LED Payback: Calculating the Real Cost of a Lighting Upgrade

Most LED upgrades are justified on payback, and most payback claims are made on the back of an envelope. That is a pity, because the honest calculation is not difficult, it usually supports the upgrade anyway, and it produces a figure that survives scrutiny. This article walks through it with a worked example, and points out the items that are routinely left out of the envelope version.

Start with the energy

The core saving is straightforward: the difference in circuit watts between old and new, multiplied by the number of fittings, multiplied by annual running hours, multiplied by the price of electricity. Take a warehouse with 100 twin 58 W fluorescent battens. With their magnetic ballasts, each draws around 140 W from the mains. Replacing them with 100 LED battens at 45 W each saves 95 W per fitting — 9.5 kW across the installation. On a two-shift pattern of 4,500 hours a year, that is 42,750 kWh. At £0.25 per kWh, the energy saving is roughly £10,700 a year. The method is the same for any building; only the numbers change, and every one of those numbers should be written down, because they are the first thing anyone checking the calculation will ask about.

Two cautions. Use the real circuit watts of the old fittings, including ballast losses, not the lamp wattage — a "58 W" fluorescent has never drawn 58 W. And use real running hours from the building's actual occupancy, not a round figure; a warehouse that closes at weekends does not run 8,760 hours.

Add the maintenance

This is the item most often left out, and in tall or busy buildings it can rival the energy saving. Fluorescent tubes have a rated life of around 15,000–20,000 hours; on 4,500 hours a year, that is a tube change every three to four years per fitting, plus the ballasts, starters and lampholders that fail in between. Each change costs a tube, a technician's time and — at height — access equipment and disruption to the operation beneath. A conservative allowance for the example above might be £15–£25 per fitting per year averaged over the cycle, or £1,500–£2,500 a year across the hundred. An LED fitting rated at 50,000 hours with a five-year warranty removes almost all of that for the first decade.

Add the controls, if you are fitting them

If the upgrade includes occupancy sensing and daylight linking — and under Part L it usually should — the LED fittings will not run at full output for all 4,500 hours. In an intermittently occupied warehouse, controls commonly reduce lighting energy by a further 30–50%. Applied cautiously at 30% to the new installation's consumption (100 × 45 W × 4,500 h = 20,250 kWh), that is another 6,000 kWh and about £1,500 a year. Controls cost money to install, so they belong on both sides of the ledger.

Now the cost side

Capital cost is the fittings, the controls, the installation labour, any access equipment, making good, disposal of the old fittings under WEEE regulations, and the design. For the example, assume an installed cost of £28,000 including sensors. Simple payback is then the capital cost divided by the annual saving: £28,000 against roughly £13,700–£14,700 a year gives a payback of around two years. Over a ten-year horizon, the installation returns something in the region of £140,000 for £28,000 invested, before any allowance for electricity prices rising.

What a finance director will ask

• Which electricity price did you use, and is it the marginal unit rate on the current contract? A blended rate including standing charges overstates the saving.
• Are the running hours real? Show where they came from — a meter reading, a building management log, or the shift pattern.
• What happens to payback if energy prices fall 20%? A robust case still pays back in under four years at a lower price.
• Have you counted the cost of doing nothing? Fluorescent tubes are being phased out; the price of the status quo is rising, not flat.
• Is there a carbon figure? Multiply the kWh saved by the current UK government grid conversion factor and it becomes a line in the sustainability report as well as the accounts.
• What about capital allowances or funding? Public-sector bodies in Scotland and Wales can access interest-free Salix loans and English bodies grant schemes such as the Public Sector Decarbonisation Scheme; commercial buyers should ask their accountant how the expenditure is treated — the answer can shorten the effective payback further.

A payback figure is only as good as the four numbers underneath it: watts, hours, price and maintenance. Write all four down and the case makes itself.

The underlying point is that LED upgrades rarely need to be oversold. In almost any building with fluorescent or discharge lighting running more than a couple of thousand hours a year, a straight calculation with conservative assumptions produces a payback most businesses would accept for any other investment. What loses these projects is not the economics; it is a claim that cannot be traced. Build the number from the fittings up, state every assumption, and let the arithmetic do the persuading.