LEDs and life cycle costing

It’s late in the evening. The sun is going down steadily and darkness is slowly creeping in your room. You move over to the switch and turn on the lights. A flicker of light and then darkness prevails. The bulb had failed. It’s still not late enough for the shops to close, so you head out to buy a new light bulb. The shopkeeper shows you the “latest low- energy technology” which is 10 times costlier than your regular bulb. You ignore it as usual and buy the cheap light bulb and go home. Sounds familiar?

---------------------------------------------------------------------------------

They say technology comes at a price. But is it really true? A lot of time and energy is spent in developing new and improved systems and it is natural that a higher price is demanded for it. Almost all of the legitimately developed new technology assist the user in a better way than the existing ones. They are either more resource efficient, are more accurate and precise or simply offer a better user experience and it is precisely these features that result in a higher price being quoted for these new systems. But if a new technology is more efficient, doesn’t it mean that it will result in savings during its usage? Is it cheaper in an overall context which in other words is called Life Cycle Costing?

In this article, we are going to see how technology has changed in the area of household lighting systems and is it really worth paying more for new technology.

In the late 90’s and early 2000’s one of the most commonly used form of domestic lighting in India apart from the tube-lights were the incandescent bulbs. These gave a typical yellowish light and would become very hot as one used it for prolonged duration. A slight fluctuation in voltage or a small drop of water on the bulb’s surface would immediately damage it. These were typically 40W or 60W bulbs. They are still manufactured and probably used by a lot of people in the country. These were quite cheap and as of 2017, cost around ₹15 only.

In the mid 2000’s CFL or Compact Fluorescent Lamps started becoming more popular. They were already there in the market but took some time to gain popularity due the exact reason why LEDs have taken so much time to become popular today. These used a similar technology to the aforementioned fluorescent tube-lights. However, their initial cost was much higher than the conventionally used incandescent bulbs. People would say things like “You have to pay for the technology” or “technology comes at a price”. However, it was quickly proved that although one pays a higher price for the CFL they would last longer, were less prone to damages and gave same amount of light while consuming lesser power. A typical 15W CFL consumes 1/4th the power of a 60W incandescent bulb but gives more light than it. This led to significant savings in the long run.

Fast forward to 2010 and onward and a new technology was gaining popularity. Light Emitting Diodes or LEDs were making their way in into the lighting market. Initially they were really expensive but their key feature was almost 1/3rd power consumption of CFL and less than 1/10th power of an incandescent. Most large scale industries realized the potential for savings and started switching over to LED lighting however up till 2015-16 LEDs still hadn’t made it into the households. As of 2017 too they are not very commonly seen in houses. The reason is the same old misconception that it is “expensive” but it certainly is not! LED lights last for 10 years as compared to just about a year of incandescent. Hence, it is important that one compares the Life Cycle Cost and not make a decision just based on the initial cost.

Let’s compare. The following is a simple table that compares these three types of lighting systems along with their costs and lighting levels (Lumens).

Values in red colour are extrapolated.

It can be observed from the above table and the pictures that a 60W incandescent bulb is capable of giving 710 lumens of light and costs ₹15 only. However, we know from experience that it lasts for just about a year. A 15W CFL on the other hand costs around ₹120, consumes only 25% of the power of incandescent bulb but gives out 810 lumens of light. It lasts for around 2 years.

Coming to the LEDs, one can see that two LEDs have been compared. The first one is a 4W LED bought in 2014 whereas the second one is a 9W LED by the same manufacturer bought in 2017. The 4W LED was bought in 2014 for a whopping ₹450! The 9W LED was bought for ₹150 in 2017. Although the M.R.P on the 9W LED reads ₹250, the shopkeeper was happy to offer 1 lamp for ₹200, 3 lamps for ₹500 and 6 lamps for ₹900, which results in the lowest price of ₹150 per lamp. The reason behind explaining all of this is to throw some light on the rapid fall in prices of LED lamps. While LEDs were costing ₹ 113/ watt in 2014, they have fallen down to ₹ 17/ watt in 2017 which is an 85% drop in prices!

