Dan Vinton, Chief Financial Officer, Europe Middle East and Africa, GE Lighting shares in this latest blog entry how to rethink lighting as a service.

As the lighting industry continues to make the transformation from commodity lamp supplier to strategic lighting partner, the old financial structures and purchasing patterns are no longer fit for purpose.

I’ve written previously about the need for robust financing structures that meet the needs of the modern industry but as technological development continues to race ahead, perhaps what’s truly needed is a complete re-evaluation of the way light is procured in the first place.

Here is the latest from me on Lighting as a service:

Lighting has moved on considerably from the days when lamps were a commodity purchase with a routine schedule of maintenance and replacement factored into the chief financial officer’s yearly operational expenditure.

The introduction of LEDs, with their long lifespans, low maintenance requirements and reduced energy costs has led to a complete overhaul in the way customers procure lighting assets. Indeed, the very concept that lighting is an asset in the first place is in itself a relatively new idea – yet a properly designed and optimised lighting system can have a significant impact on an organisation’s financial bottom line.

This has left many CFOs looking for next-generation financing structures that enable both public and private sector organisations to capitalise on the continuous innovation being delivered by the LED industry.

While there’s no denying that LEDs have a higher up-front cost to install, the use of alternative funding structures such as Special Purchase Vehicles (SPVs) has opened up new ways for companies and municipalities to access lighting upgrades without stumping up the initial capital or taking on additional debt. Through the SPV, the end user leases the lighting assets for a fixed monthly fee and at the end of the lease term has the option of buying out the assets or returning them.

As LEDs offer such impressive energy savings – coupled with the reduction in maintenance costs – this structure is essentially self-funding, enabling customers to start making savings straight away. Even after financing, end users often benefit from net positive cash flows, something that is generally unheard of in most other financing structures.

(All images courtesy of GE)

While the SPV model has certainly made it possible for more organisations to access lighting upgrades, many of which may not have had the means to do so otherwise, the speed of LED evolution means that lighting partners need to re-evaluate what constitutes best value for their customers. In many cases, that means establishing a truly adaptable and upgradable funding mechanism that enables customers to keep pace with the next generation of lighting solutions.

This requires a complete change in focus for the lighting partner, moving towards a smarter service-based business model, rather than product-based solutions. This shift towards ‘lighting as a service’ contracts allows customers to reap all of the benefits of LED technology, without getting bogged down in the detail of owning and operating the lighting assets.

In this model customers pay a fee for the lighting service rather than taking on a traditional operating lease, which is installed, maintained and managed by the lighting partner for the term of the contract. The key benefit for the end user is that it removes the hassle and the risk – the supplier is obligated to ensure the lighting performs as required and the customer simply gets a guarantee that it’s going to work.

What’s more, the lighting partner provides just one point of contact for the customer with the system management all taking place behind the scenes. Offering a full turnkey solution, this type of service partner can supply the design, financing, installation, maintenance, monitoring and responsive performance adjustments (such as colour tuning and dimming.)

Perhaps the most significant aspect of this type of arrangement, however, is that it allows the service provider to bring upgradeability to the lighting, potentially enabling performance improvements to be made across the contract term. Therefore, as technology continues to develop, add-ons such as embedded WiFi, data gathering technology and smart software upgrades can be incorporated into the lighting provision as required.

For CFOs, the advantage of buying in an asset that continuously maximises on-going innovation without having to commit capital expenditure is clear. Using traditional financing models, each new technological innovation would require significant cap-ex outlay but the lighting service provision allows nominal upgrades to be completed within the existing operational expenditure of the lighting contract. It also opens up access to intelligent software such as GE’s Predix, giving open source access to the globe for the best possible application development.

In this way, the lighting begins to offer much more than simply energy and financial savings. It becomes a vehicle through which organisations can grow and develop their very core business through the application of smart services. For example, hotels can begin to offer seamless WiFi throughout their premises and achieve next-level monitoring of facilities and services, while retailers can implement intelligent positioning systems to improve their data intelligence and provide better customer service in-store. For municipalities, the possibilities are even wider reaching – with the potential for developing truly intelligent and responsive city environments that are fit for the future.

Technological innovation is continuously reshaping and redefining the possibilities lighting can offer. The old structures are no longer applicable and new business models and relationships are required. For businesses like GE, the shift towards becoming a strategic service partner is the next step on this journey – and offers customers the best possible outcome in the new digital era.