Light Emitting Diodes Technology in Public Light ... - EconJournals.com

International Journal of Energy Economics and Policy ISSN: 2146-4553 available at http: www.econjournals.com International Journal of Energy Economics and Policy, 2017, 7(1), 200-208.

Light Emitting Diodes Technology in Public Light System of the Municipality of Rome: An Economic and Financial Analysis Domenico Campisi1, Simone Gitto2, Donato Morea3* Department of Industrial Engineering, University of Rome Tor Vergata, Via del Politecnico, 1, 00133 Rome, Italy, 2Department of Industrial Engineering, University of Rome Tor Vergata, Via del Politecnico, 1, 00133 Rome, Italy, 3Department of Industrial Engineering, University of Rome Tor Vergata, Via del Politecnico, 1, 00133 Rome, Italy. *Email: [email protected] 1

ABSTRACT This study evaluates an investment project concerning the redevelopment of the public lighting of the Municipality of Rome. In particular, we consider the replacing of the traditional lamps of the system with light emitting diodes lamps. We consider the factors that affect this kind of project: The cost of energy, the manteinance cost, the investment cost and the weighted average cost of capital. Our results underline the reduction of energy consumption and of the maintenance costs, lower emissions of CO2 into the atmosphere, the reduction of light pollution, the positive effects on road safety and the indipendence by incentives. Keywords: Light Emitting Diodes Technology, CO2 Emissions, Public Lighting JEL Classification: H54

1. INTRODUCTION In December 2008, the European Parliament approved the climate-energy package “Three times 20 for 2020,” to achieve the objectives that the European Union (EU) has set for the year 2020: The reduction of own CO2 emissions; the increase of 20% on the level of energy efficiency (reducing the final consumption by 20%, compared to the forecast for 2020); the increase on the share of use of renewable energy sources, reaching 20% of the total internal gross consumption of EU (European Parliament, 2008). The EU, in its programs on energy-reduction of CO2 emission, increases its overall efforts on the theme of energy sustainability, including the adoption of highly efficient technologies in publiclighting systems. At the moment, public lighting accounts for 2.3% of the global use of electricity, as well as up to 80% of the municipal use of electricity, and up to 60% of the municipal energy bill (Kostic and Djokic 2009; Orzáez and Díaz, 2013). As stated in a study carried out by the Andalusia Energy Agency (2011), in certain cases, the chances for consistent energy savings in the public lighting are high. These would allow the reduction in the 200

electricity use between 20% and 50%, requiring an investment that would be amortisable in WACC

(2)

In the following paragraphs, it will be calculated before energy consumption and costs of energy and maintenance of the

International Journal of Energy Economics and Policy | Vol 7 • Issue 1 • 2017

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Campisi, et al.: LED Technology in Public Light System of the Municipality of Rome: An Economic and Financial Analysis

Table 3: Annual energy consumption and annual total cost of energy of the current lighting system of the municipality of Rome Type of lamp

High pressure sodium lamp

Low pressure sodium lamp Metal halides lamp

Fluorescence mercury vapor lamp

Total

Watt lamp

∆ watt lamp (21.50%)

Total watt lamp

Hours/year kW/year lamp

Number of lamps

Total kW/year Unitary Annual cost of cost of energy energy (€/kW) lamp (€) 299,171.00 0.19 70