It is evident that LEDs are becoming cheaper by the day and the government as well as manufacturers are doing their part to make it affordable for the common man. But the question is, was it not affordable before? Did it not make financial sense in 2014 when it was costing ₹ 113/ watt?

Let’s have a look at the last column, LCC over a period of 10 years. This is the most interesting observation.

Taking current price of ₹150 for a 9W LED light, 2.7 hours of daily operation, ₹7/ kWh of average electricity cost and the life of 1, 2 and 10 years for the incandescent, CFL and LED respectively. It is observed that over a period of 10 years, an individual buying only 60W incandescent lamps would end up spending around ₹4,289 including the initial cost, cost of replacement every year and the electricity consumed. Whereas, an individual using LEDs would spend only ₹771 over a period of 10 years. Point to be noted that the time value of money and the ever increasing cost of electricity has not been accounted for. In an actual scenario the difference will be more significant.

For argument’s sake, if one replaces the cost of 9W LEDs by the actual M.R.P of ₹ 250, it still shows an expense of just ₹871 over 10 years as compared to ₹1635 for CFL and ₹4,289 for incandescent.

But the most interesting observation is this.

If one just takes the prices of the year 2014 when LEDs were “expensive” and do the same calculation.

It is observed that the LCC over a period of 10 years is almost the same as CFL and still much lower than an incandescent lamp. This just emphasizes the fact that the typical human mentality is to get bogged down by the initial cost of a new technology without analyzing the life cycle costing and making a poor choice. This is particularly true for new, resource efficient and clean technologies such as LEDs and solar power.

In the case of solar, people generally shoot it down assuming that it is very expensive. However, a solar power plant lasts for 25 years as compared to 5-6 years of a diesel genset. Taking into account the rising fuel prices, and genset maintenance expenses, it is clearly seen that a solar power plant is much cheaper. The same is the case with BEE star rated appliances. Although they are a tad bit expensive up front, they lead to an overall savings when one understands the life cycle costing.

In conclusion, adopting energy efficient technology is not an expense but an investment. One should always look into the LCC of an investment and compare it with existing conventional methods to get a true understanding. This will allow for faster adoption of energy efficient technology. Our country has its fair share of power woes and while the government is trying to do its part by offering subsidies and addressing power issues, it is up to the common man to be smart, understand the life cycle costs and make use of energy efficient technology.

A green supply chain is the key to surviving the competition

The time is 15:00 hours. The production in the factory is going on, business as usual. The assembly line is churning out piece after piece. The QC team is inspecting each piece and separating the good ones from the bad ones. The shop floor supervisor is on his rounds. But for a change, he is accompanied by the top members of the HR and Compliance departments. They are scouting the place for potential NCs (non-compliances) in order to fix them. This is NOT a usual activity. The HR head doesn’t come to the shop floor unless it is something very important.

Outside the building, there is a team of workers cleaning up and organizing the huge front lawn, the waste segregation area is being sorted and labelled too and the hazardous waste area is being improved upon and so on.

Is this usual practice? Perhaps not. Most likely the MD or a major customer is showing up for a visit (read: audit) the next day. Does this sound familiar?

Industries in India, particularly the MSMEs and the OEM ancillaries are known to adopt such last minute corrective measures when it comes to compliance and sustainability. Many of them look at environmental compliance (EHS) as a hurdle that affects their day-to-day production targets. Such industries often look at the corrective measures as something that is painful to do as a result of which, the steps taken are often half-hearted and are temporary fixes (till the so called audit gets over)

Times are changing. With the advent of our Hon’ble PM’s Make in India campaign, more and more international companies are looking to setup shop in India. These international players and many Indian OEMs understand the importance of monitoring the impact on the environment by their production processes. Natural resources are limited and big companies realize that they are going to survive the competition only if the resources being put into their activities are used judiciously with minimum environmental impact along with substantial efforts to give something back to the nature. The Government policies have evolved to ensure large corporations indulge in socially and environmentally benefiting activities. While Corporate Social Responsibility (CSR) initiatives take care of the latter i.e. giving back to the nature/community, the former requires an effort not just from the company but also from its entire supply chain.

