Financial Considerations For Warehouse Lighting Retrofit

When executing a warehouse lighting retrofit, don't leave money on the table.


https://facilityexecutive.com/2015/12/lighting-retrofit-scenario-warehouses-part-2/
When executing a warehouse lighting retrofit, don't leave money on the table.
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Lighting Retrofit Scenario: Warehouses, Part 2

Financial Considerations For Warehouse Lighting Retrofit

When executing a lighting retrofit, once goals are defined and the lighting systems specified, facility managers want to ensure the plan is comprehensive, thorough, and fiscally responsible. This second article in a two-part series explores the key financial considerations of taking on a retrofit project as well as some of the major missed opportunities or pitfalls of which those who are responsible for warehouses should be aware.

Pitfalls And The Power Of The Purse

By Brian Dibble

Offsetting the cost of a lighting upgrade is always top of mind when considering the cost of the investment, and there are many financial avenues that managers can explore.lighting retrofit

The first is utility rebate programs. To establish programs, many utilities use specifications from the Consortium for Energy Efficiency (CEE) for high-performance T8 and reduced wattage T8 lamp-and-ballast systems featuring high-efficiency NEMA Premium ballasts. Utilities offer rebates for LED and retrofit luminaires that are qualified by the Design Light Consortium, which evaluates fixtures much like the Energy Star program.

(Update: The CEE specification referred to above is no longer in effect. The current CEE Commercial Lighting Systems Initiative is described here on the consortium’s website.)

Tax incentives can be a source of savings too. Recently extended as part of the Tax Extenders Law, Section 179d of the Commercial Building Tax Deduction offers new or existing building owners up to $1.80 per square foot to install various improvements such as high efficiency interior lighting. Qualifying systems must reduce the building’s total energy and power cost by 50% or more in comparison to a building meeting minimum requirements set by ASHRAE Standard 90.1-2001.

But tax deductions and rebates alone won’t always help managers justify a new lighting system. At that point, they should look to new financing options. Some lighting organizations offer various leasing and performance based contract options to procure these fully integrated lighting and control systems, without an upfront heavy financial lift.

Performance guarantees can be structured standalone contracts, coupled with financing to allow the customer to “pay from their savings” or folded into a shared savings contract, ensuring a return or eliminating upfront costs and guaranteeing positive cash flow. With customizable terms and payment schedules, managers can also acquire funding from a capital lease, with on-balance sheet financing and a predetermined buyout amount, or an operating lease, with off-balance sheet financing and fair market value buyout at lease end.

Beware Missed Opportunities

When done right, new lighting can make a big impact on a facility, but there is also potential for big mistakes and missed opportunities during the upgrade. Here are a few that deserve special attention.lighting retrofit

Skipping the homework on building codes: A common pitfall in any retrofit is to overlook the codes for energy use or for controls that a building must comply with. One example: California’s 2013 Building Energy Efficiency Code, Title 24 has been a particularly challenging code for commercial facility managers to understand and adapt to as it has become increasingly complex over the years. With new requirements still being introduced to Title 24, managers should be sure to arm themselves with the most up-to-date information (or a consultant who knows the code) to ensure they are not caught unawares.

Valuing speed and short-term gain over accuracy and long-term ROI: Facility managers can frequently progress through the various steps of a retrofit too fast for the sake of expediency. In turn, they end up sacrificing the time to conduct a complete audit of the facility and develop a comprehensive plan which would allow them to fix many problems at once. The lesson here is to not just think leaner, but also smarter about how to get the most from an upgrade project. Typically, managers think only of retrofitting the existing system or simply replacing the fixtures. This makes it easy to fall victim to “cream skimming,” where the proposed solutions target the easiest savings with the lowest first cost. While in the short term, this seems a good investment, to be successful, a retrofit must find the balance between increasing energy efficiency and providing the high-quality lighting the warehouse needs to operate and retain savings in the long term.

Keeping other decision-makers out of the loop: During planning, posing the right questions is crucial, but so too is posing questions to other stakeholders. While a warehouse manager may be focused on the immediate needs of his or her facility and how new fixtures and luminaires will affect its operations, the company’s CFO is evaluating overall operating costs. This lends itself to the opportunity for facility management leaders to highlight the value of upgrading the lighting in more than one warehouse or installing lighting controls to yield greater savings across multiple locations.

The Bottom Line

Cutting overhead costs while continuing to improve worker efficiency and safety is a daily challenge but for a well-informed facility manager, installing new lighting doesn’t have to be costly or complicated. If a manager hasn’t evaluated a warehouse’s lighting system in the last decade, he or she could be missing a prime opportunity to not only reduce energy consumption but also provide a better experience for employees. Insight into the financial aspects is crucial to making a strong case for an optimal warehouse lighting retrofit.

Dibble is vertical sales manager, Industrial, at OSRAM SYLVANIA.

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