70

15.05

85.05

4332.00

368.44

812

100 150 250 400 35

21.5 32.25 53.75 86 7.525

121.5 182.25 303.75 486 42.525

4332.00 4332.00 4332.00 4332.00 4332.00

526.34 789.51 1315.85 2105.35 184.22

16,864.00 80,421.00 59,942.00 15,155.00 172

8,876,164.00 63,492,942.00 78,874,381.00 31,906,610.00 31,686.00

0.19 0.19 0.19 0.19 0.19

100 150.01 250.01 400.02 35

1,686,471.17 12,063,659.06 14,986,132.39 6,062,255.82 6,020.25

55 90 70

11.825 19.35 15.05

66.825 109.35 85.05

4332.00 4332.00 4332.00

289.49 473.7 368.44

37 147 1672.00

10,711.00 69,635.00 616,026.00

0.19 0.19 0.19

55 90 70

2035.09 13,230.56 117,044.94

100 150 250 35

21.5 32.25 53.75 7.525

121.5 182.25 303.75 42.525

4332.00 4332.00 4332.00 4332.00

526.34 789.51 1315.85 184.22

3041.00 4879.00 828 8611.00

1,600,594.00 3,852,005.00 1,089,520.00 1,586,304.00

0.19 0.19 0.19 0.19

100 150.01 250.01 35

304,112.83 731,880.88 207,008.74 301,397.72

125 250 400 1000.00

26.875 53.75 86 215

151.875 303.75 486 1215.00

4332.00 4332.00 4332.00 4332.00

0.19 0.19 0.19 0.19

125.01 32,876.39 250.01 45,001.90 400.02 3600.15 1000.04 12,000.51 3530.15 36,631,570.79

657.92 263 173,034.00 1315.85 180 236,852.00 2105.35 9 18,948.00 5263.38 12 63,161.00 18,579.73 193,045.00 192,797,741.00

Annual total cost of energy (€) 56,842.40

Source: Own elaboration

current system of public lighting of the Municipality of Rome (paragraph 4) and, subsequently, the cost of the investment needed to replace traditional technology with the LED technology and related energy consumption and costs of energy (paragraph 5), necessary for economic and financial evaluation of the project (paragraph 7).

4. ENERGY CONSUMPTION AND COST OF ENERGY AND MANTEINANCE OF THE CURRENT LIGHTING SYSTEM OF THE MUNICIPALITY OF ROME The annual energy consumption of the public lighting system of the municipality of Rome, calculated considering an average increase percentage of the rated power of the lamps to take account of the power dissipated by the accessories (igniter, reactor), estimated in 21.50%, amounts to 192,797,741 kW/year. The total annual cost of energy relative to the predicted lighting system - estimated considering an energy cost of 0.19 €/kW, based on hourly costs incurred by Municipality, inclusive of additional costs (dispatching, transport, line losses, etc.), at the cost of (pure) energy for single band issued by the Authority for Electricity and Gas, estimating an average - amounts to € 36,631,570.79 (Table 3). We consider a period of study equal to 12 years, which is the reasonable lifetime of a LED lamp. In fact, the expected lifetime of the commercial LED lamp is 50,000 h, which translates to 12 years 204

at a usage of 4167 h/year (daily usage of 11.4 h/day). During this lifetime in which the LED can be used, the current (traditional) lamps must be replaced 3.17 times, considering a lifetime of 12,000 h. This means that, on average, 26.4% of the traditional lamps must be replaced during a year. Therefore, the annual cost of traditional lamp substitution (considering the specific cost of a lamp) is 3,467,740 €/year. So, the annual valued cost that will have to support the municipality of Rome for the current system of public lighting, equipped with traditional lamps, amounts to €40,099,310.79 (=€36,631,570.79 + €3,467,740), equal to €/lamp 207.72.

5. COST OF INVESTMENT, ENERGY CONSUMPTION AND COST OF ENERGY OF THE LED LIGHTING SYSTEM OF THE MUNICIPALITY OF ROME The cost of incestiment to be incurred for the replacement of traditional lamps of the public lighting system of the municipality of Rome with LED lamps was determined by estimating, for each lamp (in relation to its type and location), the costs of interventions necessary for the removal of traditional lamps and related facilities, the supply and installation of equivalent LED lamps and their respective facilities with the installation of flow control light (dimmer function, that saves energy consumption, estimated on average in 15% for each lamp), the disposal of equipment no longer usable for the municipality, the adapting of



the existing electrical installation and the manpower to carry out the aforementioned work. By adding, for each LED lamp, the aforementioned costs, you get the cost of investment, amounted to €208,506,805 (Table 4). The annual energy consumption of the LED public lighting system of the municipality of Rome, calculated considering an average increase percentage of the rated power of the lamps to take account of the power dissipated, estimated in 12.00%, amounts to 58,030,380.89 kW/year, with an annual energysaving of 70%. The total annual cost of energy relative to the predicted lighting system - estimated considering an energy cost of 0.19 €/kW, based on hourly costs incurred by municipality, inclusive of additional costs (dispatching, transport, line losses, etc.), at the cost of (pure) energy for single band issued by the authority for electricity and gas, estimating an average - amounts to €11,025,772.37 (Table 5). So, the annual valued cost that would support the municipality of Rome with a LED system of public lighting amounts to €11,025,772.37, equal to €/lamp 57.12.

