# How to Calculate Lighting Energy Savings

Because you have to pay for the electricity you consume whether it be for your home or business, you should know why you pay what you are paying. You should also understand how the various components of your electricity bill work if you want to explore measures to bring in more savings while having the initial project cost stay reasonable with a good payback or ROI. If you have a commercial electric meter installed on your business premises, you will have to understand the difference between KW and kWh before you can make your own energy calculations and buy energy-efficient lights that suit your commercial needs and operational budget.

At first the thought of looking at your electric bill to figure out lighting energy savings can be daunting, but with a little explanation and a couple simple formulas, you'll be well on your way to making an informed decision about how lighting affects your bottom line.

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## How is energy measured and what is it called?

If you look on your electric bill you will see kWh (residential and commercial), and on commercial the symbol kW. kWh means Kilowatt Hour, which means 1,000 watt-hours or 3.6 megajoules, and kW is known as the energy demanded of your facility to run all the electronics at any given time.

## What is the difference between kWh and kW?

**kWh** broken down further means 1,000 watts used per hour. Think of it like a water hose with a meter keeping track of how much water you've used in a certain period of time. Usually for electricity used, it's in 30-day or monthly increments. To continue with the water reference - say you are watering your lawn with an automatic sprinkler system. Some days it may be on longer, some days less so, but at the end of the 30 day cycle you've used 100 gallons of water for the lawn. You would then get billed for 100 gallons based on a per gallon of water cost.

Similarly, a 100-watt bulb consumes 100 watts or 0.1 kWh of energy every hour. So if you use a 100-watt bulb at your business premises for 10 hours, you will consume a total energy equivalent to 1,000 watt-hours or 1 kWh. Now consider the same scenario from the point-of-view of the electricity supplier. Your utility provider has to supply 100 watts or 0.1 KW of energy to keep your 100-watt light bulb on for an hour. If you get charged $0.13 cents / kWh, you have spent 13 cents after 10 hours of the light bulb being on.

Consider another scenario. You use ten 100-watt bulbs in an hour. This means that you consume a total of 1,000 watt-hours or 1 kWh of energy in an hour. You consume the same amount of energy in both the cases. But in the second case, your utility provider has to provide ten times more energy every hour, which is 1,000 watts or 1 KW, to power the ten light bulbs at your business premises.**kW** **(Demand)**, on the other hand, means the maximum (or highest amount) capacity of energy you need at any given point during the 30 day or monthly period. If it were water - let's say your sprinkler system needs a capacity of .5 gallons per minute of water flow or pressure to function properly. You would then get billed per month, in addition to kWh, for .5 gallons/minute of water flow. If you upgraded your sprinkler system and added more heads and that goes up to .75 gallons/minute, the water supplier then needs to increase its capacity, and you get charged for .75 gallons/minute now.

This is also sometimes referred to as *Peak Demand*. In the case of electricity - your demand is billed for the maximum amount of kilowatts you use at any given point during the 30 day or monthly period. If you have a small business that has a normal demand requirement of 20 kW (kilowatts) during any one time during business operation, you will be charged for 20kW during that period. Let's say someone plugs in a big piece of machinery that uses 5 kilowatts to operate, and everything else was already turned on. Now your demand spikes to 25 kW, and you will get billed for that 25 kW of demand or peak electricity usage, even if it's only plugged in for 5 minutes. This is because the electric utility company has to adjust their system to now start providing you with more power all at one time.

You can see in the above example where Demand (#3,5) is charged, and kWh is also added to the bill (#'s 2,5,6,7).

## How are Business Owners Billed on the Basis of KW and kWh?

Residential owners are billed on the basis of their energy consumption patterns over a specific period of time, like a month. The electric meters installed at residential premises are equipped to record only consumption of energy. On the other hand, business space owners who have commercial electric meters installed at their commercial premises are billed on the basis of their consumption of energy over a certain period of time, usually an hour, and their peak demand for energy made upon the resources of the electricity supplier. The unit “kWh” measures consumption of energy while “KW” measures peak demand.

## How will Your Understanding of KW and kWh Help You Reduce Money with a Lighting Retrofit?

Studies show that on average lighting expense is around 25-30% of your total electricity cost. In order to stay competitive and keep costs low, reducing lighting expenses can have a huge impact to the bottom line because the savings is so high with the new energy efficient lighting technologies available. Savings can be achieve either by reducing the demand you place on your electricity supplier (peak demand) or by lessening the number of hours you use your lighting devices (ideally both will be done). Now reducing the number of hours of usage may not be feasible at all times because this depends almost entirely on the efficiency of your operational factors. But you can reduce the amount of energy used by using energy-efficient lighting devices.

While choosing lighting retrofits for your business space, you need to consider those devices that produce light output comparable to the ones already installed at your premises but consume lesser energy. That is, you will have to buy those lighting devices that have less watt or kWh values than your existing apparatus but produce equally bright or brighter lights. When your lighting devices consume less energy, they place less demand on the power generating capacity of your electricity supplier. When the peak demand is less, your energy bills too will decline in proportion.

## How will Your Knowledge of Your Energy Consumption Help You Calculate Payback and ROI?

Now that you know how energy consumption affects your electricity bills, you can make an informed decision when buying lighting devices. But apart from reducing your energy bills, you should also aim to optimize the returns on the investment made on the lighting devices. For this you will need to calculate the payback amount.

