LEDs: Lighting the way to savings, productivity, and planet perks

November 2021

LEDs: Lighting the way to savings, productivity, and planet perks

Every organization faces unavoidable overhead costs, and electricity ranks among the highest. Many companies don’t realize how easy it is to reduce operational expenses and gain many other potential benefits by simply upgrading their lighting. This paper not only outlines how LED lighting systems can boost your bottom line, but also illustrates significant “ancillary” benefits of LEDs: increased comfort, employee productivity, and moving the needle on your Corporate Social Responsibility (CSR) goals. We also provide information about cost-effective, flexible payment plans to accommodate a broad scope of lighting initiatives.

The culprit of high lighting costs

The Department of Consumer and Regulatory Affairs (DCRA) estimates that about 40% of all energy costs in a commercial establishment go towards the lighting electricity cost. It goes on to state that the lighting electricity costs in a 10,000-square-foot commercial building typically range between $4,500 and $8,500 a year.1

There’s no questioning the intrinsic value of lighting: It promotes safety, security, and productivity in and around the workplace. But why is it so inordinately expensive?

In most instances, high lighting costs stem from old-fashioned light sources, especially incandescent lights. In fact, the contemporary incandescent bulb is similar to the Edison bulb invented more than a century ago. Both highly inefficient, these light bulbs share the same two critical design flaws: low light generation and a short life cycle. For instance, only about 10% of the electrical power used by an incandescent bulb actually yields light; the other 90% produces heat. In addition, an average incandescent bulb lasts only about a year before it needs to be replaced.

In contrast, a lighting technology built upon a light emitting diode (LED) is nearly everything that an incandescent is not. The LED runs cool, draws little power, has a life span about ten times longer, and features lower maintenance, expense, and overall operating costs.2

Lighting by the numbers

40%

Percentage of all energy costs in a commercial establishment that go towards the lighting electricity cost, according to a DCRA estimate.

10%

Percentage of electrical power used by an incandescent bulb that actually yields light.

≈10:1

Ratio of the life span of an LED bulb to an incandescent bulb.

LEDs: More than 70% savings

Can your company really control its lighting bills? The short answer: Yes—with energy savings as much as 65-80%.1 But before we explore additional details and benefits, let’s look into some critical comparisons between LEDs and incandescent lights. Incandescents are so inefficient, the U.S. and other countries have begun to curtail their use entirely. (Halogen, fluorescent, and CFL bulbs offer limited, if any, advancement over incandescent models.) We can measure the brightness of an electric light source in lumens. A 60-watt incandescent bulb produces about 800 lumens of brightness—as it draws 60 watts of electricity. The LED equivalent of a 60-watt bulb consumes only 9 to 12 watts and provides about the same light output, measured in lumens.3

Comparing lighting bills

What about bottom-line costs? Let’s take a quick look at electric lighting expenses. Suppose a commercial building contains 1,000 bulbs, all of them 60-watt incandescents and turned on 24 hours a day. Using the U.S. average retail electric price of about 13¢ per kilowatt hour,4 the monthly lighting bill for this company would be $5,616. If the same facility replaced all of its incandescent lights with 1,000 9-watt LED bulbs, its monthly lighting bill would be $842.40. That’s 85% lower in utility fees alone (see table below).

Product pricing

It’s difficult to dispute the operating cost efficiency of LED lighting. But as recently as a few years ago, LED bulb pricing was often several times more than that of incandescent bulbs. By mid-2020, however, product price—possibly the last barrier to LED product supremacy—ceased to be an issue. The first LED light bulbs made for everyday use cost $10 to $15 each, but standard LED bulbs now cost $2 to $3, with multipacks costing as little as $1 to $1.50 per bulb.5

Lower maintenance and operating costs

Let’s compare life cycles of LED bulbs to more traditional lighting products. LEDs use 87% less energy than halogen lamps and have a 25,000- to 50,000-hour life span,6 compared to up to 2,000 hours for incandescent bulbs and up to 4,000 hours for halogen lights.7 Consider the additional savings of reduced labor costs that result from needing to replace a lower-priced (and highly efficient) product much less frequently. For practically any business not already using LEDs, this fact alone makes the question of “when is a good time to upgrade our lighting?” easy to answer: Now.

Additional, time-sensitive savings

While lower operational costs, superior performance, and advanced technology are among the compelling reasons to prioritize LED lighting initiatives, there are a couple of other potentially significant incentives to act now.

