Leased LEDs and Energy Service Contracts can Cut Electric Bills (Video)

I first heard of Consumer Energy Solutions from a non-profit's IT guy who was boasting about how he got them to lease him LED bulbs for their parking lot and the security lights at their equipment lot -- pretty much all their outdoor lighting -- for a lot less than their monthly savings on electricity from replacing most of their Halogen, fluorescent, and other less-efficient lights with LEDs. What made this a big deal to my friend was that no front money was required. It's one thing to tell a town council or non-profit board, "If we spend $180,000 on LEDs we'll save it all back in five years" (or whatever). It's another thing to say, "We can lease LEDs for all our outdoor lighting for $4,000 per month and save $8,000 on electricity right away." That gets officials to prick up their ears in a hurry.Then there are energy service contracts, essentially buying electricity one, two or three years in advance. This business got a bad name from Enron and their energy wholesaling business, but despite that single big blast of negative publicity, it grows a little each year. And the LED lease business? In many areas, governments and utility companies actually subsidize purchases of anything that cuts electricity use. Totally worth checking out.

But why, you might ask, is this on Slashdot? Because some of our readers own stacks of servers (or work for companies that own stacks of servers) and need to know they don't have to pay whatever their local electric utility demands, but can shop for better electricity prices in today's deregulated electricity market. And while this conversation was with one person in this business, we are not pushing his company. As interviewee Patrick Clouden says at the end of the interview, it's a competitive business. So if you want the best deal, you'd better shop around. One more thing: the deregulated utility market, with its multitude of suppliers, peak and off-peak pricing, and (often) minute-by-minute price changes, takes excellent software (possibly written by someone like you) to negotiate, so this business niche might be one an entrepreneurial software developer should explore.

Comments

So paying more in the long run is better?

[silas_moeckel]

Was this some sort of lease to own scheme? Municipalities tend to pay very little for cash less than a leasing company. Are we surrounded by idiots with no impulse control or long term thinking to think leasing is cheaper?

Re:So paying more in the long run is better?

[Anonymous Coward]

Are we surrounded by idiots with no impulse control or long term thinking to think leasing is cheaper?

Yes.

Re:So paying more in the long run is better?

[countach44]

I think the argument here is that it's cheaper than keeping the legacy power hungry stuff. Cheaper in the long run than owning the LEDs? Definitely not, because the lessor is making a profit somewhere.
If you don't have the capital to invest in purchasing your own stuff and switching over, however, it seems like this is a reasonable option.

Re:So paying more in the long run is better?

[Roblimo]

I believe Pat's company does lease to own deals. A lot of them do. That should be a big factor in selecting a vendor for that kind of lease program.

Re:So paying more in the long run is better?

[Mr D from 63]

Was this some sort of lease to own scheme? Municipalities tend to pay very little for cash less than a leasing company. Are we surrounded by idiots with no impulse control or long term thinking to think leasing is cheaper?

Without discussion of lease terms, length, and end of lease requirements, you really can't determine if there is anything to be saved. Also, installation costs might be a big factor purposely not discussed. It may be easy to lease the lights, but the costs of installation (and maybe even maintenance) drive the real cost up and potential benefit down.

Re:So paying more in the long run is better?

[Mike_EE_U_of_I]

Was this some sort of lease to own scheme?

It would be pretty stupid if it was not. About 20 years ago, most office buildings changed up the ballasts on their fluorescent lights from magnetic to active which gave huge electricity savings. It was pretty common to see deals like this back then. The company that I was consulting at did this. They had a company come in and replace the ballasts. The deal was ten years of half of the savings on the electricity and then the leasing company walked away. So from the POV of the customer, they had no up front cost, for 10 years the customer got half the electricity savings, and for the remainder of the life of the product the customer got 100% of the savings. If purchased outright, the ballasts would have paid for themselves in just a couple of years so it was a really sweet deal for the leasing company.

Re:So paying more in the long run is better?

[The Grim Reefer]

If you don't have the capital to invest in purchasing your own stuff and switching over, however, it seems like this is a reasonable option.

Depending on the size of the site, it should be possible to replace some portion of the lights at a time. You could even do the first round of replacements and then use the savings from the next (couple) of electric bills to replace the next round of lamps and continue to do so until all have been updated.

Of course in the real world the first round of lights would be replaced and the savings from that would go directly to the CEO's quarterly bonus I suppose.

Re:So paying more in the long run is better?

[Smallpond]

. If purchased outright, the ballasts would have paid for themselves in just a couple of years so it was a really sweet deal for the leasing company.

Unless the company goes out of business before the lease is up.

Re:So paying more in the long run is better?

[geoskd]

Are we surrounded by idiots with no impulse control or long term thinking to think leasing is cheaper? Yes.

And we keep electing them to run things. How stupid does that make us?

Re:So paying more in the long run is better?

[geoskd]

installation costs might be a big factor purposely not discussed. It may be easy to lease the lights, but the costs of installation (and maybe even maintenance) drive the real cost up and potential benefit down.

There are no additional installation costs. These LED lights are designed to be drop in replacements for the older halogen and sulfur types. These elected officials are just that stupid.

Re:So paying more in the long run is better?

[Roblimo]

Without discussion of lease terms, length, and end of lease requirements, you really can't determine if there is anything to be saved...

Yep. You'd better shop around.

Re:So paying more in the long run is better?

[oneiros27]

You're assuming that they're not effectively leasing in the first place.

My town is small enough (300 homes) that most of the lights are managed by the local power company (PEPCO). We pay them a fixed amount per month, plus the energy cost. When something goes wrong with one of the lights, we report it to them, and they fix it. (citizens can also report them, but it's a royal PITA, as you have to give them both the pole number (which means you have to get out of your car, and walk up to the pole, and try to read it in the dark), and the type of fixture (which of course, we're all experts on, and why the hell don't they have a database of what fixture is on what pole?))

Back when I was a town commissioner, we were trying to get the lights replaced w/ LEDs, but PEPCO insisted that they didn't have enough data to figure out what the replacement lifetime would be, and so they couldn't determine their cost and thus couldn't offer them to us.

So instead, we had to pay to get all of the lamps replaced with high-pressure sodium, when they stopped offering whatever the lights were that we used to have. (oh ... and did I mention that we also paid the up-front cost for the fixtures, along with a monthly maintenance fee, and the energy usage?).

Re:So paying more in the long run is better?

[Mr D from 63]

There are no additional installation costs. These LED lights are designed to be drop in replacements for the older halogen and sulfur types.

It still cost money to send guys out on bucket trucks to replace lights.

Re:So paying more in the long run is better?

[Anonymous Coward]

Depending on the size of the site, it should be possible to replace some portion of the lights at a time. You could even do the first round of replacements and then use the savings from the next (couple) of electric bills to replace the next round of lamps and continue to do so until all have been updated.

Or you could lease the lights, making an immediate savings of $4000 per month. Bank that money for five years. Then buy all new lights when the lease runs out. Assuming the $180,000 number is the actual cost of replacing the lights, it will take forty-five months to make enough in savings to pay for new lights.

If they spread out installation until they can pay for the lights, that increases the time again. Let's say they replace one-eighth of the lights to start. That's $22,500 out of pocket. They'll get one-eighth of the savings. So it will take 22.5 months at $1000 per month to make enough for the next batch.

22.5 * $1000
11.25 * $2000
7.5 * $3000
5.625 * $4000
4.5 * $5000
3.75 * $6000
3.21428571... * $7000
2.8125 * $8000
=====
61.15 (approximate) months to get $180,000 in savings

Perhaps not coincidentally, that's just over five years. So if it's a five-year lease, the locality is actually saving $250,000 over your plan. They saved $240,000 in five years. Your plan costs $10,000 in five years. Note that if they are five year bulbs, the initial install needs to be replaced now. With the lease, that's $180,000 needed. On the bright side, on the purchase, that's only $22,500 in bulbs that need to be replaced.

Of course, they're already $10,000 in the hole at this point. Fortunately, that's only three more months to pay that off. Of course in that four months (one leftover plus three new), the former leasers make an additional $32,000 added to their $60,000 in savings. They're up $92,000 and their bulbs are as new or newer. And of course, I rounded down, which means that the actual savings will be slightly better, perhaps $92,200.

TL;DR: Leasing is cheaper than buying in installments because it gives more savings sooner.

Re:So paying more in the long run is better?

[geoskd]

It still cost money to send guys out on bucket trucks to replace lights.

It was money you would have to spend on replacing them when they burn out anyways. When one burns out, you replace the two closest to it as well, that way you cut your replacement labor costs in roughly 1/3, and you don't have the huge up front expense of replacing them all at once. You just begin to reduce your monthly costs gradually. After a year or so, you're saving so much that the program pays for its own continuation. After 3 years you have a significant reduction in monthly maintenance costs as well as significant savings in energy costs...

Re:So paying more in the long run is better?

