. US LED will also present how ultra-efficient LED lighting will lead to significant energy savings for your business.
- ROI Analysis: After the lighting audit, US LED will provide an ROI analysis revealing energy savings, maintenance savings, and projected payback with utility rebates. This analysis will also show the yearly cost incurred by your business if you are waiting to upgrade to LED lighting. Finally, your ROI analysis will also cover environmental impact and sustainability issues surrounding your proposed lighting project.
US LED is a full-service LED lighting provider that’s committed to guiding your business through every phase of your lighting project.
Contact US LED lighting experts today to discover the return on investment your business can expect from upgrading to energy-efficient LED lighting.