Tax credits and benefits

The 179D tax deduction is now a permanent program and signed into law on December 27, 2020. This gives building owners the opportunity to consider this incentive in their long-term tax planning without fear of another expiration. Beginning January 1, 2021, the deduction amounts of up to $1.80 per square foot will be allowed for qualifying upgrades.8

Utility rebates

In addition, local and regional utility companies continue to offer incentives and rebates for energy-efficient lighting installations and retrofits.

Bottom-line costs for a commercial building using incandescent bulbs versus using LED bulbs.

  1,000 Incandescent Bulbs* 1,000 LED Bulbs* Savings
Monthly cost $5,616 $842 $4,774
Yearly cost $67,392 $10,109 $57,000

Less environmental impact

While LEDs offer incomparable cost savings and value, they also feature yet another desirable trait: they're eco-friendly, as well. Their long operational life means that one LED light bulb can save the material and production of 25 incandescent light bulbs. And because LED lights contain no toxic materials, they are recyclable.9

Lightbulb

One LED bulb can save the material and production of 25 incandescent light bulbs.

Recycling symbol

LED bulbs are recyclable (contain no toxic materials).

Sun icon

LED lighting closely resembles the color of natural sunlight.

Lower emissions plus business sense

Investing in environmental health makes good business sense, too. It generates positive (often free) publicity within an organization’s community, as well as with financial stakeholders. The investing organization is viewed as a concerned, informed neighbor who is actively interested in environmental improvement and everyone’s current and future well-being.

The human factor of LED lighting

 

The physiological benefits of LED lighting—both in-home and the workplace—are not to be overlooked. In fact, dim lighting can cause eye strain and drowsiness, which can lead to difficulty focusing. Lighting that is too bright can lead to headaches and alter our ability to focus as well.10 

The bluish-white hue of LED lighting, which is best for workspaces during the day, is optimal because it closely resembles the color of natural sunlight. Prolonged periods without natural light or sources that mimic natural light can often lead to depression and anxiety.11 Because LEDs mimic natural light, they help regulate the circadian rhythm. Additionally, LEDs don’t contain mercury, which may have toxic effects on the nervous and digestive systems, lungs, skin, and eyes.12

In short, lighting affects the human body in two ways: directly, affecting what and how well we can see, and indirectly, through its effects on our mood and behavior. Research shows that LED bulbs could support an array of health benefits such as motivation, concentration and mood support.13

Case studies: Proven productivity

While personal safety and comfort are certainly important—in both home and office spaces—improved lighting conditions that support a happier and healthier work environment can also boost productivity (see Proven productivity below).

Lifetime return on investment (ROI)

An acceptable payback on a lighting system upgrade is subjective. Many facility managers consider a payback of three to five years (for a lighting system upgrade) is among the fastest ROI opportunities for their facility—as well as a practical way to reduce operating costs for the total facility—in some cases by as much as 25%.14

When you factor in the 10-year (or more) life span of an LED bulb, a three- to four-year payback on a lighting system investment that yields a return of 50% or more annually is more than reasonable. Energy consumption, rebates and incentives, maintenance costs, lighting related safety, and facility growth and expansion goals are all aspects that must be considered when assessing the ROI on LED lighting upgrades.

 

Proven productivity

An increase of just 1% in productivity can cut the payback period or even completely pay for an LED retrofit project. For example, one company profiled in a 2018 National Bureau of Economic Research paper enjoyed a 0.7% increase in productivity after upgrading to LED lighting. This translated to an increase in profits that shortened the payback period from 3.5 years to just a couple of months.15

Other studies have found similarly dramatic improvements in worker cognitive function and productivity from using LED lighting. One such study from the International Journal of Industrial Ergonomics—comparing fluorescent and LED lighting—found an 8.3% performance improvement in visual and cognitive tasks. The same study found employees working under LED lighting had faster reaction times, reduced fatigue, and increased activity.15

Objections and questions: The top two

In any organization, change often meets with resistance, and such may be the case with proposals to use LED lighting in a retrofit, remodel, or new build. Probably the most common complaint involves expense. After all, an installation can be relatively costly, particularly in large-scale facilities such as universities, hospitals, supermarkets, government buildings, and manufacturing operations.

Here are the two most common questions (and corresponding responses) regarding LED installation:

  • Q: Isn’t the initial expense too high?
  • A: In many instances, an LED installation can quickly pay for itself (as mentioned earlier). Customized payment plans can ease the transition to LEDs, as well.
  • Q: Should my organization wait for a better time to install LEDs?
  • A: The longer the wait, the more will be spent on high traditional lighting costs.

