1、IES RP-31-14Recommended Practice for the Economic Analysis of LightingIES RP-31-14Recommended Practice for theEconomic Analysis of LightingPublication of this Recommended Practice has been approved by the IES. Suggestions for revisions should be directed to the IES.IES RP-31-14Copyright 2014 by the
2、Illuminating Engineering Society of North America.Approved by the IES Board of Directors, March 11, 2014, as a Transaction of the Illuminating Engineering Society of North America.All rights reserved. No part of this publication may be reproduced in any form, in any electronic retrieval system or ot
3、herwise, without prior written permission of the IES.Published by the Illuminating Engineering Society of North America, 120 Wall Street, New York, New York 10005.IES Standards and Guides are developed through committee consensus and produced by the IES Office in New York. Careful attention is given
4、 to style and accuracy. If any errors are noted in this document, please for-ward them to Rita Harrold, Director Educational and Technical Development, at the above address for verifica-tion and correction. The IES welcomes and urges feedback and comments.Printed in the United States of America.ISBN
5、 # 978-0-87995-290-7DISCLAIMERIES publications are developed through the consensus standards development process approved by the American National Standards Institute. This process brings together volunteers represent-ing varied viewpoints and interests to achieve consensus on lighting recommendatio
6、ns. While the IES administers the process and establishes policies and procedures to promote fairness in the development of consensus, it makes no guaranty or warranty as to the accuracy or completeness of any information published herein.The IES disclaims liability for any injury to persons or prop
7、erty or other damages of any nature whatsoever, whether special, indirect, consequential or compensatory, directly or indirectly result-ing from the publication, use of, or reliance on this document.In issuing and making this document available, the IES is not undertaking to render professional or o
8、ther services for or on behalf of any person or entity. Nor is the IES undertaking to perform any duty owed by any person or entity to someone else. Anyone using this document should rely on his or her own independent judgment or, as appropriate, seek the advice of a competent profes-sional in deter
9、mining the exercise of reasonable care in any given circumstances.The IES has no power, nor does it undertake, to police or enforce compliance with the contents of this document. Nor does the IES list, certify, test or inspect products, designs, or installations for compliance with this document. An
10、y certification or statement of compliance with the require-ments of this document shall not be attributable to the IES and is solely the responsibility of the certifier or maker of the statement.IES RP-31-14Prepared by John Selander IES RP-31-14IES RP-31-14Contents1.0 The Role of Economic Analysis
11、in Lighting Design .11.1 The Importance of Making Wise Economic Decisions on Selecting Lighting Systems.11.2 LEDs and Solid State Lighting Systems 12.0 Second-Level Analysis Methods .22.1 Life Cycle Cost/Benefit Analysis 32.1.1 General Considerations on Applying the LCCBA .42.1.2 Line-by-Line Analys
12、is of Initial Costs .42.1.3 Line-by-Line Analysis of Annual Power and Maintenance Costs .52.1.4 Environmental Costs 62.1.5 Annual Cost Basis Conversions .72.1.6 Present Value Basis Conversions72.2 Savings Investment Ratio 7 2.3 Note on Interest Rates .72.4 Internal Rate of Return.82.5 Net Present Va
13、lue .83.0 Sensitivity Analysis 94.0 Benefit Analysis 105.0 First-Level Analysis Methods .105.1 Simple Payback115.2 Simple Rate of Return 125.3 Cost of Light 12References .13Annex A Notes 14Annex B Present Value Tables .15Annex C Present Value of an Annuity .18IES RP-31-141IES RP-31-141.0 THE ROLE OF
14、 ECONOMIC ANALYSIS IN LIGHTING DESIGNGood lighting should be responsive to the needs of the user. Among those needs are the aesthetic and the visual, as admitted in the oft-quoted “light-ing is both a science and an art”. But the user also has economic needs. In fact, it is the economic needs that o
15、ften drive the decision making process when lighting systems are designed and purchased. Unfortunately, because they frequently control the final decision, economic concerns are often thought of as the antagonists of aesthetic and visual con-cerns. The lighting professional will tend to draw up a li
16、st of system desiderata, then heave a large sigh of resignation and say “but the budget wont allow it”This recommended practice is written from the point of view that “economic analysis” is not the same as “how to beat the budget.” Rather than considering economic analysis as the antithesis of engin
17、eering or artistic analysis, it should be thought of as subsuming these other needs. A couple of generic examples illustrate this. When a workers vision is impaired by reflected glare, reduced productivity is an economic consequence. A decision to improve the lighting would be based on the economic
