How much should I pay for lighting as a service?
Posted by Scott Anderson on
You've heard the buzz about lighting as a service but you're not sure if it's actually worthwhile or if you'll end up paying more in the end. You're not alone.
Whether you're a Chief Engineer, Director of Maintenance, or Energy Manager, you're probably responsible for finding the most energy efficient and cost saving solutions for your company. But oftentimes with LaaS, there seems to be a lack of clarity around what actually goes into pricing. We're here to shed some light on the topic to help you make the best decision for your business.
1. What is lighting as a service?
Lighting as a service (LaaS) is a subscription program like Netflix or Pandora, where you pay a monthly low, periodic cost. Instead of shelling out an upfront lump sum to upgrade lighting, your lighting service provider will take care of install and the warranty for a new long-life, high-efficiency lighting system on their dime.
Then, with a portion of the money you save on reduced energy bills, you budget a monthly payment for your lighting.
To read about what lighting as a service is and how it works, visit this article.
2. Considerations that go into pricing lighting as a service
When it comes to determining if lighting as a service would be beneficial to you, there are a few factors to consider:
- How many lamps are you retrofitting?
- What is the cost of the project?
- Include total cost of lamps,
totalcost of labor, and total cost of warranty.
- Include total cost of lamps,
- What is the interest rate from the LaaS provider?
- How many months is your LaaS contract?
- What is your energy rate?
It's important to note that lighting as a service is not for everyone. That's why we think it's critical for you to be able to do these calculations or have a reputable partner (see section three below) that will be transparent with you regarding whether or not LaaS is a good fit for your business.
For an example, we're going to show you a scenario that is a perfect fit for lighting as a service. Using this example you can compare your own numbers to see if it's worth exploring LaaS a bit more for your company.
In this example, we're going to be looking at a hospital that's retrofitting 2,500 fixtures at $40 (includes materials and labor) per LED fixture.
|Warranty (Labor + Materials, 10 yrs)||$31,150|
The total cost for this project, including materials, labor, and a 10-year warranty that covers labor and materials is $131,150.
|Annual kWh Savings||96,3600 kWh|
|Energy Rate||$0.10/ kWh|
|Annual Energy Savings||$96,360|
Given the total annual kWh savings and an average energy rate for the area, the annual energy savings for the hospital is $96,360.
|Lighting as a Service Cost + Monthly Savings|
|Monthly Energy Savings||$8,030|
|Monthly LaaS Cost (Based on 1.91% Interest)||$2,505|
|Net Monthly Savings from Day One||$5,525|
By retrofitting to LED lighting, the hospital would save about $8,030 per month. In order to avoid the large upfront cost associated with retrofitting, they're going to pay a LaaS company $2,505 a month to retrofit their lighting. From day one, they'll be saving $5,525 a month without having to shell out the upfront capital for the project. In this case, LaaS is a huge win for them.
3. How to find a reputable partner
Finding a reputable partner for lighting as a service is very similar to finding the right company to buy your lighting products from. You want a proven company that has been around for a while who you know you can trust.
There are three key areas you should focus on if you're seriously considering LaaS:
Find the right distributor
You want someone who is going to be transparent in walking through the calculations with you. As you saw above, lighting as a service was a perfect fit for the hospital in our example. But for many companies, the monthly net savings might not be enough to cover the monthly LaaS cost. Or you may have budget availability that you want to take advantage of.
You want to find a distributor who will listen well from the beginning and help you find and understand the best solution for your needs.
Find the right product
Similarly, not all products are worth pairing with lighting as a service. In the example above, the hospital was retrofitting whole fixtures with two lamps per fixture. You want to make sure the products you're looking to retrofit are worth the investment into lighting as a service and that you're not simply replacing a few lamps.
Another product consideration is the payback on the project without LaaS. You may have a situation where you'll recoup 100 percent of your investment in year one, which would be a good reason to take a more traditional approach and pay for the project upfront.
Find the right bank
The bank is the final and critical point when making a decision on who to partner with for LaaS. You want to make sure that the bank you're using has experience in this area and has a proven track record of projects.
If you're interested in learning if your retrofit project is a good fit for lighting as a service, or if you just have some questions on it that you'd like clarified, please feel free to contact us.
Read more from our lighting as a service series: