Light Bulb Idea: Does it make sense to switch your home's Light bulbs to LED?

My power company just sent me free LED bulbs. If your power company has offered this, and you haven't taken advantage of it, DO IT! If I had traditional incandescent bulbs in my house to begin with, there would be 720 watts of power in just the lights. The LED bulbs brought that number down to 92. That is effectively 1/8th the power. I wrote a paper about cost savings on a government housing project for switching to LED lighting. If you want to apply this to just yourself, add the government benefits to the tenant benefits. 

TLDR version: No matter what type of light bulb you have, its better by a significant amount, to switch to LEDs. The numbers are below. As I will explain below, the numbers are based on my apartment complex, but I also have between 200-400 consistent readers of my blog, so if every one of my readers changed to LEDs, it could have a net 20 year benefit of $400k-800k for all of them, or a $2,000 20 year benefit per person (all based on today's dollars). The amazon link below is also cheaper than the cheapest Walmart price I found, so its even more cost effective than my paper shows. You're welcome.

1. Introduction:

About 4 months after moving into my apartment here in Bloomington, about 2/3 of the lightbulbs in the apartment burned out, all within about a week. I bought some of the cheap lightbulbs because I like saving money, but I also noticed that on the packaging for the LED lightbulbs at the store, it listed potential savings that could be had for using the more energy efficient bulbs. The LED bulbs were also significantly more expensive. Since I plan on one day being in a situation where I will be able to make a decisions in the public sector, and in an effort to lead for the common good, I created a hypothetical scenario.

This case will be based on my apartment complex, Meadow Park Apartments, in terms of size. However, I will be looking at it as if it were government owned and subsidized housing. Putting the apartment in the public sector allows us to look at the costs and benefits of everyone, not just the apartment complex. For the sake of simplicity, I will assume that every apartment is just like mine. I have a two bedroom apartment, and there are 11 lightbulbs in my apartment, one on the porch, one on the patio, two in each of the two bedrooms, three in the bathroom, and two in the kitchen. There are also some tube lights in the apartment, but LED technology for these fixtures isn’t as readily available, so these will be excluded. We will also assume that there are 25 apartment buildings, and that each one has 8 apartments in it, and that each apartment has 11 light bulbs.

This study will be exploring specifically LED lights and the costs and benefits to replacing all the lights in the apartment complex with the more efficient bulbs. The case assumes that the government, as the subsidies apartment owners, pay the electrical bill, but that up until this point, the tenants had been responsible for supplying their own light bulbs. This hypothetical case is designed to be Bloomington or Indiana specific, so that it can be applied, either in part or in whole, to any local organization.

2. Stakeholders:

            This case will be looking at the Government, the tenant, and society as the main stake holders. There could be an argument made for accounting for the costs and benefits of the energy providers, or the stores that supply the bulbs. The cost of the bulbs is negligible, as a small project in a big market, and I didn’t want to get caught up in the producer surplus that comes from the sale of these bulbs. I similarly didn’t want to explore the potential profit the power company could make from energy use. In order to simplify the BCA, these actors are removed, but it should be noted that there are benefits from the transfer of dollars spent on light bulbs. There is also a loss of profit to the power company from more efficient practices, but our case won’t look into those. Effectively this makes the accounting domain the municipality in which this apartment complex resides.

3. Costs:

Light bulbs:

Light bulb technology has been advancing rapidly in the past couple decades. Years following Edison’s light bulb, society was still using the same basic design, the incandescent light bulb. This bulb is the standard, traditional bulb that some base the brightness of a bulb on. They are available in many different wattages, but government agencies have begun to ban the importation of these bulbs, due to improvements in technology. They are still used by many in the world today. Incandescent bulbs use the wattage they are listed as. The other light bulbs base their brightness off of these bulbs, so a 60w incandescent bulb uses 60w. The fixtures in my apartment call for 60w bulbs, and they cost $1.24 each (Wal-Mart, 2018). Halogen bulbs are very similar to incandescent bulbs. They are about 25% more efficient, but have similar life spans and cost to traditional incandescent bulbs.

Compact Florescent lights (CFLs) also currently cost about $2 each at Wal-Mart, and use 13 watts (Wal-Mart, 2018). These bulbs also take a couple minutes to “warm up” to full power and brightness when you turn them on, which can make them less appealing than LED bulbs. In an effort to make this case very applicable to the here and now, I went looking for these CFLs. They were difficult to find locally. Stores aren't stocking these items as much because, as seen below, they cost about the same as LED bulbs, only last about 1/3 of the life of an LED bulb, and use more energy than an LED.

