LED UPGRADES WITHOUT SINKING FUNDS

Strata communities across Australia are facing a significant change in the availability of fluorescent lighting, with the manufacture, import and export of many mercury-containing fluorescent lamps being progressively phased out under Australia’s implementation of the Minamata Convention on Mercury.

Different types of fluorescent lamps have different phase-out dates, including dates at the end of 2026 and 2027. This does not mean existing compliant fluorescent lighting must be replaced by a particular date. However, as affected products are progressively removed from manufacture and import, the availability of replacement lamps is expected to reduce.

For many buildings, this presents both a challenge and an opportunity. Planning an LED transition can improve energy efficiency, reduce recurrent electricity costs and help body corporates better plan future expenditure.

Why LED Upgrades Matter Now

Upgrading to LED lighting is not simply about sustainability. With the progressive phase-out of many fluorescent products, body corporates should consider the future availability and cost of replacement lamps when planning maintenance and capital expenditure.

Key considerations include:

• The manufacture, import and export of many fluorescent lamp types are being progressively phased out, with applicable dates depending on the type of lamp.
• Replacement fluorescent products may therefore become increasingly difficult or expensive to source as existing supplies reduce.
• Electrical installation costs may increase over time due to labour, materials and increased demand for LED conversions.
• LED lighting can substantially reduce energy consumption, particularly when combined with sensors and appropriate lighting controls.
• Lower electricity consumption reduces recurrent operating expenditure and may provide greater flexibility when planning future body corporate budgets and capital works.

Many body corporates choose to upgrade lights gradually as existing lamps fail or funds become available. While this may minimise immediate expenditure, it can delay the financial benefits of a complete upgrade.

Funding Options to Improve Cashflow

Green funding models may allow a body corporate to complete an LED upgrade without an upfront capital contribution, with the project cost repaid over an agreed funding term.

Depending on the particular funding product, interest, establishment fees or other financing costs may apply. Committees should therefore consider the total amount repayable, rather than simply the initial project cost, and compare this against projected energy savings before entering any funding arrangement.

Subject to the particular proposal, this approach may allow committees to:

• Avoid immediately drawing down available sinking fund reserves.
• Complete a full LED upgrade rather than progressively replacing individual lights.
• Use reductions in electricity expenditure to assist with funding repayments.
• Reduce recurrent operating costs once the funding term has ended.
• Preserve available capital for other planned or necessary expenditure.

For Queensland body corporates, whether expenditure should be met from the administrative or sinking fund depends on the nature of that expenditure and the applicable regulation module. Capital or non-recurrent expenditure may generally be met from the sinking fund, while recurrent expenditure is met from the administrative fund.

What an LED Assessment Provides

An LED upgrade assessment can help a body corporate committee understand the financial and operational implications of transitioning from fluorescent lighting.

A typical assessment may include:

• A review of existing lighting types and running hours.
• Estimated energy savings from LED and sensor-controlled lighting.
• A projected return-on-investment period.
• Details of the proposed funding arrangement and total funding costs.
• A comparison of funding options and projected cashflow outcomes.
• An outline of estimated long-term electricity savings.

This information allows committees to compare the cost of retaining and progressively replacing existing lighting with the cost and potential savings associated with a complete LED upgrade.

Green-Funded LED Upgrade Example

Consider a lighting upgrade with an estimated four-year financial payback:

• Project cost: $30,000 lighting upgrade.
• Current lighting energy costs: $14,000 per annum.
• Estimated energy savings: $9,962 per annum, representing approximately a 71% reduction using LED lighting with sensors.

Actual results will depend on existing lighting, operating hours, electricity tariffs, equipment selected and the particular funding arrangement.

Where finance is used, the interest rate, fees, funding term and total amount repayable should also be included when calculating the actual financial return.

If the projected electricity savings are sufficient to substantially offset the funding repayments, a body corporate may be able to undertake the upgrade without a significant upfront capital outlay. Once the funding term ends, the body corporate continues to receive the benefit of the reduced electricity consumption.

*This example is general in nature and not financial advice. Committees should seek appropriate professional guidance before entering any funding arrangement.

Planning Ahead

The progressive phase-out of many fluorescent lamps is a timely reminder for strata communities to review their lighting infrastructure.

There is no general requirement for a body corporate to replace otherwise compliant existing fluorescent lighting by the end of 2027. Rather, the changes affect the manufacture, import and export of specified fluorescent products, which is expected to progressively affect replacement-product availability.

Planning ahead gives committees the opportunity to assess their existing lighting, investigate replacement options and compare the cost of an LED conversion against the potential energy savings before replacement becomes more difficult or urgent.

Making the Funding Decision

An LED upgrade should ultimately be considered in the same way as any other significant body corporate expenditure: based on the condition of the existing infrastructure, expected future costs, available funds, financing costs and the anticipated benefit to owners.

For example, if a body corporate had $40,000 available in its sinking fund and was considering both a $30,000 LED upgrade and $30,000 of planned painting works, it could consider whether financing the LED project would allow it to retain capital for the painting works rather than funding both projects immediately from available reserves.

The appropriate approach will depend on the scheme’s approved budgets, sinking fund forecast, other anticipated expenditure, the terms of any finance arrangement and the approvals required under the applicable body corporate legislation.

The objective is not simply to avoid using the sinking fund. It is to determine which funding approach produces the most appropriate overall financial outcome for the body corporate.

Article Contributed by Tony Arhanic, Queensland Sales Manager/Estimator at E&E Lighting Australia.

Supplier-contributed content. Information is general in nature and body corporate committees should obtain appropriate professional advice having regard to their individual circumstances.