Business Opportunities in the Commercial Lighting Arena
There's no doubt the growing demand for energy efficiency is — and will continue to be — a source of new business for electrical contractors. Efficiency makes sense for several reasons. Petroleum has made the news recently with prices more than $100 a barrel, but coal (the main fuel used to generate electricity in the United States) prices are also rising steadily. Furthermore, regulations continue to change. In fact, more than 30 states and four Canadian provinces, as well as the federal governments of both the United States and Canada, are either providing incentives for more efficient lighting or creating more stringent code requirements. Consumers are asking for green construction, such as Energy Star or LEED certification. Put all of these factors together, and commercial/industrial building owners are starting to view energy as an asset rather than an expense — or at least one to be closely monitored and managed.
Because lighting represents roughly 25% to 40% of the total commercial building energy consumption in the United States (versus 10% to 15% in residential), it's a natural place to begin looking for efficiency gains. From a life cycle cost perspective, the total energy costs for lighting systems are far higher than the capital costs of system installation. Therefore, it makes good business sense for a building owner or manager to install a high-quality, more efficient system that is affordable, considering the resulting reduction in energy costs and operating expenses.
With lighting expenses on the rise and budgets on the decline, lighting spells business opportunities for electrical contractors who are able to specify and install energy-saving designs and retrofits in existing buildings or new construction. How do you approach this market? What does it look like, and what are the barriers? To help answer these questions, we'll use the most popular lamp type on the market today as a good case in point: the T8 lamp.
Quick history lesson
The T8 lamp has evolved over time with significant performance advancements, including higher lumens, improved color rendering, longer system life, and reduced nominal wattage. The first generation of T8s, also known as the 700 series, is rated at 32 watts, 20,000 hours, and has color rendering index (CRI) ratings in the 70s. Used in the majority of T8 applications, they are available in a variety of color temperatures and give off 84 initial lumens per watt or greater.
The second generation of T8 technology, known as the 800 series, includes 32-watt lamps rated at 20,000 hours with CRIs in the 80s and initial lumens per watt in the 87 to 92 range. The third generation of T8s, often referred to as “super,” includes 32-watt lamps with an extended life to 24,000 hours or more on rapid-start circuits, and higher lumen products of at least 94 to 100 lumens per watt, plus a CRI in the 80s.
Manufacturers continued to develop fourth and fifth generation lamp technologies with reduced wattages and similar or increased lumens per watt compared to third generation lamps. Fourth generation technologies are 30-watt T8 lamps, and fifth generation technologies are rated at less than 30 watts.
The next step in the advancement of these lamp types brought about reduced wattage T8 systems of 25 and 28 watts. These lamps deliver significant savings in situations where lamps are switched out or a lighting retrofit is already underway, but ballasts and components are not necessarily changed. The Consortium for Energy Efficiency (CEE), Boston, maintains lists of high-efficiency lamps and ballasts as well as application guidance at www.cee1.org/com/com-lt/com-lt-main.php3.
Commercial building installed base
In spite of the performance advances made over time with T8 technology, the majority of lighting systems sold in the United States are instant-start electronic ballasts with standard 700 series performance levels. Manufacturers indicate that roughly 85% to 90% of the sales of ballasts are instant-start electronic ballasts.
Department of Energy (DOE) research indicates that high-performance T8s comprise 5% of the T8 market while reduced wattage T8 systems comprise another 10%. Figure 1 captures this market breakdown. Recent statistics also indicate that, of the fluorescent lighting installed in the United States (including linear lamps, compact pin- and screw-based, and circline), 58% are T12s and 28% are the higher efficiency T8s. With 70% of the lighting in commercial facilities already of the fluorescent variety, according to a 2002 report prepared by Navigant Consulting and Xenergy (“U.S. DOE Lighting Market Characterization Volume 1: National Lighting Inventory and Energy Consumption Estimate”), energy-efficiency programs encourage the installation of technologies such as the high-performance T8s.
Approaching the market
Someone will make money installing high-performance T8 and low wattage T8 systems. Will it be you? If you want to capture a share of this lucrative business, then you need to think about the following factors as you contemplate building out this business.
Capitalize on demand — Some cities and municipalities are changing their codes to adopt green building standards. Usually, government buildings and schools are converted first. Find out who in your community is promoting efficient retrofits and construction and make sure he or she knows about your new service.
Leverage efficiency programs — Utilities and energy-efficiency organizations need to deliver savings, and they have funding to make it happen. The U.S. and Canadian commercial and industrial budget to jumpstart efficiency in 2007 was $1.405 billion. You can find out more about specific programs at www.cee1.org/com/2007-ps/.
Market differentiation — Use your expertise in efficient design and installation in your marketing materials to differentiate your services from your competitors'.
Make more money on higher value lighting products — Because these products generally cost more up-front, but last longer in the long run, your markup can be higher.
Given the comparative ease with which lighting systems can introduce lower operating costs, what are the market barriers you might face? The initial cost of retrofitting a system — or additional cost in new construction — is certainly the first barrier that comes to mind. Helping your client calculate the operating cost or “second price tag” is one way to show these systems pay for themselves over time.
