Building the Business Case for an LED-to-LED Retrofit: Energy, Demand, Maintenance, Controls, and Incentive Economics

“We already did LED.” It’s a common objection when a second lighting retrofit comes up, and it’s a fair one. The answer has to be in numbers.

The first retrofit was measured against metal halide, high-pressure sodium, or fluorescent, and the savings were obvious. The second one has to be measured against the LED system that’s actually on the ceiling today, with its reduced output, its real input power, and the hours it really runs. Per fixture, the savings are smaller than they were the first time. But they come from several places at once: lower connected load, controls that depend on dimming, lower demand charges, less maintenance, and outside funding. A business case that holds up quantifies each of those on its own, tests the assumptions, and presents the result the way a capital committee thinks.

Step 1: Start with a measured baseline

A savings model is only as good as its baseline. Nameplate ratings and original spec sheets may not match what the fixtures draw and deliver after years in service, and a careful reviewer will ask how you know. Measure instead:

• Input power. Take true RMS readings on a sample of fixtures at the actual service voltage. Drivers can draw differently at 120 V and 277 V, and an aging driver may no longer match its rating.
• Light levels. Take a grid of readings at the task plane and compare them with the design target. That tells you whether the space is under-lit, which is a safety and productivity problem, or over-lit, which is an energy opportunity.
• Hours by zone. Use data loggers, building automation system (BAS) trends, or panel metering. Log occupancy separately from operating hours. The gap between the two is your controls opportunity.
• The tariff. Separate the energy charge ($/kWh), the demand charge ($/kW-month), and any time-of-use pricing. In many facilities the lights are on during the monthly peak, so cutting connected load also cuts billed demand. Check your interval data to confirm that’s true for your site. If your analysis uses a single blended rate that already includes demand charges, don’t add demand savings on top, or you’ll count them twice.
• Maintenance history. Record driver and fixture failures per year, the cost of each service call, and what lift equipment each one takes. Check whether any of the failing fixtures are still under warranty.
• Full project cost. Include removal and disposal or recycling of the old fixtures, lift rental, controls commissioning, and any recurring controls software fees, so the installed cost you present is the whole cost.

Step 2: Model each savings stream separately

Give each savings mechanism its own line so a reviewer can check it independently.

Connected load. Redesign the space to its target light level instead of replacing fixtures one-for-one at the same wattage:

Fixture kWh saved = Number of luminaires × (Existing watts − New watts) × Annual hours ÷ 1,000

Controls. Apply control savings to the new load, not the old one, and combine strategies multiplicatively: Total control savings = 1 − (1 − Trim) × (1 − Occupancy) × (1 − Daylight).

Controls kWh saved = Number of luminaires × New watts × Annual hours × Combined control savings ÷ 1,000

Demand. Count only the connected-load reduction here, because it’s there every hour the lights are on. Savings from occupancy sensing may or may not fall during the peak interval, so leave them out of the demand line.

Demand savings ($/yr) = kW reduction × Demand rate ($/kW-month) × 12

Maintenance. Base this on the failure rate you actually see:

Avoided maintenance ($/yr) = Number of luminaires × Annual failure rate × Cost per service event

Illustrative example (replace with your site’s data)

Input	Value
Luminaires	200 high bays
Measured existing input power	240 W each (48.0 kW connected)
Redesigned input power at the same light level	140 W each (28.0 kW connected)
Annual operating hours	6,000
Energy rate	$0.11/kWh
Demand rate	$10/kW-month
Combined control savings (conservative)	35%
Avoided maintenance	$3,000 per year (for example, 200 fixtures × 5% failure rate × $300 per service call)
Installed cost, fixtures and controls	$90,000
Assumed utility incentive	$25,000

 

Result	Value
Baseline consumption	288,000 kWh/yr
After fixture replacement	168,000 kWh/yr
After controls	109,200 kWh/yr
Total energy reduction	178,800 kWh/yr (62%)
Energy savings	$19,668/yr
Demand savings (20 kW)	$2,400/yr
Total annual benefit	$25,068/yr
Net project cost after incentive	$65,000
Simple payback	2.6 years
10-year NPV at an 8% discount rate	about $103,000
10-year IRR	about 37%

The NPV and IRR assume the annual benefit stays flat for 10 years, with no energy price increases and no residual value, which is conservative. They also assume the new system needs no maintenance and carries no recurring software or licensing fees for the 10 years. If your controls platform has subscription fees, or you expect some early failures, subtract them from the annual benefit.

We set the controls assumption at 35% on purpose. That’s below the 47% average the DesignLights Consortium (DLC) found in its 2017 study of 1,200 zones in 114 commercial buildings with networked lighting controls (Lighting Controls Academy). Results in that research varied a lot from site to site (Minnesota Department of Commerce). A conservative number backed by your own occupancy logging is much easier to defend than a benchmark average.