The LED bulbs I found at Wal-Mart cost $8 for a pack of four, or $2 each, and use 5 watts each. LEDs and the most popular energy saving alternative, both for their efficiency and because they don’t have a warming up period, like the CFL bulbs. As can be seen from figure 1 in the appendix, LEDs have been becoming less expensive and more efficient as time goes on. A trip through Walmart show that these advances have made CFLs obsolete, and could, in years to come, even become as inexpensive as incandescent bulbs as the price continues to trend downwards. I was originally planning on doing a cost comparison between CFL bulbs and LED bulbs, but the LEDs are so vastly superior, and come at the same price, that it seemed foolish to do so, so this analysis will only explore a transition from incandescent bulbs to LED bulbs. That cost is $2 per bulb for 2200 bulbs, or ($4400). All of these listed costs are based on the lowest local prices. It is possible that there could be lower prices from wholesale retailers that could provide the apartment complex with a better price, but for the purposes of this analysis, we will be using the Wal-Mart pricing.

Light Bulb Cost and Efficiency.
	Incandescent	Florescent	LED
Cost	$1.24	$2	$2
Power Usage	60w	13w	5w
Life Span	2 years	8 years	20 years

Time Value:

On average, it takes about 30 seconds to change a light bulb. This was based on the time it took my wife to change a light bulb. There are two types of light fixtures in our apartment. One type just has a bare bulb accessible, while the other fixture has a covering that has to be removed in order to access the light. In short, it took about 20 seconds for my wife to change a bare bulb, and about 40 seconds to change a bulb in the fixture. There are 6 bulbs in fixtures, and 5 bare bulbs, so the rough average is 30 seconds. We will assume that the repair man earns $15 per hour, because that is what I earned as an apartment repair man. This number could be higher or lower depending on the area. In comparison to the benefits of this project though, it wouldn’t make too big of a difference if the repair man made three times that much though. The install time is very small, comparatively.

There is also the cost of the inconvenience to the tenants of having a workman in your home to replace light bulbs. For this purpose, I assumed that the time of having the work person in your home is worth $7.50, or half what the work person is doing. Generally, you are required to be home when a repair needs to be done, but since you don’t have to do the work, I valued it at half the time. For the Net Present Value analysis, I also used this same figure to represent the leisure time that would have been spent changing incandescent light bulbs every two years.

4. Transfers:

            When looking at the above two costs over a long period of time, it becomes more appropriate to view these as transfers rather than as costs, although in both of these cases, they net to be a big positive. The install time in the 20 year Kaldor Hicks Tableau shows a cost to the government apartment to install the LED bulbs, but then the tenant won’t have to spend the time to replace incandescent bulbs every two years. The same is true of the price of bulbs. If every bulb were replaced every other year, it would cost $14,934.43 in 2018 dollars. The cost is incurred only once, for a price of $4400.

            I did some research for grants or subsidies offered in the state of Indiana to transition to LED light bulbs. I found some past programs to subsidies these costs, but since the cost of LEDs has become so inexpensive, governments have stopped subsidizing these. I also considered imposing a tax to society to help pay for the capital costs, but due to the ROI in the form of savings on the electrical bill alone, I could not justify this tax. In fact, there is such a large savings that allows for either a tax cut, or for the funds to be used elsewhere.

5. Benefits:

Energy Cost Saved:

The cost of power is about $0.12 per kilowatt hour (kWh) (NPR, 2011). Indiana is fairly consistent with that. My Duke Energy power bill for the month of March listed mine at .116 per kWh. For the purposes of this analysis, I will be using the .116, as it is very Bloomington specific.

Energy usage is a product of two factors: time spent with the light on, and the amount of energy that the light uses. Most estimate the average time usage for light bulbs to be around 3-6 hours per day. I’ve decided to use the higher end of this spectrum, at 5 hours, which comes out to be $139.72 as our baseline incandescent bulb spending. LED bulbs use $11.64 for the same amount of time. To determine kWh usage, I took the watt usage, divide by 1000 to put it in terms of kilowatt hours. Since this is an estimate, and the number could be higher or lower. It is more likely that they will be higher, because the tenants wouldn’t be paying for their own electricity, so they have no incentive to turn their lights off. Depending on how much people are using their lights, the numbers could be as follows:

Annual Electricity Usage From Lightbulbs for One Apartment (11 bulbs)
Average Daily Use	Incandescent	Florescent	LED
3 Hours	$83.83	$18.16	$6.99
5 Hours	$139.72	$30.27	$11.64
8 Hours	$223.56	$48.44	$18.63

Pollution Reduced:

There are a number of different ways that electricity is produced. The cost of burning coal to produce electricity creates pollution equal to about 3.2 cents per kilowatt hour. Pollution costs could be as low as .11 cents for natural gas, or practically free for renewable sources (Block, 2018). As of a 2015 study, we are using little to no nuclear or hydroelectric study in the state of Indiana. But, Indiana is third in coal consumption, so we will use the 3.2 cents per kilowatt hour for our analysis (Energy Information Administration, 2017). More renewable, cleaner sources would reduce this cost.  Below is the pollution costs, with the same sensitivity analysis as the energy usage table.

