If your sales pitch regarding light-emitting diode (LED) technology is that it lasts forever, uses less power and is cheaper to operate, keep going. Establishing the rate of return on investment (ROI) for solid-state lighting (SSL) is more varied and expansive than you might think.
“If an LED bulb was 50 cents, ROI wouldn’t matter,” said John W. Curran, Ph.D., president, LED Transformations LLC. “But LEDs cost more than other lighting products. If you only base ROI on, say, a promised product life of 10 years and the product only reaches five for any number of reasons, the economics based on life-cycle costs wasn’t the best valuator. There isn’t any one factor to capturing ROI for SSL.”
Based in New Jersey, Curran’s consultancy tackles both product development for the LED industry and education for the building community. He also assists the U.S. Department of Energy in its SSL program and is a regular presenter for “What You Don’t Know About LED Lighting,” a National Electrical Contractors Association’s (NECA) seminar presented several times per year across NECA chapters.
Duncan Jackson, principal for Billings Jackson Design, agrees proper ROI for SSL requires several considerations and added that “new” is always a tough sell in the building industry.
“Advances in building processes come slowly,” Jackson said. “Before solid-state lighting, 1 percent of turnover was controllable light. Now with SSL, that number represents about 25 percent. SSL is a disruptive technology changing the game not just on long life but [in] its control ability. We have to catch up to build a new business model for SSL. It’s a sophisticated product that plays into a more sophisticated energy industry.”
Working with manufacturers, architects and engineers, Billings Jackson Design is an industrial design firm with studios in London, New York and Chicago.
“There are so many variables at play in assessing the ROI of SSL,” Jackson said. “The onus is on the EC to understand the role that lighting and controls play in any specific project and to assess which variables are important in each case.”
Factors in the ‘life’ of life-cycle
“Products only last as long as their weakest link,” Curran said. “A lot of things can happen to endanger a promised life-cycle cost.”
Curran cited one example of lighting used on a bridge in Minneapolis. The LED lights were intended to last at least 10 years. Instead, they lasted 15 months due to weather affecting an optical coupling gel. The dramatic shift in temperatures caused an unexpected jelly to form and throw off the LED optics’ output, causing LED failure. He said the LED driver is also often overlooked.
“Look at where the driver is located in relation to the LED,” Curran said. “How hard will it be to remove and replace? If the driver is located too close to the LED, the heat will bake the driver. No electronics like heat. As LEDs warm up, their output goes down, but it’s the driver that takes the bigger hit. I researched the electrolytic capacitor drivers of LEDs and discovered, if the temperature rises from 50°C up to 100°C, the LED failure rate rose by a factor of six. There is no standard measure for drivers. That’s a problem. There are measures for the LEDs themselves.”
Curran said this lack of standards has left quality control to the driver manufacturers who supply their own warranties.
“Consider what kind of warranty the manufacturer offers,” Curran said. “I’ve seen one, two, three, five and seven years. Would you really buy the one-year warranty?”
Furthermore, don’t ignore general maintenance. While it’s great that the lighting will last maybe 10 years or more, you can’t install and forget it.
“Dirt will collect,” Curran said. “You will need to clean the luminaire. The lighting might also get knocked and damaged. If an LED street light fixture leaks and fills with water, there will also be damage, likely to the driver. Maintenance or luminaire designs are things you might not factor into your economic calculations.”
Curran recommended that contractors seek out luminaire companies known for their design. Jackson agreed that life-cycle isn’t everything when it comes to ROI and SSL.
“When we did some work for a project in London, the customer didn’t want to use LED because it was unknown,” he said. “We had to validate it. For them, the validation came in copper costs and the need for less copper wiring to install the LED lighting systems.”
Both Jackson and Curran recommended evaluating where SSL makes sense for a project.