[geoskd]

Note that if they are five year bulbs, the initial install needs to be replaced now.

These bulbs last 25 years, not 5 years. Leasing is an idiotic option that only an American mind could think of as being a good deal. If there is a private company leasing you the equipment, it is *by definition* going to be cheaper for you to buy it yourself, especially if you can get financing for less than the private company can.

Re:So paying more in the long run is better?

[NostalgiaForInfinity]

Like all such arrangements, you're paying to transfer the risk. What's the risk? That the lights don't work as advertised and that a new, better technology is around five years from now.

I addition, the reason municipalities can get money so cheaply is because their interest rates don't reflect actual risk. Given that, their ability to take on debt should be (and has been) limited.

The prudent and right thing to do for government projects is to treat every project as if it borrowed money at commercial rates over its entire lifetime.

Re:So paying more in the long run is better?

[Dereck1701]

"but PEPCO insisted that they didn't have enough data"

This situation sounds like a serious conflict of interest where the utility has at the very least no incentive to work towards LED street lights and could very well actively attempt to prevent such a switchover. Street lights by their very nature operate at night, a time where the system load has for the most part has dropped below the utilities baseload capacity. In simplistic terms they are generating power that isn't being used, so they aren't being paid for it. There is a significant impetus for them to WANT "someone" to use power in the midnight to 6 AM period and they're probably hoping that municipalities with power hungry street lights and homeowners with "security" lights will take up at least part of the slack.

Re:So paying more in the long run is better?

[BitZtream]

Yes

Re:So paying more in the long run is better?

[manu0601]

Was this some sort of lease to own scheme? Municipalities tend to pay very little for cash less than a leasing company

EU, which is always ahead on the matter of economical stupidity, now even mandates member state to that a deficit under 0.5% of GDP, which means loaning to invest is forbidden. It seems considered better to spend money to lease instead of paying a debt.

Re:So paying more in the long run is better?

[Anonymous Coward]

Generally, you cannot borrow money as inexpensively as the leasing company can, particularly today. Large borrowers can get money at fractions of a percent (esp if they sell bonds). You, on the other hand, can probably get your best deal by refinancing your house at around 4%, more if you're doing a HELOC or 2nd mortgage.

Not only that, but a large leasing company is typically buying wholesale, not retail.

In the solar panel installation biz, a large leasing company can come in at a price to you that is lower than you can do it for yourself, and still make money Their margin is derived from partly the "retail/wholesale" difference and partly the "cost of money" difference.

Differentiate also between capital expenditures and operating expenditures. For most businesses and municipalities, they come out of separate pots of money.

That's not to say that all leasing companies are sweetness and light, and that they won't do a deal that is bad for you.

Re: So paying more in the long run is better?

[thesupraman]

... And if you think the difference between lease and buy is exceeded by the difference between zero and 4 percent interest then you cannot do math.

The face is that leasing almost never makes financial success except in a short term use scenario. Lease companies generally make very good profits and there is a reason for that.

They also make a lot of money of people and companies who think they only need something for a short time but end up keeping it for a long time.. Very very common.

The only way this story makes sense is..

A. Slashdot is now it's own shill.
B. People who live on credit (and lease deals are almost always used as a form of credit) will go a long way to convince themselves it makes sense.

There are of course some situations where it does make sense.. But never because it is cheaper over a long time period.

Re:So paying more in the long run is better?

[Anonymous Coward]

These bulbs last 25 years, not 5 years.

That would make the savings *LARGER* not smaller. That adds an additional $157,500 to the leaser savings relative to purchasing by installment. Or $180,000 to their bank balance.

But it's not true. The bulbs promise five to ten years of service if run for twelve hours a day, depending on the bulb. Note that street lights do run all night, which should come out to about twelve hours a day on average. Indoor lights that only run a couple hours a day may last twenty-five years, but these won't.

In the long run, borrowing the $180,000 up front may be superior. Assuming you can borrow up front. It does put a lot of risk on the local municipality (for example, a recent test found that one in four LED bulbs doesn't make it to 25,000 hours; some manufacturers are better than others). But this wasn't a response to purchasing everything up front. This was specifically a response to the idea that they could do the upgrades in stages where the electrical savings would pay for the next stage. It would be better to take the lease deal and do everything up front than to do a partial upgrade.

Re:So paying more in the long run is better?

[Anonymous Coward]

Drop in replacements like the LED traffic light drop in replacements? The ones that became unusable and had to be replaced due to all the ice and snow build up because the LEDs didn't get hot enough to melt all the ice off? Simple replacement costs that escalated way, way over budgets and led to real auto accidents?

