Avoid Using “Average” Electric Rates to Calculate Savings

When you operate your business, it can seem as though everything is eating into your overhead. How do you get ahead? One way is by retrofitting your current light system to an energy efficient LED design. You can quickly see dramatic utility savings of up to 65%, get a quick payback between 6 months and two years and enjoy enhanced lighting conditions throughout your facility. However, there are also areas where you can make a mistake that can quickly cost you those savings and benefits.

When you’re trying to get an idea of the potential an energy efficient retrofit will provide, using an average electric rate gives you a quick glance at what you may find in terms of savings. However, before you commit to the project, you should use your actual electric bill to determine the savings you may see. Why? Two words: rate structure. Utility rates are calculated using a number of different structures. Here are the four most common that you may see on your electric bills and what the general differences are between them:

1. A Declining Block Rate

A declining block rate is the rate you receive when you use electricity beyond a set amount and is quite common in commercial electrical supply agreements. For example, if your facility uses 38,000 kilowatt hours (kWh) a month, you may pay $0.06 per kWh for the first 10,000 kWh, $0.05 per kWh for the next 20000 kWh and $0.04 per kWh for any usage beyond that point. If you expect to see a 50% cut in power consumption under the retrofit light system, you’d only reach 19,000 kWh. If you based your calculations on the $0.04 per kWh rate, you would underestimate your potential savings. If you based it on the initial $0.06 per kWh rate, you would overestimate your potential savings.

2. A Time of Use or Demand Rate

Will your lights be used during daylight or dark? Depending on when electricity is in demand in your region, you may fall under multiple rates. If the electric grid is stressed from air conditioners during the day, you’ll probably pay more for usage during that time of day than in the middle of the night when demand is low and off-peak rates go into effect. Make sure you’re looking at the right time of day to get the right rate and cost savings.

3. Seasonal Rate

Similar to demand rates, seasonal rates may be higher during one part of the year than other parts of the year. If your area is very hot in the summer, air conditioning units may create extra stress on the grid, while cold winters may reverse the timing in colder parts of the country. Keep in mind that the lighting retrofit may change how much heat is produced in your facility, which can also impact these numbers.

When you use the wrong rate to estimate your savings, you may be setting yourself up for an unpleasant surprise on your electric bill, see a longer payback period or a lower or higher savings percentage. Make sure you’re looking at the correct figures when you work out your estimates. Are you ready to see what potential savings you could see from an energy-efficient lighting retrofit?

By following these tips, you’re much more likely to avoid these mistakes in your ROI calculation and reap the rewards of a well-planned energy efficient lighting retrofit project.

To learn more from the professionals at Retro-Tech Industries, please feel free to contact us today for a smooth lighting retrofit project that meets your expectations.

Start a Project

Contact us to start a project, and get more information.

Let’s get started ⟶