# Calculating Return on Investment for Energy Projects

*Content provided by Stephen Gerhardt, Chief Building Engineer, Santa Clara Towers*

This article will demonstrate some simple formulas for calculating energy savings and methods for finding the complete value of your project. You do not need to be an engineer or a mathematician to do these calculations.

**Definitions**

Watt= A unit of power

Kilowatt (KW) = 1000 watts

Kilowatt hour (KWH) = Kilowatts multiplied by the number of hours of draw. This is the unit of measurement that utility companies bill electricity in. Refer to your electricity bill for your current cost per KWH.

__Let’s start with a sample project, changing out elevator lights.__

**Scenario:** You have 4 elevators that use twelve 20watt lights each. You want to replace those lights with a LED light that uses 3 watts. The lights in these elevators are always on. The new lights are $30 each versus your existing lights at $8 each. While you know the LED light would reduce the electricity expense, you want to determine if the annual energy savings for the project make the ROI worth the initial investment in the new lights.

**Step One:** Determine the annual hours of use. Since the elevator lights are always on, this is 24 hours x 365days = 8,760 hours per year.

**Step Two:** Determine the annual cost of both the existing lights and the new, then subtract those two dollar amounts. Use the instructions below to find these amounts.

**To calculate the annual energy cost of the 20watt lights:**

Determine KW for all four elevators: 20 watts x 48 lights = 960 watts. Using the definition above, turn this into KW. 960/1000=.96KW

Determine KWH: 8,760 hours per year x .96KW=8,410KWH

Now, refer to your most recent utility bill for the KWH cost. For this example we will assume 15 cents per KWH. Therefore: 15 cents x 8,410KWH=$1,261. This is the total energy cost per year to run all elevator lights.

**To calculate the annual energy cost of the 3 watt LED: ** (use the process above)

Determine KW draw for all four elevators: 3 watts x 48 lights = 144watts. 144/1000=.144KW

Determine KWH: 8,760 hours per year x .144KW = 1,261 KWH

Determine annual cost: .15cents x 1,261KWH=$189

Therefore the cost savings on utility cost to power the lights along is: $1,261-$189=$1,072 annual savings.

Of course this is not a complete picture of this project. To determine the true savings we need to look at the total cost of the project and any other advantages or disadvantages.

**Disadvantage: **

- The LEDs are more expensive at $30 each compared to $8 for the 20 watt lights. The LEDs cost $30 each so to do a complete conversion of the elevator lights the cost would be an initial investment of $30 x 48=$1,440.

**Advantages: **

- LED lights have a 30,000 hour life versus the 20 watt lights (which are incandescent) that have a life of only 2500 hours. That translates to the LED’s lasting 3.5 years, where the 20watt lights have to be replaced approximately every four months!! The annual cost for replacing each of the 48 lights 3 times a year is 3 x 48 x $8=$1,152.
- Now, take into account the labor saved not changing lights so frequently. With the existing lights there will be around 140 light changes per year. Assuming it takes 10 minutes per light change to get a ladder, get the new light, complete the replacement and clean up; you are now looking at about 23 hours annually in labor costs on these elevator lights alone.

**You are now ready to calculate the full ROI on this project. **

Initial investment on LEDs (plus approximately 2 labor hours to install): $1,440

Less energy savings over one year: -$1,072

Less cost of replacement of 20 watt lights throughout the year -$1,152

Less the cost of labor hours to change the 20 watt lights through the year: 23hours

Total annual savings=$784 and approximately 21 hours of labor (23 hours of labor saved – the 2 hours to install the new lights).

Now take into consideration that these benefits last for the full 3 year period before any of the LEDs would need to be replaced. Therefore the full ROI on this project is:

Energy savings: $3,216

Amount saved due to not having any light changes: $2,016

Labor savings=67 hours

__Total savings over 3 years=$5,232 and 67 hours of labor__

Hopefully this article helped demonstrate how easy it can be to calculate ROI for energy saving projects. Contact your lighting vendor for help identify projects that could be implemented at your site!

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