LED vs CFL: Which Has a Better ROI for an Energy Efficient Lighting Retrofit?

Claire Moloney's picture
Claire Moloney
Consultant
June 26, 2014

While CFLs are typically cheaper upfront and have a shorter payback period, LEDs are shown to have a better long-term investment, making them the obvious choice for an energy efficient lighting retrofit.

Long lasting, solid state, LED lighting is the future of high efficiency, consumer and commercial lighting.
Long lasting, solid state, LED lighting is the future of high efficiency, consumer and commercial lighting.
Credit: Anton Fomkin via Flickr

In an average American household, lighting accounts for 20 percent of the electricity bill. Therefore, replacing your lighting with more energy efficient fixtures could cause a significant decrease in your energy costs.

In general, there are two popular types of energy efficient lighting for a residential retrofit: compact fluorescent lighting (CFLs) and light emitting diodes (LEDs). CFLs are typically cheaper than LEDs, but LEDs operate at a higher efficiency and guarantee a longer lifetime than CFLs. That begs the question: are CFLs or LEDs the smarter choice for a lighting retrofit? Will the higher efficiency of the LED outweigh the upfront cost, or will a CFL have a better ROI? Let's investigate

Incandescents vs. CFLs vs. LEDs

First, let's compare the pricing, efficiencies and lifetimes of conventional residential lighting choices: incandescent, CFLs and LEDs. The lifetime is an important factor to consider because the longer the lifetime, the cheaper the replacement costs for lighting over time.

LED, CFL, Incandescent Comparison

Keep in mind that the rated lifetime of a lighting product may be shorter than the actual lifetime of the bulb. For example, an LED's lifetime is typically determined by the time when the lighting will be at 70 percent quality. It will still work after this lifetime but may just provide weaker lighting.

Return on Investment: Comparing the ROIs

Now, let's estimate a simple payback and ROI for replacing a traditional $0.50 60 W incandescent light bulb with either a (1) CFL or (2) LED.

We'll estimate that you use the incandescent light bulb for three hours each day. This means that in our example, it will use 180 Watt-hours per day (60 W x 3 hours), or 65,700 Watt-hours per year. This is the equivalent of 65.7 kilowatt-hours (kwh) per year.

If the electricity in your area costs $0.10 per kWh, the incandescent bulb then costs $6.57 to run for the year.

The incandescent bulb will last for 1,250 hours. If it is used for three hours per day, then it would last a total of 416 days, or 1.14 years.

CFL Replacement:

Let's assume that the 60 W equivalent is a 15 W CFL, which means it is 75 percent more efficient. If it runs for three hours per day, it will use 45 Watt-hours per day, or 16,425 Watt-hours per year. This equals 16.4 kWh annually.

At $0.10 per kWh, the CFL will cost $1.64 to run for an entire year (for three hours per day).

Let's say the CFL lasts 10,000 hours. This means it will last for 3,333 days, or 9.1 years, if used for 3 hours each day.

Let's take the average cost of a single spiral CFL in the Northeast, $5 (rounded up from $4.99).

Money Saved Over Lifetime: The CFL costs $1.64 in electricity per year, while the incandescent costs $6.57, which is a savings of $4.93 per year. Over 9.1 year lifetime, the CFL will save $44.86.

Free LEED Green Associate ExamSimple payback period: The CFL costs $4.50 more than the incandescent bulb ($5 - $0.50). The amount of time for the CFL to pay for itself is approximately 11 months, because it costs $4.93 more per year to run the incandescent light bulb, which is greater than the additional cost of the CFL ($4.50). (Calculation: $4.50/$4.93 = 10.95, or 11 months).

Of course, the payback period would be shorter if the light bulb were used more frequently (more than 3 hours), cost less money (less than $5), or if electricity were more expensive (greater than $0.10).

ROI: The return on investment (ROI) is calculated as the (Gain from Investment - Cost of Investment)/Cost of Investment. In this case, the gain from investment is the money saved in electric bills over the lifetime of the bulb, or $4.93 per year for 9.1 years, or $44.86. We must also include cost of replacing the incandescent bulbs multiple times over the lifetime of the CFL. Since the CFL lasts 10,000 hours and the incandescent lasts 1,250, the incandescent bulb would need to be replaced about 8 times over the course of the CFL's lifetime. This adds $4.00 to the gain on investment.