6. DATA SET The data for the economic and financial evaluation of the project are as follows: • Cost of investiment: €208,506,805 (that we assume fully financed with equity from the municipality of Rome); • Annual cost savings due to the reduction of the annual cost of electricity as a result of the substitution of traditional lamps with LED lamps (which leads to improved energy efficiency): €29,073,538.42 (=€40,099,310.79 - €11,025,772.37); • Annual incentive (White Certificates”), recognized to the municipality of Rome for the first 5 years, as

• •

it is obtained a saving of 134,767,360.09 kW/year (=192,797,740.98 kW/year - 58,030,380.89 kW/year) by replacing the traditional technology with LED technology: €2,520,151.32; Reference time interval (equal to the estimated useful life of LED technology): 12 years (approximately 50,000 h) (Nakamura, 2015); WACC = 6.9%, in reference to the rates of return on investment set by the authority for electricity and gas for the 2014-2015 period.

7. RESULTS AND DISCUSSION The financial analysis carried out shows a value of NPV =€27,494,115, much greater than zero, and an IRR = 9.53% and higher than the WACC (Table 6). Even repeating the analysis assuming no financial incentives (“White Certificates”), the results show an NPV >0 (=€23,650,910) and an IRR (=8.97%) >WACC, confirming the economic and financial compatibility of the intervention proposed with the expected savings and the indipendence by incentives (Table 7). The analyzes carried out showed that the replacement of traditional lamps of public lighting system of the municipality of Rome with equivalent LED lamps leads to an annual reduction of energy consumption amounts to 134,767,360.09 kW/year (=192,797,740.98 kW/year [annual energy consumption with traditional lamps] - 58,030,380.89 kW/year [annual energy consumption with LED lamps]) and an annual saving of energy costs amounting to €29,073,538.42 (=€40,099,310.79 [annual cost of energy with traditional lamps] - €11,025,772.37 [annual cost of energy with LED lamps]). Moreover, since each kWh that is generated and consumed produces emissions of CO2 in the atmosphere, in Italy estimated at about 531 g for each kWh produced, annual energy savings of 134,767,360.09 kW/year,

Table 4: Cost of investment of the LED lighting system of the municipality of Rome Type of lamp High pressure sodium lamp

Low pressure sodium lamp Metal halides lamp

Fluorescence mercury vapor lamp

Total

Watt lamp 70

LED lamp (equivalent) 22

Unitary cost €/armor 700

Number of LED lamps 812

Total cost armor (€) 568,400.00

100 150 250 400 35

30 60 90 150 9

850 975 1200.00 1635.00 450

16,864.00 80,421.00 59,942.00 15,155.00 172

14,334,400.00 78,410,475.00 71,930,400.00 24,778,425.00 77,400.00

55 90 70 100 150 250 35

15 24 45 60 90 155 20

650 700 850 975 1200.00 1635.00 700

37 147 1672.00 3041.00 4879.00 828 8,611.00

24,050.00 102,900.00 1,421,200.00 2,964,975.00 5,854,800.00 1,353,780.00 6,027,700.00

125 250 400 1000.00

70 135 215 537

1200.00 1635.00 2000.00 2500.00

263 180 9 12 193,045.00

315,600.00 294,300.00 18,000.00 30,000.00 208,506,805.00

Source: Own elaboration. LED: Light emitting diodes


205

206

Source: Own elaboration. LED: Light emitting diodes

Type of Watt LED lamp ∆ watt LED Total Hours/year kW/year Saving for kW/year lamp lamp (equivalent watt) lamp (12.00%) watt LED presence LED LED lamp of dimmer lamp with lamp function (15.00%) dimmer function High 70 22 2.64 24.64 4332.00 106.74 16.01 90.73 pressure sodium lamp 100 30 3.6 33.6 4332.00 145.56 21.83 123.72 150 60 7.2 67.2 4332.00 291.11 43.67 247.44 250 90 10.8 100.8 4332.00 436.67 65.5 371.17 400 150 18 168 4332.00 727.78 109.17 618.61 Low 35 9 1.08 10.08 4332.00 43.67 6.55 37.12 pressure sodium lamp 55 15 1.8 16.8 4332.00 72.78 10.92 61.86 90 24 2.88 26.88 4332.00 116.44 17.47 98.98 70 45 5.4 50.4 4332.00 218.33 32.75 185.58 Metal 100 60 7.2 67.2 4332.00 291.11 43.67 247.44 halides lamp 150 90 10.8 100.8 4332.00 436.67 65.5 371.17 250 155 18.6 173.6 4332.00 752.04 112.81 639.23 35 20 2.4 22.4 4332.00 97.04 14.56 82.48 125 70 8.4 78.4 4332.00 339.63 50.94 288.68

