Annual energy saving
Saving = fixtures x watts saved x hours / 1,000 x price
Watts saved per position, times operating hours, converted to kWh and priced at the all-in rate from the bill.
Guide
Lighting Retrofit Payback: Building a Case That Survives Finance Review
How to assemble energy, maintenance, incentive, and installed cost into a payback figure that holds up when someone checks it.
Measure the baseline or do not claim the saving
Ageing lamps draw differently from their nameplate, and the fixture population on the drawings is often not what is on the ceiling. A short survey of twenty positions, or one week on a current logger per circuit type, is enough to defend the existing load. Without it, the saving is an assumption in a spreadsheet.
Installed cost is not the fixture price
Installed cost includes the fixture, the driver or retrofit kit, delivery, access equipment, disposal of the old lamps, control commissioning, and the productivity lost during the shutdown. Retrofit kits cost less than new fixtures but carry more labour; a one-for-one replacement on a lift often beats a cheaper fixture that needs rewiring.
Maintenance savings need a schedule behind them
Longer life removes real cost, but only if the labour rate, access cost, and failure rate are known. Use the maintenance budget you already track, or the replacement interval implied by rated life and operating hours, and keep the number separate from the energy saving so the finance team can see the two cases independently.
Treat the incentive as conditional money
Utility and programme incentives usually require pre-approval, a qualifying product, and sometimes post-installation verification. A payback that depends on an incentive should be shown with and without it, because a payment received six months late, or not at all, is the difference between a funded and an unfunded project.
Present payback beside lifetime saving
Simple payback answers how long the capital is at risk; lifetime net saving answers what the project is worth. Show both, with the analysis period stated, and keep the assumptions on the same page as the results. A project that pays back in six years and saves a quarter of a million over ten is a different conversation from a payback figure on its own.
Formulas used
Simple payback
Payback = net installed cost / total annual saving
Net cost is installed cost minus any incentive. Total annual saving includes energy and any maintenance saving with a documented basis.
Lifetime net saving
Net = annual saving x years - net installed cost
Undiscounted, and stated as such. Where the owner discounts cash flows, present value replaces this figure and the discount rate is disclosed.
Worked examples
A two hundred position warehouse retrofit
Inputs: 250 W saved per position, 7,000 operating hours, 8.5 cents per kWh, $180 installed per position, no incentive.
The saving is 200 x 250 W = 50 kW, or 350,000 kWh a year, worth $29,750. At $36,000 installed the simple payback is 1.2 years, and over ten years the net saving is $261,500.
A three hundred position office retrofit with an incentive
Inputs: 18 W saved per position, 2,500 hours, 13 cents per kWh, $140 installed per position, $6,000 incentive, $2,500 a year in maintenance.
Energy saved is 13,500 kWh, worth $1,755. With maintenance that is $4,255 a year. Installed cost is $42,000, net of the incentive $36,000, so the payback is 8.5 years, and at twelve years the net saving is $15,060. The same project without maintenance savings pays back in 20 years, which is the reason the maintenance line has to be evidenced.
Questions readers ask
What payback should a lighting retrofit achieve?
Energy-only projects in commercial buildings commonly land between two and six years, and warehouse or high-hour industrial projects often below three. Thresholds belong to the owner: some require two years, some accept eight when maintenance, comfort, or compliance is part of the case.
Should I use simple payback or discounted cash flow?
Simple payback for the first screen, because it is transparent and quick. Use discounted cash flow when the owner has a hurdle rate, and show the rate you used, because a ten year undiscounted saving and the same saving at an eight percent discount are very different numbers.
How do I handle the incentive in the payback?
Show the payback with and without it, and note the pre-approval requirement. An incentive that has not been approved is a possibility, not a cost reduction, and a project that only works with it should be presented that way.
Run the payback on your retrofit
Sources
- Lighting and energy saving resources U.S. Department of Energy, Energy Saver · 2026-10-15
- Qualified Products List for commercial lighting DesignLights Consortium · 2026-10-15
- Electric Power Monthly U.S. Energy Information Administration · 2026-10-15