**Factors to determine before calculating Return On Investment:**

- 1 Electricity cost per kWh (unit)
- 2 Additional Charges per kWh (Carbon Charge, SRES, LRET, ESS Charges etc.)
- 3 Electricity Rate Increase Percentage (estimate)
- 4 Hours of Lamp Operation Per Annum
- 5 Current Lamp Installed Including Wattage
- 6 Type of ballast or transformer used with lamp
- 7 Type of fixture used with lamp
- 8 Air-conditioning type
- 9 Proposed New Lamp Wattage
- 10 Existing lamp replacement cost
- 11 New lamp cost
- 12 Installation / repair cost
- 13 Current lamp estimated life span
- 14 New lamp estimated life span
- 15 Number of lamps to remove
- 16 New number of lamp or fixtures to install (may be difference if redesigned layout)
- 17 Insulated areas
- 18 Insulation to be installed

Without going into the full details of every single factor there is a relatively quick and accurate way of determining how long it’s going to take to recoup your investment.

**The first step is to understand the power consumption of your current installed lamps.**

For this example we’re going to look at changing a fish and chip shop’s halogen down lights over to LEDs.

The shop operates for 6 days every week of the year from 10am to 9pm, making their daily hours of operation 11 hours, multiply this by the 6 days a week and then by the 50 weeks of the year they work which gives us a total of 3,300 hours of operation per annum.

The lamps installed are currently 50W 12V halogen MR16 bulbs with iron core transformers. The lamps power consumption is of course 50W but there is a small amount of power consumed in the transformer as well, and this additional would be somewhere between 5W-15W, so we’ll use the additional 5W for the example.

There are 12 lamps in the front room.

**To work out the power consumption you simply multiply the number of lamps x the wattage per lamp x hours of operation / 1000 to convert to kWh instead of Watt hours.**

12h x 55W x 3300 / 1000 = 2,178 kWh of electricity consumed per annum.

Then to work out the cost of these you can simply multiple the kWh consumption by the cost of electricity per kWh. In this case the shop is being charged $0.24 per kWh.

2178 x 0.24 = $522.72 per annum spent on these lamps alone.

**Now we do the same calculations based on the new LED lamps.**

We’ve decided to use a 10W downlight kit with an electrician to install them.

The energy cost per annum of the new globes would be:

(12h x 10W x 3300 / 1000) x 0.24 = $95.04

**So this is a saving of $522.72 - $95.04 = $427.68**

The cost of these 12 new lamps were $42.00 each. Total cost for the lamps alone = $504

There was also an electrician employed to install the lights who charged $25 per light adding another $300 on top.

This makes the total outlay $504 + $300, saving $427.68 per annum.

If the cost is $804 divided by the annual electricity savings of $427.68 this would make the return on investment period 1.88 years.

**This is the simple method of determining return on investment**. (This is a guide only and should not substitute professional advice)

Now if you wanted to go into more detail, you could account for the amount of halogen bulbs you replace per annum and account for the cost of these to purchase as well as install. Since you would be just replacing the bulb in most instances it could just simply be $2 per bulb, once a year.

Doing this alone would account for a saving of $2 x 12 = $24, which is not a highly significant factor, however in commercial applications or for people are aren’t able to reach lights in high ceilings for example an electrician or service person may come to install these at an additional rate of $50 or more, which simply adds to the reduced cost over time.

These factors could be accounted for over the equivalent life span of the proposed new LED light. In general though we would only account for one set of replacement bulbs and their associated installation / replacement costs.

**Air-conditioning is another tricky factor** to include in the calculations because there are so many factors, including coefficient of performance, draughts, air leakage, other electrical devises, people and practically any other heat source. The heat displacement between old and new bulbs is also difficult to work out. This part of calculating return on investment is best left to an energy auditor. For every watt of heat produced from the old globes compared to the new globe, the air conditioner may need to offset this with additional electrical consumption which could be accounted for.

**There are efficiencies to gain by switching to higher efficiency LED lights** that cover more area from one source and redesigning the room or areas lighting.

This is common in car parks, foyers, corridors and so on, specifically where there is an abundance of light for the area. Lamps output can be decreased in higher density areas, or increased with lower density areas.

Use this simple online tool from Philips to calculate your total cost of ownership.