In the case of large companies or brands, the task of production is outsourced to the MSMEs entirely or in parts. This is where the major chunk of resources are being used. Once the piece is checked, packed and shipped to the Brand, there is hardly any natural resource used. Perhaps just the fuel for transportation. Major international brands, who don’t have a retail presence in India, have their supply chain here. This is particularly true in the garments and accessories sector. This essentially means that products being made in this country are going around all across the world. They have to meet international standards not just in terms of product quality but also in terms of process responsibility. Therefore, the big companies target their supply chain. They enforce the international standards on these MSMEs. Those who comply, stay in the business while those who can’t, lose out. These MSMEs may in turn push their vendors to go green in their processes or change their vendors altogether. Indian OEMs who export their products need to meet international standards and have been known to conduct elaborate green vendor development campaigns encouraging their suppliers to adopt energy and water efficient technology along with a strong check on pollution and waste management.

Another point of view is at a national level. The factories in India or the ones that will get setup thanks to the Make in India campaign will be exploiting the resource within this country. They will be impacting the local environment here. By using the limited and critical resources in an irresponsible way, one is paving way for a day in future when most or all of the resources and raw materials will have to be bought from more expensive sources. This will shoot up production costs which is how one loses out in competition to start with. From a national perspective, all the Indian industries contribute to the GDP or in other words, in some way they are the supply chain of India. Just like they step up their efforts towards greener production for business with international brands, they have to step up their efforts for the future of the country and nature.

It’s an Investment, not an Expenditure

All these efforts will certainly lead to some expenditure on the supplier’s part. They might have to retrofit their boiler or tie up with an agency for handling their waste. But it is more of an investment because not only such measures make the factory resource efficient and lead to financial savings in operations, but they also ensure that the factory stays in competition by continued, if not more, business from the OEM.

A factory adopting green and sustainable production practices has a huge marketing instrument in its kitty. International brands coming into the country from setting up a supply chain will look for vendors who are better adhered to international standards. This makes their job easy and gives the factory an edge over others who might not be that compliant. One must look at these efforts as investment put into business development.

Some common steps for resource efficiency

When it comes to sustainable practices, it is important to understand that not all efforts require money. Most factories need simple steps to improve efficiency and reduce environmental impact. These are the low-hanging fruits which require little to no investment. Simple steps can lead to huge impacts, such as
-          Encouraging shop floor workers to switch off the lights of the floor during lunch, or
-          Asking the maintenance team to do regular checks on leaking water and steam fixtures.
-          Periodic maintenance of machines is a simple but very powerful step towards efficiency.
Preventive maintenance is always better than corrective maintenance. Large OEMs are known to take a week of shut down just to do thorough maintenance of their equipment.

Once the low –hanging fruits are harvested, one may look at upgrades requiring investment. Some steps are:
-          LED lighting in the factory
-          Energy efficient drives for pumps, motors and compressors
-          Heat recovery and Thermal storage and so on.

 Health and Safety

While resource efficiency is one part of the entire process, health of the workers and safe practices form the other components.
-    Ensure the workers are trained to work in a prescribed safe manner and the necessary paraphernalia is available (protective equipment, first aid kits etc.)
-          Form a small team with representatives from all departments and conduct internal audits monthly. Identify NCs and correct them and review them regularly.
-          Conducting regular third party trainings on Environment, Health and Safety gives a different perspective on the status of things within the factory.
-          Conduct regular fire safety and disaster management drills
-          Benchmark best practices from competitors and develop unique practices drawing inspiration across various sectors.

In conclusion, it is easy to make a product but not so easy to make the same thing in an environmentally responsible way. Those who can do it, survive.