What Really Drives the 46% TCO Cut?

Ada re-derives this chapter’s own numbers step by step, at full precision

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Ada ADA · CALCULATION AUDIT

What Really Drives the 46% TCO Cut?

A campus facilities manager weighs two proposals for replacing 50,000 aging fixtures: buy the LEDs outright for a $31.75M 15-year total, or take Lighting-as-a-Service for $17.1M. That $14.65M gap is the headline 46% TCO cut, which the chapter credits primarily to energy savings rather than the eliminated $10M of upfront CapEx. So what really drives the 46% cut — the efficiency clause, or the avoided hardware bill?

Companion to the chapter Business Model Case Studies — every number here comes from that chapter.

Ada: The proposal lands on a 46% TCO reduction and credits energy as the primary driver. Both claims are checkable from the section’s own totals, so let me confirm the sums, then split the $14.65M savings into the piece energy actually contributes.

Totals first:

  • Proposal A: 10 + 3.75 + (1.2 x 15) = 10 + 3.75 + 18 = $31.75M
  • Proposal B: (0.540 x 15) + (0.6 x 15) = 8.1 + 9 = $17.1M
  • Savings: 31.75 - 17.1 = $14.65M
  • Reduction: 14.65 / 31.75 = 46.1%, matching the stated 46%

Now test the “energy is the primary driver” claim by decomposing that $14.65M:

  • Energy: 18 - 9 = $9.0M saved, which is 9.0 / 14.65 = 61.4% of the total
  • Everything else (A’s $10M hardware plus $3.75M maintenance = $13.75M, against B’s $8.1M service fee): 13.75 - 8.1 = $5.65M saved, which is 5.65 / 14.65 = 38.6%

So energy is indeed the larger share — 61.4% against 38.6% — and the Key Insight holds under arithmetic rather than assertion.

One caution for a careful reviewer: the parenthetical offered for A’s $1.2M/year energy line — “$0.12/kWh, 200W average per fixture, 12 hours/day” — does not reconcile with $1.2M. Across 50,000 fixtures those figures give 0.2 kW x 12 h x 365 x $0.12 x 50,000 = $5.26M/year; the stated $1.2M instead corresponds to about 46W per fixture. The TCO rests on the $1.2M input, so treat the bracketed parameters as illustrative and do not back-derive the energy line from them. The design lesson survives either way: because energy is 61% of the savings, this contract’s economics live or die on the guaranteed efficiency reduction, not on the eye-catching removal of the $10M upfront CapEx — so the 50%-energy commitment is the clause a reviewer should scrutinise hardest.

Every number above is taken from the chapter’s own material and re-derived step by step.