Rarely are the details of a lighting upgrade black and white. Are there incentives that make an energy efficient retrofit worth the higher upfront cost, or are you better off replacing burned-out lamps with like technology?

Weigh these factors to gain a clearer picture of where you stand.

The Total Cost of Ownership Model

To truly understand all of the costs and savings opportunities in a project – be it lighting, a piece of equipment, or a whole building – use the total cost of ownership model to compare your options.

Read also: How to Manage your First Lighting Retrofit

The basic concept utilizes multiple factors (space management, operations management, etc.) to determine total costs and savings and calculate a project’s ROI.

In many cases, these same four components will help you determine the value of a retrofit project vs. a replacement, according to Josh Millman, managing partner of Facilities Planners & Architects:

  • Project delivery management: Involves the costs of preparing for and installing the new system – e.g., time required to research and specify a particular system, create any needed permit drawings, procurement, relocation, etc.
  • Operations management: Weighs the operations cost per square foot, energy usage, and replacement value of the system, plus the costs of necessary preventive maintenance and estimated costs for standard repairs and emergencies.
  • Capital asset management: Incorporates the projected costs of capital renewal and replacement of the system. Key performance indicators – such as the Capital Renewal Index for replacements or the Facility Condition Index and recapitalization rate for retrofits or upgrades – will help you predict the capital reinvestment you’ll likely face based on the system’s lifecycle and current condition. As a reference guide, Millman recommends IFMA’s Asset Lifecycle Model for Total Cost of Ownership.
  • Space management: “For building systems, the space management aspect is the annual cost to accommodate churn,” similar to capital asset management, Millman explains. For a lighting project, space management includes the man-hours required to relocate light fixtures each year based on the facility’s churn rate.

“As you start peeling the onion, you may discover that the financial opportunities or risks warrant measuring other areas,” Millman says. “It depends on the significance of the decision or the probability of the risk.”

Illuminate Payback Periods

As is always the case, project costs and energy savings tip the balance between a retrofit vs. a simple replacement.

North Carolina Central University is proof, having started two affordable LED retrofits with fellows from the Environmental Defense Fund’s Climate Corps, a program that places specially trained students in companies, schools, and municipalities to find opportunities for cost savings and develop plans for implementation.

Related: How to Pay for Energy Upgrades

One Climate Corps initiative to replace 100 metal halide street lamps with LEDs will cut the school’s energy use by 80% and save $21,000 annually, paying for the $65,000 project in three years.

Similarly, a retrofit of 30,000 emergency circuit lamps that must run 24/7 is costing the university $2 million but will save over $600,000 annually, resulting in a payback period of three and a half years.

Related: 10 Money-saving Lighting Products for 2018

The payback period on both retrofits is a little longer than the two years many FMs target, though it’s by no means an insurmountable obstacle.

However, while cost numbers are important, they’re not the only issue to consider, especially if the costs and payback periods of a retrofit vs. a replacement are similar.

“A lot of spaces are overlit, particularly ones that were designed a long time ago,” Vogel explains. “It’s about providing the appropriate light for the space, which can make the energy savings increase even further. Take that into account if, for example, you’re wondering about going to T8s or T5s.”

Janelle Penny is senior editor of BUILDINGS.

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