The higher initial costs of energy-efficient lighting have always been the major roadblock to its widespread implementation. Pay-back period is usually the main financial parameter for deciding whether or not to implement a specific lighting solution. Henk Rotman, IESSA Gauteng chair, explores this topic.
For larger projects, the Net Present Value (NPV) is preferred as it considers:
- The lifetime of the equipment;
- The risk of the investment; and
- When the energy savings will be delivered.
Both pay-back period and NPV apply in the case of a regular transaction where the lighting supplier sells the energy-efficient products to the end-user, who then owns the products and has to pay for the electricity used and its maintenance. However, there are alternative concepts that offer the key benefit of completely removing the initial investment.
These two models are:
- Energy Performance Contracting (EPC); and
- As-a-service models, such as Efficiency-as-a-Service (EaaS) and Lighting-as-a-Service (LaaS).
Both models offer common benefits, such as no up-front investment for the end-user and systems being optimised to maximise efficiency. However, some of their features are fundamentally different, the major one being how energy savings are treated.
LaaS does not tie payments to energy savings. Payments are agreed in advance based on actual usage, including operating costs such as electricity. Thus, the customer has a clear guarantee that they will not pay more per unit of energy efficiency service than agreed, even if the electricity consumption is higher than expected.
EPC payments, on the other hand, are dependent on energy savings. There are two major forms of EPC models:
1) The shared savings model whereby the customer does not invest but instead pays a share of the energy cost savings to the project developer; and
2) The guaranteed savings model whereby the customer invests but is guaranteed that a certain amount of energy savings will be met.
Comparing the options
Both EPC and LaaS turn capital expenditure (CAPEX) into operational expenditure (OPEX). One of the characteristics of EPC and LaaS is that the lighting equipment remains the property of the lighting supplier. After the agreed period (e.g. ten years), the equipment can be returned, or the contract can be extended – in which case the equipment often gets refurbished, and the LEDs are replaced with more efficient ones.
An essential benefit for the lighting supplier is that EPC and LaaS create recurring revenues instead of the peaks and throughs of the regular project business.
EPC and LaaS can really serve as accelerators for energy-efficient lighting, not only by eliminating the higher initial investment, but the model also favours the use of the most efficient products and lighting controls, as the higher costs of these products are offset by the higher level of savings.