A second issue is the separate distribution chains for lamps and ballasts, meaning that you may have to do some research to find matches between the most efficient components. Because the market is still somewhat immature, you may find there is limited availability of qualified ballasts. Your best bet is to work with your supplier to show you're growing the market for these items and will need a steady supply. Finally, even though customers often want to be “green,” they may not know how that translates into specific building elements. You may find yourself spending time teaching your customers about the kinds of things they can change to lower a building's environmental impact.
Overcoming the initial cost argument
The total number of fluorescent lamps installed in the commercial sector is roughly 1.5 billion. In fact, nearly 30% of total U.S. lighting energy is consumed in commercial fluorescent fixtures.
Figure 2 illustrates the interaction among various entities involved in a lighting design or construction project for commercial buildings.
In its “Vision 2020 — Lighting Technology Roadmap,” the DOE indicates that the distribution channels for commercial lighting is “unusually” complex. Depending upon whether it's a new construction or retrofit situation, the building owner tasks either a design or construction team for building improvements or design. Lighting designs are typically made at the architect or lighting designer level; however, contractors are often the ones making purchasing decisions. Typically, these decisions are driven by cost first and life cycle cost second.
The cost of a high-performance T8 system is roughly 40% to 50% greater than that of a T12 system. Compared to a standard 700 series T8 system, the high-performance T8 system is 25% to 30% greater. Incremental cost information on the lamps and ballasts can be seen in Table 1 (click here to see Table 1), as compared to a base of T12 or standard T8.
In new construction or major renovations, efficient design would call for fewer high-performance T8 fixtures with higher light output from each fixture. Due to lower light levels, reduced wattage systems are better suited for retrofit projects where fixtures placement will not change. High-performance T8 lighting systems are generally superior in the class of T8 lighting, but reduced wattage systems save energy in applications where customers are unlikely to use high-performance systems.
Because 72% of the annual lighting projects in commercial facilities are either lamp replacements or retrofits (Fig. 3), note that incremental costs for both 28- and 25-watt systems fall within a six-month payback period, with 25-watt systems being slightly less expensive. CEE estimates that 28-watt systems can lower energy use by 25% over standard 700 series T8s, and 40% over T12s. The 25-watt systems save 37% and 50%, respectively.
In order to see the potential payback from the high-performance T8 system, an analysis was performed looking at a base case of a T12 system and a base case of a standard 700 series T8. Table 2 (click here to see Table 2) illustrates the results from this analysis. The calculation does not take into consideration key benefits of the advanced lighting systems, however. Retrofit No. 2 with the high-performance T8 system results in a longer life lamp that would reduce the frequency of lamp replacement. In a new construction application, the high-performance T8 system may result in fixtures being more widely spaced. This may reduce the number of fixtures required and increase the financial attractiveness of a high-performance T8 system.
Maneuvering through slow distribution channels
Conversations with lighting designers and program administrators indicate that delivery lead time has been found to be longer than for a standard T8 system; however, the T8 market is evolving rapidly. CEE first developed a high-performance qualifying products list in September 2005. By January 2008, that list had grown to more than 75 lamps and 350 ballasts, illustrating that an increasing number of lighting manufacturers are adding high-performance lamps and high-efficiency ballasts to their product lines. At the same time, manufacturers developed additional products in their reduced wattage T8 lines and have been promoting those heavily.
The most recent generations of T8 technology, both high-performance and reduced wattage T8 systems, are currently available under unique, manufacturer-specific lamp and ballast family names.
Education is the key
Upgrading to a high-performance T8 system from traditional 40-watt T12s yields roughly 40% energy savings. Even when upgrading from a standard T8 system, the savings are roughly 20% (Fig. 4). In addition to these savings, the demand savings potential (kW) in a 2-lamp system operating during peak load times can be seen to be roughly 20% with a high-performance lighting system compared to a 700 series T8. These are the facts you need to make sure your customer understands.
Volume I of the “U.S. Lighting Market Characterization study (2002)” indicates that 34,500,000kWh/yr is consumed by T12s and 14,800,000kWh/yr by T8s. Assuming that all T12s and standard T8s were replaced with a high-performance T8 system, the annual energy savings potential in the United States alone could be 16.5TWh or 16,500,000kWh. That's 12,828 metric tons of carbon dioxide abated. Your new “green” customers will surely find these statistics to their liking.
Now that you have a more holistic understanding of the fluorescent lighting scene, you're prepared to make inroads into this potentially lucrative area. But know that it will take some effort on your part to educate your customer about the benefits and payback time for this type of project.
Hoffman is executive director and Winsniewski is deputy director for the Consortium for Energy Efficiency, Boston.
Sidebar: About CEE
The Consortium for Energy Efficiency (CEE) is a consortium of efficiency program administrators from across the United States and Canada who work together on common approaches to advancing efficiency. By joining forces, the individual efficiency programs of CEE are able to partner not only with each other, but also with other industries, trade associations, and government agencies. By working together at CEE, administrators leverage the effect of their funding dollars, exchange information on effective practices, and, as a result, achieve greater energy efficiency for the public good.
