According to a recent US Department of Energy report, the number of LED installations has quadrupled from 215 million units in 2014 to 874 million units in 2016. Despite this staggering growth in the adaptation of LED lighting, LED market penetration is still at only 12.6%. The DOE’s goal scenario is 90% market penetration by 2035.
In order to close the gap, LED providers are learning to sell to a broader customer base by adjusting the frame of LED retrofit proposals.
Most building managers know about LEDs these days but will not make the change on their own. Here are 5 reasons late adopters should embrace LED retrofits:
“I’m not sure if LEDs are right for my building.”
One way to begin the process of implementing LEDs is through staggered implementation. Completing LED projects in phases reduces risk by mitigating cash flow issues. This also allows project managers to demonstrate the benefits of LEDs and get more stakeholder buy in as the project progresses. Isolating a big lighting change to one portion of a building can give occupants an opportunity to adjust to the change and provide valuable feedback, and owners an opportunity to test different products. Staggered implementation demonstrates quantifiable results early in the process – saving upfront time and money on developing an in-depth energy savings model.
The chart below is an example of a LED retrofit performed on the hallway lighting of a 300,000 sq ft multifamily highrise. The building’s circuit-level submetering solution shows the progress of the staggered implementation, ultimately showing a 50% reduction in demand. The early success and quantification of savings gave the building manager confidence to continue with the retrofit, and even speed up implementation.
Rebates and Incentives
“I can’t afford an LED lighting retrofit.”
In an effort to reduce demand for energy on the grid, utility companies are providing rebates for lighting projects. Many utilities offer free energy assessments to identify potential lighting projects and provide information on available rebates.
Utility rebates vary from state to state but can cover significant portions of the cost of an energy efficiency improvement. Rebates can be a fixed amount for a specific type of light or can be based solely on the amount of energy savings an LED lighting project provides. For example, the utility PSEG in Long Island provides a $50 rebate for 2’X4’ LED panels and a rebate of $5 for 4’ linear LED lamps. Involving the local utility and utilizing tools to find obscure state and federal incentives can also help reduce sticker shock and effectively persuade a customer.
As the price of LEDs continue to plunge, rebates offered by the utility companies are going down drastically. The federal Energy Independence and Security Act (EISA) standards plan to phase out the production and distribution of older forms of lighting in 2020, possibly 2023. If these guidelines are upheld and LEDs become the standard option for lighting, there’s a good chance that utility companies will phase out rebates for lighting projects.
Utilities typically change all of their rebates at the end of the calendar year but have occasionally changed rebates with no warning. Almost all available rebates for lighting are trending downward – waiting a year to do a lighting retrofit could mean missing out on a substantial rebate check and should provide the sense of urgency to get the project started sooner rather than later.
Net Operating Income
“How do these lights impact my bottom line?”
The biggest reason for late adopters to replace existing lighting is efficiency, the associated energy savings, and increases in property value. LED lights use on average 50% less energy than other forms of lighting; cutting the lighting portion of a utility bill in half. A report from J.P. Morgan listed LEDs as the most promising technology for reducing energy consumption.
Let’s run the numbers. Consider a project where 100 128-watt T8 fluorescent fixtures are replaced with 100 52-watt LED panels. We will assume that this project is happening in an office space and that the electric rate is 10.82 cents per kilowatt-hour (the national average for kWh in November 2017, per the US Energy Information Administration). We’ll also assume the lamps are operated at 2870 hours per year (average operating hours for administrative or professional office space, per the Commercial Building Energy Consumption Survey). This project would pay for itself in roughly 4.2 years, would save the business owner $41,116 over the lifetime of the equipment, and would have a lifetime return on investment (ROI) of 411%.
The same project in New York where the electric rate is on average 15.03 cents per kilowatt-hour would pay for itself in 3 years, save $57,000 in operating costs over the lifetime of the equipment, and have a lifetime ROI of 571%.
One of the best lighting upgrades out there is replacing a 60-watt incandescent light bulb with a 9-watt LED bulb. Let’s do the same scenario, but in an office where 100 60-watt incandescent bulbs are being replaced with 100 9-watt LED bulbs. Assuming the electric rate is 10.82 cents per kilowatt-hour, the lights would pay for themselves in less than a year, would save the company $13,795 over the lifetime of the equipment, and would have a lifetime ROI of 1379%: meaning the project pays for itself 13 times over.
A 2017 report from the DOE concluded that energy efficient buildings have higher rates of occupancy, higher market value, lower operating expenses, and lower rent concessions per square foot. When it comes to net operating income (NOI), green buildings outperform lower efficiency buildings by 28.8%. Improving the energy efficiency of a building is one of the best value-added improvements a customer can make to a building.
Tenant Comfort: Tangible and Intangible Benefits
“If it ain’t broke, don’t fix it. The lights I have aren’t broken, why should I replace them?”
The number one concern for property managers is tenant comfort and profitability. The lighting system may be in full working order, but in many ways your lights aren’t working for you.
There’s hundreds of reasons why LEDs are a better option than older forms of lighting: increased occupant productivity, durability, increased safety, reduced maintenance costs, better light directionality, less generated heat, increased color accuracy, less impact on the environment, Internet of Things capability, color and light level customization, low voltage applications, rapid cycling, instant startup, cold temperature operation, and an improved lumen decay profile.
As the built environment becomes more connected and tenant expectation rise, the benefits to tenant comfort can prove to be one of the biggest value-adds of LEDs.
Alternative Pricing Structures
“I can’t pay for a full-scale lighting upgrade all at once.”
One way to overcome the high startup costs of implementing a lighting system is utilize an alternative pricing structure. One example of alternative pricing structures is energy performance contracting (EPC). In this model, an energy service company (ESCO) installs a lighting solution and is paid back over time with the guarantee of energy savings. There are different forms of EPC, but they all consist of a turnkey service where the ESCO designs and implements a project, the project is financed by a third party, and the energy savings are guaranteed to be sufficient to cover the implementation cost and financing for the life of the project. Certain lending institutions will also offer lower interest rates for projects that improve energy efficiency.
Another alternative pricing structure that is becoming more popular is lighting as a service (LaaS). LaaS is similar to paid services such as Netflix, Spotify, Audible, or leasing a cell phone through your mobile carrier. Owners avoid paying the high upfront costs, and instead pays a monthly fee in order to use the lights the service company provides. This breaks down common barriers to entry, creates instant and constant energy savings, shifts the responsibility of maintenance onto another party, allows nominal upgrades to the product (similar to “iPhone forever” plans), and reduces the risk of owning and operating a complete lighting system.
LED holdouts still make up a good portion of building portfolios, but there are plenty of good reasons for these owners and operators to embrace LEDs. Those old lights aren’t broken, but there are many reasons as to why they should be fixed. Every day that goes by, business and property owners are wasting money, productivity, and time. With a strategic approach, this proven technology can reach the mass adoption it deserves.
Jeff Gorrie works at a national energy efficiency consulting firm and has completed over 1,000 commercial energy assessments. He is certified as an Energy Manager (CEM), Building Analyst (BPI BA), and Envelope Professional (BPI ENV).