Using an LED Total Cost of Ownership Calculation: Part I
A competent and comprehensive total cost of ownership analysis amplifies a product’s relative strengths and weaknesses, informs the user on the economic realities of the technology, and lays the groundwork for managing the most costly physical asset of the farm over the long term.
That’s a lot to digest. Let’s start by defining what qualifies as a ‘competent and comprehensive’ TCO analysis.
Comprehensive is the harder of the two. It should include every cost related to the light system from its ‘cradle-to-cradle’ lifecycle, a term that includes recycling or disposing of the materials at the product’s end of life, and replacing it if the farm is expected to continue operating beyond the equipment’s expected life. Granted, some of these costs are going to be difficult to estimate, in particular those that require assumptions about the future. However, that should not dissuade you from attaching a cost to a future event as basic as replacing a light system that has passed its planned useful life. And industry measures like Lx and TM21 measures are intended specifically for this type of quantitative analysis.
Competent is easy to define. It means accurate, relevant and reliable metrics. Relevancy requires ‘normalization’ of the comparative data set. The best example of this is light intensity. Comparing three lights with intensities of 280 PPFD, 305 PPFD, and 350 PPFD is useless unless the three are ‘normalized’ to one another. Light vendors should supply a photometric model using a normalized intensity specified by the buyer. From that point, all the meaningful distinctions between the lights will begin to emerge, including the number of light fixtures required, the geometry of the configuration, relative energy consumption, and more. Other examples include elements like installation costs and maintenance that seem mundane but can be significantly different when examined closely. Installing five two-inch wide ‘light bars’ costs more than installing a light ‘panel’ that covers the same area. Maintenance of the two is very different as well. And never believe that LEDs don’t fail or have zero maintenance. In some instances, individual arrays within a light will fail which has a direct production impact if not replaced. And the simple process of frequent ‘surveillance’ of failed lights has a cost attribute. A light system that automatically notifies the operator of failures through the control system may carry a higher upfront cost but save thousands of dollars of maintenance expense.
And of course, your data source has to be reliable (objective and trustworthy). It may be your product vendor – especially if the share complete details of photometric models, L80 Certificates, IP Ratings, and provide documentation of electrical consumption. Or you may want to assess the reliability of the data yourself and use an independent ranking of products on these very data points like our LED Performance and Quality Rankings.
The Importance of a Comprehensive TCO Data Set
How great is the impact of these nuanced differences in products? In some instances it can be huge! If two products have a big spread in TM21 Ratings – an L70 vs L80 at 50,000 hours for example – you will likely be confronted with a choice of replacing the former a year earlier, or accept lower crop production and revenues. If you haven’t allocated capital for the event, the economic consequences are significant. You can go back to your investors and explain why you need more money, or explain to them why your revenues keep falling. I can promise you that will not be a pleasant conversation.
So the details do matter, and sometimes the devil is in the details. A good TCO will force them to the surface. In our next blog, we’ll drill down on the sensitivity / impact of each of the numerous components of an LED TCO calculation.