Therefore, the ROI = ($44.86 + 4.00 - 5)/$5 = 8.7

LED Replacement:

For the LED example, let's assume that it is a 12 W model (60 W incandescent equivalent), or five times more efficient. This will use 36 W-hours per day if turned on for three hours, and will use 13,140 Watt-hours per year. This is the equivalent of 13.1 kWh annually.

At $0.10 per kWh, the LED will cost $1.31 per year in electricity costs.

A single LED bulb costs $8 in our example, but lasts for 50,000 hours. This means it would last 45.6 years (if used 3 hours per day).

Money Saved Over Lifetime: The LED costs $1.31 in electricity per year, while the incandescent costs $6.57, which is a savings of $5.26 per year. Over 45.6 year lifetime, the LED will save $239.86.

Simple payback period: The LED costs $7.50 more than the incandescent bulb ($8 - $0.50). The LED costs $1.31 in electricity per year, while the incandescent costs $6.57. The amount of time for the LED to pay for itself is approximately 1.42 years, because it costs $5.26 more per year to run the incandescent light bulb. The additional price of the LED pays for itself after this amount of time. (Calculation: $7.50/$5.26 = 1.42 years).

ROI: The LED's gain from investment is the $5.26 saved in electricity per year times 45.6 years (the lifetime of the fixture), or $239.86. Then, we must add the cost of the incandescent bulb replacements over the LED's lifetime, which is 40 times, or $20 (40 x $0.50).

Therefore, the ROI = ($239.86 + 20 - 8)/$8 = 32.4

So, should you replace your incandescents with CFLs or LEDs? Considering its low initial cost and impressively high ROI, LEDs are the obvious choice for replacing your incandescents!

What to Look for When Buying LEDs

When buying LEDs, it's always a good idea to find ENERGY STAR rated models. The U.S. Environmental Protection Agency runs the program, which ensures the quality and energy efficiency of the products it rates.

ENERGY STAR rated LEDs last 10,000 - 50,000 hours and use a quarter of the energy of traditional lighting. They must be at least 75 percent more efficient than incandescent bulbs and must be durable (won't break easily). They emit even and good quality light and can save $70 per year in energy costs.

A good example of an ENERGY STAR rated LED for residential use is the Philips A-Shape EnduraLED (the 12.5 W and 8W are qualified). The 12.5 W was the first residential LED to become qualified under the ENERGY STAR program. For commercial use, Philips has recently unveiled the TLED, their latest lamp prototype, which boasts a record-breaking efficiency at 200 lumens per watt. It’s now being hailed as the best LED in the world. 

Philips TLED is the Future of Energy Efficient Lighting

Philips announced their latest LED lamp prototype on April 11, 2013. The Philips TLED produces 200 lumens per watt of high quality, warm light, which is twice as efficient as conventional LEDs and TL2, which both produce 100 lumens per watt.  This innovation is twice as efficient as current CFL bulbs and more than ten times as efficient as a traditional bulb.  This breaks previous records for LED efficiency, because it is the first time that efficiencies of this level have been achieved without sacrificing light quality. This LED lamp prototype will still produce the warm, white light that is comfortable for users.

Credit: Philips.com

While high LED efficiencies of this caliber have been produced by researchers, this is the first time that a lamp with this efficiency and high quality light will be manufactured commercially. While the Philips TLED is not yet on the market, once consumers can purchase it, they will see monetary and energy savings. While the Philips TLED is not yet on the market, once consumers can purchase it, they will see monetary and energy savings.

Philips' discovery will have a significant and lasting impact on the lighting industry, as well as on global energy use. Lighting makes up 19 percent of the world's energy use. If the world switched to 100 percent LED lighting, it would cut global electricity consumption by 40 percent. Yet, with Philips' new levels of efficiency, it could save even more. In the United States, if all fluorescent lights were replaced with Philip's 200 lumen/watt LEDs, it would save about 100 terawatt hours annually, which translates into $12 billion in savings, and it would prevent the release of 60 million metric tons of CO2.

Once Philips releases the technology, it will force the energy efficient lighting market to compete with the company's high quality, super-efficient lighting. One can expect a shift to higher efficiency lighting options within the industry, in the years to come.  

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