Major risks of inaction

Deferring or rejecting the use of LEDs may bring at least three significant business risks into play:

  • Opportunity cost: Project deferral may be more costly than initial investment, largely because of the excessive overhead cost of traditional lighting.
  • Brand degradation: 92% of consumers have more positive views toward companies that make an effort to protect the environment. Companies that proactively address these challenges increase the likelihood of enhanced customer loyalty and community support.16
  • Safety: Dimly lit areas increase the risk of workplace accidents, which is dangerous for workers and could present liability risks for the employer.17

Payment plans: More than a means to LED lighting

Depending on the size of your organization and its lighting requirements, the cost of installing an LED system could require a substantial investment. If that’s the case, it’s worth taking the time to consider financing alternatives.

An outright purchase or loan might seem the most direct approach, though it may diminish capital reserves. In contrast, a customized payment plan offers both convenience and several desirable features, such as:

  • Payment plans can be structured to result in immediate positive cash flows
  • Flexible terms: Monthly, quarterly, annually, or seasonally adjusted
  • Enhanced cash-flow management
  • Technology upgrades and protection from obsolescence
  • Allows for complete upgrades instead of phasing in over time
  • Contract flexibility and control
  • Total solution coverage (bundling), including installation, delivery, training, and support costs
  • Simplified processing
  • Potential tax advantages

For the reasons noted above, many U.S. businesses opt for the benefits of payment plans.

Qualifying a capital provider

As you evaluate a potential capital provider, look for an organization with proven financial stability as well as demonstrated expertise in sustainable energy, IT, and LED lighting assets. A provider should also offer:

  • An immediate capital solution and scalable, long-term strategies
  • Innovative structuring expertise
  • Technical acumen and lighting experience
  • A consultative approach that aligns with your business goals
  • Readily accessible in-house credit, legal, and underwriting professionals 

In addition, consider the advantages of a provider with a proven track record and established relationships with sustainable energy, construction, and lighting professionals. A seasoned capital resource will also understand new technologies and can help tailor payment solutions with built-in flexibility. In sum, seek out a provider that not only expedites LED systems, but also works strategically to help you evaluate alternatives that support your business goals.

Summary

LED lighting offers a bright future in nearly every way imaginable, from health benefits to potential improvements in business practices and economic outcomes, including:

  • Lower operating costs
  • Reduced carbon footprint
  • Increased brand equity
  • Improved productivity and profitability
  • Lower environmental impact
  • Regulated circadian rhythms12
  • No harmful toxins12

Still, making the transition to nearly any new technology involves an investment of time, energy, and thought. You may find it helpful to consider the following brief observations.

Nearly every company (perhaps your own) already possesses huge reserves of electric power. But with traditional electric lighting systems, most of them are squandered. By investing in modern LED lighting technology, your organization may achieve substantial cash savings, increased revenue, higher productivity, and lower costs for years to come.

Let’s talk today

If you’d like to learn more about the benefits of LED lighting, please contact us. We’re here to support your business goals and the communities you serve. Visit keyequipmentfinance.com or contact your Key Equipment Finance Officer.

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1

"How Much Can You Save by Switching to Commercial LED Lighting?” https://www.nationalled.com/how-much-you-can-save-by-switching-to-commercial-led-lighting

3

"Light bulb guide: LED vs. CFL vs. halogen,” September 1, 2020 https://www.tomsguide.com/us/light-bulb-guide,review-1986.html

4

Choose Energy, “Electric rates by state” https://www.chooseenergy.com/electricity-rates-by-state/

6

"Replacements or Retrofits for Commercial Indoor Lighting Installs” https://www.tcpi.com/replacements-retrofits-commercial-indoor-lighting-installs/

8

“179D Commercial Buildings Energy-Efficiency Tax Deduction” https://www.energy.gov/eere/buildings/179d-commercial-buildings-energy-efficiency-tax-deduction

This document is designed to provide general information only and is not comprehensive nor is it legal, accounting, or tax advice. KeyBank does not make any warranties regarding the results obtained from the use of this information. Credit products are subject to credit approval, terms, conditions, and availability and subject to change. Key Equipment Finance is a division of KeyBank. Key.com is a federally registered service mark of KeyCorp. KeyBank is Member FDIC.

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