0.19 0.19 0.19 0.19

2,288.86 14,549.70 310,294.58 752,476.72 1,810,917.74 529,282.37 710,246.30 75,924.02

37 147 1672.00 3041.00 4879.00 828 8611.00 263

0.19 0.19 0.19 0.19

0.19 0.19 0.19 0.19 0.19

16,864.00 2,086,446.46 80,421.00 19,899,681.06 59,942.00 22,248,417.99 15,155.00 9,375,028.49 172 6,384.05

70.52 121.45 15.67 54.85

11.75 18.81 35.26 47.01

23.51 47.01 70.52 117.54 7.05

Number Total kW/year Unitary cost of Annual of LED energy (€/kW) cost of lamps energy LED lamp (€) 812 73,672.28 0.19 17.24

Table 5: Annual energy consumption and annual total cost of energy of the LED lighting system of the municipality of Rome

58,955.97 142,970.58 344,074.37 100,563.65

1,212.97 434.88 2,764.44

396,424.83 3,780,939.40 4,227,199.42 1,781,255.41

Annual total cost of energy with LED lamp (€) 13,997.73




•

Table 6: Financial analysis in the presence of the incentive (“White Certificates”) Data NPV (€) IRR (%)

Value 27,494,115 9.53

NPV: Net present value, IRR: Internal rate of return

Table 7: Financial analysis in the absence of the incentive (“White Certificates”) Data NPV (€) IRR (%)

Value 23,650,910 8.97

Source: Own elaboration. NPV: Net present value, IRR: Internal rate of return

• •

The reduction of light pollution, thanks to the directionality of LEDs; Positive effects on road safety, thanks to the advanced features of LED technology, which allow better visibility; The indipendence by incentives.

Although LED technology is becoming a cost effective solution for lighting projects, the investment costs are still a major barrier to their spread use and adequate evaluation models are necessary in order to encourage investments in this field. In this work we are not taken into consideration the flexibility of the project, the uncertainness due to price of the electricity and the modularity of the project. This is left to further studies.

resulting from the introduction of LED technology, involves significant savings in terms of CO2, equivalent to 71,561.47 tons. The significance of this study is related to different aspects: We have estimated the value of LED technology in the public lighting of the municipality of Rome; we have provided an reliable methodology for investors and policy-maker, and, from this point of view, this approach should be considered an integrated system that could be used to evaluate different projects of energy investments. A possible plan for implementing the redevelopment of public lighting system of the municipality of Rome would be to not introduce additional budgetary expenditure and to change the destination of the items of expenditure for energy and maintenance of the old lighting system.

8. CONCLUSIONS The transition from the old technology of the public lighting to the innovative LED technology is a great opportunity, with benefits safe and quantifiable: The economic growth of an important industrial sector, the reduction in public spending, the reduction of energy consumption and the reduction of the environmental pollution (Bierman, 2012; Falchi et al., 2011; Koo et al., 2014; Schleich et al., 2014). According to the prestigious McKinsey & Company, the global lighting market, which in 2010 was worth 69 billion Euro, in 2020 could reach 108 billion Euro (McKinsey & Company, 2012). The Italy has spent a lot of money for public lighting and, in view of the spending review, the redevelopment of its plants would achieve significant savings in energy consumption and maintenance costs, along with significant reductions of CO2 into the environment. The study, regarding the replacement of traditional lamps of the lighting system of the municipality of Rome with LED lamps, highlighted the economic and financial viability of the aforesaid redevelopment, with its return of cash flows and other related key advantages, such as: • The reduction of energy consumption and of the maintenance costs; • The safeguarding of the environment with lower emissions of CO2 into the atmosphere;

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