Economics of Lighting Upgrades
The wide fluctuations in the pricing of electricity, coupled with an uncertain supply, have once again focused the attention of facility executives on energy efficiency. A good place to look for savings is the lighting system. Improvements in lighting technology have resulted in higher efficiency products that can reduce energy requirements while improving the overall performance of the lighting system. So many improvements have been made in recent years that most lighting systems that are 10 years old or older can benefit from an upgrade.
The efficiency of the lighting system has a very large impact on the overall energy efficiency of the facility. On the average, a facility’s lighting system accounts for 25 to 30 percent of the overall electricity use in a facility. Older facilities, ones where the lighting system has not been upgraded in the last 10 years, use even more electricity for lighting, often as high as 40 percent of the total electricity use. Studies of these facilities have shown that up to 50 percent of the energy used for lighting in these facilities is wasted due to outdated technology, inefficient designs and poor operating practices. A comprehensive upgrade of the lighting system in these buildings produces reductions in lighting energy use of 25 to 35 percent and provides a simple payback of between two and three years.
No lighting upgrade project should be entered into without a good understanding of the savings that it will produce. Realistic estimates of the energy savings will help not only in obtaining funding but also in identifying which upgrade tasks are the most cost-effective. More complex rate structures have complicated the job of calculating paybacks for lighting upgrades.
A common practice used in the past to estimate the savings from an energy conservation project was to use the facility’s average annual rate for electricity. When electricity rates were stable and rate structures regulated, the average annual electricity rates provided a reasonable approximation for energy savings. But as deregulation has progressed and rate structures have become more complex, variations in what facilities pay for electricity have made the average annual electricity rate too inaccurate to use in estimating the impact of energy conservation efforts. Accurate estimates of savings require use of the rate structure that is in effect for the facility.
There are several different types of rate structures in use today. How and what utilities charge for electricity use varies greatly under these different rate structures and will impact the payback of lighting upgrade projects. It is critical to understand what the facility’s rate structure is and what impact reducing the load will have on electricity costs.
Conventional Rate Structure
The most widely used rate structure for commercial and institutional facilities has two major components, an energy charge and a demand charge. The energy charge, measured in kilowatt-hours, is for the actual electricity that is used by the facility. Most rate structures use a block rate scale in determining the cost per kilowatt-hour of use. For example, the first 1,000 kWh of use may be billed at five cents per kilowatt-hour, the next 5,000 kWh at 4.5 cents per kilowatt-hour, etc.
The demand charge, measured in kilowatts, is for the peak amount of electricity that the facility used during the billing period. Since utilities must be able to supply this volume of electricity to the facility at any time, even though the peak demand may occur for only a few minutes each month, it is included to provide utilities with a means of recovering their equipment investment. Demand can be billed at a flat rate or, like energy charges, can be billed at block rates based on fixed increments of demand.
Lighting upgrade programs will affect both the energy and the demand charges. Any reduction in energy use will be subtracted from the total energy use for the billing period. Savings and energy charges should be calculated by multiplying the monthly kilowatt-hour savings by the rate that is in effect for that month. If the facility is billed on a block rate basis, use the rate that is in effect for the highest block for that month.
The savings in demand charges are a result of the reduced electrical load due to a lighting upgrade. The higher efficiency of the new light sources will decrease the kilowatt connected load of the lighting system. This decrease in connected load will reduce the electrical demand for the facility. To determine the savings produced, multiply the reduction in connected load in kilowatt by the highest demand rate that was in effect for each month for an entire year.
Time-of-Day Rates
Time-of-day rates are similar in structure to conventional rates, with the exception that the day is divided into several time periods, typically 10 a.m. to 4 p.m., 4 p.m. to midnight, and midnight to 10 a.m. A different energy use rate is in effect for each time period, with the highest rate being applied to the peak use period of 10 a.m. to 4 p.m. Lighting upgrade programs will reduce energy use during all time periods, but will do so at different levels depending on the hours of operation of the upgraded fixtures. Similarly, the savings produced by the upgrade will depend on the rate that is in effect for each time period.
To estimate the energy savings produced by a lighting upgrade program under a time-of-day rate structure, the monthly energy savings for each time period will have to be determined, then multiplied by the rate that is in effect for that period. The savings produced by reducing demand is calculated by multiplying the reduction in connected load by the highest demand rate in effect for that month.
Because the time when most building lighting systems are operated corresponds with the highest rates under a time-of-day rate structure, improvements in the efficiency of the light source and the use of lighting and occupancy controls will provide the greatest savings.
Real-Time Pricing
The deregulation of the electrical utility industry has introduced a new type of rate structure, real-time pricing. Real-time pricing, like time-of-day rates, is an attempt on the part of utilities to bill customers on the basis of what it costs them to generate electricity. Utilities use their most efficient generation systems to base-load their operation. As demand increases, less efficient units must be brought online, increasing the utility’s kilowatt generation costs. Rather than bill on average generation costs, the kilowatt-hour charge under real-time pricing reflects what it costs the utilities at any given time.
Real-time pricing rates vary during the day, similar to time-of-day rates, but with a potential for much higher rates during peak use periods. Depending on the availability and demand for electricity, peak rates under real-time pricing can be as much as 20 times higher than off-peak rates.
Real-time pricing changes the way in which savings must be calculated from lighting upgrade programs. As with time-of-day pricing, average electricity rates cannot be used. Managers must use the actual rates that are in effect for each time period. If the facility has been purchasing electricity under a real-time pricing rate schedule, determine the rates that have been in effect for each time period. The reduction in electrical load from the lighting upgrade program during each of these time periods will also have to be determined.
Controlling electrical loads under real-time pricing is even more critical than under time-of-day rates due to the wider swings in the pricing of electricity. Upgrading to the highest possible efficiency light source together with a lighting control system that limits use to only those times when they are needed will provide the greatest savings.
Additional Benefits
While energy savings is the driving force behind most lighting upgrade programs, it is not their only benefit. Lighting upgrades can improve the overall appearance of the facility, particularly if lighting levels are matched to the needs of the occupants. What’s more, improved lighting can enhance building security, and some studies have tied better lighting to increased productivity.
Lighting upgrades can also reduce maintenance costs. Replacing incandescent lighting with compact fluorescents reduces the frequency with which bulbs must be changed by a factor of between five and 10. Upgrading incandescent exit signs to LED units completely eliminates the twice yearly bulb replacement cost. Replacing instant-start ballasts with program-start units can extend the life of frequently switched lamps, reducing the frequency with which bulbs must be replaced. These cost savings are not insignificant, frequently equaling 25 to 30 percent of the energy savings produced by the upgrade program.
Successful lighting upgrades require careful planning. Start by completing an audit of the existing lighting systems, assessing both the condition and the performance of all components in the system. Carefully examine activities being performed in the facility, and determine how closely the existing lighting levels meet the needs of those activities. Identify areas where savings could be achieved in energy costs by upgrading to more efficient light sources, then quantify the savings that would be produced. Identify control strategies that would reduce energy requirements, and develop estimates of their savings.
Finally, use the findings of the lighting audit together with the projected cost savings that would be produced by the lighting upgrade to convince financial managers that the lighting upgrade program is worthwhile and worth funding.
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James Piper, PE, PhD, is a consultant and writer with more than 25 years of experience in the facilities field. This piece © 2001 Trade Press Publishing Corporation, and is reprinted with permission from Building Operating Management, a GreenBiz News Affiliate.