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How Lighting-as-a-Service Could Provide Affordable LEDs

Aug. 25, 2016

Pay as you burn lighting offers a money-saving alternative to conventional retrofits.

Over the last decade, FMs have been faced with a major decision. The Energy Independence and Security Act of 2007 (EISA) has progressively eclipsed the old ways of inefficient lighting since it passed, as LED lighting has become vital to meeting EISA’s high energy standards.

The prospect of saving energy is on the mind of any FM, but LEDs have always been more expensive than traditional bulbs that have dominated the lighting industry for decades. Unfortunately, switching to LEDs necessitates expensive retrofits, and capital is often not readily available.

This has created quite the conundrum for many as energy savings often seem less feasible or even impossible when considering the upfront costs of switching to LEDs. However, this conundrum has a possible solution.

Lighting-as-a-Service (LaaS) is an emerging energy market trend where businesses pay monthly fees to a company that retrofits the building with energy-efficient lighting. Because the provider charges a monthly rate for usage – not unlike an internet or cable bill – customers can eliminate the financial stalemate often involved with LED retrofits.

“This tool allows the value proposition of the LED technology to be unleashed quickly and broadly,” says Tom Quinn, Vice President of Sales and Marketing at Lunera Lighting, Inc. in Santa Clara, CA.

Treating the retrofit like a service allows building operators to circumvent the capital costs typically involved. Instead, customers pay the company for the service of reducing energy usage. This is a negotiable rate paid monthly through the life of the contract, and it comes directly from savings from switching to LED lighting.

“It’s contractually structured in a way that allows it to be treated as a service, which can be off balance sheet,” explains Quinn. “If it’s off balance sheet, it can truly have an immediate impact on operating income.”

Providers typically audit the energy use from lighting and take a percentage of the energy savings to cover upfront costs. Because they are able to anticipate the reduction in lighting costs, the monthly rate is negotiated to pay for the service while still providing net savings at the facility.

The savings continue once the contract is complete. Buildings keep the LED lights that were installed and no longer pay the monthly rate, meaning that energy savings increase over time. If technology advances considerably during the life of the contract or fixtures, FMs can begin a new contract to do another retrofit while once again putting up no capital to fund it.

During the life of the contract, LaaS companies own the fixtures and consequently maintain them. Once the contract expires, the lights remain and so do the savings. And while it becomes the responsibility of the FM, maintenance is still expected to be minimal because of the long-term durability of LED lights.

The details of individual LaaS providers vary from company to company. Some offer different contract lengths or retrofit strategies, but what they have in common is their ability to provide efficient lighting without the need for large capital investments.

Despite it being a relative novelty in lighting, the expansion of LaaS beyond commercial buildings suggests to some extent that this energy trend is here to stay. Philips Lighting is currently in a contract with the Washington Metropolitan Area Transit Authority to provide LaaS in their parking facilities and is expanding their work into citywide contracts.

Justin Feit [email protected] is assistant editor of BUILDINGS.

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