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How to determine if LED grow lights are a good investment

Based on the benefits controlled environment growers are experiencing with LED grow lights, a return on investment (ROI) analysis could help you decide how quickly the payback would be for your operation.

As LED grow lights continue to become more affordable, an increasing number of greenhouse growers and vertical farmers are considering whether the lights would benefit their production systems. Add to this the testimonials of growers who have installed LEDs and the positive results they’ve gotten with commercial horticultural crops has caused more growers to look at the efficiencies these lights have to offer.

Comparing investment options

“The information on return on investment (ROI) for LED grow lights would have application to any type of equipment growers would be looking to purchase,” said Nathan Farner, president and CEO at North Ridge Solutions Inc. in Dallas, Texas, who is an adviser to Hort Americas. “Growers would be using a business case modeling approach to determine full project costs of various solutions and to understand what it takes to implement those solutions.

“Comparing the savings or increased revenue related to these investments would enable growers to say which option or scenario makes the most sense for their operations. Growers would compare their options and determine how long it would take to recoup their investment. Whether it is installing LED lights or some other capital infrastructure for a greenhouse, this ROI analysis would apply.”

Farner said one of the advantages of determining the benefits of LED lights with a specific crop is growers should have an opportunity to see whether the lights provide the results desired.

“Growers who are seeking to prove the benefits of LED technology have the ability to do a portion of their operation to become comfortable with it and to validate the results before making a large capital expenditure,” he said. “Growers can conduct a trial in a fairly small area of their greenhouses to prove LEDs deliver the results they desire. After this testing it should be a relatively easy decision for most growers.”

Improved crops

Farner said when doing a business case analysis growers can look at the revenue side and the expense side.

“Looking at the revenue side for LED grow lights, this would include increased yields whether this is reducing the time to crop maturity of a crop like leafy greens or increasing the amount of produce from a long term crop like tomatoes and cucumbers,” he said. “There could also be increases in quality including size and/or number of fruit, taste and color. An example of this is red lettuce grown under LEDs, not only are there improvements in yields, but there is also an enhancement of the red pigment in the leaves. Growers who are able to increase crop yields and quality are able to continue to sell a consistent product at a consistent price year round.”

Nathan Farner at North Ridge Solutions Inc. said looking at the benefits of LED grow lights from the revenue side would include increased yields whether this is reducing the time to crop maturity or increasing the amount of produce.
Photos by Jessie Wood, State Fair of Texas

Farner said growers need to be sure they have a market for the increased product they are going to be able to produce by installing LEDs.

“In general that has not been an issue, especially considering the increased interest and demand for locally-grown food products,” he said. “LEDs are going to help improve the quality of the product and most customers are going to welcome that.

“If growers choose to quadruple the size of their greenhouse space carries a lot higher capital expenditure. In that case, the growers better be sure they have the market for the increased amount of product they are going to produce. Installing or replacing grow lights, that is less of a challenge to sell the additional amount of product based on my experience.”

Improved energy efficiency

Looking at the benefits of LEDs on the expense side Farner said this comes primarily from LEDs being more energy efficient than alternative lighting sources.

“On the expense side primarily what growers are looking at with LED lights is reducing their operating costs,” he said. “Comparing the electrical costs of other grow lights that aren’t as efficient, there should be a significant drop in electrical expenses by installing LEDs.

“When talking about the lighting model from an electrical perspective, it is more than just buying and installing the fixtures. Depending on the fixtures that are being installed, they may exceed the current power infrastructure for the electrical supply to the greenhouses. If this is the case, more electricity would be needed and would require an investment to increase the electrical infrastructure as well. Once growers understand their lighting plan and the electrical requirements for their facilities, they can determine their annual operating expenses.”

Identifying the best ROI

Farner said growers would need to work with commercial horticulture lighting suppliers like Hort Americas to develop a light plan for their operations. This plan would be based on a number of factors including the crops that will be grown, the light spectrum required for the plants, the amount of production space that will be lit, and the expected number of hours the lights would be operating.

Comparing the electrical costs of less efficient grow lights to LEDs, there should be a significant drop in electrical expenses by installing LEDs.

“Once growers know the number of fixtures it becomes fairly straight math to figure the cost of the fixtures along with the installation costs to determine the capital investment required up front,” he said. “Other components that would have to be considered include maintenance requirements and parts replacement.”

Farner said regardless of the type of equipment purchased, growers should be able to earn back their investment in three to five years.

“The shorter that timeframe the decision becomes much easier,” he said. “Just like with other businesses, growers making capital investments should be looking at the ones that offer the best payback. Growers should always be looking for new equipment, systems or efficiencies that increase yield, drive revenue faster or lower costs so that margins are higher. Growers working to find different ways to build efficiencies and reduce costs for their overall operation should be looking for those that have the fastest payback. Based on my experiences of working with growers, LED lighting is one of those investments where they can get those types of returns more quickly.”

For more: Nathan Farner, North Ridge Solutions Inc., (214) 507-8594; nfarner@northridgesolutions.com.

This article is property of Hort Americas and was written by David Kuack, a freelance technical writer in Fort Worth, TX.