New Business Model for LED Lighting Could Decrease Cost of Retrofitting, Increase Energy-Efficiency

A new business model could flip the switch on LED lighting by enticing companies to become more energy-efficient through retrofitting their existing lighting systems for less.

Through Lumens as a Service (LaaS), companies can make the transition to low-cost, more energy-efficient technology through service agreements that have smaller price tags than the cost of retrofitting a large commercial building with LED lighting, according to Rocky Mountain Institute (RMI), a nonprofit focused on creating a clean, prosperous, and secure low-carbon future through transforming global energy.

The as-a-service model combines the advantages of having more energy-efficient lighting systems, energy-cost savings, and possible economic benefits.

LaaS allows owners and companies to upgrade to higher-quality lighting without having to choose between strengthening their companies’ finances and paying a substantial amount to retrofit a whole building with the more energy-efficient lighting system, said Koben Calhoun, a RMI manager for building and electricity practices.

A LED lighting system can pay for itself within three to five years, about halfway through the system’s life cycle of more than 10 years, said Iain Campbell, a RMI managing director who leads the Institute’s buildings practice.

“Building owners don’t want to deploy their own money to upgrade a functional lighting system. It’s got to have very compelling economics,” he said.

Through Lumens as a Service, companies can make the transition to low-cost, more energy-efficient technology through service agreements that have smaller price tags than the cost of retrofitting a large commercial building with LED-lighting

How It Works
The as-a-service model differs from traditional ownership, which requires the customer to purchase an asset from a vendor for the customer’s use. The as-a-service model allows customers to enter into a service agreement with the provider who will supply the services and products.

RMI likens the relationship to a common piece of office equipment, the copier machine. Customers usually contract with a company for copying-as-a-service. The contract details the company’s copying needs, and the supplier is responsible for the capital cost, troubleshooting, and maintenance of the copier.

The partnership works similarly in the LaaS framework because service providers consult with their customers about the desired lighting system’s design and operations.

LaaS has three options to retrofit existing fluorescent troffers with LED fixtures: installing partial retrofit kits that use existing troffer housing, installing complete retrofit kits that include fitting a high-efficiency reflector over the existing troffer; or removing and replacing existing fixtures.

Service providers supervise and own the system and have the ability to replace lighting system equipment as technology improves and continues to reduce energy costs over time, according to RMI.

Participating companies can choose from two main pathways to install a LaaS system, but all service agreements vary, Calhoun said.

In the first model, a customer contracts with a service provider to design, install, and operate the LED lighting system. The parties determine how they will split the monthly and yearly energy savings generated from the more efficient system, according to Calhoun.

“The customer gets a certain amount of the savings. The service provider gets enough to basically cover the upfront capital and the return on their investment. There’s kind of a shared value proposition there,” he said.

The second model operates more like a lease agreement where the service provider pays a customer rent to use ceiling space to install the lighting system, Calhoun said. In this model, the service provider uses the customer’s space and receives the energy savings.

Lumens as a Service could help increase energy-efficiency in commercial buildings while growing the LED-lighting industry, which has produced better LED-lighting quality and energy-efficiency at lower costs over the past several years.

Growing the Industry
The as-a-service model could help increase energy-efficiency in commercial buildings while growing the LED lighting industry, which has produced better LED-lighting quality and energy-efficiency at lower costs over the past several years.

The LED lighting market itself is projected to grow more than 45% a year by 2020 from being worth an estimated $13 billion in 2014 to an estimated $63 billion by 2020, according to a Radiant Insights report.

The as-a-service model has been successful before regarding another energy-efficient alternative, said Campbell. The as-a-service model propelled widespread use of solar power systems, and Campbell said the same business plan is expected to boost the LED lighting industry.

“We think there’s opportunity to do that not just on the roofs of buildings but actually inside of buildings with some of the advanced technologies, especially those technologies that are able to be digitally controlled,” Campbell said.

If LaaS proves successful, as-a-service business models for heating, cooling, and other services could emerge to further help buildings become more energy-efficient, RMI reported.

To read RMI’s report click here. Calhoun and Campbell were two of the three contributors to the report.