Maybe people do seemingly stupid things because you don't have the full picture and they don't want to repeat past mistakes. I'm not saying leasing is a good idea or not, but never trust someone trying to sell you something and that includes drop-in replacement claims. If the new item has the exact same specs of the old, then it'd be the same part and the energy costs wouldn't change.

Re:So paying more in the long run is better?

[Aaden42]

You can pretty much assume that should that happen, the revenue stream from any outstanding leases would be part of the company's assets sold off in the bankruptcy.

You'll continue to pay *someone* your leasing fees for the entire term of the original contract. Might not be the same company you started with, but someone will buy the contract out for pennies on the dollar and keep on invoicing you for the dollars.

What did Enron prove?

[Anonymous Coward]

Enron proved that deregulated markets can only work when the energy users can stop using power when the price shots up. Or the untility is willing to black or brown out if it does. Sorry but it was a little more than a black eye. It is why utilities were regulated monopolies in the first place.

So companies lease bulbs instead of financing them. Ok

Re:What did Enron prove?

[ChrisMaple]

Re: Price increases. You've never heard of long-term contracts?
Enron failed because it thought that its expertise in power pricing was valid in other fields. It was wrong.
Utilities are regulated for 2 reasons: 1. The sort of people who complain about everything in life are goaded by monthly bills into complaining to the government. 2. Being uniquely capital intensive and inherently unable to move, utilities are prime targets for government bullying

If its seems too good.....

[Mr D from 63]

We can lease LEDs for all our outdoor lighting for $4,000 per month and save $8,000 on electricity right away

You can't save $8000t "right away". That's just bullshit.

What they are doing is depending heavily on tax subsidy/credits... not actual cost. Then twisting the numbers.

Re:If its seems too good.....

[Anonymous Coward]

You might not be able to do it with your electric bill. But when you talk big companies who pay A LOT of money in electricity that is a different story.
If you are paying let's say $12K/mth in electric bill for lights alone, then cutting out $8K is completely doable.

I'm confused...

[SeaFox]

Is this a legitimate article, or are we taking Slashvertisements to a new level?

Re:I'm confused...

[Anonymous Coward]

This is classic advertorial.

Re:I'm confused...

[Roblimo]

"Slashvertisement - a fiction spawned in the brains of basement-dwellers who think that anyone who says anything nice about anything or anyone is getting paid to be positive."

Nope. All ads or "sponsored content" pieces on Slashdot are clearly identified. This piece is legit, and I clearly stated that this is just one of many companies in the energy-saving businesses. Clouden's company is close to me and I first heard about it from a satisfied customer, but at no point did I (or he) say his company was better than others in the same business. In fact, let me repeat: If you're going to buy any kind of energy-saving services, you'd better shop around -- just like Smokey Robinson's momma told him: https://www.youtube.com/watch?...
 

Re:I'm confused...

[Anonymous Coward]

Ads from a major Scientology member and donor. His company is a big supporter of the Foundation for a Drug Free World, which is a Scientology front group.

And this is whats wrong with USA

[Anonymous Coward]

No long planing, not even having 5 years for something to pay off.

Another script-laden web site

[satch89450]

I use NoScript in Firefox. It would appear most of the site is navigated using scripts. No thank you.

So i should pay more for complexity?

[Anonymous Coward]

I don't think minute by minute or hour by hour billing will save me money. Also not having to work in the dark for an hour every day because the electric costs twice as much at 4PM as it does at 3PM is a big plus. Here in this part of oklahoma we pay a monthly rate. And if that's too inconsistent for you they offer Levelized Monthly Billing (averaged over a year). And still yet if you still can't make your budget they even offer Prepaid service although sadly you don't get one of those fancy meters with the credit card readers and balance readout.

Prepaid might actually save me money but not through their current prepay.

lets say our electric bill is $500/mo on average how much could i save if i prepaid electric for the next 3 years? I bet its a lot less than if we just converted all the t12 bulbs in the building to led.

And for why leasing would be a good idea? two words Term Limits. If they spend $90,906 on replacing lights and can't be office long enough to see the ROI...Yes they are going to lease it and its going to make them look like they are doing a good job now when its actually costing you thousands of dollars.

The city that I live in recently replaced 271 HPS lights with LED lights with a grant for $90,906 from the Oklahoma Department of Commerce they were estimating it would save the city 25 to 27 thousand dollars a year in electric costs and since the city only had to match the grant with $27,010 i think they are just a couple months away from breaking even on that project.

oh and /. human detector I fooled you I am actually a squirrel :B

I have wondered about doing 'leasing' for ....