18、needs of the owner. When the lighting of an office building atrium fails to comple-ment the architecture of the space, the rental value would fail to achieve its potential. Again, a decision to improve the lighting is an economic decision. Thus, when a competent lighting professional takes care of e
19、conomic needs, in conjunction with artistic, engineering, and other needs, it increases the likelihood a project will have success and lon-gevity. Financial considerations as demonstrated through an accurate lighting financial analysis are important, but other elements such as aesthetics, human visu
20、al performance resulting from a light-ing system appropriate to a given task, and other considerations involved in lighting for the human and natural environment are of equal importance.1.1 The Importance of Making Wise Economic Decisions on Selecting Lighting SystemsLighting economics may not be th
21、e most exciting subject for the lighting professional to master, but it is one of the most important. The idea of reduc-ing energy use is a noble pursuit for many reasons. Preserving natural resources through conserving fossil fuels is good for the future. Limiting air pollu-tion and reducing carbon
22、 dioxide and other green-house gases helps keep the environment healthier. If demand for electricity is steadily growing through economic growth in North America and the rest of the world, by reducing the demand for energy need-ed to power more energy-efficient lighting systems, more resources can b
23、e made available for other uses. Reducing consumption while still providing adequate levels and quality of illumination when and where needed makes good sense for any individual, company, government, or institution paying its own energy bill.The increased cost associated with buying a more efficient
24、 lighting system can be looked at as an investment like any other kind of investment. The returns can be very high, as much as 60% per year or more, but with one significant difference. The risk for an investment in lighting is relatively low, because the resulting cash flows for lighting are relati
25、vely pre-dictable. In general, investments with lower financial risk, such as lighting upgrades, are analyzed with interest rates that can be several percentage points lower than more risky capital investments.1.2 LEDs and Solid State Lighting SystemsWith the dramatic growth in solid state lighting,
26、 the use of economic tools and rigorous financial analy-sis becomes more important than ever. Selecting a new lighting system, with a less familiar technol-ogy, is an important and difficult task for the lighting professional. The designer needs to make sure that the proposed lighting system meets o
27、r exceeds IES recommended practices, complies with energy code power limits and control requirements, and is able to meet extra targeted goals for the building, such as LEED, Advanced Energy Design Guides, or other local or project standards. But at the most practical level, any new lighting equipme
28、nt selection needs to make sense economically. The days of specifying an LED lighting system just because it is “green” are largely in the past. Most owners and architects want to help the environment and reduce energy waste, but they also want good lighting at an affordable overall cost that makes
29、sense. Owners often will not mind paying more for an improved system, but they want to get a return back from this increased cost. Solid financial analysis tools are essential to prove that such a system can be a better value when compared to traditionally sources, i.e., incandescent, halogen, fluor
30、escent, or HID.This recommended practice will help answer many types of lighting economic questions. It provides a framework for selecting from a group of compet-ing lighting designs. It gives insight into the ques-tion of when a system under consideration will “pay off.” It can help the lighting pr
31、ofessional make energy conservation decisions. Most importantly, it provides methods for gauging the profitability of a capital investment in a lighting system, which 2IES RP-31-14can be objectively compared to other competing capital investments. Many metrics and techniques for answering these ques
32、tions have been proposed over the years. These methods can be classified into two categories: first-level analysis methods, and second-level analysis methods (see Table 1). The first-level methods are attractive due to their simplic-ity. However, they can yield misleading results and thus they shoul
33、d be used for quick estimates involv-ing short payback periods only. Of the second-level methods, Life Cycle Cost/Benefit Analysis (LCCBA) has emerged as the most robust method, and the one that is accepted by experts in managerial economics from all industries. Accordingly, LCCBA is the economic an
