LED Return on Investment


Overview

LED products are often touted as being extremely energy efficient, durable, and with a very long lifespan. But let’s face it, they’re not the cheapest things around. So how do you weigh the pros and cons of making the investment in an LED lighting system? And how do you ensure it is beneficial to you and your project vs. a traditional, cheaper lighting technology?

Are the benefits of LEDs worth the high initial cost? In short, the answer is a resounding YES! But don’t just take our word for it; let’s find out why…

Variables and Equations

In determining potential return on investment (ROI) in a new energy efficient LED lighting system, a few values need to be obtained first:

All the values can make for a complicated series of equations to get to the bottom line. So we’ve made it easy for you. Once you’ve gathered the information above, download our free Savings & Payback Calculator and plug in the numbers.

(Right-click, Save link as...)


Not only will our calculator give you a simple savings and payback analysis based on energy costs, but it will also provide a total savings and payback analysis including the cost of maintenance and replacement of the baseline system over the life of the LED system. This is a very important factor to consider, especially for business owners and facility managers, as labor costs and replacement costs are values that can quickly add up, but are often overlooked.

Examples

Let’s plug some example values into our calculator to see what kind of savings and ROI we can expect.

Scenario #1: Commercial Cove Lighting in Hotel Lobby
A hotel wants to install about 120 feet of warm white cove lighting in their lobby in order to create some ambiance during the evening hours and wants to know if they should go with LED rope lights or the cheaper incandescent rope lights. (Items in bold are values that get taken to the Energy Savings & Payback Calculator.)

First, we need to determine the total wattage for each system. For that, we take the (Watts Per Foot) x (Overall length). Since each type of rope light has a different cutting interval, they won’t be exactly the same length, but using our Rope Light Calculator, we can easily figure this out knowing we want to be close to 120 feet.
  • Warm white LED rope light: 39” cutting interval brings us to 120.25 feet. At 0.8 watts per foot, total system wattage is 120.25 x 0.8 = 96.2 watts
  • Warm white (clear) incandescent rope light: 36” cutting interval bring us to 120 feet. At 5.5 watts per foot, total system wattage is 120 x 0.8 = 660 watts


Lifespan for the two systems will be 100,000 hours for the LED and 25,000 hours for the incandescent. System costs are $269.99 and $79.99 for 150’ spools of LED and incandescent respectively. Since this cove lighting will only be on at night and very early morning, estimated usage is 8 hours per day, 365 days a year. Average energy cost at the hotel’s location is $0.10/KwH.

To figure the total savings, includes maintenance and replacement costs, we need some labor figures. The hotel says it will take 2 hours to install/replace the lighting system using two of their in-house electricians. Their rates are $20 per hour.

Plugging in these numbers to our Energy Savings & Payback Calculator, we see the following:
  • The LED rope light system will save almost $165 per year in energy costs alone when compared to the incandescent alternative.
  • Based solely on these energy savings, the LED system will pay for itself in 1.64 years, yielding a 60.98% Return on Investment (with 100% being a one year payback)
  • Factoring in the cost of maintenance and replacement of the incandescent system, the LED rope light system total payback period is reduced down to 1.51 years, yielding a 66.17% ROI.


For this hotel, the LED system is a clear winner. From a financial position, it yields a very good return on investment and provides a quick payback period. But the effects of the LED system go beyond just the bottom line. The hotel is also reducing its energy consumption, saving over 56,000 Kilowatt-Hours over the life of the LED system.




Scenario #2: Commercial “Christmas” String Light Installation in Public Plaza
A small city has a public plaza and promenade in its downtown arts district that has 15 trees lining the street and scattered throughout the plaza. The city lights the trees currently with incandescent mini string lights (commonly known as “Christmas lights”). The city is looking into switching to an LED alternative as a way to reduce costs.

Their current incandescent mini string lights are 100 bulbs each and it takes four sets to light each tree. With 15 trees, that is a total of 60 sets. With each set consuming 40 watts, the total system wattage is 2,400 watts. Each set costs $10.00 and is rated for 3,000 hours.

For the LED system, the city chooses an M5 mini string light set that has 50 bulbs. With half a long a set, it now takes eight sets for each tree. With 15 trees, that is a total of 120 sets. With each set consuming 3.5 watts, the total system wattage is 420 watts. Each set costs $17.00 and is rated for 60,000 hours.

The city plans to have these lights on for 4 hours every night, 365 nights a year. Average energy costs are $0.12/KwH. For installation and replacement, the city estimates it will take a team of four maintenance workers 4 hours to install the lights on the trees. Average pay rate is $14 per hour.

Plugging in these numbers to our Energy Savings & Payback Calculator, we see the following:
  • The LED string light system will save almost $350 per year in energy costs alone when compared to the incandescent alternative.
  • Based solely on these energy savings, the LED system will pay for itself in 5.88 years, yielding a 17% Return on Investment (with 100% being a one year payback)
  • Factoring in the cost of maintenance and replacement of the incandescent system, the LED system total payback period is reduced down to 2.46 years, yielding a 40.59% ROI.


For the city, the LED string light system is the clear winner, paying for itself in under 2.5 years, saving over 2,800 Kilowatt-Hours per year, and saving many, many hours of labor due to replacement. This is great example of how the often overlooked cost of labor and replacement can dramatically change the Return on Investment in an LED system.



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