[WindBourne]

residential HVAC. Basically:
1) insulate a home;
2) put in new windows, doors;
3) put in LED bulbs;
4) put in geo-thermal HVAC;

Then for the next 10-15 years, collect the difference on the utility bill. After that, the changes belong to the home.
It seems like this might be a win-win type operation.

Re:I have wondered about doing 'leasing' for ....

[swb]

HVAC is too mechanical and homeowners are too persnickety. You'd get killed on break fix and maintenance overhead and labor. If you tried not to, your service would suck and people would quit paying the leases or deduct out of pocket repair costs from lease payments.

Plus, what happens when you want to move? "Oh there's this weird lease on the HVAC..." could make it harder to sell.

Re:I have wondered about doing 'leasing' for ....

[WindBourne]

which is why I would think of only doing this with geo-thermal and electric. Gas has far too many issues.

Huh?

[argStyopa]

Isn't the point of a lease market that there's residual value after the primary use? Basically that (for the actual owner) then:

(lease payments) + (resale value at the end) > purchase price

Who buys used LEDs?

Re:Huh?

[Khyber]

LEDs now days are so good that after they hit their typical 70% of brand-new output they're still pushing more light per watt than brand-new HID bulbs.

So who buys used LEDs? Smart people.

Better methodology?

[Dereck1701]

A better methodology might be to simply stop buying standard bulbs and start buying LEDs. As standard bulbs go out swap them out. Sure you won't see the savings immediately but you also won't throw away a boatload of perfectly good bulbs and you won't have quite such a sticker shock. I can definitely see the use of this leasing service, but only in cases with especially pigheaded bureaucrats, kind of like those ones who claim the world is 7,000 years old or those who think we can convert 100% to renewable electricity and organic food and not have rolling blackouts and half the population starving to death.

Re:Better methodology?

[Anonymous Coward]

It is almost always cheaper to "throw away a boatload of perfectly good bulbs", because the investment in the old bulbs is negligible compared to the energy cost.

Re:Better methodology?

[Dereck1701]

As a thought experiment perhaps, but when factoring in real world requirements such as disposal, transportation, labor & logistics you're hard pressed to justify a major effort to replace bulbs wholesale.

Utility Incentives

[Anonymous Coward]

Often, the utility will subsidize the changeover, particularly if you are a "on-peak" load, like factory lighting. SoCal Edison had a program to replace fluorescent fixtures with HID (and now, probably LED) in warehouses and factories. It was *free* to the customer (as in Edison came in and replaced all the fixtures at their expense) because it was cheaper to do that than to increase generating capacity.

There's a whole lot of this "increase capacity by installing more efficient loads" stuff around: variable speed drives for electric motors; more efficient motors, etc.

The TFA describes a scheme like all the solar panel leasing schemes, and it is usually a good deal: the leasing company can borrow money MUCH cheaper than the homeowner can. Say you've got a homeowner that's currently burning 1000 kWh/month (e.g. average load of 1.3kW, 24/7), and paying an electric bill of around $250/month (at 25c/kWh). They could go buy a 10kW solar panel installation (at roughly $20k) and drop their bill to zero. That would have a payback period of about 6-7 years (since they're saving $3k/yr). But rather than the homeowner borrowing the 20k (at, say, 4% APR, that's $200/mo for 10 years), they can go to one of the leasing companies.. The leasing company says, hey, pay us $190/mo (less than the $200 your loan would cost), and we'll install those panels for free. The leasing company borrows the money at 1% (because they're MUCH bigger), which only costs them $175/month, and they clear $15/month on the deal.

Of course, they do it with a bit more complexity, also arbitraging the rate at which they can sell the electricity to the utility and the rate they charge you.

As the LED expert on Slashdot.

[Khyber]

5 years payback time?

You can buy the full fucking retrofit from Alibaba and your typical payback time is six months OR LESS.

LEASING SCHEMES ARE SCAMS. QUIT FALLING FOR LEASING SCAMS.

Re:As the LED expert on Slashdot.

[RobHostetter]

They usually even include fake printed UL labels to boot! Of course they don't have the testing that makes UL valuable.

Re: So paying more in the long run is better?ho

[Anonymous Coward]

Sounds like the point is an easy initial sell to a bunch of phbs who couldn't figure out what ROI means or be bothered to try.

Then a year or two later you can go to them explaining how they'd save even more money by buying the stuff they are already using. No questions about technology reliability or watever