ROI Calculations for LEDs

Calculating your energy and cost savings is a precise formula that will give you a true representation of the real value of switching to LED lighting. These are the calculations we complete to provide information for the return on investment (ROI)

Step 1. Determine Operating Costs

Annual power consumption  (start with fitting A):

  • Power consumption A (kWh)  =  Rated power of A (kW) x quantity of A

Repeat for other lights B, C, etc.

  • Total power consumption (kWh)  =  Power consumption A (kWh) + power consumption B (kWh) + power consumption C (kWh) etc.

This is the total power consumption per hour. The annual power consumption can then be estimated.

  • Annual power consumption (kWh) = Total power consumption (kWh) x operating hours per day x consumption days per year

Annual operating cost:
Having determined the annual power consumption we can calculate the annual operating cost. Electricity is typically billed per kWh ($).

  • Annual operating cost ($)  =  Annual power consumption (kWh) x electricity cost per kWh ($)

 Step 2. Determine Maintenance costs

For maintenance costs, we calculate a maintenance factor based on the fitting, rated lifetime and annual operating hours. This maintenance factor is then used to estimate material and labour expenses.

Annual material & labour costs:

  • Material cost ($) = Cost of fitting ($) x quantity of fittings x maintenance factor
  • Labour cost ($) = Labour cost per fitting ($) x quantity of fittings x maintenance factor

Savings on air conditioning costs due to low heat generation can also be added into this section.

Step 3. Determine carbon emissions and trading costs

The annual carbon emissions and trading costs are found directly from the annual power consumption.

Annual carbon emissions & carbon trading cost:

  • Carbon emissions (t) = Annual power consumption (kWh) x CO2-e emission (kg/kWh) x 10-3
  • Carbon trading cost ($) = Carbon emissions (t) x carbon trading rate ($/t)

Step 4. Determine Capital costs

The capital cost is the initial cost of the upgrade. This is factored into our ROI equations so our customers know how long it will take for an installation to pay for itself.

  • Capital cost ($) = Cost of fitting ($) x quantity of fittings

Step 5. Return on investment (ROI)

The ROI document we provide takes all of these costs into account. The return is separated into yearly amounts and the performance of our installation is shown over a 10 year period. The information on the ROI clearly states how long it will take to provide a return based on energy savings.

N.B. The term “fitting” in these calculations can refer to traditional and LED lights, ballasts or power supply units (PSU). Also note that existing installations will not have capital costs for our calculations as they have already been paid for.