34、alysis method recommended by the IES. This document begins with a discus-sion of the second-level methods, concentrating on LCCBA. Then, since the lighting practitioner is likely to encounter the first-level methods in practice, these are also covered. In discussing the first-level methods, emphasis
35、 is placed on their shortcomings so that the lighting professional can understand why their use is not encouraged.2.0 SECOND-LEVEL ANALYSIS METHODSThe distinguishing feature of the second-level meth-ods is also the feature that makes them superior to other approaches: they include the time value of
36、money. The fact that time and money are interrelated can be easily demonstrated by posing the ques-tion “which would you rather have, $1000 today, or $1000 a year from now?” Even if one doesnt care about when the money will be spent, the answer is obvious; the money is preferred now. Having the $100
37、0 now allows investing in interest bearing instruments, which will yield more than $1000 a year from now. Alternatively, the $1000 today can be used to purchase something from which the benefits can be enjoyed for an extra year (as compared to receiving the $1000 a year from now). *Note: Parts of th
38、is document are adapted from chapter 14 of reference 1. Used by permission of Prentice Hall, Upper Saddle River, NJ.This time value of money can be quantified. One way to do this is to pose a series of questions such as:Which is preferred? $1000 today or $1010 a year from now?Which is preferred? $10
39、00 today or $1020 a year from now?Which is preferred? $1000 today or $1030 a year from now?Which is preferred? $1000 today or $1040 a year from now? Which is preferred? $1000 today or $1050 a year from now?And so on.At some point it will become impossible to choose between the thousand dollars today
40、 and the future sum. A person might be equally willing to receive $1000 today or, say, $1100 one year from now. These two values are called time equivalents. From them an interest rate is inferred. In this example, the interest rate which equates the two time-equivalent values is 10 percent and the
41、time value of money in this case is said to be 10 percent per year.Another term for this interest rate is the “opportunity rate of capital,” or simply, the opportunity rate. A per-son is willing to forgo the opportunity of receiving a sum of money today in exchange for the assurance of receiving an
42、amount in the future equal to or greater than that sum augmented by, or compounded at, the opportunity rate. Similarly, a person whose opportu-nity rate is 10 percent is willing to spend $1000 today in order to avoid the need to spend $1100 or more one year from now.So this concept can be used to al
43、low the lighting professional to determine how much can be profit-ably invested in a lighting system today in order to incur the energy and maintenance costs of specified amounts in the future. It allows the comparison, in other words, of apples and oranges dollars today vs. dollars tomorrow. This i
44、s the basis of all second-level methods. All economic events in the life of a lighting system (including initial cost, maintenance, energy cost, and salvage value) are converted into their value today, or present value, using the principle of time equivalence. The benefits are totaled and compared w
45、ith the sum of the costs. If the benefits are greater, the system should be purchased. If the costs are greater, it would be unprofitable to pur-chase the system.Table 1: Classification of Economic Analysis MethodsFirst Level Analysis MethodsSecond Level Analysis MethodsCost of Light Life Cycle Cost
46、/Benefit AnalysisSimple Payback Savings Investment RatioSimple Rate of Return Internal Rate of ReturnNet Present ValueNot recommended for general practice (see comments in text)3IES RP-31-14In calculating equivalences, four elements are involved: The amount of money being considered today is called
47、the present value and is denoted by “P.” In mortgage lending, this value is called the principal. The interest rate, “i,” expressed as a percent or decimal fraction. The period of time being considered is “n.” The value (amount of money) being considered in the future (after time period “n”) is the
48、future value “Fn.”In the initial discussion example, P=$1000, n = 1 year, F1=$1100, and “i” was calculated to be 10 percent. A general formula involving these four vari-ables can be derived, such that, given any three, the fourth can always be found. The following is the formulas derivation.Consider
49、 investing $1000 for three years at 10 percent interest, compounded annually. Compounding means interest is paid on interest as well as on the principal. At the end of one year, the initial $1000 investment has grown to the future value (F1), which is:after two years the future value (F2) is:therefore:and after three years the future value (F3) is:therefore:The result is that $1331 three years hence is equiva-lent to $1000 today, at 10 percent interest com-pounded annually. This example can be generalized to “n” years at interest rate “i” as follows (where “i” is a decimal fr