Step 3: Stress-test the assumptions

A capital committee will trust a range more than a single number. Change one input at a time, then combine the downside cases, and show what happens:

Scenario	Annual benefit	Simple payback
Base case (6,000 h, $0.11/kWh, 35% controls)	$25,068	2.6 years
Fewer operating hours (4,000 h)	$18,512	3.5 years
Lower energy rate ($0.09/kWh)	$21,492	3.0 years
Weaker controls performance (20%)	$22,296	2.9 years
Continuous operation (8,760 h)	$34,115	1.9 years
Combined downside (4,000 h, $0.09/kWh, 20% controls)	$14,616	4.4 years
Base case with no incentive	$25,068	3.6 years

Operating hours move the result more than anything else, which is why multi-shift and 24/7 operations see the best returns. Even the weakest single-variable case here pays back in about three and a half years. The last two rows matter just as much. With fewer hours, a lower rate, and weaker controls all at once, payback stretches to about four and a half years, and without the incentive the base case is 3.6 years. Showing those cases up front tells the committee you aren’t relying on the best one.

Step 4: Line up incentives and financing

Outside funding lowers what you pay up front. In the example, a $25,000 incentive takes simple payback from 3.6 years down to 2.6. In the U.S., incentive programs are run by individual utilities, state agencies, and third-party administrators, so the amounts and rules depend on where the building is. Most programs, though, are built from a few common structures.

Common incentive structures

• Prescriptive (deemed) incentives. A fixed amount per fixture, per lamp, or per watt reduced, based on published savings values. They’re simple and predictable, and they fit straightforward fixture replacements.
• Custom (calculated) incentives. Paid per first-year kWh saved or per kW of demand reduced, based on engineering calculations and sometimes before-and-after measurement. They fit redesigns, unusual operating hours, and projects where controls drive large savings.
• Midstream (instant) incentives. Offered through participating distributors as an instant discount. Public Service Company of Oklahoma, for example, gives commercial lighting customers instant in-store discounts with no rebate application required (PSO), and PSE&G runs a Midstream Instant Rebate program through qualifying distributors (PSE&G).
• Controls incentives. Many programs pay separately, or at a higher rate, for networked or luminaire-level controls. Nearly 100 networked lighting control systems are eligible for incentives across 46 U.S. states and three Canadian provinces (Lighting Controls Academy). The DLC’s summaries of member-utility controls incentives are listed in the DOE Integrated Lighting Campaign resource library (S. DOE).
• Small-business and direct-install programs. Higher incentive rates for customers below a size or usage threshold, sometimes covering a large share of the project cost.
• Limited-time bonuses. Some programs add temporary bonus rates to reach their annual savings goals. If your schedule is built around one, it can make a noticeable difference in payback.

Qualification requirements

Most commercial lighting incentives depend on the equipment being qualified. About 70% of commercial lighting rebate programs required DLC listing as of the fourth quarter of 2025 (LightNOW). With the move to SSL V6.0, V5.1 products that weren’t submitted for updating come off the list on December 15, 2026 (DesignLights Consortium). Check every fixture and control component against the current lists before you apply. Some programs also require pre-approval before you buy or install anything. NextZero, for example, requires it for all projects (NextZero).

Financing

When the obstacle is the capital budget rather than the return, financing can close the gap. If the payments are set below the monthly savings, the project can be cash-flow positive from the start.

• On-bill financing (OBF). The utility lends the money, and you repay it through your utility bill. On-bill repayment (OBR) works the same way, except a third party supplies the capital and the utility bill is just the repayment channel (ACEEE).
• Commercial Property Assessed Clean Energy (C-PACE). Long-term financing for efficiency upgrades on commercial property, repaid through a property tax assessment. It’s only available where state law and the local government have authorized it (S. DOE).

Federal tax treatment

Under Public Law 119-21, the Section 179D deduction for energy-efficient commercial buildings doesn’t apply to property whose construction begins after June 30, 2026 (U.S. DOE). If your budget counted on a tax benefit, review it with your tax advisor. This article is general information, not tax or financial advice. For most retrofits, utility and state programs are now where outside funding comes from.

Finding programs in your area

Start with your electric utility’s commercial efficiency program. Then check state programs in the Database of State Incentives for Renewables & Efficiency, known as DSIRE (DSIRE). If the project includes controls, compare the DLC member-utility controls incentive summaries in the DOE Integrated Lighting Campaign resource library (U.S. DOE).

Step 5: Put a number on waiting

Doing nothing has a cost too, and the business case should show it:

• Benefit lost each year the project waits: $25,068 a year in the example
• Rising maintenance cost as the installed drivers age
• Incentive risk: budgets that run out, bonuses that expire, and qualification changes that affect the equipment you specified
• Operational exposure where light levels fall below what the task or code requires

Step 6: Answer the objections before they’re raised

A skeptical reviewer will usually ask some version of these questions. Have the answers ready:

• “Why not wait until the fixtures fail?” Show the rising maintenance trend, the lost annual benefit, and the incentive dates.
• “Why not add controls to what we have?” Test it. If the existing drivers dim smoothly to a low level without flicker, a controls-only project may be the better first step. If they don’t, the fixtures limit what controls can do.
• “What if the savings don’t show up?” Propose measurement and verification: metered or controls-reported energy data before and after, reviewed against the model.
• “Is the incentive guaranteed?” It isn’t until it’s approved. Show the payback with and without it.

Step 7: Present it the way a capital committee reads

Lead with a one-page summary: net cost after incentives, the range of annual benefit, simple payback, NPV and IRR, funding options, and the cost of waiting. Put the measured baseline, the calculation method, and the qualification documents in an appendix. Finance can move quickly, and engineering can still check every input.

Next step

LED Sales Team can build a measured baseline and a layered savings model for your facility, find the incentive and financing programs available in your utility territory, and format the results for capital review. Contact us to get started.