For the uninitiated, payback is the amount of time (calculated in years) that will elapse before the savings achieved from your lighting retrofits equal the total cost of installing these devices. The following equation represents this relationship:

Payback (in years) = Total Lighting Retrofit Cost (in dollars) ÷ Yearly Energy Savings (in dollars)

The above value will help you determine if you can afford to make the investment in lighting retrofits. You can also calculate the returns on your lighting retrofit investment to find out if a particular type of light should be a good investment for your business. Use the following equation to find out the returns on investment (ROI):

ROI (in percentage) = [Yearly Energy Savings (in dollars) ÷ Total Lighting Retrofit Cost (in dollars)] x 100

Now that you know the difference between energy consumption (kWh) and peak demand (KW), you will be able to zero in on those energy-efficient lighting devices that best fit your business needs and budget and help you remain competitive.**Example:** Let's say you have a warehouse space with 400 watt metal halide high bay light fixtures hanging at about 25 feet in the air. Metal Halide is now considered an old technology and a new energy efficient LED high bay fixture will save about 60% energy compared with your existing light fixtures, along with many other benefits discussed in other topics. A new LED high bay fixture that uses only about 150 watts will provide the same amount of light as your existing 400 watt. The energy calculations are as follows:

Existing fixture: 400 watt metal halide that actually uses 458 watts (per hour) with the ballast and lamp combined.

New Fixture: 150 watt LED that uses 150 watts total.

Energy Savings per hour (kWh) = 458 - 150 = 308 total saved watts per hour or .308 kilowatt hours saved.

Energy Savings - Peak Demand (kW) = .308 kilowatts of demand or maximum power needed at any one time.

If you electricity rates are .10 cents per kWh and $13 per kW (demand) charged on your electric bill, your savings are as follows:

kWh: .10 cents * .308 kWh saved = $0.0308 savings per fixturer per hour. If your fixture is on 10 hours per day year round that's 3,650 hours per year (10 hours a day x 365 days a year) = $112.42 saved per year just for this one fixture.

kW: $13 x .308 kWh saved = $4.004 of kW saved per month. Per year it would be $4.004 x 12 months = $48.05 saved per year.

When you add the two together, you get a total savings of [$112.42 kWh + $48.05 kW] = $160.47 savings per year for that fixture. If the new LED fixture costs $400, your payback would be $400/160.47 = 2.49 years to get all your money back.

Now that you know your payback is about 2.5 years, you can use that for any amount of fixtures and it will be the same return on your money. If you have 45 fixtures in the facility, it would be $160.47 * 45 fixtures = $7,221.15 savings per year for your business. Still that would only be a 2.49 year payback and massive energy savings!

Warehouse with old 400 watt metal halide fixtures in it. These use tons of energy compared with today's LED technology.

**Example 2:** You have an office space with 3-Lamp, 4 foot, T12 fluorescent light fixtures hanging at about 8 feet in the grid/drop ceiling. T12 is now considered an old technology and a new energy efficient LED troffer fixtures will save about 62% energy your existing light fixtures, along with many other benefits such as flicker-free, dimming, better light quality, etc. A new LED lay-in fixture that uses only about 55 watts will provide the same amount of light as your existing 3-Lamp T12 that uses 117 watts. The energy calculations are as follows:

Existing fixture: 117 watt T12 fluorescent 2x4 troffer light fixture.

New Fixture: 55 watt LED troffer lay in light fixtures that uses 55 watts.

Energy Savings per hour (kWh) = 117 - 55 = 62 total saved watts per hour or .062 kilowatt hours saved.

Energy Savings - Peak Demand (kW) = .062 kilowatts of demand or maximum power needed at any one time.

If you electricity rates are .13 cents per kWh and $20 per kW (demand) charged on your electric bill, your savings are as follows:

kWh: .13 cents * .062 kWh saved = $0.00806 savings per fixturer per hour. If your fixture is on 12 hours per day year round that's 4,380 hours per year (12 hours a day x 365 days a year) = $35.30 saved per year just for this one fixture.

kW: $20 x .062 kWh saved = $1.24 of kW saved per month. Per year it would be $1.24 x 12 months = $14.88 saved per year.

When you add the two together, you get a total savings of [$35.30 kWh + $14.88 kW] = $50.18 savings per year for that fixture. If the new LED fixture costs $145, your payback would be $145/$50.18 = 2.89 years to get all your money back.

Now that you know your payback is about 2.9 years, you can use that for any amount of fixtures and it will be the same return on your money. If you have 360 fixtures in the office, it would be $50.18 * 360 fixtures = $18,064.80 savings per year for your business. Still that would only be a 2.89 year payback and massive energy savings! Other typical benefits of an office lighting retrofit include brand new, nice looking fixtures, extra savings and employee happiness from dimming capabilities, more productivity from going to a non-flicker technology (some people get headaches), and also reduced maintenance costs because new LED fixtures last about 2-3x longer than fluorescent.

An office with old T12 troffer 2x4 foot light fixtures installed. These are quickly being replaced with LED troffers now due to the many benefits on top of energy savings.

## Summary

It may seem daunting at first, but with a little practice, energy savings can be figured out and you can make a great decision when looking at not only lighting, but other energy savings technologies. In the end it comes down to what your project cost is and what the energy savings is.

**If you need help with your specific project, please don't hesitate to call us at 800.983.1315 or email us here!**