Annual Pollution From Lightbulbs for One Apartment (11 bulbs)
Average Daily Use	Incandescent	Florescent	LED
3 Hours	$23.13	$5.01	$1.93
5 Hours	$38.54	$8.35	$3.21
8 Hours	$61.67	$13.36	$5.14

The Value of Uninterrupted Light:

Since this is government owned, subsides housing, there is the possibility that some of the residents cannot afford to buy new lights if they go out. Some of the light fixtures in the apartment also have multiple bulbs, so if one of the bulbs goes out, there isn’t an immediate need to replace the bulb. By providing lights, there would be more light available to the tenants to use, and they would receive these benefits. This value will have to be shadow priced. It is argued that people value public services more than they pay for them. Because of this, willingness to pay might not be the best measure, especially if there are different options available. The best value we have would be the value of incandescent power, or $139.72 for a year’s worth of light from one apartment’s bulbs. It still probably undervalues the value of light, but it provides a measure of willingness to pay. A survey of light and energy prices could be very informative to behavior on this. I applied this measure of 5% of the lights being out to the base measure of power saved in the Kaldor Hicks Tableaus in the appendix below as well. This lowers the total benefits from energy savings and pollution.

6. Analysis:

            There are multiple ways to evaluate the effectiveness of a policy. Looking beyond the cost benefit analysis, the internal rate of return, in the first year alone, is well over 500%. The payback period is only three months if viewed in terms of dollars, and less than two months if all benefits are considered. The Kaldor Hicks tableaus give the best view of the results of the policy though. In year one, while the tenants would be put out by having a workman come replace their bulbs, they would still come out ahead because there would be no break in the light that they used. The government would come out ahead, due to the $24,000 in energy savings which offset the cost of the install and the new bulbs. Society is also made better off due to the reduced pollution. Every stake holder comes out ahead. Again, I have excluded the power company from this analysis, but they would be the only group to lose in this scenario, making the energy savings a transfer. This transfer would still favor the government, and net positive because it wouldn’t account for the materials used (Tableau 1, Appendix).

            More impressive was a view of the twenty year analysis. I mentioned previously in my analysis that any overestimation in costs wouldn’t make much difference. When the end benefits are put into current dollars, the total benefits are about 86 times more than the costs, or an increase of 8600%. The benefits especially favor the government most in the long run. Tenants in this analysis have the least amount of benefits, but that is only because this looks at the group in terms of the new light bulbs. In this scenario the tenants are already receiving free electricity, subsidized by the government. If the whole value of that light was included in this analysis, the results would be much better for the tenant. This project continues the service, improves the level of service for the tenants, and makes the government run more efficiently. Everyone wins in this project.

7.    Conclusion:

            I was astounded by how superior the LED bulb is. It is superior in every category. This research and analysis makes me want to audit most every government building and see if they are using LED light bulbs. The results of this cost benefit analysis, although based on a hypothetical scenario, are applicable to any job that I may have in the future. Every work place uses electric lighting in one way or another. From this analysis I would not be surprised to see legislation banning the CFL bulbs, like many of the incandescent bulbs were, or at the very least mandating LED usage.

Bibliography

Block, B. (2018, April). Cheap Energy Comes at High "Hidden" Cost. Retrieved from Worldwatch Institute: http://www.worldwatch.org/node/6298

Energy Information Administration. (2017, April 20). Indiana State Profile and Energy Estimates. Retrieved from Energy Information Administration Web site: https://www.eia.gov/state/?sid=IN

NPR. (2011, Oct 28). The Price of Electricity in Your State. Retrieved from NPR: https://www.npr.org/sections/money/2011/10/27/141766341/the-price-of-electricity-in-your-state

Wal-Mart. (2018, April 16). Wal-Mart. Retrieved from walmart.com: www.walmart.com

8. Appendix 

1 Year Kaldor Hicks Tableau

	Government	Tenant	Society	Total
Costs:
Install time	-275	-137.5		-412.5
New Bulbs	-4400			-4400
Transfers:
Tax Burden	0		0	0
Benefits:
Reduced Pollution			7066	7066
Decreased power usage	24218.8			24218.8
No break in light		1210.94		1210.94
Total:	19543.8	1073.44	7066	27683.24

20 Year Kaldor Hicks Tableau

	Government	Tenant	Society	Total
Transfers:
Install time	-275	609.2216		334.2216
New Bulbs	-4400	14934.43		10534.43
Benefits:
Reduced Pollution			88057.98	88057.98
Decreased power usage	301819.7798			301819.8
No break in light		15090.99		15090.99
Total:	297144.7798	30634.64	88057.98	415837.4