PAYBACK ANALYSIS

Improving energy performance in a facility requires a financial investment in new technologies, together with the introduction of best practices and socially responsible behaviours to induce savings in energy consumption. The savings generated each month will amortize the investment to achieve the breakeven point that determines the moment of total return of the investment.

The payback or investment return period is one of the key metrics used by entities to make decisions about their investments. At Arquiled we offer consulting and investment return studies.

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To calculate the payback of lighting projects, the following parameters must be considered:

Baseline Data

[EKWh]    Energy cost (kWh)

[i]            Annual inflation rate (%)

[T]          Annual operating matrix (hours per year)

Existing lighting system

Annual cost of energy consumption [E1]

Annual operating cost (labour + materials) [OP1]

New lighting system

[E2]    Annual cost of energy consumption

[I0]      Investment (luminaires + installation cost)

 

In an energy-efficient lighting project, [E2] is always <[E1] and [OP2] is always <[OP1]. These recurring savings will determine how fast the project’s payback is.

Any investment project should be analysed form a financial perspective, using the parameters:

Payback

Period of the return on investment. It should be as short as possible. It occurs when:

NPV (Net Present Value)

NPV is the present value of a project, calculated from the future cash flow involved in the project:

CFj = cash flow of year j
t = discount rate

 

Since inflation tends to devalue what money is worth, €1 today will be worth more than the same €1 in the future. So, we need to update future cash flow using a discount rate equal to inflation.

Let us consider the following example, based on an actual case where sodium-vapour lamps in a city’s avenues and main streets were replaced by LED luminaires. The analysis was carried out over a period of 10 years.

breakeven point

The analysis that was carried out demonstrates the high economic viability of the project, whose return on investment can still be substantially improved by adding intelligent flow control systems.

When there are budget or investment capacity constraints, municipalities can opt to hire the services of an ESCO (Energy Service Company) which takes full responsibility for the investment and is remunerated by the energy savings generated, or they can renovate their lighting system in stages according to their investment capacity.

INVESTMENT RETURN CALCULATION

To calculate the payback of lighting projects, the following parameters must be considered:

Baseline Data

[EKWh]    Energy cost (kWh)

[i]            Annual inflation rate (%)

[T]          Annual operating matrix (hours per year)

Existing lighting system

Annual cost of energy consumption [E1]

Annual operating cost (labour + materials) [OP1]

New lighting system

[E2]    Annual cost of energy consumption

[I0]      Investment (luminaires + installation cost)

 

In an energy-efficient lighting project, [E2] is always <[E1] and [OP2] is always <[OP1]. These recurring savings will determine how fast the project’s payback is.

Any investment project should be analysed form a financial perspective, using the parameters:

Payback

Period of the return on investment. It should be as short as possible. It occurs when:

NPV (Net Present Value)

NPV is the present value of a project, calculated from the future cash flow involved in the project:

CFj = cash flow of year j
t = discount rate

 

Since inflation tends to devalue what money is worth, €1 today will be worth more than the same €1 in the future. So, we need to update future cash flow using a discount rate equal to inflation.

PRACTICAL EXAMPLE

Let us consider the following example, based on an actual case where sodium-vapour lamps in a city’s avenues and main streets were replaced by LED luminaires. The analysis was carried out over a period of 10 years.

breakeven point

CONCLUSION

The analysis that was carried out demonstrates the high economic viability of the project, whose return on investment can still be substantially improved by adding intelligent flow control systems.

When there are budget or investment capacity constraints, municipalities can opt to hire the services of an ESCO (Energy Service Company) which takes full responsibility for the investment and is remunerated by the energy savings generated, or they can renovate their lighting system in stages according to their investment capacity.

BENEFITS

Technical Expertise

Our know-how is put at the service of our clients to design the lighting solution that best serves the project objectives and budget constraints.

Sustainable and Efficient Solutions

We guarantee the technical, economic and environmental sustainability of the systems we propose. All our solutions are based on LED technology to ensure greater longevity as well as minimal maintenance and energy consumption.

Fast Return on Investment (Payback)

We are native in LED technology, so we have an expertise in designing solutions with fast returns on investment resulting from the energy savings generated. We guarantee investment returns compatible with our customers’ investment cycles, in many cases with payback periods of less than 1 year.

Our Experience

In addition to creating, designing and manufacturing our luminaires, we also develop street lighting infrastructure management software that enables cities to efficiently manage the operation of their assets and maximize the energy savings generated by LED technology.

We are pioneers in Europe in the implementation of smart cities, and we were chosen for the development of the first Portuguese smart city.

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TESTIMONIALS

Cascais Municipality
Desconhecido

“A gradual investment has been made in new LED luminaires with management possibility, an investment we intend to expand to prioritize (…) locations with faster returns on investment.”

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