Lighting as a Service: A Zero-Cost Option for LED Retrofits
As technology for LED lighting continues to improve, it is expected that LED lighting -- which is more energy efficient, lasts longer and has a significantly lower cost of operation -- will completely replace traditional fluorescent and HID lighting technologies. The LED lighting market is anticipated to grow 45% per year though 2020, and is expected to reach a market size of over $60 billion dollars.
In addition to trying to navigate the huge number of LED options available and figuring out the right technical solution, the greatest barrier to adoption with this technology is still budget constraints and upfront costs. Although lighting contributes up to 40% of a company’s energy bill, and savings of up to 85% can be achieved by converting to LED, buyers are simply not willing to spend the large upfront costs involved in upgrading their lighting. Often lighting upgrades are not part of a budget and CAPEX projects are usually focused on the core business of the retailer.
Most lighting companies pitch their products based on an ROI model that can break even anywhere from one to four years. The problem with that approach is that ROI’s are based on a loose set of assumptions that are often hidden in some vast spreadsheet model. To address the frustration with the “buy now and wait till you see results” conundrum, a small number of companies are offering a new model that can be a true win-win for both the customer and the lighting company: lighting as a service (LAS).
Similar to the software as a service model (SaaS), chain store owners pay a set monthly fee for their new lighting system. The lighting company installs and maintains the system at zero upfront and maintenance cost to the customer for as long as the customer chooses to continue with the service. In addition to no capital expenditures, the monthly fee is covered by the savings achieved from switching to more energy efficient LED lighting. The savings are guaranteed to be so large that even after the monthly fee for the lighting as a service, there is enough money left to go directly to a chain store owner’s bottom line. Owners don’t have to make any capital expenditures, don’t have to play with budgets to free up cash for the expenses, and still get a brand new lighting system that will dramatically improve their facilities.
Selecting the proper lighting company is critical to the success of the project. Here are a few things to consider before deciding if this is the right approach and before choosing a lighting consultant.
1. Strength of the LED lighting company. There are many LED companies that have popped up over the last few years. But not all have the financial backing to be around to service their customers well into future. With Lighting as a Service, the lighting company buys the equipment and recoups its investment over a long period of time. Many lighting companies do not offer this service as it requires a high upfront capital expenditure. If the lighting company is not well financed, it may have to borrow from other sources. Sometimes the lighting company will “partner” with a financing company. That third party is actually the firm you are contracting with. Who is now responsible for warranty issues? Whom do you call if the lights are not performing? It is critical to work directly with a company that has the financial strength and experience to make this model work.
2. Are energy savings based on theory or actual practice? All energy savings are not equal. It is not enough to count light fixtures and make assumptions on a spreadsheet on how much energy an operation’s lights are consuming. The most accurate way to track usage and savings is to set up energy monitoring equipment that measures the different lighting circuits in real time. It should be set up before installing the new equipment to get a baseline, and then monitored after installation to see the difference.
3. Term of contract. The lighting company is investing in the relationship by buying the equipment upfront, and only earns a reasonable return over long periods of time. It is not uncommon to see 10 year or even 15 year deals when it comes to LAS. These companies are taking the risk on ensuring their customers will continue to pay them for the length of the agreement, and customers benefit by being assured that they will be around for a long time.
4. Equipment. The lighting company is making an investment in the equipment it installs. It is imperative that they use quality-manufactured products that have been properly designed and engineered for the specific lighting applications their customers have. If they are simply installing cheap equipment so they can make more money, it is time to look elsewhere. Each manufacturer makes certain products better than others. It is important to have clear guidance on why specific equipment has been selected.
5. Design & Engineering. One of the advantages of an LED retrofit is the ability to re-design a lighting layout from scratch. LED’s have the ability to throw light in very specific directions, and dim or turn off lights easily with control systems. Photometric analysis should be performed so you can see the actual lighting levels that are projected after the system is installed. If the firm you are talking to sounds more like a mortgage broker operation than an advisory firm, find a new partner.
Lighting as a service is a very credible model to use for a lighting upgrade. Chain stores interested in this model should do their homework, ask a lot of questions, and partner with a quality firm that can guide them through the process. LED technology is complicated but the technology is proven to save money. With the right partner, LAS may very well be the future for most LED implementations in the commercial market.