January 5, 2019
How expensive is it to delay an energy efficiency project?
In some cases, there may be few if any consequences to delaying action on certain things, but in others – notably the energy efficiency upgrades your business needs – time is literally money. The weeks, months or even years that a business owner puts off the installation of energy-saving measures can have a significant impact on their operating costs…and their bottom line. We’re going to take a close look at just how costly it can be for a business owner to delay an energy efficiency project.
Why time is of the essence
Nobody likes to be rushed into decisions, especially if they involve a sizeable capital investment. We get that. We’ve been in the energy efficiency profession long enough to know that it takes time for a business owner to understand all the facts, digest all the data and explore all the options. But we also know that the sound of the ticking clock in the background is the sound of lost opportunity. Each day a business continues to operate with its old, inefficient equipment is another day of unnecessarily higher energy costs.
To illustrate our point, let’s use the hypothetical example of an LED lighting retrofit in a large retail business in northern California (it’s not entirely hypothetical since the data is based on analyses that have been performed on such buildings). Our hypothetical retailer currently uses fluorescent lighting that consumes about $9,500 in electricity each year, based on about 54,000 kilowatt-hours (kWh) of usage at a price of just under 18 cents per kWh. Replacing those fluorescents with LED fixtures would immediately reduce the retailer’s electric consumption for lighting by 60%, cutting their annual electric bill by nearly $5,800. In addition to the kWh savings, LED lighting would also reduce the building’s demand charges – the costs on the electric bills of many large commercial customers that is based on the peak amount of power they’re drawing from the utility at any one time during the billing period.
But the savings produced by LEDs aren’t limited to electric bills. LED lighting costs much less to maintain than fluorescents and need to be replaced far less often. LEDs will typically last for 25,000-50,000 hours or more, which is three to five times longer than fluorescent tubes or compact fluorescent bulbs. Translating these lifespans into practical terms, a business that operates 24/7 and keeps its lights on round-the-clock would be able to run for six or seven years before having to replace its LED lighting, compared to having to replace its fluorescents at least every two years.
Lighting maintenance can be a significant expense for any business, and especially so for a large retailer whose lighting system can include hundreds of interior fixtures as well as exterior building illumination, signage and parking lot light towers. In our hypothetical example, we can reasonably estimate fluorescent maintenance costs at more than $6,000 per year, considering the cost of bulbs, ballasts and other equipment; labor (whether it’s your own employees or a lighting contractor’s) and the need to rent lifts, bucket trucks or similar equipment needed to reach high-level lighting.
Taken together, the electric bill and maintenance savings total nearly $12,000 per year. If you look at that missed savings opportunity on a long-term basis, it balloons to about $60,000 after five years and $120,000 after ten years. But we can also see the financial impact of waiting on a short-term basis: Every month you defer your LED retrofit takes $1,000 out of your pocket and even a week’s worth of procrastination carries a price tag of more than $200. While these short-term numbers assume that maintenance costs are spread evenly throughout the year (which is not always the case), a huge repair bill that hits all at once will make the cost of waiting to retrofit your old lighting that much more dramatic.
In our example, the cost of a complete LED lighting retrofit for this retailer is about $70,000. Based on the annual energy and maintenance savings of $12,000, the project will pay for itself in less than six years. The payback period can be reduced even further by utility rebates that bring down the cost of the equipment. Once the project investment is repaid, the savings generate a positive cash flow. In our example, the retailer has will realize an aggregate cash flow of nearly $50,000 at the end of the 10-year period following the retrofit.
Excuses, excuses, excuses!
The one thing that procrastinators never have in short supply is excuses. So, let’s look at some typical excuses for deferring a project like this – and why they don’t hold up.
Advances in technology will bring down the price of new lighting equipment, so I’ll wait for the next big price-lowering breakthrough. When LEDs first appeared on the market more than a decade ago, they were incredibly expensive when compared to traditional lighting. Since then, advances in technology and economies of scale in manufacturing have brought down LED prices dramatically. Is there still more room on the downside? Probably. But going back to our hypothetical retailer’s annual energy and maintenance savings, there’s no way that equipment costs will decline by $12,000 a year. Remember, too, that equipment costs are only part of the equation: The cost of the labor to install that equipment is likely to increase in the future, offsetting any savings you may realize on the equipment.
Utility or government rebate programs may increase in the future. That’s not likely to happen. Rebate programs are designed to change customer behavior through financial incentives. They generally aim to bridge the gap in cost between a more expensive option that has greater societal benefits (in this case, LEDs) and a less expensive but less beneficial option (traditional lighting). However, incentives aren’t intended to last forever. Once they achieve the desired shift in behavior – and the cost differential between the two options is reduced or eliminated – the rebates are reduced or eliminated as well.
My business doesn’t have the capital to invest right now in a lighting retrofit. We’re now in a rising interest rate environment, so the cost of capital is only going to increase in the months and years ahead. Interest rates aside, though, the advantage of LED retrofits is that they literally pay for themselves. The savings generated through lower utility bills and maintenance costs may offset the amount of the loan repayment.
The time to act is now!
So, here’s the bottom line: If your business hasn’t yet upgraded to LED lighting, each week, month or year that you delay the project is costing you money. Serious money. Money that you’ll never recover because once it’s been spent on energizing or maintaining your old lighting system, it’s gone. Taper’s energy efficiency experts can help get you started on a retrofit project today…so you can start enjoying those savings immediately.