“LEDs didn’t make economic sense for one project,” Jackson said. “For one major global retailer, our advice to them was to stay with fluorescents as there was no return in investment if we installed SSL at the time. But, we did say they should look to fixtures that could accommodate LEDs down the road with little or no retrofitting cost. Look at the technology, and ask how you can use it. Weigh if it is the right replacement.”
Resources when doing your homework
The U.S. Department of Energy’s (DOE) GATEWAY project is a field demonstration program that evaluates SSL products.
“We look for applications where the viability of SSL has not yet been proven or perceived as not yet proven,” said Robert G. Davis, Ph.D., FIES, senior staff lighting engineer, Advanced Lighting Team, Pacific Northwest National Laboratory. Davis manages the GATEWAY program.
Under GATEWAY, both indoor and outdoor LED lighting projects make up the demonstrations.
“We target demos where the energy-saving potential is high and the penetration of SSL is low to help speed up market adoption. The demo projects that focus on interior spaces tend to feature LEDs and lighting controls, including dimming, occupancy sensors and daylight harvesting,” Davis said. He referenced a university demo at a large lab facility. “The university is going to save significant energy costs because of the LEDs and their interaction with all three lighting controls.”
In his GATEWAY observations, Davis said the savings based on LEDs’ reduced wattage is a strong story that helps sell this lighting approach. But other sells include how the lights can be programmed to go off after hours or when a room is unoccupied and how they can be dimmed based on available light or give occupants their own dimming control.
“These are all considered when determining the ROI,” he said. “Lighting where watts are saved and lighting that is easy to control are compelling arguments for LEDs.”
He added that the continued advancement of LEDs makes them easier to consider.
“Over the past five years, I have changed my thinking on LEDs, seeing them much more as an option across a range of lighting,” Davis said. “They keep getting better and are overcoming original shortcomings in terms of color rendering, lumen depreciation and other factors.”
“It is not just a technology shift; it is a major business shift,” Jackson said. “And, capital savings on the whole-life costs of LEDs can be presented to clients as a justification to make further investment in controls.”
Currently, GATEWAY demos are being conducted at municipalities, universities, corporate offices and other locations.
Building persuasive ROI
Curran suggested that contractors talk to manufacturers about product warranty, how much testing was done on their product, and how long the company has been in business if it is not a major lighting manufacturer.
“If LED street lighting for a handful of luminaires is averaging $600 and someone is offering its products at $199, ask yourself: are you really saving money or costing your client a whole lot more with an unreliable product?” Curran said.
While LEDs’ long life might make them attractive, does that then diminish return business for the EC? All three experts say they don’t think so.
“Beyond installation, a maintenance contract is something you can offer your client to guarantee their investment. This is, in effect, your firm’s own ROI in working with LEDs. If you can sell LEDs at margin but can guarantee it for 10 years through a maintenance contract, that’s progressive selling,” Jackson said. “The EC community should educate itself on the quantifiable benefits of improved light quality to, for example, employee well-being, leading to higher productivity and reduced absenteeism.”
The multitude-of-color ability of LEDs supports this benefit.
“LEDs can play a role in the effects of color on human mood,” Curran said. “Studies are indicating possible ties in health benefits, such as melatonin level and circadian levels, through lighting. Some colors are more restful; some make you more alert. Tampa General Hospital is embracing LEDs for its color and lower temperatures, notably in its operating theaters. LED lighting over the operating table runs cooler, helping protect exposed organs. The proper color is also helping better identify healthy organs. Green LEDs installed on the periphery of the operating room [are] perceived as more restful and less stressful for the operating team, especially beneficial during long surgeries. Sure, the hospital likes the energy savings of LEDs, but there are all these other benefits too.”
A deeper understanding of the power of digital light will give contractors increased confidence in proposing a full SSL/controls package to their clients.
“ECs are in a much better position to advise and sell and are the one’s putting together the pricing and costing,” Jackson said. “The better ECs educate themselves on SSL, the better they can also capture the opportunity with controls and add-ons. They can put the whole picture together for their customer. Embrace what it means to be digital, so you can put a value on it.”