Calculating energy savings can be tricky business without an energy monitoring device installed. This blog post will take the mystery out of estimating the potential energy savings you could harness from a commercial or industrial LED retrofit project.

Here we outline exactly how we approach calculating energy savings for our lighting projects. (If you have budget for installing an energy monitoring system we offer this as well).

Here we detail the factors you need to consider and give you the exact calculations that determine energy saving so you can fact check any proposal or at least have a clear understanding of how proposed energy savings are calculated.

There are ways to estimate your energy savings with a high level of accuracy without an energy monitoring system, you just need a few specific and accurate pieces of information. If you’re a commercial or industrial facility considering a lighting upgrade to LED, this is for you.

We calculate energy savings when proposing to our customers after we’ve done a complete on-site energy lighting audit.

## Information you need to accurately calculate energy savings:

- A recent utility/electric bill. We prefer the last 6-12 months of bills though to gauge any seasonality in your energy consumption and rates.
- Your operating hours. How many hours in the day are your lights on? Are there some areas in your facility where operating hours differ (or could differ)?
- The exact quantity, fixture type, and wattage of every fixture within your existing lighting system.
- A custom proposed LED retrofit solution with fixture wattage and any advanced controls or sensors.

## Establish a baseline (cost and energy consumption)

Your cost of power will depend on your utility & region. You can’t control your cost of power but you can control your energy usage and in many cases take advantage of rebates available through your utility designed to incentivize

You’ll need to separate the costs attributable to just you are lighting systems from your other energy costs. We call this establishing your baseline.

Your baseline is your existing energy usage. We calculate existing energy usage in** **three steps with three calculations.

Because your electric bill does not itemize consumption, all your electric expense is consolidated on the one bill, motors, machines, lighting, computers etc.

Since all your kWh consumption is lumped together the first step to accurately assessing your existing lighting costs requires isolating the existing annual energy cost or “baseline” for the scope of work identified.

The first calculation in the baseline formula is to calculate your “blended rate” – this is a rate per kilowatt hours (kWh).

**Step 1: Calculate Your **__Blended Rate__

__Blended Rate__

**Calculated Blended Rate = total amount billed divided by / the total amount consumed (your usage) ($/kWh)**

**First, you’ll need to read your utility bill. Here’s an example:**

- Electric rate
- Electric usage
- Usage graph
- Delivery and System Charges
- Power Supply Charges
- Efficiency & Renewable Charges
- Other Charges (state and local taxes)

At PEC, we like to take the average blended rate from 6-12 months of bills to account for any seasonality or variations in your annual usage, but using this example we will calculate blended rate by dividing the total billed $174.58 / by the total kWh consumed for the month (871 kWh)

**Blended rate: $174.58/871 = $0.20**

This means that in this example our customer is charged 20 cents ($0.20) per kilowatt hour (kWh) of energy consumed (used).

**Step 2: Calculate the energy usage for your existing lighting system**

Now you’ll use the blended rate to extrapolate how much your existing system is costing you on an annual basis.

You’ll need to assess your existing lighting system and know exactly what fixtures you have and how many of each you’re running. You’ll also need to know the wattage of these fixtures and the operating hours (how many hours a day/ year are these lights on?

Here’s the calculation: Annual kWh consumption for the identified scope.

**Annual kWh calculation = (Count * Fixture Wattage * Annual Run Hours / 1,000)**

In this example you can see we’ve done a thorough **lighting audit **for an identified scope of work (area where we will propose a lighting upgrade).

We know exactly what type of fixtures these are and have identified the wattage for each of these. We have calculated for each existing fixture type the existing annual kWh. For each row you can see the (Count * Fixture Wattage * Annual Run Hours / 1,000)

Totaling 372,510 kWhs consumed each year by these facilities existing lighting systems.

**Step 3: Calculate the cost of your existing lighting system**

In this final step we can simply take the total kWhs consumed in a year and multiply this by the blended rate for each kWh. Baseline Annual Energy Cost = (existing kWh * blended rate)

**Total Annual Energy cost = 372,510.24 kWh *$0.251 = $93,498**

Now you have your baseline!

**Step 4: Calculate your proposed Annual kWh**

You’ll use the same formulas to calculate your expected energy savings.

Using the information provided by your LED lighting contractor with the proposed lighting system from your proposal you’ll capture:

- The proposed fixture count (quantity)
- The proposed fixture / system wattage
- Your operating hours (these are likely to be the same unless you opt for adding advanced lighting controls)

Calculate your **Projected Annual kWh: (Count * Fixture Wattage * Annual Run Hours / 1,000)**

In this example the system we used had the same quantity of fixtures (1,232) but the wattage on the proposed fixture type was significantly less resulting in projected annual kWh usage of 208,898.

Compare the old kWh usage of 372,510 to the new kWh usage 208,898 and you have an energy consumption reduction of = 163,612 kWh

**Step 5: Calculate your energy savings**

Here we do our final calculation using the blended rate we calculated earlier.

We have a new energy spend of 208,898 * $0.251 = $52,433

So, take the $93,498 we are spending and minus $52,433, and Voila!

## We have our annual energy savings number of** $41,066.**

That’s a 44% reduction in annual energy spend every single year!

Just for fun we can extrapolate these savings over 10 years.

As we all know the cost of power is increasing at a rapid rate. And since your cost of power is dictated by your utility company your rate is largely out of your hands. Since 1960, average energy escalation has been 2.8% per year.

Using a very conservative 2.5% to calculate the future value and increase in the cost of power we can safely say that if you were this facility and you installed this LED lighting system then in 10 years you will have saved your company over **$461,360**

Why stop there?

Your new LED system will not only save you in energy costs. A good system will reduce your monthly maintenance costs significantly. Check out our blog post on how to calculate maintenance savings [coming soon].