Skip to Main Content

We combine our estimate of average total efficiency gains with actual production and cost data from the firm to calculate annual costs and benefits of LED installation. The calculations are shown in table 7. Senior management at the firm estimated that the profit gain for each percentage point gain in efficiency was 0.1875 percentage points.30 Thus, a 0.4 percentage point gain in efficiency from LED installation translates to a .075 percentage point gain in profits (or a 1.5% increase in profitability from the 5% baseline profit margin of the firm). At an approximate profit per factory per year of $500,000 (amounts in US dollars) the introduction of LED delivers productivity gains worth $7,500 per factory per year.

Table 7.
Cost-Benefit Calculations for LED Adoption
Cost of implementation (one-time)  
Investment per bulb (e.g., bulb, wiring) $8.53 
Number of bulbs replaced per factory 1200 
Total cost of implementation $10,240.00 
Energy savings (per year)  
Power consumption savings per bulb (with savings of 18 kWh per year, at a cost of about $0.1334/kWh) $2.40 
Number of bulbs replaced 1,200 
Total energy savings $2,880.00 
Efficiency gains (per year)  
Average efficiency gain in percentage points from LED-induced temperature reductions 0.4000 
Efficiency percentage point gain to profit percentage point gain translation 0.1875 
Profit margin at baseline 5% 
Average revenue in USD per factory per year $10,000,000.00 
Average profit in USD per factory per year $500,000.00 
Total efficiency gains $7,500.00 
Total net savings from LED Adoption in the first year $140.00 
Total net savings from LED Adoption in the second year $10,380.00 
Carbon (public) benefits from LED adoption (at $44/tC) $197.04 
Carbon (public) benefits from LED adoption (at $93/tC) $416.47 
Cost of implementation (one-time)  
Investment per bulb (e.g., bulb, wiring) $8.53 
Number of bulbs replaced per factory 1200 
Total cost of implementation $10,240.00 
Energy savings (per year)  
Power consumption savings per bulb (with savings of 18 kWh per year, at a cost of about $0.1334/kWh) $2.40 
Number of bulbs replaced 1,200 
Total energy savings $2,880.00 
Efficiency gains (per year)  
Average efficiency gain in percentage points from LED-induced temperature reductions 0.4000 
Efficiency percentage point gain to profit percentage point gain translation 0.1875 
Profit margin at baseline 5% 
Average revenue in USD per factory per year $10,000,000.00 
Average profit in USD per factory per year $500,000.00 
Total efficiency gains $7,500.00 
Total net savings from LED Adoption in the first year $140.00 
Total net savings from LED Adoption in the second year $10,380.00 
Carbon (public) benefits from LED adoption (at $44/tC) $197.04 
Carbon (public) benefits from LED adoption (at $93/tC) $416.47 

Profit margin at base was taken from the accounting department of the firm. Calculation for translating efficiency gains to profit comes from accounting estimates of the proportion of “cut to make” (nonmaterial) costs that can be recovered via efficiency gains. “cut to make” costs make up 25% of total costs, and 75% of these costs are recoverable via improved efficiency. Average revenue in USD per factory per year is obtained by taking balance sheet revenues for the firm and dividing by the number of plants. For additional details on the calculation of carbon benefits, refer to section VII.

Close Modal

or Create an Account

Close Modal
Close Modal