LED Retrofit ROI: The Numbers UK SMEs Need Before They Commit

At Current UK Electricity Prices, Most Commercial LED Retrofits Pay Back in 18 Months to 4 Years. After That, the Saving Is Pure Margin.

LED lighting is one of the most straightforward energy efficiency investments available to UK SMEs — and one of the most consistently oversold. The technology is proven, the financial case is real, and in most commercial premises the payback period is short enough to make the investment rational at current electricity prices. But the LED retrofit market is also populated by sales organisations whose projections are optimistic, whose quoted savings don’t account for realistic usage patterns, and whose financing structures obscure the true cost of what is, fundamentally, a simple electrical upgrade.

This article gives you the actual numbers — by premises type, at current electricity prices — and the framework for evaluating a retrofit proposal before you commit.

The Baseline: What LED Actually Replaces and What It Saves

LED technology saves energy by generating equivalent light output at a fraction of the wattage of the technologies it replaces. The wattage reduction by technology type:

• Replacing T8 fluorescent tubes (36W) with LED tubes (18W): 50% wattage reduction per fitting
• Replacing T5 fluorescent (28W) with LED (14W): 50% wattage reduction
• Replacing metal halide high-bay (400W) with LED high-bay (150W): 62% wattage reduction
• Replacing halogen downlighter (50W) with LED GU10 (7W): 86% wattage reduction
• Replacing high-pressure sodium streetlight/floodlight (250W) with LED (80W): 68% wattage reduction

These are not marketing figures — they are the standard engineering specifications for current LED products replacing legacy technology. The wattage reduction is real and consistent across manufacturers.

The Calculation: ROI by Premises Type

The ROI calculation requires four inputs: number of fittings, wattage reduction per fitting, operating hours per year, and electricity unit rate. Here are worked examples for common UK SME premises types at a contracted electricity rate of 25p/kWh:

Office (200 fittings, T8 fluorescent → LED, 2,500 hours/year):

• Wattage saving per fitting: 18W
• Total annual saving: 200 × 0.018 × 2,500 = 9,000 kWh
• Financial saving: 9,000 × £0.25 = £2,250/year
• Retrofit cost (supply and install): £8,000–£14,000
• Payback: 3.6–6.2 years

Warehouse (150 fittings, 400W metal halide → 150W LED high-bay, 3,500 hours/year):

• Wattage saving per fitting: 250W
• Total annual saving: 150 × 0.25 × 3,500 = 131,250 kWh
• Financial saving: 131,250 × £0.25 = £32,813/year
• Retrofit cost: £35,000–£60,000
• Payback: 1.1–1.8 years

Retail unit (80 halogen downlighters + 40 fluorescent, mixed → LED, 3,000 hours/year):

• Average wattage saving: 35W per fitting across mixed estate
• Total annual saving: 120 × 0.035 × 3,000 = 12,600 kWh
• Financial saving: 12,600 × £0.25 = £3,150/year
• Retrofit cost: £6,000–£12,000
• Payback: 1.9–3.8 years

Restaurant (100 halogen fittings, 4,000 hours/year):

• Wattage saving per fitting: 43W
• Total annual saving: 100 × 0.043 × 4,000 = 17,200 kWh
• Financial saving: 17,200 × £0.25 = £4,300/year
• Retrofit cost: £8,000–£15,000
• Payback: 1.9–3.5 years

What the Salesperson’s Projection Might Miss

LED retrofit proposals from lighting companies frequently contain projections that make the ROI look better than the actual outcome. The most common issues:

Operating hours overstated: A retrofit proposal for an office might assume 4,000 operating hours per year (roughly 10 hours/day, 5 days/week, 52 weeks). If the office runs 8 hours/day for 48 weeks, the actual operating hours are 1,920 — less than half the assumed figure. The saving halves; the payback doubles. Ask the proposer to justify their operating hours assumption against your actual opening hours.

Existing wattage overstated: If the assessment of your current lighting is based on nameplate wattage rather than actual measured consumption, it may not account for the fact that older fluorescent fittings with ageing ballasts may already be consuming less than nameplate rating. The saving from replacement is therefore lower than projected.

Maintenance savings double-counted: LED manufacturers quote lamp lifetimes of 50,000–100,000 hours versus 8,000–15,000 hours for legacy technology. Proposals often include projected maintenance saving (reduced lamp replacement labour and materials) in the ROI calculation alongside energy saving. The maintenance saving is real, but it should be assessed separately and not conflated with the energy saving.

Electricity price assumed higher than contracted rate: Proposals that assume 30–35p/kWh when your contracted rate is 22p/kWh inflate the saving proportionally. Always insert your actual contracted unit rate into the calculation.

Controls: The Multiplier That Changes the Numbers

LED lighting combined with occupancy controls (PIR sensors) and daylight harvesting controls can reduce actual energy consumption by a further 20–40% beyond the wattage saving alone. An office with LED lighting and occupancy sensors that turn off lights in unoccupied areas captures the LED wattage saving AND eliminates consumption in spaces where lights would otherwise run while empty.

For premises with significant areas of variable occupancy — offices with meeting rooms, warehouses with low-traffic zones, car parks — occupancy controls typically add 15–25% to the energy saving relative to LED alone, with a modest additional capital cost of £1,000–£5,000 depending on site complexity.

If a retrofit proposal doesn’t mention controls, ask why. In most commercial premises, the combination of LED plus controls produces better ROI than LED alone.

Financing: Lease vs Purchase

LED retrofit proposals frequently come with financing options — asset finance leases, green loans, or “pay from savings” structures. These can make cash flow management easier but change the economics:

Outright purchase: Full capital cost upfront. Full saving from day one. After payback, 100% of the saving is retained by the business. Cheapest total cost option if capital is available.

Asset finance lease: Monthly payments spread over 3–5 years. The LED asset typically generates more saving than the monthly lease payment from the outset (positive cash flow from day one in most cases). At lease end, the asset is owned or can be purchased at residual value. Total cost is higher than outright purchase due to finance charges, but the cash flow profile is attractive for businesses that prefer to preserve working capital.

“Pay from savings” or managed service: The installer retains ownership of the lighting infrastructure. You pay a monthly service charge. Some structures provide genuine savings from day one; others lock you into long-term contracts where the total payment significantly exceeds the outright purchase cost. Read these contracts carefully, particularly the exit provisions.

The Telnergy LED Position

LED retrofit is one of the energy efficiency interventions we recommend most consistently for clients where the numbers stack up. We don’t install lighting — that’s not our business — but we assess LED proposals for clients and provide an independent view on whether the projected savings are realistic, the finance structure is appropriate, and the timing relative to the energy contract makes sense. For clients approaching a contract renewal, the LED saving reduces consumption and potentially improves the unit rate available from suppliers — the two interventions reinforce each other.

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Telnergy Limited • Independent Energy Consultants since 2002 • Ofgem TPI Registered • Christchurch, Dorset